<PAGE> 1
Registration Nos. 33-49098
811-06719
As filed with the Securities and Exchange Commission
on December 26, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10
---------
BB&T MUTUAL FUNDS GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
800 228-1872
D'Ray Brewer, President and Secretary
BB&T Mutual Funds Group
3435 Stelzer Road, Columbus, Ohio 43219
--------------------------------------
(Name and Address of Agent for Service)
Copies of communications to:
Martin E. Lybecker, Esquire
Ropes & Gray
One Franklin Square, 1301 K Street, N.W. Washington, D.C. 20005
It is proposed that this filing will become effective (Check appropriate box)
immediately upon filing pursuant to paragraph (b)
-----
X on January 1, 1996 pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(i)
-----
on (date) pursuant to paragraph (a)(i)
-----
75 days after filing pursuant to paragraph (a)(ii)
-----
on (date) 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
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section (a)(1) of Rule
24f-2. Rule 24f-2 Notice for the Registrant's fiscal year ending September 30,
1995 was filed on or about November 30, 1995.
<PAGE> 2
CROSS REFERENCE SHEET
---------------------
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
--------------------------------------
CLASS A AND CLASS B SHARES
--------------------------
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page................................ Cover Page
Financial
Highlights.............................. Selected Per Share Data and Ratios;
Performance
Synopsis.................................. Fee Table
General Description
of Registrant........................... BB&T Mutual Funds Group;
Investment Objective and Policies;
Investment Restrictions; General
Information-Description of the
Group and Its Shares
Management of BB&T
Mutual Funds Group...................... Management of BB&T Mutual Funds
Group; General Information -
Custodian and Transfer Agent
Capital Stock and
Other Securities........................ BB&T Mutual Funds Group; How to
Purchase and Redeem Shares;
Dividends and Taxes; General
Information - Description of the
Group and its Shares; General
Information - Miscellaneous
Purchase of Securities
Being Offered........................... Valuation of Shares; How to
Purchase and Redeem Shares
Redemption or Repurchase.................. How to Purchase and Redeem Shares
Legal Proceedings......................... Inapplicable
</TABLE>
<PAGE> 3
LOGO
U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
Growth and Income Stock Fund
Balanced Fund
Small Company Growth Fund
CLASS A AND B SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED JANUARY 1, 1996
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Group............................................................................ 4
Fee Table............................................................................ 4
Financial Highlights................................................................. 7
Investment Objectives and Policies................................................... 11
Investment Restrictions.............................................................. 20
Valuation of Shares.................................................................. 22
How to Purchase and Redeem Shares.................................................... 22
Dividends and Taxes.................................................................. 32
Management of BB&T Mutual Funds Group................................................ 34
General Information.................................................................. 39
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 5
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public seven separate investment funds (each, a "Fund").
The Group also offers three separate investment Funds (the "Special Trust
Funds"), offering Trust Shares only, which are only available for purchase by
common trust funds managed by BB&T or its affiliates. Each Fund of the Group,
except for the Special Trust Funds, offers multiple classes of units of
beneficial interest ("Shares").
THE BB&T U.S. TREASURY MONEY MARKET FUND (the "U.S. Treasury Fund"), seeks
current income with liquidity and stability of principal, through investment
exclusively in short-term obligations issued or guaranteed by the U.S. Treasury,
some of which may be subject to repurchase agreements. The U.S. Treasury Fund
seeks to maintain a constant net asset value of $1.00 per share.
AN INVESTMENT IN THE U.S. TREASURY FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the
"Short-Intermediate Fund") seeks current income consistent with the preservation
of capital through investment in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, and high grade collateralized mortgage obligations.
THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND (the "Intermediate Bond Fund")
seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and North Carolina personal income tax. Normally, the
North Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE NORTH CAROLINA FUND IS A NON-DIVERSIFIED SERIES AND THEREFORE MAY INVEST
MORE THAN 5% OF ITS TOTAL ASSETS IN OBLIGATIONS OF ONE ISSUER.
THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund") seeks
capital growth, current income or both, through investment in stocks.
THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term capital
growth and produce current income through investment in a broadly diversified
portfolio of securities, including common stocks, preferred stocks and bonds.
THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies.
This Prospectus relates to the Class A Shares of the Group (formerly the
Investor Shares) and Class B Shares of the Group, which are offered to the
general public. Through a separate prospectus, the Group also offers Trust
Shares to BB&T and its affiliates for the investment of funds for which they act
in a fiduciary, advisory, agency, custodial or similar capacity. Additional
information about each of the Funds contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information and the prospectus relating to the Trust
Shares are available upon request without charge by writing to the Group or by
calling the Group at the telephone number shown above. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Group's Class A
and Class B Shares that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY, BB&T
FINANCIAL CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January 1, 1996.
<PAGE> 6
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group, (the "Group") a Massachusetts
business trust, is an open-end management investment company
which currently consists of seven separately managed
portfolios (each a "Fund"). The Group also offers three
separate investment Funds (the "Special Trust Funds"),
offering Trust Shares only, which are only available for
purchase by common trust funds managed by BB&T or its
affiliates. Each Fund, except for the Special Trust Funds,
offers to the public three classes of Shares: Class A, Class
B and Trust Class. As of the date of this prospectus,
however, Class B Shares were not yet being offered in the
Short-Intermediate Fund or the North Carolina Fund. Class B
Shares of the U.S. Treasury Fund will be issued only in
exchange for Class B Shares of any of the other Funds, or as
a temporary investment subject to a mandatory exchange out
of the U.S. Treasury Fund for Class B Shares of any of the
other Funds within two years of purchase. This prospectus
relates only to Class A and Class B Shares.
Investment Objective THE U.S. TREASURY FUND seeks current income with liquidity
and Policies................ and stability of principal through investing exclusively in
short-term obligations issued or guaranteed by the U.S.
Treasury, some of which may be subject to repurchase
agreements.
THE SHORT-INTERMEDIATE FUND seeks current income consistent
with the preservation of capital through investment in
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and high grade
collateralized mortgage obligations, some of which may be
subject to repurchase agreements.
THE INTERMEDIATE BOND FUND seeks current income consistent
with the preservation of capital through investment of at
least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or its instrumentalities,
some of which may be subject to repurchase agreements.
THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and North Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North
Carolina and its political subdivisions.
THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.
THE BALANCED FUND seeks to obtain long-term capital growth
and to produce current income through investment in a
broadly diversified portfolio of securities, including
common stocks, preferred stocks and bonds.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.
Investment Risks.............. Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of the
obligations in each Fund's portfolio, and market conditions.
An investment in the North Carolina Fund may involve special
risk considerations. (See "Other Investment Policies of the
North Carolina Fund".)
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
Offering Price................ The public offering price of the Class A Shares of the U.S.
Treasury Fund is equal to the Fund's net asset value per
Share, which the U.S. Treasury Fund will seek to maintain at
$1.00.
The public offering price of the Class A Shares of the
Short-Intermediate, Intermediate Bond, North Carolina,
Growth and Income, Balanced, and Small Company Growth Funds
is equal to that Fund's net asset value per Share plus the
applicable sales charge. The public offering price of the
Class B Shares is equal to the Fund's net asset value per
share. (See "HOW TO PURCHASE AND REDEEM SHARES-- Sales
Charge".)
Maximum Purchase.............. For Class A Shares there is no maximum purchase. For Class B
Shares the maximum purchase is $250,000. (See "HOW TO
PURCHASE AND REDEEM SHARES--Purchases of Class A and Class B
Shares.")
Minimum Purchase.............. For Class A and Class B Shares, there is a $1000 minimum
initial purchase with no minimum investment for subsequent
purchases. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Class A and Class B Shares.")
Investment Adviser............ Branch Banking and Trust Company, Raleigh, North Carolina.
Dividends..................... The U.S. Treasury, North Carolina, Short-Intermediate and
Intermediate Bond Funds declare dividends daily and pay such
dividends monthly. The Growth and Income and Balanced Funds
declare and pay dividends monthly. The Small Company Growth
Fund declares and pays dividends quarterly.
Distributor................... BISYS Fund Services, Columbus, Ohio.
</TABLE>
3
<PAGE> 8
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of seven series of units of beneficial interest
("Shares"), each representing interests in one of seven separate investment
funds (each a "Fund"). The Group also offers three separate investment Funds
(the "Special Trust Funds"), offering Trust Shares only, which are only
available for purchase by common trust funds managed by BB&T or its affiliates.
Each Fund, except for the Special Trust Funds, offers to the public three
classes of Shares: Class A, Class B and Trust Class. As of the date of this
prospectus, however, Class B Shares were not yet being offered in the
Short-Intermediate Fund or the North Carolina Fund. Class B Shares of the U.S.
Treasury Fund will be issued only in exchange for Class B Shares of any of the
other Funds, or as a temporary investment subject to a mandatory exchange out of
the U.S. Treasury Fund for Class B Shares of any of the other Funds within two
years of purchase.
FEE TABLE
The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Class A and Class B Shares of the Funds will bear, either
directly or indirectly.
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE INTERMEDIATE BOND
U.S. TREASURY FUND FUND FUND
-------------------- ------------ --------------------
CLASS A CLASS B CLASS A CLASS A CLASS B
------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)........................ 0% 0% 2.00% 4.50% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price)...................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable).......................................... 0% 5.00% 0% 0% 5.00%
Redemption Fees (as a percentage of amount reduced, if
applicable)(2)....................................... 0% 0% 0% 0% 0%
Exchange Fee........................................... $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee reductions)....... .40% .40% .50%(3) .50%(3) .50%(3)
12b-1 Fees (after voluntary fee reductions)(4)......... .25% 1.00% .25% .25% 1.00%
Other Expenses (after voluntary fee reductions)(5)..... .33% .33% .42% .34% .34%
------- ------- ------ ------- -------
Total Fund Operating Expenses (after voluntary fee
reductions)(6)....................................... .98% 1.73% 1.17% 1.09% 1.84%
======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
NORTH
CAROLINA GROWTH AND INCOME SMALL COMPANY
FUND FUND BALANCED FUND GROWTH FUND
------- ------------------ ------------------ ------------------
CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).............. 2.00% 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)..................................... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)................... 0% 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of amount
reduced, if applicable)(2)................. 0% 0% 0% 0% 0% 0% 0%
Exchange Fee................................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions)................................ .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)(4)............................. .15% .25% 1.00% .25% 1.00% .25% 1.00%
Other Expenses (after voluntary fee
reductions(5).............................. .40% .32% .32% .42% .42% 1.25% 1.25%
------- ------- ------- ------- ------- ------- -------
Total Fund Operating Expenses (after
voluntary fee reductions)(6)............... 1.05% 1.07% 1.82% 1.17% 1.92% 2.50% 3.25%
======= ======= ======= ======= ======= ======= =======
</TABLE>
4
<PAGE> 9
- ---------------
1 A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Class A Shares or Class B
Shares, respectively, of a Fund. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Class A and Class B Shares" and "HOW TO PURCHASE AND
REDEEM SHARES--Exchange Privilege.")
2 A wire redemption charge (currently $7.00) may be deducted from the amount of
a wire redemption payment made at the request of a shareholder. (See "HOW TO
PURCHASE AND REDEEM SHARES--Redemption by Telephone.")
3 Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through September
30, 1996. Absent the voluntary reduction of investment advisory fees,
Management Fees as a percentage of average daily net assets for Class A and
Class B Shares would be .60% for the Intermediate Bond, Short-Intermediate and
North Carolina Funds and .74% for the Growth and Income and Balanced Funds.
4 BISYS Fund Services has agreed with the Group to voluntarily reduce the amount
of its distribution fee for Class A Shares. Absent the voluntary fee reduction
of distribution fees, 12b-1 Fees as a percentage of average daily net assets
would be .50% for Class A Shares for each Fund. (See "MANAGEMENT OF BB&T
MUTUAL FUNDS GROUP--Distributor.")
5 With respect to Class B Shares of each Fund, "Other Expenses" are based on
estimated amounts for the current fiscal year. Absent voluntary fee
reductions, "Other Expenses" as a percentage of average daily net assets for
Class A Shares would be .34% for the U.S. Treasury Fund, .48% for the
Short-Intermediate Fund, .40% for the Intermediate Bond Fund, .53% for the
North Carolina Fund, .36% for the Growth and Income Fund, .47% for the
Balanced Fund and 1.34% for the Small Company Growth Fund. Absent voluntary
fee reductions, "Other Expenses" as a percentage of average daily net assets
for Class B Shares would be .34% for the U.S. Treasury Fund, .40% for the
Intermediate Bond Fund, .37% for the Growth and Income Fund, .47% for the
Balanced Fund and 1.34% for the Small Company Growth Fund.
6 As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of investment advisory and distribution fees,
Total Fund Operating Expenses for Class A Shares, as a percentage of average
daily net assets would be 1.24% for the U.S. Treasury Fund, 1.58% for the
Short-Intermediate Fund, 1.50% for the Intermediate Bond Fund, 1.63% for the
North Carolina Fund, 1.60% for the Growth and Income Fund, 1.71% for the
Balanced Fund, and 2.84% for the Small Company Growth Fund. Absent the
voluntary reduction of investment advisory fees, Total Fund Operating Expenses
for Class B Shares, as a percentage of average daily net assets, would be
1.74% for the U.S. Treasury Fund, 2.00% for the Intermediate Bond Fund, 2.11%
for the Growth and Income Fund, 2.21% for the Balanced Fund and 3.34% for the
Small Company Growth Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Class A
Shares of the Funds, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund...................... $ 10 $ 31 $ 54 $120
Short-Intermediate Fund................. $ 32 $ 56 $ 83 $159
Intermediate Bond Fund.................. $ 56 $ 78 $ 102 $172
North Carolina Fund..................... $ 30 $ 53 $ 77 $146
Growth and Income Fund.................. $ 55 $ 78 $ 101 $170
Balanced Fund........................... $ 56 $ 80 $ 106 $181
Small Company Growth Fund............... $ 69 $ 119
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Class B
Shares of the Funds, assuming (1) deduction of the applicable Contingent
Deferred Sales Charge; and (2) 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
U.S. Treasury Fund
Assuming a complete redemption at end of period........... $ 68 $ 84
Assuming no redemption.................................... $ 18 $ 54
Intermediate Bond Fund
Assuming a complete redemption at end of period........... $ 69 $ 88
Assuming no redemption.................................... $ 19 $ 58
Growth and Income Fund
Assuming a complete redemption at end of period........... $ 68 $ 87
Assuming no redemption.................................... $ 18 $ 57
Balanced Fund
Assuming a complete redemption at end of period........... $ 69 $ 90
Assuming no redemption.................................... $ 19 $ 60
Small Company Growth Fund
Assuming a complete redemption at end of period........... $ 83 $ 130
Assuming no redemption.................................... $ 33 $ 100
</TABLE>
The purpose of the table above is to assist a potential investor in the Funds
in understanding the various costs and expenses that an investor in the Class A
Shares or Class B Shares of each Fund will bear directly or indirectly. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete discussion
5
<PAGE> 10
of annual operating expenses of each Fund. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Class A Shares and Class B Shares may pay more than
the equivalent of the maximum front-end sales charges otherwise permitted by
NASD Rules.
The information set forth in the foregoing tables and examples relates only to
Class A and Class B Shares. The Group also offers Trust Shares of each Fund
which are subject to the same expenses except that there are no sales charges
nor distribution costs charged to Trust Shares. (See "MANAGEMENT OF BB&T MUTUAL
FUNDS"--"Investment Adviser" and "Administrator and Distributor.")
6
<PAGE> 11
FINANCIAL HIGHLIGHTS
The table below sets forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information has
been audited by KPMG Peat Marwick LLP, independent accountants for the Group,
whose report on the Group's financial statements for the period ended September
30, 1995 is included in the Statement of Additional Information.
The Class A Shares (formerly the Investor Shares) and Trust Shares of each
Fund (other than the Balanced Fund and the Small Company Growth Fund, which had
not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. No information is provided for Class B
Shares, which had not commenced operations as of the date of this prospectus.
Information regarding the Trust Shares can be obtained in a separate prospectus
by writing to the Group at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling
(800) 228-1872.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
CLASS A CLASS A CLASS A
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........................ 0.047 0.027 0.026
------- ------- -------
Total from Investment Activities........... 0.047 0.027 0.026
------- ------- -------
DISTRIBUTIONS
Net investment income........................ (0.047) (0.027) (0.026)
------- ------- -------
Total Distributions........................ (0.047) (0.027) (0.026)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 1.00 $ 1.00 $ 1.00
================== ================== =====================
Total Return................................... 4.81% 2.76% 2.60%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).............. $13,948 $ 1,486 $ 279
Ratio of expenses to average net assets...... 0.98% 0.94% 0.51%(c)
Ratio of net investment income average net
assets..................................... 4.81% 2.89% 2.58%(c)
Ratio of expenses to average net assets*..... 1.24% 1.32% 1.32%(c)
Ratio of net investment income to average net
assets*...................................... 4.55% 2.51% 1.77%(c)
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
7
<PAGE> 12
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ----------------------
CLASS A CLASS A CLASS A
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.60 $ 10.29 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.53 0.50 0.47
Net realized and unrealized gains (losses) on
investments.................................. 0.29 (0.68) 0.30
------- ------- -------
Total from Investment Activities........... 0.82 (0.18) 0.77
------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.54) (0.50) (0.48)
Net realized gains............................. (0.01)
------- ------- -------
Total Distributions........................ (0.54) (0.51) (0.48)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 9.88 $ 9.60 $ 10.29
======= ======= =======
Total Return (excludes sales charge)............. 8.74% (1.86%) 7.80%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $ 7,102 $10,345 $ 14,915
Ratio of expenses to average net assets........ 1.17% 0.89% 0.56%(c)
Ratio of net investment income average net
assets....................................... 5.50% 5.01% 5.43%(c)
Ratio of expenses to average net assets*....... 1.58% 1.58% 1.56%(c)
Ratio of net investment income to average net
assets*...................................... 5.09% 4.32% 4.42%(c)
Portfolio turnover (d)........................... 106.81% 7.06% 14.06%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ----------------------
CLASS A CLASS A CLASS A
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.33 $ 10.39 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.59 0.59 0.63
Net realized and unrealized gains (losses) on
investments.................................. 0.55 (1.04) 0.39
------- ------- -------
Total from Investment Activities........... 1.14 (0.45) 1.02
------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.59) (0.59) (0.63)
Net realized gains............................. (0.02)
------- ------- -------
Total Distributions........................ (0.59) (0.61) (0.63)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 9.88 $ 9.33 $ 10.39
======= ======= =======
Total Return (excludes sales charge)............. 12.63% (4.48%) 10.53%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $ 5,173 $ 6,772 $ 5,238
Ratio of expenses to average net assets........ 1.09% 0.96% 0.59%(c)
Ratio of net investment income to average net
assets....................................... 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net assets*....... 1.50% 1.56% 1.55%(c)
Ratio of net investment income to average net
assets*...................................... 5.81% 5.43% 5.30%(c)
Portfolio turnover (d)........................... 68.91% 0.38% 15.27%
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
8
<PAGE> 13
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ----------------------
CLASS A CLASS A CLASS A
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.78 $ 10.29 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.36 0.36 0.36
Net realized and unrealized gains (losses) on
investments.................................. 0.37 (0.50) 0.29
------- ------- -------
Total from Investment Activities........... 0.73 (0.14) 0.65
------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.36) (0.36) (0.36)
Net realized gains............................. (0.01)
------- ------- -------
Total Distributions........................ (0.36) (0.37) (0.36)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 10.15 $ 9.78 $ 10.29
======= ======= =======
Total Return (excludes sales charge)............. 7.61% (1.33)% 6.60%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $ 8,717 $11,083 $ 13,695
Ratio of expenses to average net assets........ 1.05% 0.75% 0.43%(c)
Ratio of net investment income to average net
assets....................................... 3.63% 3.63% 3.80%(c)
Ratio of expenses to average net assets*....... 1.63% 1.66% 1.77%(c)
Ratio of net investment income to average net
assets*...................................... 3.05% 2.72% 2.45%(c)
Portfolio turnover (d)........................... 9.38% 0.56% 5.92%
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ----------------------
CLASS A CLASS A CLASS A
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 11.26 $ 11.26 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.25 0.25 0.28
Net realized and unrealized gains on
investments.................................. 1.98 0.12 1.27
------- ------- -------
Total from Investment Activities........... 2.23 0.37 1.55
------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.25) (0.26) (0.29)
Net realized gains............................. (0.12) (0.11)
In excess of net realized gains................ (0.15)
------- ------- -------
Total Distributions........................ (0.52) (0.37) (0.29)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 12.97 $ 11.26 $ 11.26
======= ======= =======
Total Return (excludes sales charge)............. 20.62% 3.33% 15.72%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $10,842 $ 7,973 $ 6,009
Ratio of expenses to average net assets........ 1.07% 0.92% 0.63%(c)
Ratio of net investment income to average net
assets....................................... 2.15% 2.26% 2.85%(c)
Ratio of expenses to average net assets*....... 1.60% 1.65% 1.68%(c)
Ratio of net investment income to average net
assets*...................................... 1.62% 1.52% 1.81%(c)
Portfolio turnover (d)........................... 8.73% 21.30% 27.17%
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
9
<PAGE> 14
<TABLE>
<CAPTION>
BALANCED FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 1, 1993 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ----------------------
CLASS A CLASS A CLASS A
-------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.76 $ 10.20 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.44 0.38 0.08
Net realized and unrealized gains (losses) on
investments.................................. 1.27 (0.44) 0.21
------- ------- -------
Total from Investment Activities........... 1.71 (0.06) 0.29
------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.43) (0.38) (0.09)
------- ------- -------
Total Distributions........................ (0.43) (0.38) (0.09)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 11.04 $ 9.76 $ 10.20
======= ======= =======
Total Return (excludes sales charge)............. 18.00% (0.64%) 2.88%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $ 9,257 $ 8,560 $ 2,569
Ratio of expenses to average net assets........ 1.17% 0.98% 0.50%(c)
Ratio of net investment income to average net
assets....................................... 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net assets*....... 1.71% 1.75% 2.00%(c)
Ratio of net investment income to average net
assets*...................................... 3.73% 3.25% 2.89%(c)
Portfolio turnover (d)........................... 23.68% 12.91% 8.32%
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH
FUND
----------------------
DECEMBER 7, 1994 TO
SEPTEMBER 30, 1995(A)
----------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................................... $ 10.00
Investment Activities
Net investment loss........................................................................ (0.08)
Net realized and unrealized gains on investments........................................... 4.61
-------
Total from Investment Activities....................................................... 4.53
-------
NET ASSET VALUE, END OF PERIOD............................................................... $ 14.53
=======
Total Return (excludes sales charge)......................................................... 45.30% (b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................................................ $ 1,096
Ratio of expenses to average net assets.................................................... 2.50% (c)
Ratio of net investment loss to average net assets......................................... (1.56%)(c)
Ratio expenses to average net assets*...................................................... 2.84% (c)
Ratio of net investment income to average net assets....................................... (1.90%)(c)
Portfolio turnover (d)....................................................................... 46.97%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were reimbursed by the Adviser. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
10
<PAGE> 15
INVESTMENT OBJECTIVES AND POLICIES
U.S. TREASURY FUND
The investment objective of the U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term United States dollar-denominated obligations issued or guaranteed by
the U.S. Treasury, some of which may be subject to repurchase agreements.
All instruments in which the U.S. Treasury Fund invests are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940. All instruments in which the Fund invests will
have remaining maturities of 397 days or less, although instruments subject to
repurchase agreements and certain variable or floating rate obligations may bear
longer maturities. The average dollar weighted maturity of the securities in the
U.S. Treasury Fund will not exceed 90 days. Obligations purchased by the U.S.
Treasury Fund are limited to U.S. dollar-denominated obligations which the Board
of Trustees has determined present minimal credit risks. See "VALUATION OF
SHARES" and the Statement of Additional Information for further explanation of
the amortized cost valuation method.
THE FIXED INCOME FUNDS
The investment objective of both the Short-Intermediate Fund and the
Intermediate Bond Fund (collectively the "Fixed Income Funds") is to seek
current income consistent with the preservation of capital. The
Short-Intermediate Fund will invest primarily in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase agreements, or in high
grade collateralized mortgage obligations ("CMOs"). At least 65% of the
Short-Intermediate Fund's assets will be invested in U.S. Government Securities.
The dollar-weighted average portfolio maturity of the Short-Intermediate Fund
will be from two to five years. The Intermediate Bond Fund will also invest
primarily in U.S. Government Securities, and at least 65% of its total assets
will be invested in bonds. Bonds for this purpose will include both bonds
(maturities of ten years or more) and notes (maturities of one to ten years) of
the U.S. Government. The dollar-weighted average portfolio maturity of the
Intermediate Bond Fund will be from five to ten years. CMOs will be considered
bonds for this purpose if their expected average life is comparable to the
maturity of other bonds eligible for purchase by the Fixed Income Funds. The
Fixed Income Funds may also invest in short-term obligations, commercial bonds
and the shares of other investment companies.
Bonds, notes and debentures in which the Fixed Income Funds may invest may
differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether invest-
11
<PAGE> 16
ment in the North Carolina Fund would be suitable for them.
THE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to seek capital growth,
current income or both, primarily through investment in stocks. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Growth and Income Fund's investments, the net asset value
per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.
The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.
The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
12
<PAGE> 17
invested in the instruments described below and under "Specific Investment
Policies."
Smaller, less seasoned companies may be subject to greater business risk than
larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.
ALL FUNDS
The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous.") There can be, of course, no
assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of the
Short-Intermediate, Intermediate Bond, North Carolina, Growth and Income,
Balanced, and Small Company Growth Funds (collectively, the "Variable NAV
Funds"), the net asset value per Share of each Variable NAV Fund will fluctuate.
SPECIFIC INVESTMENT POLICIES
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. A Fund
will enter into repurchase agreements for the purposes of maintaining liquidity
and obtaining favorable yields. Under the terms of a repurchase agreement, a
Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Bank, National Association ("PNC Bank") (the
Small Company Growth Fund's investment sub-adviser) with respect to the Small
Company Growth Fund). Except as described in the Statement of Additional
Information, there is no aggregate limitation on the amount of a Fund's total
assets that may be invested in instruments which are subject to repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, each Fund may
borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.
WHEN-ISSUED SECURITIES
Each of the Funds except the U.S. Treasury Fund may purchase securities on a
when-issued or delayed-delivery basis. In addition, the Small Company Growth
Fund may sell securities on a "forward commitment" basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. When a Fund agrees to purchase securities on a
when-issued basis, the Fund's custodian must set aside cash or liquid Fund
securities equal to the
13
<PAGE> 18
amount of that commitment in a separate account and may be required to
subsequently place additional assets in the separate account to maintain
equivalence with the Fund's commitment. The ability to purchase when-issued
securities will provide a Fund with the flexibility of participating in new
issues of government securities, particularly mortgage-related securities. Prior
to delivery of when-issued securities, the securities are subject to
fluctuations in value, and no income accrues until their receipt. A Fund engages
in when-issued and delayed-delivery transactions only with the intent of
acquiring Fund securities consistent with its investment objective and policies,
and not for investment leverage. In when-issued and delayed-delivery
transactions, the Funds rely on the seller to complete the transaction; its
failure to do so may cause a Fund to miss a price or yield considered to be
advantageous. A Fund expects that commitments by a Fund to purchase when-issued
securities will not exceed 25% of the value of its assets under normal market
conditions.
SHORT-TERM OBLIGATIONS
Each of the Funds except the U.S. Treasury Fund may invest in high quality,
short-term obligations (with maturities of 12 months or less) such as domestic
and foreign commercial paper (including variable-amount master demand notes),
bankers' acceptances, certificates of deposit and demand and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
agreements. Such investments will be limited to those obligations which, at the
time of purchase, (i) possess one of the two highest short-term ratings from at
least two nationally recognized statistical rating organizations ("NRSROs") (for
example, commercial paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2" by
Moody's), or (ii) do not possess a rating (i.e., are unrated) but are determined
by BB&T (or PNC Bank, with respect to the Small Company Growth Fund) to be of
comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund
and the Small Company Growth Fund will limit its investment in short-term
obligations to 35%.
Each of the Fixed Income Funds, the Growth and Income Fund, and the Small
Company Growth Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T (or, in the case of the Small Company Growth Fund, PNC Bank),
these investments may constitute 100% of such Funds' portfolio and, in such
circumstances, will constitute a temporary suspension of such Funds' attempts to
achieve their investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of the
Short-Intermediate and Intermediate Bond Funds. The Growth and Income Fund, the
Balanced Fund, and the Small Company Growth Fund may also invest in U.S.
Government Securities. The types of U.S. Government Securities in which these
Funds will invest include obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government, such
as Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by the agencies or instrumentalities of the
U.S. Government, but not supported by such full faith and credit. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks, or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or
14
<PAGE> 19
average life of a particular issue of pass-through certificates. Prepayments are
important because of their effect on the yield and price of the securities.
During periods of declining interest rates, such prepayments can be expected to
accelerate, and the Funds would be required to reinvest the proceeds at the
lower interest rates then available. In addition, prepayments of mortgages which
underlie securities purchased at a premium may not have been fully amortized at
the time the obligation is repaid. As a result of these principal prepayment
features, mortgage-backed pass-through securities are generally more volatile
investments than other U.S. Government Securities.
The Short-Intermediate, Intermediate Bond, Growth and Income, Balanced and
Small Company Growth Funds may also invest in "zero coupon" U.S. Government
Securities. These securities tend to be more volatile than other types of U.S.
Government Securities. Zero coupon securities are debt instruments that do not
pay current interest and are typically sold at prices greatly discounted from
par value. The return on a zero coupon obligation, when held to maturity, equals
the difference between the par value and the original purchase price.
The U.S. Treasury Fund may invest in U.S. Government Securities to the extent
that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund may invest in U.S. Government Securities in
connection with the purchase of taxable obligations (as described below).
COLLATERALIZED MORTGAGE OBLIGATIONS
Each of the Fixed Income Funds, the Growth and Income Fund, the Balanced Fund
and the Small Company Growth Fund may also invest in collateralized mortgage
obligations ("CMOs"). CMOs are mortgage-related securities which are structured
on pools of mortgage pass-through certificates or mortgage loans. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not fully developed. Stripped mortgage securities issued or
guaranteed by the U.S. Government and held by a Fund may be considered liquid
securities pursuant to guidelines established by the Group's Board of Trustees.
The Funds will not purchase a stripped mortgage security that is illiquid if, as
a result thereof, more than 15% of the value of the
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<PAGE> 20
Fund's net assets would be invested in such securities and other illiquid
securities.
Unless stated otherwise, each Fund will limit its investment in CMOs to 25% of
the value of its total assets.
COMMERCIAL BONDS
The Growth and Income Fund, the Small Company Growth Fund, and the Fixed
Income Funds may invest up to 35% of their assets, and the Balanced Fund also
may invest in bonds, notes and debentures of a wide range of U.S. corporate
issuers. Debentures represent unsecured promises to pay, while notes and bonds
may be secured by mortgages on real property or security interests in personal
property.
Bonds, notes and debentures in which the Growth and Income Fund, the Balanced
Fund, and the Small Company Growth Fund may invest may differ in interest rates,
maturities and times of issuance and may include CMOs (which are described
above).
The Growth and Income Fund, the Balanced Fund, the Small Company Growth Fund,
and the Fixed Income Funds will invest only in bonds, notes, and debentures
which are rated at the time of purchase within the three highest rating groups
assigned by an NRSRO (for example, at least A by Moody's or S&P), or, if
unrated, which BB&T (or PNC Bank, with respect to the Small Company Growth Fund)
deems to be of comparable quality. The applicable ratings are described in the
Appendix to the Statement of Additional Information. In the event that the
rating of any debt securities falls below the third highest rating category,
these Funds will not be obligated to dispose of such obligations and may
continue to hold such obligations if, in the opinion of BB&T (or PNC Bank, with
respect to the Small Company Growth Fund), such investment is considered
appropriate under the circumstances.
COVERED CALL OPTIONS
The Growth and Income Fund, the Balanced Fund, and the Small Company Growth
Fund may engage in writing call options from time to time as BB&T (or PNC Bank,
with respect to the Small Company Growth Fund) deems to be appropriate. Options
are written solely as covered call options (options on securities owned by the
Fund). Such options must be listed on a national securities exchange and issued
by the Options Clearing Corporation. In order to close out an option position, a
Fund will enter into a "closing purchase transaction"--the purchase of a call
option on the same security with the same exercise price and expiration date as
any call option which it may previously have written. Upon the sale of a
portfolio security upon which it has written a covered call option, a Fund must
effect a closing purchase transaction so as to avoid converting a covered call
into a "naked call," i.e., a call option on a security not owned by the Fund. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise. When writing a covered call option, a
Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price but retains
the risk of loss should the price of the security decline.
FUTURES CONTRACTS
The Small Company Growth Fund may invest in futures contracts for hedging
purposes or for other purposes so long as aggregate initial margins and premiums
required for non-hedging positions do not exceed 5% of its net assets, after
taking into account any unrealized profits and losses on any such contracts into
which it has entered. The Small Company Growth Fund may not sell futures
contracts to hedge more than its total assets unless immediately after any such
transaction the aggregate amount of margin deposits on its existing futures
positions does not exceed 5% of its total assets.
To enter into a futures contract, the Small Company Growth Fund must make a
deposit of initial margin with its custodian in a segregated account in the name
of its futures broker. Subsequent payments to or from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
security or index fluctuates, making the long and short positions in the futures
contracts more or less valuable.
The risks related to the use of futures contracts include: (i) the correlation
between movements in the market price of the portfolio investments (held or
intended for purchase) being hedged and in the price of the futures contract may
be imperfect; (ii) possible lack of a liquid secondary market for closing out
futures positions; (iii) the need for additional portfolio management skills and
techniques; and (iv) losses due to unanticipated market
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<PAGE> 21
movements. Successful use of futures by the Small Company Growth Fund is subject
to the ability correctly to predict movements in the direction of the market.
For example, if the Small Company Growth Fund uses futures contracts as a hedge
against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will lose
part or all of the benefit of the increased value of its securities that it has
hedged because the Fund will have approximately equal offsetting losses in its
future positions. The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in future pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor. Thus, a purchase or sale of a
futures contract may result in losses or gains in excess of the amount invested
in the contract.
FOREIGN INVESTMENTS
The Balanced Fund, the Growth and Income Fund, and the Small Company Growth
Fund may invest in foreign securities through the purchase of American
Depository Receipts or the purchase of securities on the New York Stock Exchange
but will not do so if immediately after a purchase and as a result of the
purchase the total value of such foreign securities owned by a Fund would exceed
25% of the value of the total assets of a Fund. A Fund may also invest in
securities issued by foreign branches of U.S. banks and foreign banks and in
Canadian Commercial Paper and Europaper.
Investment in foreign securities is subject to special risks, such as future
adverse political and economic developments, possible seizure, currency
blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source and the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore less liquidity and greater price volatility than U.S. securities,
and the risk that custodian and brokerage costs may be higher.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the U.S. Treasury Fund may invest up
to 5% of the value of its total assets in the securities of any one money market
mutual fund (including Shares of the U.S. Treasury Fund, pursuant to exemptive
relief granted by the Securities and Exchange Commission) and up to 10% of its
total assets in more than one money market mutual fund. In order to avoid the
imposition of additional fees as a result of investments in Shares of the U.S.
Treasury Fund, BB&T and BISYS Fund Services (the "Administrator") (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP"--"Investment Adviser" and "Administrator
and Distributor") will reduce that portion of their usual asset-based service
fees from each investing Fund by an amount equal to their service fees from the
U.S. Treasury Fund that are attributable to those Fund investments. BB&T and the
Administrator will promptly forward such fees to the investing Funds. The Funds
will incur additional expenses due to the duplication of expenses as a result of
investing in securities of other unaffiliated money market mutual funds.
Additional restrictions on the Funds' investments in the securities of an
unaffiliated money market fund and/or the U.S. Treasury Fund are contained in
the Statement of Additional Information.
In order to generate additional income, each Fund except the North Carolina
Fund may, from time to time, lend its portfolio securities to broker-dealers,
banks or institutional borrowers of securities. While the lending of securities
may subject a Fund to certain risks, such as delays or the inability to regain
the securities in the event the borrower was to default on its lending agreement
or enter into bankruptcy, the Fund will receive 100% collateral in the form of
cash or U.S. Government Securities. This collateral will be valued daily by BB&T
(or PNC Bank, with respect to the Small Company Growth Fund) and should the
market value of the loaned securities increase, the borrower will furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities. Loans are subject to termination by a Fund or the borrower at any
time. While a Fund will not have the right to vote securities on loan, the Funds
intend to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. The Funds will only enter into loan
arrangements with broker-dealers, banks or other institutions which BB&T (or PNC
Bank,
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<PAGE> 22
with respect to the Small Company Growth Fund) has determined are creditworthy
under guidelines established by the Group's Board of Trustees. Each Fund will
restrict its securities lending to 30% of its portfolio.
In order to generate income, the Short-Intermediate, Intermediate Bond, Growth
and Income, Balanced, and Small Company Growth Funds may engage in the technique
of short-term trading. Such trading involves the selling of securities held for
a short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for capital appreciation and/or
income of the Funds in order to take advantage of what BB&T (or PNC Bank, with
respect to the Small Company Growth Fund) believes are changes in market,
industry or individual company conditions or outlook. Any such trading would
increase the portfolio turnover rate of the Funds and their transaction costs.
PUTS
The North Carolina Fund and the Small Company Growth Fund may acquire "puts"
with respect to securities held in their respective portfolios. Under a put, a
Fund would have the right to sell a specified security within a specified period
of time at a specified price. A put would be sold, transferred, or assigned only
with the underlying security. Each of the North Carolina Fund and the Small
Company Growth Fund expects that it will generally acquire puts only where the
puts are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for a put either separately
in cash or by paying a higher price for Fund securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities). The North Carolina Fund and the Small Company Growth Fund
will acquire puts solely to facilitate Fund liquidity, shorten the maturity of
the underlying security, or permit the investment of its funds at a more
favorable rate of return.
OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND
TAX-EXEMPT OBLIGATIONS
In addition to North Carolina Tax-Exempt Obligations, the North Carolina Fund
may invest in tax-exempt obligations issued by or on behalf of states other than
North Carolina, territories and possessions of the United States, the District
of Columbia and their respective authorities, agencies, instrumentalities, and
political subdivisions the interest on which, in the opinion of the issuer's
counsel at the time of issuance, is exempt from federal income tax and is not
treated as a preference item for individuals for purposes of the federal
alternative minimum tax. Such securities and North Carolina Tax-Exempt
Obligations are hereinafter collectively referred to as "Tax-Exempt
Obligations."
Up to 10% of the North Carolina Fund's total assets may be invested in
Tax-Exempt Obligations other than North Carolina Tax-Exempt Obligations. If
deemed appropriate for temporary defensive periods, as determined by BB&T, the
North Carolina Fund may suspend attempts to achieve its investment objective and
may increase its holdings in Tax-Exempt Obligations other than North Carolina
Tax-Exempt Obligations to over 10% of its total assets. Investments made for
temporary defensive purposes will not be intended to achieve the North Carolina
Fund's investment objective with respect to North Carolina taxation, but rather
will be intended to preserve the value of the North Carolina Fund's Shares.
The two principal classifications of Tax-Exempt Obligations which may be held
by the North Carolina Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the North Carolina Fund
are in most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility involved.
Also included within the general category of Tax-Exempt Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a state or political subdivision to finance the acquisition or
construction of equipment, land, or facilities.
Among other types of Tax-Exempt Obligations, the North Carolina Fund may
purchase Tax Anticipation Notes, Bond Anticipation Notes, Revenue
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<PAGE> 23
Anticipation Notes, Tax-Exempt Commercial Paper and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
The North Carolina Fund may also invest in "moral obligation" securities,
which are normally issued by special purpose public authorities. However, such
investments are expected to be limited by the fact that North Carolina issuers
are currently precluded by North Carolina State law from issuing such
securities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
The North Carolina Fund invests in Tax-Exempt Obligations which are rated at
the time of purchase in one of the three highest categories by an NRSRO in the
case of bonds; one of the two highest categories by an NRSRO in the case of
notes; rated "SP-1" or higher by S&P or "MIG-2" or higher by Moody's or rated at
a comparable level of quality by another NRSRO in the case of tax-exempt
commercial paper; or rated "VMIG-1" or higher by Moody's or rated at a
comparable level of quality by another NRSRO in the case of variable rate demand
obligations. The North Carolina Fund may also purchase Tax-Exempt Obligations
which are unrated at the time of purchase but are determined to be of comparable
quality by BB&T pursuant to guidelines approved by the Group's Board of
Trustees. The applicable ratings are described in the Appendix to the Statement
of Additional Information.
Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund nor BB&T will review the proceedings relating to the
issuance of Tax-Exempt Obligations or the basis for such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND
The North Carolina Fund may invest up to 10% of its net assets in taxable
obligations or debt securities, the interest income from which may be subject to
the federal alternative minimum tax for both individual and corporate
shareholders. There is no limit on the amount of taxable obligations that may be
held for temporary defensive purposes. Taxable obligations may include U.S.
Government Securities (some of which may be subject to repurchase agreements),
certificates of deposit and bankers' acceptances of domestic banks and domestic
branches of foreign banks, commercial paper meeting the North Carolina Fund's
quality standards (as described above) for tax-exempt commercial paper, and
shares issued by other open-end registered investment companies issuing taxable
dividends (as described above). The North Carolina Fund may hold uninvested cash
reserves pending investment, during temporary defensive periods or if, in the
opinion of BB&T, suitable North Carolina Tax-Exempt Obligations are unavailable.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
Because the North Carolina Fund will invest at least 90% of the value of its
total assets in North Carolina Tax-Exempt Obligations and because it seeks to
maximize income derived from North Carolina Tax-Exempt Obligations, it is more
susceptible to factors adversely affecting issuers of North Carolina Tax-Exempt
Obligations than is a comparable municipal bond mutual fund that is not
concentrated in these issuers to this degree. Growth of North Carolina tax
revenues slowed considerably during fiscal years 1990-92, requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in timing of certain collections and payments, and
other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993, 1994
and 1995, however, ended with a positive General Fund balance each year. By law,
25% of such positive fund balance was required to be reserved in the General
Fund of North Carolina as part of a "Savings Reserve" (subject to a maximum
reserve of 5% of the preceding fiscal year's operating appropriation). An
additional portion of such positive fund balance was reserved in the General
Fund as part of a "Reserve For Repair and Renovation of State Facilities,"
leaving the remaining unrestricted fund balance at the end of each such year
available for future appropriations. See "SPECIAL CONSIDERATIONS REGARDING
INVESTMENT IN NORTH CAROLINA TAX-EXEMPT OBLIGATIONS" in the Statement of
Additional Information for further discussion of investment considerations
associated with North Carolina Tax-Exempt Obligations.
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DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund is a non-diversified fund under the Investment Company
Act of 1940. This means it may concentrate its investments in the securities of
a limited number of issuers. Under the Internal Revenue Code of 1986, as
amended, the North Carolina Fund generally may not invest more than 25% of its
assets in securities of any one issuer (other than U.S. Government Securities)
at the end of each fiscal quarter and, with respect to 50% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities of
any one issuer (other than U.S. Government Securities) at the end of each fiscal
quarter. Because of the relatively small number of issuers of North Carolina
Tax-Exempt Obligations, the North Carolina Fund is more likely to invest a
higher percentage of its assets in the securities of a single issuer than is an
investment company that invests in a broad range of tax-exempt securities. This
concentration involves an increased risk of loss to the North Carolina Fund if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines, and consequently may cause greater
fluctuation in the net asset value of the North Carolina Fund's Shares.
VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina Fund may
include variable and floating rate tax-exempt notes with ratings that are
similar to those described above. There may be no active secondary market with
respect to a particular variable or floating rate note. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the North Carolina Fund will approximate their par value. Variable and
floating rate notes for which no readily available market exists will be
purchased in an amount which, together with other securities which are not
readily marketable, exceeds 15% of the North Carolina Fund's total assets only
if such notes are subject to a demand feature that will permit the Fund to
receive payment of the principal within seven days after demand by the Fund.
STAND-BY COMMITMENTS
In addition, the North Carolina Fund may acquire "stand-by commitments" with
respect to Tax-Exempt Obligations held in its Fund. Under a stand-by commitment,
a dealer would agree to purchase at the North Carolina Fund's option specified
Tax-Exempt Obligations at a specified price. The North Carolina Fund will
acquire stand-by commitments solely to facilitate Fund liquidity and does not
intend to exercise its rights thereunder for trading purposes. Stand-by
commitments acquired by the North Carolina Fund may also be referred to as "put"
options.
PORTFOLIO TURNOVER
The portfolio turnover of each of the Funds (except the U.S. Treasury Fund)
may vary greatly from year to year as well as within a particular year. It is
presently anticipated that the portfolio turnover rate of the Small Company
Growth Fund will not exceed 200%. High turnover rates will generally result in
higher transaction costs to the Fund and may result in higher levels of taxable
realized gains to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund (see "GENERAL INFORMATION--Miscellaneous").
The U.S. Treasury Fund may not:
1. Purchase securities of any issuer, other than obligations issued or
guaranteed by the U.S. Government if, as a result, with respect to 75% of its
portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. In addition, although not a fundamental investment
restriction (and therefore subject to change without shareholder vote), to the
extent required by rules of the Securities and Exchange Commission the U.S.
Treasury Fund will apply this restriction to 100% of its portfolio.
Each Fixed Income Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase with respect to 75% of its portfolio, more
than 5% of the value of the Fund's total assets would be invested in such
issuer. There is no limit as to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaran-
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<PAGE> 25
teed by the U.S. Government or its agencies or instrumentalities.
Each Fixed Income Fund, the Growth and Income Fund, the Balanced Fund and the
Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
The Growth and Income Fund, the Balanced Fund, and the Small Company Growth
Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations. There
is no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of a Fund's total assets at
the time of its borrowing. Each of the Funds (except the U.S. Treasury Fund)
will not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. The U.S.
Treasury Fund will not purchase securities while borrowings are outstanding.
2. Make loans, except that each of the Funds may purchase or hold debt
securities and lend portfolio securities in accordance with its investment
objective and policies and may enter into repurchase agreements.
The North Carolina Fund may not:
1. Write or sell puts, calls, straddles, spreads, or combinations thereof
except that the North Carolina Fund may acquire puts with respect to
Tax-Exempt Obligations in its portfolio and sell those puts in conjunction
with a sale of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of the value of the
North Carolina Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements secured by obligations
of the U.S. Government or its agencies or instrumentalities, and (b) this
limitation shall not apply to Tax-Exempt Obligations or governmental
guarantees of Tax-Exempt Obligations. For purposes of this limitation, a
security is considered to be issued by the government entity (or entities)
whose assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, such nongovernmental user.
The following is a non-fundamental investment restriction of the U.S. Treasury
Fund and therefore subject to change without shareholder vote.
The U.S. Treasury Fund may not:
1. Invest more than 10% of its assets in instruments which are not readily
marketable.
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VALUATION OF SHARES
The net asset value of each of the Funds other than the U.S. Treasury Fund is
determined and its Shares are priced as of the close of regular trading of the
New York Stock Exchange (generally 4:00 p.m. Eastern Time) on each Business Day.
The net asset value of the U.S. Treasury Fund is determined and its Shares are
priced as of 12:00 p.m. and as of the close of regular trading of the New York
Stock Exchange (generally 4:00 p.m. Eastern Time) on each Business Day
("Valuation Times"). As used herein a "Business Day" constitutes any day on
which the New York Stock Exchange (the "NYSE") is open for trading, the Federal
Reserve Bank of Richmond is open, any other day except days on which there are
not sufficient changes in the value of the Fund's portfolio securities that the
Fund's net asset value might be materially affected, or days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, either the NYSE or the Federal Reserve Bank of Richmond is
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
Net asset value per Share for purposes of pricing sales and redemptions is
calculated by determining the value of the class's proportional interest in the
securities and other assets of a Fund, less (i) such class's proportional share
of general liabilities and (ii) the liabilities allocable only to such class,
and dividing such amount by the number of relevant class Shares outstanding.
The securities in each of the Funds, except the U.S. Treasury Fund, will be
valued at market value. If market quotations are not available, the securities
will be valued by a method which the Board of Trustees of the Group believes
accurately reflects fair value. For further information about the valuation of
investments, see the Statement of Additional Information.
The assets in the U.S. Treasury Fund are valued based upon the amortized cost
method. This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. If the Board of Trustees determines that the extent of
any deviation from a $1.00 price per share may result in material dilution or
other unfair results to Shareholders, it will take such steps as it considers
appropriate to eliminate or reduce these consequences to the extent reasonably
practicable. This may include selling portfolio securities prior to maturity to
realize capital gains or losses or to shorten the average portfolio maturity of
the U.S. Treasury Fund, adjusting or withholding dividends, or utilizing a net
asset value per share determined by using available market quotations. Although
the Group seeks to maintain the U.S. Treasury Fund's net asset value per Share
at $1.00, there can be no assurance that net asset value will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF CLASS A AND CLASS B SHARES
Class A and Class B Shares may be purchased through procedures established by
the Distributor in connection with the requirements of qualified accounts
maintained by or on behalf of certain persons ("Customers") by Participating
Organizations under the Group's Distribution and Shareholder Services Plan (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Distribution Plan").
As of the date of this Prospectus, however, Class B Shares were not yet being
offered in the Short-Intermediate Fund, or the North Carolina Fund. Investors
purchasing Shares of the U.S. Treasury Fund are generally required to purchase
Class A or Trust Shares, since such Shares are not subject to any initial sales
charge or contingent deferred sales charge. Class B Shares of the U.S. Treasury
Fund will be issued in exchange for Class B Shares of any of the other Funds.
Shareholders investing directly in Class B Shares of the U.S. Treasury Money
Market Fund, as opposed to Shareholders obtaining Class B Shares of the U.S.
Treasury Money Market Fund upon an exchange of Class B Shares of any of the
other Funds, will be requested to participate in the Auto Exchange and to set
the time and amount of their regular, automatic withdrawals in such a way that
all of their Class B Shares have been
22
<PAGE> 27
withdrawn from the U.S. Treasury Money Market Fund within two years of purchase.
Such Class B shares may be exchanged for Class B Shares of any other Fund
through the Auto Exchange (see "Auto Exchange").
Shares of the Group sold to Participating Organizations acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Participating Organizations. With respect to
Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers.
Investors may purchase Class A and Class B Shares of a Fund by completing and
signing an Account Registration Form and mailing it, together with a check (or
other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the Group, to BB&T Mutual Funds Group, Department
L-1528, Columbus, OH 43260-1528. Investors may obtain an Account Registration
Form and additional information regarding the Group by contacting their local
BB&T office. Subsequent purchases of Class A and Class B Shares of a Fund may be
made at any time by mailing a check (or other negotiable bank draft or money
order) to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the Group at (800)
228-1872. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by sending funds electronically to the Group's custodian. To
make payments electronically, investors must call the Group at (800) 228-1872 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Class A or Class B Shares of the Variable NAV Funds are sold at the net asset
value per Share next determined after receipt by the Distributor of an order in
good form to purchase Shares, plus a sales charge at the time of purchase in the
case of Class A Shares (see "VALUATION OF SHARES"). In the case of orders for
the purchase of Shares placed through a broker-dealer, the public offering price
will be the net asset value as so determined plus any applicable sales charge,
but only if the broker-dealer receives the order prior to the Valuation Time for
that day and transmits to the Group by the Valuation Time. The broker-dealer is
responsible for transmitting such orders promptly. If the broker-dealer fails to
do so, the investor's right to that day's closing price must be settled between
the investor and the broker-dealer. If the broker-dealer receives the order
after the Valuation Time for that day, the price will be based on the net asset
value determined as of the Valuation Time for the next Business Day.
The minimum investment is $1,000 for the initial purchase of Class A and Class
B Shares of a Fund. There is no minimum investment for subsequent purchases. The
minimum initial investment amount may be waived if purchases are made in
connection with qualified retirement plans, systematic investment plans or
payroll deduction plans.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Class A Shares that may be purchased.
Every Shareholder will be mailed a confirmation of each new transaction in the
Shareholder's account. In the case of Class A and Class B Shares held of record
by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A and Class B
Shares by a Participating Organization will be sent to the Customer by the
Participating Organization. Certificates representing Shares will not be issued.
SALES CHARGE--CLASS A
The public offering price of a Class A Share of each of the North Carolina and
Short-Intermediate Funds equals its net asset value plus a sales charge in
accordance with the table below.
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000............... 2.04% 2.00% 1.80%
$100,000 but less than
$250,000........................ 1.52% 1.50% 1.35%
$250,000 but less than
$500,000........................ 1.01% 1.00% 0.90%
$500,000 but less than
$1,000,000...................... 0.50% 0.50% 0.45%
$1,000,000 or more............... 0.00% 0.00% 0.00%
</TABLE>
The public offering of a Class A Share of each of the Intermediate Bond,
Growth and Income, Balanced and Small Company Growth Funds equals its
23
<PAGE> 28
net asset value plus a sales charge in accordance with the table below.
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000............... 4.71% 4.50% 4.05%
$100,000 but less than
$250,000........................ 3.63% 3.50% 3.15%
$250,000 but less than
$500,000........................ 2.56% 2.50% 2.25%
$500,000 but less than
$1,000,000...................... 1.52% 1.50% 1.35%
$1,000,000 or more............... 0.00% 0.00% 0.00%
</TABLE>
BISYS Fund Services (the "Distributor") receives this sales charge as
Distributor and reallows a portion of it as dealer discounts and brokerage
commissions. However, the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it receives. A broker or
dealer who receives a reallowance in excess of 90% of the sales charge may be
deemed to be an "underwriter" for purposes of the Securities Act of 1933.
Class A Shares of the U.S. Treasury Fund are sold at net asset value without
imposition of a sales charge.
From time to time dealers who receive dealer discounts and broker commissions
from the Distributor may reallow all or a portion of such dealer discounts and
broker commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Class A Shares of any of the Funds of the
Group. The maximum cash compensation payable by the Distributor is 4.50% of the
public offering price of Class A Shares. Compensation will also include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to dealers whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1) vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at exotic locations, (2) tickets for entertainment
events (such as concerts, cruises and sporting events) and (3) merchandise (such
as clothing, trophies, clocks and pens). Dealers may not use sales of a Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by any Fund or its shareholders.
The sales charges set forth in the table above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which includes: (i) an
individual, his or her spouse and children under the age of 21; (ii) a trustee
or other fiduciary of a single trust estate or single fiduciary account; or
(iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Class A Shares of the Funds
with no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):
(1) Existing Shareholders of a Fund upon the reinvestment of dividend and
capital gain distributions;
(2) Officers, trustees, directors, advisory board members, employees and
retired employees of the Group, BB&T and its affiliates, the Distributor and its
affiliates, and employees of the Investment Sub-Adviser (and spouses, children
and parents of each of the foregoing);
(3) Investors for whom BB&T or another financial institution acts in a
fiduciary, advisory, custodial, agency, or similar capacity;
(4) BB&T Fund shares purchased with the proceeds from a distribution from BB&T
or an affiliate trust or agency account (this waiver applies only to
24
<PAGE> 29
the initial purchase of a BB&T Fund subject to a sales load);
(5) Investors who beneficially hold Trust Shares of any Fund of the Group;
(6) Investors who purchase Shares of a Fund through a payroll deduction plan,
a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares;
(7) Investors whose shares are held of record by, and purchases made on behalf
of, other investment companies distributed by the Distributor or its affiliated
companies; and
In addition, the Distributor may waive the sales charge for the purchase of a
Fund's shares with the proceeds from the recent redemption of shares of another
non-money market mutual fund that imposes a sales charge. The purchase must be
made within 60 days of the redemption, and the Distributor must be notified in
writing by the investor or by his or her financial institution at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice. The Distributor may also periodically
waive the sales charge for all investors with respect to a Fund.
LETTER OF INTENT
Any Purchaser may obtain a reduced sales charge by means of a written Letter
of Intent which expresses the intention of such Purchaser to invest a certain
amount in Class A Shares of any of the Variable NAV Funds, i.e., those Funds
which charge a sales charge, within a period of 13 months. Each purchase of
Shares under a Letter of Intent will be made at the public offering price plus
the sales charge applicable at the time of such purchase to a single transaction
of the total dollar amount indicated in the Letter of Intent. A Letter of Intent
may include purchases of Class A Shares made not more than 90 days prior to the
date such Purchaser signs a Letter of Intent; however, the 13-month period
during which the Letter of Intent is in effect will begin on the date of the
earliest purchase to be included. When a purchaser enters into a Letter of
Intent which includes shares purchased prior to the date of the Letter of
Intent, the sales charge will be adjusted and used to purchase additional Shares
of the Fund at the then current public offering price at the end of the 13 month
period. This program may be modified or eliminated at any time or from time to
time by the Group without notice.
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Class A Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the Class A
Shares actually purchased if the full amount indicated is not purchased, and
such escrowed Class A Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on escrowed Class A Shares,
whether paid in cash or reinvested in additional Class A Shares are not subject
to escrow. The escrowed Class A Shares will not be available for disposal by the
investor until all purchases pursuant to the Letter of Intent have been made or
the higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an investor purchases
more than the dollar amount indicated on the Letter of Intent and qualifies for
a further reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales
charges will be used to purchase additional Class A Shares subject to the rate
of sales charge applicable to the actual amount of the aggregate purchases at
the net asset value next calculated.
For further information, interested investors should contact the Distributor.
Letter of Intent privileges may be amended or terminated without notice at any
time by the Distributor.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser (as defined under "HOW TO PURCHASE AND REDEEM SHARES--Sales
Charge--Class A") may qualify for a reduced sales charge by combining concurrent
purchases of Class A Shares of one or more of the Variable NAV Funds or by
combining a current purchase of Class A Shares of a Variable NAV Fund with prior
purchases of Shares of any Variable NAV Fund. The applicable sales charge is
based on the sum of (i) the Purchaser's current purchase of Class A Shares of
any Variable NAV Fund sold with a sales charge plus (ii) the then current net
asset value of all Class A Shares held by the Purchaser in any Variable NAV
Fund. To receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must at the time of purchase provide the Transfer
Agent or the Distrib-
25
<PAGE> 30
utor with sufficient information to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor.
CLASS B SHARES
Class B Shares are not subject to a sales charge when they are purchased, but
are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and Shareholder service fee at an annual rate of 1.00% of
such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. Class B Shares convert automatically to Class A Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted under the circumstances and subject to the qualifications described
in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution and
Shareholder service fees under the Distribution Plan are payable to the
Distributor and financial intermediaries to defray the expenses of advance
brokerage commissions and expenses related to providing distribution-related and
Shareholder services to the Fund in connection with the sale of the Class B
Shares, such as the payment of compensation to dealers and agents for selling
Class B Shares. A dealer reallowance of 4.00% of the original purchase price of
the Class B Shares of the Fund will be paid to financial institutions and
intermediaries.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS
YEAR(S) A PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- --------- -------------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Class A
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distributions, and finally of other Shares held by the Shareholder for the
longest period of time. This method should result in the lowest possible sales
charge.
To provide an example, assume you purchased 100 Shares at $10 per share (a
total cost of $1,000) and prior to the second anniversary after purchase, the
net asset value per share is $12 and during such time you have acquired 10
additional Shares through dividends paid in Shares. If you then make your first
redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to
charge because you received them as dividends. With respect to the remaining 40
Shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate
of 4.00% (the applicable rate prior to the second anniversary after purchase).
The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or disability (as defined in the Code) of a Shareholder or a
participant or beneficiary of a qualifying retire-
26
<PAGE> 31
ment plan if redemption is made within one year of such death or disability; or
(ii) to the extent that the redemption represents a minimum required
distribution from an Individual Retirement Account or other qualifying
retirement plan to a Shareholder who has attained the age of 70 1/2. A
Shareholder or his or her representative should contact the Transfer Agent to
determine whether a retirement plan qualifies for a waiver and must notify the
Transfer Agent prior to the time of redemption if such circumstances exist and
the Shareholder is eligible for this waiver. In addition, the following
circumstances are not deemed to result in a "redemption" of Class B Shares for
purposes of the assessment of a Contingent Deferred Sales Charge, which is
therefore waived: (i) plans of reorganization of the Fund, such as mergers,
asset acquisitions and exchange offers to which the Fund is a party; or (ii)
exchanges for Class B Shares of other Funds of the Group as described under
"Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Class A Shares and will be subject to the lower distribution and Shareholder
service fees charged to Class A Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Class A Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Class A Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Class A Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Group during the eight-year period, the Group will aggregate the
holding periods for the shares of each Fund of the Group for purposes of
calculating that eight-year period. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same.
AUTO INVEST PLAN
BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make regular
purchases of Class A and Class B Shares through automatic deduction from their
bank accounts. With Shareholder authorization, the Group's transfer agent will
deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $50 per Fund; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the Account Registration Form or a
supplemental sign-up form that can be acquired by calling the Distributor. For a
Shareholder to change the Auto Invest instructions or to discontinue the
feature, the request must be made in writing to the BB&T Mutual Funds Group,
Department L-1528, Columbus, OH 43260-1528. The Auto Invest Plan may be amended
or terminated without notice at any time by the Distributor.
BB&T MUTUAL FUNDS GROUP INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A BB&T Mutual Funds Group IRA enables individuals, even if they participate in
an employer-sponsored retirement plan, to establish their own retirement program
by purchasing Class A or Class B Shares for an IRA. BB&T Mutual Funds Group IRA
contributions may be tax-deductible and earnings are tax deferred. Under the Tax
Reform Act of 1986, the tax deductibility of IRA contributions is restricted or
eliminated for individuals who participate in certain employer pension plans and
whose annual income exceeds certain limits. Existing IRAs and future
contributions up to the IRA maximums, whether deductible or not, still earn
income on a tax-deferred basis.
All BB&T Mutual Funds Group IRA distribution requests must be made in writing
to BISYS Fund Services. Any additional deposits to a BB&T Mutual Funds Group IRA
must distinguish the type and year of the contribution.
27
<PAGE> 32
For more information on a BB&T Mutual Funds Group IRA call the Group at (800)
228-1872. Investment in Shares of the North Carolina Fund would not be
appropriate for any IRA. Shareholders are advised to consult a tax adviser on
BB&T Mutual Funds Group IRA contribution and withdrawal requirements and
restrictions.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Class A or Class B Shares of the Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for the U.S.
Treasury Fund received prior to a Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
date of receipt.
An order for the U.S. Treasury Fund received after the last Valuation Time on
any Business Day will be executed at net asset value determined as of the next
Valuation Time on the next Business Day. An order for a Variable NAV Fund
received prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the Valuation Time on the date of receipt. An
order for a Variable NAV Fund received after the Valuation Time on any Business
Day will be executed at the net asset value determined as of the Valuation Time
on the next Business Day.
An order to purchase Class A Shares of the U.S. Treasury Fund will be deemed
to have been received by the Distributor only when federal funds with respect
thereto are available to the Group's custodian for investment. Federal funds are
monies credited to a bank's account within a Federal Reserve Bank. Payment for
an order to purchase Shares of the U.S. Treasury Fund which is transmitted by
federal funds wire will be available the same day for investment by the Group's
custodian, if received prior to the last Valuation Time (see "VALUATION OF
SHARES"). It is strongly recommended that investors of substantial amounts use
federal funds to purchase Shares of the U.S. Treasury Fund.
Shares of the U.S. Treasury Fund purchased before 12:00 noon, Eastern Time,
begin earning dividends on the same Business Day. All Shares of the U.S.
Treasury Fund continue to earn dividends through the day before their
redemption.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in the Group. Information concerning this
Prospectus should be read in conjunction with any such information received from
the Participating Organizations or Banks.
The Group reserves the right to reject any order for the purchase of its Class
A or Class B Shares in whole or in part, including purchases made with foreign
and third party drafts or checks.
EXCHANGE PRIVILEGE
CLASS A
Class A Shares of each Fund may be exchanged for Class A Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Class A Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Class A Shares may
not be exchanged for Class B Shares of the other Funds, and may be exchanged for
Trust Shares of the other Funds only if the Shareholder becomes eligible to
purchase Trust Shares. Only residents of North Carolina may exchange their Class
A Shares of the other Funds for Class A Shares of the North Carolina Fund.
Shareholders may exchange their Class A Shares for Class A Shares of a Fund with
the same or lower sales charge on the basis of the relative net asset value of
the Class A Shares exchanged. Shareholders may exchange their Class A Shares for
Class A Shares of a Fund with a higher sales charge by paying the difference
between the two sales charges. Shareholders may also exchange Class A Shares of
the U.S. Treasury Fund, for which no sales load was paid, for Class A Shares of
a Variable NAV Fund. Under such circumstances, the cost of the acquired Class A
Shares will be the net asset value per share plus the appropriate sales load. If
Class A Shares of the U.S. Treasury Fund were acquired in a previous exchange
involving Shares of a Variable NAV Fund, then such Shares of the U.S. Treasury
Fund may be exchanged for Shares of a Variable NAV Fund without payment of any
additional sales load within a twelve month period. Under such circumstances,
the Shareholder must notify the Distributor that a sales load was originally
paid. Depending upon the terms of a particular Customer account, a Participating
Organization may charge a fee with regard to such an exchange. Information about
such charges will be supplied by the Participating Organization.
28
<PAGE> 33
CLASS B
Class B Shares of each Fund may be exchanged for Class B Shares of the other
Funds on the basis of relative net asset value per Class B Share, without the
payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
as of the date of this prospectus, Class B Shares were not yet being offered in
the Short-Intermediate Fund, or the North Carolina Fund, and thus, as of the
date of this prospectus, no exchanges could be effected for Class B Shares of
these two Funds. For purposes of computing the Contingent Deferred Sales Charge
that may be payable upon a disposition of the newly acquired Class B Shares, the
holding period for outstanding Class B Shares of the Fund from which the
exchange was made is "tacked" to the holding period of the newly acquired Class
B Shares. For purposes of calculating the holding period applicable to the newly
acquired Class B Shares, the newly acquired Class B Shares shall be deemed to
have been issued on the date of receipt of the Shareholder's order to purchase
the outstanding Class B Shares of the Fund from which the exchange was made.
Class B Shares may not be exchanged for Class A Shares of the other Funds, and
may be exchanged for Trust Shares of the other Funds only if the Shareholder
becomes eligible to purchase Trust Shares. A Contingent Deferred Sales Charge
will apply as described in "How To Purchase and Redeem Shares"--"Class B Shares"
to exchanges of Class B Shares for Trust Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
An exchange is considered a sale of Shares and will result in a capital gain
or loss for federal income tax purposes, which, in general, is calculated by
netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange. If a Shareholder exchanges
Class A Shares within 90 days of acquiring them and if a sales charge is waived
on the exchange, for purposes of measuring the capital gain or loss on the
exchange, the Shareholder's basis in the surrendered Shares is reduced by the
lesser of (i) the sales charge paid for the surrendered shares or (ii) the
amount of the sales charge that is waived on the exchange.
A Shareholder wishing to exchange Class A or Class B Shares purchased directly
from the Group may do so by contacting the Group at (800) 228-1872 or by
providing instructions to the Transfer Agent. If not selected on the Account
Registration form, the Shareholder will automatically receive Exchange
privileges. A Shareholder wishing to exchange Class A or Class B Shares
purchased through a Participating Organization or Bank may do so by contacting
the Participating Organization or Bank. If an exchange request in good order is
received by the Distributor or the Transfer Agent by 12:00 noon (Eastern Time)
on any Business Day, the exchange usually will occur on that day. Any
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be exercised only in those
states where the class of Shares of such other Fund may legally be sold. The
Group reserves the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days' written notice.
The Group's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
AUTO EXCHANGE
BB&T Mutual Funds Group Auto Exchange enables Shareholders to make regular,
automatic withdrawals from a BB&T Fund and use those proceeds to benefit from
dollar-cost-averaging by automatically making purchases of shares of another
BB&T Mutual Fund within the same class of shares. With shareholder
authorization, the Group's transfer agent will withdraw the amount specified
(subject to the applicable minimums) from the shareholder's account and will
automatically invest that amount in Shares of the BB&T Fund designated by the
Shareholder on the date of such deduction. In order to participate in the Auto
Exchange, Shareholders must have a minimum initial purchase of $10,000 in their
account and maintain a minimum account balance of $1,000.
29
<PAGE> 34
Shareholders investing directly in Class B Shares of the U.S. Treasury Money
Market Fund, as opposed to Shareholders obtaining Class B Shares of the U.S.
Treasury Money Market Fund upon an exchange of Class B Shares of any of the
other Funds, will be requested to participate in the Auto Exchange and to set
the time and amount of their regular, automatic withdrawals in such a way that
all of their Class B Shares have been withdrawn from the U.S. Treasury Money
Market Fund within two years of purchase.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the BB&T
Mutual Funds Group, Department L-1528, Columbus, OH 43260-1528. The Auto
Exchange may be amended or terminated without notice at any time by the
Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Class A Shares without charge, and their Class B
Shares subject to the applicable Contingent Deferred Sales Charge, on any day
that net asset value is calculated (see "VALUATION OF SHARES") and Shares may
ordinarily be redeemed by mail or by telephone. However, all or part of a
Customer's Shares may be required to be redeemed in accordance with instructions
and limitations pertaining to his or her account held by a Participating
Organization or Bank. For example, if a Customer has agreed to maintain a
minimum balance in his or her account, and the balance in that account falls
below that minimum, the Customer may be obliged to redeem, or the Participating
Organization or Bank may redeem for and on behalf of the Customer, all or part
of the Customer's Shares to the extent necessary to maintain the required
minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of record or sent electronically or mailed to a previously
designated bank account without a signature guarantee. See "Redemption by
Telephone" for further discussion on sending proceeds to your bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Registration Form. A Shareholder may have the proceeds mailed to the
address of record or sent electronically or mailed directly to a domestic
commercial bank account previously designated by the Shareholder on the Account
Registration Form. Under most circumstances, such payments will be transmitted
on the next Business Day following receipt of a valid request for redemption.
Such electronic redemption requests may be made by the Shareholder by telephone
to the Transfer Agent. The Transfer Agent will reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
presently $7.00 for each wire redemption. There is no charge for having payment
of redemption requests mailed or sent via the Automated Clearing House to a
designated bank account. For telephone redemptions, call the Group at (800)
228-1872. If not selected on the Account Registration form, the Shareholder will
automatically receive telephone redemption privileges. None of the Distributor,
the Group's transfer agent, BB&T or the Group will be liable for any losses,
damages, expense or cost arising out of any telephone transaction (including
exchanges and redemptions) effected in accordance with the Group's telephone
transaction procedures, upon instructions reasonably believed to be genuine. The
Group will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine; if these procedures are not
followed, the Group may be liable for any losses due
30
<PAGE> 35
to unauthorized or fraudulent instructions. These procedures include recording
all phone conversations, sending confirmations to Shareholders within 72 hours
of the telephone transaction, verifying the account name and a shareholder's
account number or tax identification number and sending redemption proceeds only
to the address of record or to a previously authorized bank account. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption request to the Group.
CHECK WRITING SERVICE
Shareholders of Class A Shares of the U.S. Treasury Fund may write checks on
Fund accounts for $100 or more. Once a Shareholder has signed and returned a
signature card, he or she will receive a supply of checks. A check may be made
payable to any person, and the Shareholder's account will continue to earn
dividends until the check clears. Because of the difficulty of determining in
advance the exact value of a Fund account, a Shareholder may not use a check to
close his or her account. The Shareholder's account will be charged a fee for
stopping payment of a check upon the Shareholder's request or if the check
cannot be honored because of insufficient funds or other valid reasons.
AUTO WITHDRAWAL PLAN
BB&T Mutual Funds Group Auto Withdrawal Plan enables Shareholders to make
regular redemptions of Class A Shares of a Fund. With Shareholder authorization,
the Group's transfer agent will automatically redeem Class A Shares at the net
asset value of the applicable Fund on the dates of withdrawal and have the
amount specified transferred according to the instructions of the Shareholder.
Shareholders participating in the Auto Withdrawal Plan must maintain a minimum
account balance of $1,000 in the Fund from which Class A Shares are being
redeemed. Purchase of additional Class A Shares concurrent with withdrawals may
be disadvantageous to certain Shareholders because of tax liabilities.
To participate in the Auto Withdrawal Plan, Shareholders should complete a
supplemental sign-up form that can be acquired by calling the Distributor. For a
Shareholder to change the Auto Withdrawal instructions or to discontinue the
feature, the request must be made in writing to the BB&T Mutual Funds Group,
Department L-1528, Columbus, OH, 43260-1528. The Auto Withdrawal Plan may be
amended or terminated without notice at any time by the Distributor.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders of a Variable NAV Fund for next Business Day payments upon
redemptions of Shares if the request for redemption is received by the Transfer
Agent before the Valuation Time on a Business Day or, if the request for
redemption is received after the Valuation Time, to honor requests for payment
within two Business Days, unless it would be disadvantageous to the Group or the
Shareholders of the particular Fund to sell or liquidate portfolio securities in
an amount sufficient to satisfy requests for payments in that manner. The U.S.
Treasury Fund will attempt to honor requests from its Shareholders for same day
payment upon redemption of Shares if the request for redemption is received by
the Transfer Agent before 12:00 noon Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon Eastern Time, to honor
requests for payment on the next Business Day, unless it would be
disadvantageous to the U.S. Treasury Fund or its Shareholders to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares, which may take up to 15 days or more. To avoid delay in payment
upon redemption shortly after purchasing Shares, investors should purchase
Shares by certified check or by wire transfer. The Group intends to pay cash for
all Shares redeemed, but under abnormal conditions which may make payment in
cash unwise, the Group may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Group
reserves the right to re-
31
<PAGE> 36
deem, at net asset value, the Shares of any Shareholder if, because of
redemptions of Shares by or on behalf of the Shareholder, the account of such
Shareholder in a Fund has a value of less than $1,000. Accordingly, an investor
purchasing Shares of a Fund in only the minimum investment amount may be subject
to such involuntary redemption if he or she thereafter redeems some of his or
her Shares. Before the Group exercises its right to redeem such Shares and sends
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the Shares of a Fund in his or her account is less than the minimum amount
and will be allowed 60 days to make an additional investment in an amount which
will increase the value of the account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the Investment Company Act of 1940.
DIVIDENDS AND TAXES
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified, a Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute substantially all of their income on a timely
basis. Each Fund intends to avoid paying federal income and excise taxes by
timely distributing substantially all its net income and net realized capital
gains.
Dividends received by a Shareholder of a Fund that are derived from such
Fund's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.
Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.
The net investment income of the Shares of the U.S. Treasury Fund is declared
daily as a dividend to Shareholders at the close of business on the day of
declaration. Dividends will generally be paid monthly. The U.S. Treasury Fund
does not expect to realize any long-term capital gains and, therefore, does not
foresee paying any "capital gains dividends" as described in the Code.
The amount of dividends payable with respect to the Trust Shares will exceed
dividends on Class A Shares, and the amount of dividends on Class A Shares will
exceed the dividends on Class B Shares, as a result of the Distribution and
Shareholder Services Plan fee applicable to Class A and Class B Shares.
A dividend on the Shares of the North Carolina, Short-Intermediate and
Intermediate Bond Funds is declared daily, and a dividend on the Shares of the
Growth and Income and Balanced Funds is declared monthly. Net realized capital
gains, if any, are distributed at least annually to Shareholders of record.
Dividends for each of the Funds other than the Small Company Growth Fund will
generally be paid monthly. The Small Company Growth Fund declares and pays
dividends quarterly.
A Shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional Shares at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the BB&T Mutual Funds Group, Department L-1528, Columbus, OH
43260-1528, and will become effective with respect to dividends and
distributions having record dates after its receipt by the transfer agent.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Dividends are paid in cash not later than seven Business Days after a
Shareholder's complete redemption of his or her Shares.
Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month and paid during the following January are treated for tax
purposes as if they were received by each Shareholder on December 31 of the year
in which the dividends were declared.
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<PAGE> 37
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of the earnings and profits of a Fund
as determined for tax purposes. Because all of the net investment income of all
of the Funds except the Growth and Income, Balanced and Small Company Growth
Funds is expected to be interest income, it is anticipated that no distributions
will qualify for the dividends received deduction for corporate Shareholders.
Shareholders who are not subject to tax on their income generally will not have
to pay federal income tax on amounts distributed to them.
Dividends that are derived from interest on a Fund's investments in U.S.
Government Securities and that are received by a Shareholder who is a North
Carolina or South Carolina resident are currently eligible for exemption from
those states' income taxes. Such dividends may be eligible for exemption from
the state and local taxes of other jurisdictions as well, although state and
local tax authorities may not agree with this view. However, in North Carolina
and South Carolina, as well as in other states, distributions of income derived
from repurchase agreements and securities lending transactions generally will
not qualify for exemption from state and local income taxes.
The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
The portions of dividends paid for each year that are exempt from federal and
North Carolina income tax, respectively, will be designated within 60 days after
the end of that year and will be based upon the ratio of net tax-exempt income
to total net income earned by the North Carolina Fund during the entire year.
That ratio may be substantially different from the ratio of net tax-exempt
income to total net income earned during any portion of the year. Thus, a
Shareholder who holds Shares for only a part of the year may be allocated more
or less tax-exempt dividends than would be the case if the allocation were based
on the ratio of net tax-exempt income to total net income actually earned by the
North Carolina Fund while he or she was a Shareholder.
Distributions will not be subject to North Carolina income tax if made to
individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina income tax to the extent such distributions are either
(i) exempt from federal income tax and attributable to interest on obligations
of North Carolina or its political subdivisions, or Guam, Puerto Rico, or the
United States Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, or (ii) attributable to interest on
direct obligations of the United States.
Distributions designated by the Fund as "exempt-interest dividends" are not
generally subject to federal income tax. However, if the Shareholder receives
Social Security or railroad retirement benefits, the Shareholder should consult
his or her tax adviser to determine what effect, if any, an investment in the
Fund may have on the taxation of such benefits.
Dividends derived from interest income from certain types of securities in
which the North Carolina Fund may invest may subject individual and corporate
investors to liability under the federal alternative minimum tax. As a matter of
policy, under normal market conditions, not more than 10% of the North Carolina
Fund's total assets will be invested in securities the interest on which is
treated as a preference item for purposes of the federal alternative minimum tax
for individuals. To the extent the North Carolina Fund invests in securities the
interest on which is subject to federal alternative minimum tax, Shareholders,
depending on their tax status, may be subject to alternative minimum tax on that
part of the Fund's distributions derived from those securities. Interest income
on all Tax-Exempt Obligations is included in "adjusted current earnings" for
purposes of computing the alternative minimum tax applicable to corporate
Shareholders of the North Carolina Fund.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina and
federal income tax purposes to the extent of the amount of such exempt-interest
dividend, even though, in the case of North Carolina, some portion of such
dividend actually may have been subject to North Carolina income tax. Although
the Treasury Department is authorized to issue regulations reducing such period
to as short as 31 days for regulated investment
33
<PAGE> 38
companies that regularly distribute at least 90% of their net tax-exempt
interest, no such regulations have been issued as of the date of this
Prospectus.
The North Carolina Fund may at times purchase Tax-Exempt Obligations at a
discount from the price at which they were originally issued. For federal income
tax purposes, some or all of this market discount will be included in the North
Carolina Fund's ordinary income and will be taxable to shareholders as such when
it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund of the excess of net long-term capital
gain over net short-term capital loss are taxable to Shareholders as long-term
capital gain, regardless of how long the Shareholder has held Shares in the
North Carolina Fund, except that distributions which are directly attributable
to gains from certain obligations of the State of North Carolina and its
political subdivisions that were issued before July 1, 1995 are exempt from
North Carolina State income tax. Distributions will be taxable as described
above even if the net asset value of a Share in the North Carolina Fund is
reduced below the Shareholder's cost of that Share by the distribution of income
or gain realized on the sale of securities and the distribution is, as an
economic matter, a return of capital. If a shareholder purchases mutual fund
shares, receives a capital gain dividend and then sells the shares at a loss
within 6 months after purchasing the shares, the loss is treated as a long-term
capital loss to the extent of the capital gain dividend (or undistributed
capital gain).
Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.
Interest on indebtedness incurred by a Shareholder to purchase or carry Shares
is not deductible for federal and North Carolina income tax purposes to the
extent the North Carolina Fund distributes exempt-interest dividends during the
Shareholder's taxable year. It is anticipated that none of the distributions
from the North Carolina Fund will be eligible for the dividends received
deduction for corporations.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional Tax Information
Concerning the North Carolina Fund." However, the foregoing and the material in
the Statement of Additional Information are only brief summaries of some of the
important tax considerations generally affecting the North Carolina Fund and its
Shareholders. Accordingly, potential investors in the North Carolina Fund are
urged to consult their tax advisers with specific reference to their own tax
situation and in particular regard to state and local tax consequences of
investment in the North Carolina Fund.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:
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<PAGE> 39
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
*J. David Huber Chairman of the Board From December 1987 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, OH 43219
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
</TABLE>
- ------------
* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the Group for acting as
a Trustee. The officers of the Group (see the Statement of Additional
Information) receive no compensation directly from the Group for performing the
duties of their offices. BISYS Fund Services receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from
the Group for acting as Transfer Agent and for providing fund accounting
services to the Group. J. David Huber is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.
INVESTMENT ADVISER
BB&T is the investment adviser of each Fund. BB&T is the oldest bank in North
Carolina and is the principal bank affiliate of Southern National Corporation
("SNC"), a bank holding company that is a North Carolina corporation,
headquartered in Winston-Salem, North Carolina, which merged with BB&T Financial
Corporation, the former parent company of BB&T. As of September 30, 1995, SNC
had assets in excess of $20.7 billion. Through its subsidiaries, SNC operates
over 447 banking offices in North Carolina, South Carolina and Virginia,
providing a broad range of financial services to individuals and businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Small Company Growth Fund, PNC Bank) manages the Funds,
makes decisions with respect to, and places orders for, all purchases and sales
of its investment securities, and maintains its records relating to such
purchases and sales.
Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by
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<PAGE> 40
the U.S. Treasury Fund for investment advisory services is the lesser of: (a) a
fee computed daily and paid monthly at the annual rate of forty one hundredths
of one percent (.40%) of the U.S. Treasury Fund's average daily net assets;
sixty one-hundredths of one percent (.60%) of each Fixed Income Funds' and the
North Carolina Fund's average daily net assets; and seventy-four one-hundredths
of one percent (.74%) of the Growth and Income Fund's and Balanced Fund's
average daily net assets; (1.00%) of the Small Company Growth Fund's average
daily net assets, or (b) such fee as may from time to time be agreed upon in
writing by the Group and BB&T. A fee agreed to in writing from time to time by
the Group and BB&T may be significantly lower than the fee calculated at the
annual rate and the effect of such lower fee would be to lower a Fund's expenses
and increase the net income of the fund during the period when such lower fee is
in effect.
For the fiscal year ended September 30, 1995, the Funds paid the following
investment advisory fees: the U.S. Treasury Fund paid: .38% of its average daily
net assets; each of the Short-Intermediate U.S. Government Income, Intermediate
U.S. Government Bond and North Carolina Funds paid: .45% of its average daily
net assets; each of the Growth and Income Stock and Balanced Funds paid: .45% of
its average daily net assets; and, for the period from December 7, 1994 to
September 30, 1995, the Small Company Growth Fund paid: 1.00% of its average
daily net assets.
The persons primarily responsible for the management of each of the Variable
NAV Funds of the Group other than the Small Company Growth Fund (which is
managed by a sub-adviser, described below), as well as their previous business
experience, are as follows:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
- ------------------------- ------------------------------------------------------------------
<S> <C>
Keith F. Karlawish....... Manager of the Intermediate Bond Fund and Short-Intermediate Fund
since September, 1994. From June, 1993 to September, 1994, Mr.
Karlawish was Assistant Manager of the Intermediate Bond Fund and
the Short-Intermediate Fund. From September, 1991 to June, 1993,
Mr. Karlawish was a Financial Analyst Team Leader for Branch
Banking and Trust Co. From June, 1990 (upon receiving his MBA
degree from the University of North Carolina at Chapel Hill) to
August, 1991, he was a Senior Market Analyst for Coopers &
Lybrand.
Richard B. Jones Manager of the Growth and Income Fund since February 1, 1993.
Since 1987, Mr. Jones has been a portfolio manager in the BB&T
Trust Division.
Alice B. Flowers Manager of the North Carolina Fund since April, 1994. From
February, 1993 to April, 1994, Ms. Flowers served as co-manager of
the North Carolina Fund. She has been a securities trader and
portfolio manager in the BB&T Trust Division since 1985.
David R. Ellis Manager of the Balanced Fund since its inception. Since 1986, Mr.
Ellis has been a portfolio manager in the BB&T Trust Division.
</TABLE>
INVESTMENT SUB-ADVISER
PNC Bank, National Association ("PNC Bank") serves as the Investment
Sub-Adviser to the Small Company Growth Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, PNC Bank manages the
Fund, selects investments and places all orders for purchases and sales of the
Small Company Growth Fund's securities, subject to the general supervision of
the Group's Board of Trustees and BB&T and in accordance with the Small Company
Growth Fund's investment objective, policies and restrictions.
The person primarily responsible for the management of the Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the
Small Company Growth Fund since its inception, and has been Vice President and
Small Company Growth Fund Portfolio Manager for PNC Investment Management and
Research since 1992. He has been a portfolio manager at PNC Bank and its
predecessor, Provident National Bank, since 1986.
PNC Bank, with offices located at 1835 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly owned indirect subsidiary of PNC Bank
36
<PAGE> 41
Corp. PNC Bank Corp., a bank holding company headquartered in Pittsburgh,
Pennsylvania, was the 12th largest bank holding company in the United States
based on total assets at September 30, 1995. PNC Bank Corp. operates banking
subsidiaries in Pennsylvania, Delaware, Florida, Indiana, Kentucky,
Massachusetts, New Jersey and Ohio and conducts certain non-banking operations
throughout the United States. Its major businesses include corporate banking,
consumer banking, private banking, mortgage banking and trust and mutual fund
asset management. With $85.9 billion in discretionary assets under management
and $257.7 billion of investment management and trust assets at September 30,
1995, PNC Bank Corp. is one of the largest bank money managers as well as one of
the largest institutional mutual fund managers in the United States. Of such
amounts at September 30, 1995, PNC Bank had $76.8 billion in discretionary
assets under management and investment management and trust assets totaling
$104.7 billion. In addition to asset management and trust services, PNC Bank
also provides a wide range of domestic and international commercial banking and
retail banking services. PNC Bank's origins, and in particular its trust
administration services, date back to the mid-to-late 1800s.
For its services and expenses incurred under the Sub-Advisory Agreement, PNC
Bank is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the Small Company
Growth Fund's average daily net assets), which vary according to the level of
Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ---------------------------------- ----------
<S> <C>
Up to $50 million................. .50%
Next $50 million.................. .45%
Over $100 million................. .40%
</TABLE>
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund and also acts as the
Group's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates) under agreements approved by the
Group's Board of Trustees. BISYS Fund Services is wholly owned by The BISYS
Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. Under a management and administration agreement between the Group
and the Administrator, the fee payable by a Fund to the Administrator for
management administration services is the lesser of (a) a fee computed at the
annual rate of twenty one-hundredths of one percent (.20%) of a Fund's average
daily net assets or (b) such fee as may from time to time be agreed upon in
writing by the Group and the Administrator. A fee agreed to in writing from time
to time by the Group and the Administrator may be significantly lower than the
fee calculated at the annual rate and the effect of such lower fee would be to
lower a Fund's expenses and increase the net income of the Fund during the
period when such lower fee is in effect. For the period from October 1, 1994
through September 30, 1995, the Funds paid the following Administration fees (as
a percentage of each Fund's average daily net assets): .20% for each of the U.S.
Treasury, the Short-Intermediate, the Intermediate Bond, the Growth and Income
and the Balanced Funds; and .15% for the North Carolina Fund. For the period
from December 7, 1994 (commencement of operations) through September 30, 1995
the Funds paid Administration fees in the amount of .20% of the Small Company
Growth Fund's average daily net assets.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the Group, Securities
and Exchange Commission fees, state securities qualification and renewal fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and
out-of-pocket expenses for fund accounting services, expenses incurred for
pricing securities owned by a Fund, certain insurance premiums, costs of
maintenance of a Fund's existence, costs and expenses of Shareholders' and
37
<PAGE> 42
Trustees' reports and meetings, and any extraordinary expenses incurred in its
operation. As a general matter, expenses are allocated to the Class A, Class B
and Trust Class of a Fund on the basis of the relative net asset value of each
class. At present, the only expenses that will be borne solely by Class A and
Class B Shares, other than in accordance with the relative net asset value of
the class, are expenses under the Group's Distribution and Shareholder Services
Plan ("Distribution Plan") which relate only to the Class A and Class B Shares.
For the fiscal year ended September 30, 1995, each Fund's total operating
expenses for Investor Shares (now redesignated as Class A Shares) were as
follows (as a percentage of average daily net assets of each Fund): U.S.
Treasury Fund: .98%; Short-Intermediate Fund: 1.17% Intermediate Bond Fund:
1.09%; North Carolina Fund: 1.05%; Growth and Income Fund: 1.07%; and Balanced
Fund: 1.17%. Absent fee waivers by the Adviser and Administrator, these
operating expenses would have been: U.S. Treasury Fund: 1.24%;
Short-Intermediate Fund: 1.58%; Intermediate Bond Fund: 1.50%; North Carolina
Fund: 1.63%; Growth and Income Fund: 1.60%; Balanced Fund: 1.71%. For the period
from December 7, 1995 (commencement of operations) through September 30, 1995,
operating expenses for the Investor Shares (now redesignated as Class A shares)
of the Small Company Growth Fund were (as a percentage of average daily net
assets of the Fund) 2.50% (with waivers) and 2.84% (without waivers). Class B
Shares had not commenced operations as of September 30, 1995.
The organizational expenses of the Small Company Growth Fund have been
capitalized and are being amortized in the first two years of the Fund's
operations. Such amortization will reduce the amount of income available for
payment as dividends.
BANKING LAWS
BB&T and PNC Bank each believes that it possesses the legal authority to
perform the investment advisory and sub-advisory services for the Group
contemplated by its investment advisory agreement with the Group and investment
and sub-advisory agreement with BB&T and described in this Prospectus without
violation of applicable banking laws and regulations, and has so represented to
the Group. Future changes in federal or state statutes and regulations relating
to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which BB&T and PNC Bank could continue to perform
such services for the Group. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass
Steagall Act" in the Statement of Additional Information for further discussion
of applicable banking laws and regulations.
DISTRIBUTION PLAN
The Group's Class A and Class B Shares are sold on a continuous basis by the
Distributor. Under the Group's Distribution and Shareholder Services Plan (the
"Distribution Plan"), a Fund will pay a monthly distribution fee to the
Distributor as compensation for its services in connection with the Distribution
Plan at an annual rate equal to fifty one-hundredths of one percent (.50%) of
the average daily net assets of Class A Shares of each Fund and one percent
(1.00%) of the average daily net assets of Class B Shares of each Fund. The
Distributor may periodically waive all or a portion of the fee with respect to a
Fund in order to increase the net investment income of the Fund available for
distribution as dividends. The Distributor has agreed with the Group to reduce
its fee under the Distribution Plan to an amount not to exceed twenty-five
one-hundredths of one percent (.25%) of the average daily net assets of Class A
Shares of each Fund. The Distributor may use the distribution fee to provide
distribution assistance with respect to a Fund's Class A and Class B Shares or
to provide shareholder services to the holders of such Shares. The Distributor
may also use the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks), broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with distribution assistance or (ii) to pay banks, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of shareholder services. All
payments by the Distributor for distribution assistance or shareholder services
under the Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually
38
<PAGE> 43
as "Participating Organizations"). A Servicing Agreement will relate to the
provision of distribution assistance in connection with the distribution of a
Fund's Class A and Class B Shares to the Participating Organization's customers
on whose behalf the investment in such Shares is made and/or to the provision of
shareholder services to the Participating Organization's customers owning a
Fund's Class A and Class B Shares. Under the Distribution Plan, a Participating
Organization may include BB&T Financial Corporation or a subsidiary bank or
nonbank affiliates, or the subsidiaries or affiliates of those banks. A
Servicing Agreement entered into with a bank (or any of its subsidiaries or
affiliates) will contain a representation that the bank (or subsidiary or
affiliate) believes that it possesses the legal authority to perform the
services contemplated by the Servicing Agreement without violation of applicable
banking laws (including the Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Group will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Group to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on October 1, 1987
and commenced active operation on September 24, 1992. The Group has an unlimited
number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into seven series of Shares, one for
each of the following Funds: the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T
U.S. Treasury Money Market Fund, the BB&T Balanced Fund and the BB&T Small
Company Growth Fund. The Group also offers three separate Special Trust Funds,
offering Trust Shares only, which are only available for purchase by common
trust funds managed by BB&T or its affiliates. Each Fund, except for the Special
Trust Funds, offers to the public three classes of shares: Class A, Class B and
Trust Shares. As of the date of this prospectus, however, Class B Shares were
not yet being offered in the Short-Intermediate Fund or the North Carolina Fund.
Each Share represents an equal propor-
39
<PAGE> 44
tionate interest in a Fund with other Shares of the same series and class, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees
(see "Miscellaneous" below).
Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment Company Act of 1940, Shares shall be
voted by individual series, (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class, and (iii)
only the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such classes.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of December 7, 1995, the following persons owned of record or beneficially
more than 25% of the Class A Shares (formerly Investor Shares) of the following
Funds: Stephens Inc., For the Exclusive Benefit of Our Customers, 111 Center
Street, Little Rock, AR 72201: record owner with respect to 62.58%, 40.98% and
48.45% of the Class A Shares of the U.S. Treasury Money Market, Intermediate
U.S. Government Bond and Balanced Funds, respectively. Accordingly, Stephens,
Inc. may be deemed to be a "controlling person" of the Class A Shares of the
Funds of which it is a shareholder.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for the Group.
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) serves as transfer agent for and provides fund accounting services
to the Group.
OTHER CLASSES OF SHARES
In addition to Class A and Class B Shares, the Group also offers Trust Shares
of each Fund. Trust Shares are offered to BB&T and its affiliates for the
investment of funds for which they act in a fiduciary, advisory, agency,
custodial or similar capacity. Trust Shares are sold at net asset value and are
not subject to a sales charge or a Distribution Plan fee. A salesperson or other
person entitled to receive compensation for selling or servicing the shares may
receive different compensation with respect to one particular class of shares
over another in the Fund. For further details regarding eligibility requirements
for the purchase of Trust Shares, call the Distributor at (800) 228-1872.
PERFORMANCE INFORMATION
From time to time, the U.S. Treasury Fund's annualized "yield" and "effective
yield" and total return for Class A and Class B Shares may be presented in
advertisements, sales literature and Shareholder reports. The "yield" of the
U.S. Treasury Fund is based upon the income earned by the U.S. Treasury Fund
over a seven-day period and then annualized, i.e. the income earned in the
period is assumed to be earned every seven days over a 52-week period and is
stated as a percentage of the investment. The "effective yield" of a U.S.
Treasury Fund is calculated similarly but when annualized, the income earned by
the investment is
40
<PAGE> 45
assumed to be reinvested in Shares of the Group and thus compounded in the
course of a 52-week period. The effective yield will be higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return is calculated for the past year and the period since the
establishment of the U.S. Treasury Fund. Average annual total return is measured
by comparing the value of an investment in the U.S. Treasury Fund at the
beginning of the relevant period to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions). Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over the
relevant period instead of annualized.
From time to time performance information of a Variable NAV Fund showing its
average annual total return, aggregate total return, and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. In addition, tax equivalent yield may be presented
in advertisements, sales literature and shareholder reports of the North
Carolina Fund. Average annual total return will be calculated for the period
since the establishment of a Fund and will, unless otherwise noted, reflect the
imposition of the maximum sales charge. Average annual total return is measured
by comparing the value of an investment in a Fund at the beginning of the
relevant period to the redemption value of an investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield will be computed by dividing the net
investment income per Share for a Variable NAV Fund earned during a recent
30-day period by the Fund's per Share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and annualizing the results.
The North Carolina Fund may also advertise its tax equivalent yield, which
reflects the amount of income subject to federal income taxation that a taxpayer
would have to earn in order to obtain the same after-tax income as that derived
from the yield of the Fund. The tax equivalent yield will be significantly
higher than the yield of the North Carolina Fund.
Each Fund may also present its average annual total return, aggregate total
return, yield and/or tax equivalent yield, as the case may be, excluding the
effect of a sales charge, if any.
The Variable NAV Funds may also calculate a distribution rate. Distribution
rates will be computed by dividing the distribution per Share of a class made by
a Fund over a twelve-month period by the maximum offering price per Share. The
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses. The calculation of income in the
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be calculated
separately for each Class of Shares. Because Class A Shares are subject to lower
Distribution Plan fees than Class B Shares, the yield and total return for Class
A Shares will be higher than that of the Class B Shares for the same period.
Because Trust Shares are not subject to Distribution Plan fees, the yield and
total return for Trust Shares will be higher than that of the Class A and Class
B Shares for the same period.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/ Donoghue's MONEY
FUND REPORT and Ibbotson Associates, Inc. References may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger,
Pension and Investments, U.S.A. Today and local newspapers. In addition to
performance information, gen-
41
<PAGE> 46
eral information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
Shareholders.
Information about the performance of a Fund is based on a Fund's record up to
a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to the Group's the
BB&T Mutual Funds Group, Department L-1528, Columbus, OH 43260-1528 or by
calling toll free (800) 228-1872.
42
<PAGE> 47
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 48
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 49
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
INVESTMENT SUB-ADVISER
(Small Company Growth Fund only)
PNC Bank, N.A.
1835 Market Street, 15th Floor
Philadelphia, PA 19103
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43229
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 50
CROSS REFERENCE SHEET
---------------------
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
--------------------------------------
TRUST SHARES
------------
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page................................ Cover Page
Financial
Highlights.............................. Selected Per Share Data and Ratios;
Performance
Synopsis.................................. Fee Table
General Description
of Registrant........................... BB&T Mutual Funds Group;
Investment Objective and Policies;
Investment Restrictions; General
Information-Description of the
Group and Its Shares
Management of BB&T
Mutual Funds Group...................... Management of BB&T Mutual Funds
Group; General Information -
Custodian and Transfer Agent
Capital Stock and
Other Securities........................ BB&T Mutual Funds Group; How to
Purchase and Redeem Shares;
Dividends and Taxes; General
Information - Description of the
Group and its Shares; General
Information - Miscellaneous
Purchase of Securities
Being Offered........................... Valuation of Shares; How to
Purchase and Redeem Shares
Redemption or Repurchase.................. How to Purchase and Redeem Shares
Legal Proceedings......................... Inapplicable
</TABLE>
<PAGE> 51
LOGO
U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
Growth and Income Stock Fund
Balanced Fund
Small Company Growth Fund
Special Trust Funds
Intermediate U.S. Government Bond Fund II
North Carolina Intermediate Tax-Free Fund II
Growth and Income Stock Fund II
TRUST SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED JANUARY 1, 1996
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Group............................................................................ 4
Fee Table............................................................................ 4
Financial Highlights................................................................. 6
Investment Objectives and Policies................................................... 10
Investment Restrictions.............................................................. 20
Valuation of Shares.................................................................. 21
How to Purchase and Redeem Shares.................................................... 22
Dividends and Taxes.................................................................. 25
Management of BB&T Mutual Funds Group................................................ 27
General Information.................................................................. 31
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 53
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public seven separate investment funds (each, a "Fund").
The Group also offers three separate investment Funds, (the "Special Trust
Funds") offering Trust Shares only, which are only available for purchase by
common trust funds managed by BB&T or its affiliates. Each Fund of the Group,
except for the Special Trust Funds, offers multiple classes of units of
beneficial interest ("Shares").
THE BB&T U.S. TREASURY MONEY MARKET FUND the "U.S. Treasury Fund"), seeks
current income with liquidity and stability of principal, through investment
exclusively in short-term obligations issued or guaranteed by the U.S. Treasury,
some of which may be subject to repurchase agreements. The U.S. Treasury Fund
seeks to maintain a constant net asset value of $1.00 per share.
AN INVESTMENT IN THE U.S. TREASURY FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
THE BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the
"Short-Intermediate Fund") seeks current income consistent with the preservation
of capital through investment in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, and high grade collateralized mortgage obligations.
THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND the "Intermediate Bond Fund")
seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.
THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND II (the "Intermediate Bond
Fund II") is identical in its investment objectives to the Intermediate Bond
Fund.
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and North Carolina personal income tax. Normally, the
North Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND II (the "North Carolina
Fund II") is identical in its investment objectives to the North Carolina Fund.
THE NORTH CAROLINA FUND AND THE NORTH CAROLINA FUND II ARE NON-DIVERSIFIED
SERIES AND THEREFORE EACH MAY INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN
OBLIGATIONS OF ONE ISSUER.
THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund") seeks
capital growth, current income or both, through investment in stocks.
THE BB&T GROWTH AND INCOME STOCK FUND II (the "Growth and Income Fund II") is
identical in its investment objectives to the Growth and Income Fund.
THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term capital
growth and produce current income through investment in a broadly diversified
portfolio of securities, including common stocks, preferred stocks and bonds.
THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies.
This Prospectus relates to the Trust Shares of the Group, which are offered to
BB&T and its affiliates for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial or similar capacity. The Trust Shares
offered through the Special Trust Funds are only available for purchase by
common trust funds managed by BB&T or its affiliates. Through a separate
prospectus, the Group also offers Class A and Class B Shares, which are offered
to the general public. Additional information about each of the Funds contained
in a Statement of Additional Information, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information and the prospectus
relating to the Class A and Class B Shares are available upon request without
charge by writing to the Group or by calling the Group at the telephone number
shown above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Group's Trust
Shares that a prospective investor ought to know before investing. Investors
should read this Prospectus and retain it for future reference.
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY, BB&T
FINANCIAL CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 1, 1996.
<PAGE> 54
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group, (the "Group") a Massachusetts
business trust, is an open-end management investment company
which currently consists of seven separately managed
portfolios (each a "Fund"). The Group also offers three
separate investment Funds, (the "Special Trust Funds"),
offering Trust Shares only, which are only available for
purchase by common trust funds managed by BB&T or its
affiliates. Each Fund, except for the Special Trust Funds,
offers to the public three classes of Shares: Class A, Class
B and Trust Class. This prospectus relates to only the Trust
Class Shares.
Investment Objective THE U.S. TREASURY FUND seeks current income with liquidity
and Policies................ and stability of principal through investing exclusively in
short-term obligations issued or guaranteed by the U.S.
Treasury, some of which may be subject to repurchase
agreements.
THE SHORT-INTERMEDIATE FUND seeks current income consistent
with the preservation of capital through investment in
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and high grade
collateralized mortgage obligations, some of which may be
subject to repurchase agreements.
THE INTERMEDIATE BOND FUND seeks current income consistent
with the preservation of capital through investment of at
least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or its instrumentalities,
some of which may be subject to repurchase agreements.
THE INTERMEDIATE BOND FUND II is identical to the
Intermediate Bond Fund in its investment objectives and
policies.
THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and North Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North
Carolina and its political subdivisions.
THE NORTH CAROLINA FUND II is identical to the North
Carolina Fund in its investment objectives and policies.
THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.
THE GROWTH AND INCOME FUND II is identical to the Growth and
Income Fund in its investment objectives and policies.
THE BALANCED FUND seeks to obtain long-term capital growth
and to produce current income through investment in a
broadly diversified portfolio of securities, including
common stocks, preferred stocks and bonds.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.
Investment Risks.............. Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of the
obligations in each Fund's portfolio, and market conditions.
An investment in the North Carolina Fund or the North
Carolina Fund II may involve special risk considerations.
(See "Other Investment Policies of the North Carolina Fund
and North Carolina Fund II".)
</TABLE>
2
<PAGE> 55
<TABLE>
<S> <C>
Offering Price................ The public offering price of the U.S. Treasury Fund is equal
to the net asset value per Trust Share, which the U.S.
Treasury Fund will seek to maintain at $1.00.
The public offering price of the Short-Intermediate,
Intermediate Bond, Intermediate Bond II, North Carolina,
North Carolina II, Growth and Income, Growth and Income II,
Balanced, and Small Company Growth Funds is equal to that
Fund's net asset value per Trust Share. (See "HOW TO
PURCHASE AND REDEEM SHARES--Purchases of Trust Shares.")
Minimum Purchase.............. No minimum purchase applies to purchases of Trust Shares.
Investment Adviser............ Branch Banking and Trust Company, Raleigh, North Carolina.
Dividends..................... The U.S. Treasury, North Carolina, North Carolina II, Short-
Intermediate, Intermediate Bond and Intermediate Bond II
Funds declare dividends daily and pay such dividends
monthly. The Growth and Income, Growth and Income II and
Balanced Funds declare and pay dividends monthly. The Small
Company Growth Fund declares and pays dividends quarterly.
Distributor................... BISYS Fund Services, Columbus, Ohio.
</TABLE>
3
<PAGE> 56
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of seven series of units of beneficial interest
("Shares"), each representing interests in one of seven separate investment
funds (each a "Fund"). The Group also offers three separate investment Funds
(the "Special Trust Funds"), offering Trust Shares only, which are only
available for purchase by common trust funds managed by BB&T or its affiliates.
Each Fund, except for the Special Trust Funds, offers to the public three
classes of Shares: Class A Shares, Class B Shares and Trust Shares.
FEE TABLE
The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Trust Shares of the Funds will bear, either directly or
indirectly.
<TABLE>
<CAPTION>
U.S. SHORT- INTERMEDIATE INTERMEDIATE
TREASURY INTERMEDIATE BOND BOND
FUND FUND FUND FUND II
----------- ----------- ----------- -----------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price)............................. 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable).............. 0% 0% 0% 0%
Redemption Fees (as a percentage of amount reduced, if
applicable)(2)............................................ 0% 0% 0% 0%
Exchange Fee................................................ $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees (after voluntary fee reductions)............ .40% .50%(3) .50%(3) .50%(3)
12b-1 Fee................................................... 0% 0% 0% 0%
Other Expenses (after voluntary fee reductions)(4).......... .32% .43% .35% .35%
----- ----- ----- -----
Total Fund Operating Expenses (after voluntary fee
reductions)(5)............................................ .72% .93% .85% .85%
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NORTH NORTH GROWTH AND SMALL
CAROLINA CAROLINA GROWTH AND INCOME FUND BALANCED COMPANY
FUND FUND II INCOME FUND II FUND GROWTH FUND
----------- ----------- ----------- ----------- ----------- -----------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ 0% 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a per-
centage of offering price)..... 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable)................. 0% 0% 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount reduced, if
applicable)(2)................. 0% 0% 0% 0% 0% 0%
Exchange Fee..................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
fee reductions)................ .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) 1.00%
12b-1 Fees....................... 0% .0% 0% .0% 0% 0%
Other Expenses (after voluntary
fee reductions)(4)............. .41% .41% .32% .32% .42% 1.33%
----- ----- ----- ----- ----- -----------
Total Fund Operating Expenses
(after voluntary fee
reductions)(5)................. .91% .91% .82% .82% .92% 2.33%
========== ========== ========== ========== ========== ============
</TABLE>
- ---------------
1 A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with
4
<PAGE> 57
investment in Trust Shares of a Fund. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Trust Shares" and "HOW TO PURCHASE AND REDEEM
SHARES--Exchange Privilege.")
2 A wire redemption charge (currently $7.00) may be deducted from the amount of
a wire redemption payment made at the request of a shareholder. (See "HOW TO
PURCHASE AND REDEEM SHARES--Redemption by Telephone.")
3 Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through September
30, 1996. Absent the voluntary reduction of investment advisory fees,
Management Fees as a percentage of average daily net assets for Trust Shares
would be .60% for the Short-Intermediate, Intermediate Bond, Intermediate Bond
II, North Carolina and North Carolina II Funds, and .74% for the Growth and
Income, Growth and Income II and Balanced Funds.
4 After voluntary fee reductions, "Other Expenses" as a percentage of average
daily net assets for Trust Shares would be .35% for the U.S. Treasury Fund,
.48% for the Short-Intermediate Fund, .40% for the Intermediate Bond and
Intermediate Bond II Funds, .53% for the North Carolina and North Carolina II
Funds, .36% for the Growth and Income and Growth and Income II Funds, .47% for
the Balanced Fund and 1.42% for the Small Company Growth Fund.
5 As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of advisory fees, Total Fund Operating Expenses
for Trust Shares, as a percentage of average daily net assets, would be .75%
for the U.S. Treasury Fund, 1.08% for the Short-Intermediate Fund, 1.00% for
the Intermediate Bond and Intermediate Bond II Funds, 1.13% for the North
Carolina and North Carolina II Funds, 1.10% for the Growth and Income and
Growth and Income II Funds, 1.21% for the Balanced Fund and 2.42% for the
Small Company Growth Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares
of the Funds, assuming (1) 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund...................... $ 7 $23 $40 $ 89
Short-Intermediate Fund................. $ 9 $30 $51 $114
Intermediate Bond Fund.................. $ 9 $27 $47 $105
Intermediate Bond Fund II............... $ 9 $27
North Carolina Fund..................... $ 9 $29 $50 $112
North Carolina Fund II.................. $ 9 $29
Growth and Income Fund.................. $ 8 $26 $46 $101
Growth and Income Fund II............... $ 8 $26
Balanced Fund........................... $ 9 $29 $51 $113
Small Company Growth Fund............... $ 24 $73
</TABLE>
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the table above is to assist a potential investor in the Funds
in understanding the various costs and expenses that an investor in the Trust
Shares of each Fund will bear directly or indirectly. See "MANAGEMENT OF BB&T
MUTUAL FUNDS GROUP" for a more complete discussion of annual operating expenses
of each Fund. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
5
<PAGE> 58
FINANCIAL HIGHLIGHTS
The table below sets forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information has
been audited by KPMG Peat Marwick LLP, independent accountants for the Group,
whose report on the Group's financial statements for the period ended September
30, 1995 is included in the Statement of Additional Information. The Special
Trust Funds had not commenced operations as of September 30, 1995.
The Class A Shares (formerly the Investor Shares) and Trust Shares of each
Fund (other than the Balanced Fund and the Small Company Growth Fund, which had
not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. Information regarding the Class A and
Class B Shares can be obtained in a separate prospectus by writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling (800) 228-1872.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....................... 0.050 0.030 0.027
-------- ------- -------
Total from Investment Activities........ 0.050 0.030 0.027
-------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.050) (0.030) (0.027)
-------- ------- -------
Total Distributions..................... (0.050) (0.030) (0.027)
NET ASSET VALUE, END OF PERIOD................ $ 1.00 $ 1.00 $ 1.00
================== ================== ====================
Total Return.................................. 5.07% 3.01% 2.70%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $120,083 $ 77,464 $ 74,962
Ratio of expenses to average net assets..... 0.72% 0.67% 0.38%(c)
Ratio of net investment income average net
assets.................................... 4.97% 2.97% 2.71%(c)
Ratio of expenses to average net assets*.... 0.75% 0.83% 0.81%(c)
Ratio of net investment income to average
net assets*............................... 4.95% 2.82% 2.27%(c)
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
6
<PAGE> 59
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.61 $ 10.30 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....................... 0.56 0.52 0.49
Net realized and unrealized gains (losses)
on investments............................ 0.28 (0.68) 0.30
------- ------- -------
Total from Investment Activities........ 0.84 (0.16) 0.79
------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.56) (0.52) (0.49)
------- ------- -------
Net realized gains.......................... (0.01)
------- ------- -------
Total Distributions..................... (0.56) (0.53) (0.49)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.89 $ 9.61 $ 10.30
================== ================== ====================
Total Return (excludes sales charge).......... 9.01% (1.66%) 8.01%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $ 45,005 $ 38,208 $ 34,646
Ratio of expenses to average net assets..... 0.93% 0.71% 0.39%(c)
Ratio of net investment income average net
assets.................................... 5.78% 5.20% 5.60%(c)
Ratio of expenses to average net assets*.... 1.08% 1.08% 1.05%(c)
Ratio of net investment income to average
net assets*............................... 5.64% 4.83% 4.94%(c)
Portfolio turnover (d)........................ 106.81% 7.06% 14.06%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.34 $ 10.40 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....................... 0.61 0.62 0.64
Net realized and unrealized gains (losses)
on investments............................ 0.55 (1.04) 0.40
------- ------- -------
Total from Investment Activities........ 1.16 (0.42) 1.04
------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.61) (0.62) (0.64)
------- ------- -------
Net realized gains.......................... (0.02)
------- ------- -------
Total Distributions..................... (0.61) (0.64) (0.64)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.89 $ 9.34 $ 10.40
================== ================== ====================
Total Return (excludes sales charge).......... 12.91% (4.23%) 10.76%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $ 78,578 $ 68,451 $ 59,816
Ratio of expenses to average net assets..... 0.85% 0.70% 0.39%(c)
Ratio of net investment income to average
net assets................................ 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net assets*.... 1.00% 1.06% 1.03%(c)
Ratio of net investment income to average
net assets*............................... 6.28% 5.91% 5.82%(c)
Portfolio turnover (d)........................ 68.91% 0.38% 15.27%
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
7
<PAGE> 60
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.78 $ 10.29 $ 10.00
INVESTMENT ACTIVITIES
Net investment income....................... 0.37 0.38 0.36
Net realized and unrealized gains (losses)
on investments............................ 0.37 (0.50) 0.29
------- ------- -------
Total from Investment Activities........ 0.74 (0.12) 0.65
------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.37) (0.38) (0.36)
Net realized gains.......................... (0.01)
------- ------- -------
Total Distributions..................... (0.37) (0.39) (0.36)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 10.15 $ 9.78 $ 10.29
================== ================== ====================
Total Return (excludes sales charge).......... 7.77% (1.18%) 6.62%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $ 28,091 $ 27,770 $ 20,128
Ratio of expenses to average net assets..... 0.91% 0.63% 0.42%(c)
Ratio of net investment income to average
net assets................................ 3.78% 3.77% 3.80%(c)
Ratio of expenses to average net assets*.... 1.13% 1.17% 1.30%(c)
Ratio of net investment income to average
net assets*............................... 3.55% 3.24% 2.92%(c)
Portfolio turnover (d)........................ 9.38% 0.56% 5.92%
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 11.28 $ 11.28 $ 10.00
-------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....................... 0.28 0.28 0.30
Net realized and unrealized gains on
investments............................... 1.98 0.11 1.28
-------- ------- -------
Total from Investment Activities........ 2.26 0.39 1.58
-------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.28) (0.28) (0.30)
Net realized gains.......................... (0.12) (0.11)
In excess of net realized gains............. (0.15)
-------- ------- -------
Total Distributions..................... (0.55) (0.39) (0.30)
-------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 12.99 $ 11.28 $ 11.28
================== ================== ====================
Total Return (excludes sales charge).......... 20.88% 3.58% 16.06%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $145,603 $ 89,355 $ 82,358
Ratio of expenses to average net assets..... 0.82% 0.66% 0.40%(c)
Ratio of net investment income to average
net assets................................ 2.40% 2.51% 3.08%(c)
Ratio of expenses to average net assets*.... 1.10% 1.15% 1.17%(c)
Ratio of net investment income to average
net assets*............................... 2.11% 2.02% 2.31%(c)
Portfolio turnover (d)........................ 8.73% 21.30% 27.17%
</TABLE>
- ---------
* During the period the investment advisory, administration, distribution
and/or fund accounting fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
8
<PAGE> 61
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 1, 1993 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- ------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- ------------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.74 $ 10.18 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....................... 0.46 0.40 0.09
Net realized and unrealized gains (losses)
on investments............................ 1.27 (0.44) 0.18
------- ------- -------
Total from Investment Activities........ 1.73 (0.04) 0.27
------- ------- -------
DISTRIBUTIONS
Net investment income....................... (0.46) (0.40) (0.09)
------- ------- -------
Total Distributions..................... (0.46) (0.40) (0.09)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 11.01 $ 9.74 $ 10.18
================== ================== ====================
Total Return (excludes sales charge).......... 18.23% (0.42%) 2.74%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $ 49,794 $ 39,715 $ 20,374
Ratio of expenses to average net assets..... 0.92% 0.73% 0.44%(c)
Ratio of net investment income to average
net assets................................ 4.51% 4.22% 4.44%(c)
Ratio of expenses to average net assets*.... 1.21% 1.25% 1.47%(c)
Ratio of net investment income to average
net assets*............................... 4.22% 3.70% 3.42%(c)
Portfolio turnover (d)........................ 23.68% 12.91% 8.32%
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH
FUND
----------------------
DECEMBER 7, 1994 TO
SEPTEMBER 30, 1995(A)
----------------------
TRUST CLASS
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................................................... $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment loss...................................................................... (0.07)
Net realized and unrealized gains on investments......................................... 4.64
-------
Total from Investment Activities..................................................... 4.57
-------
NET ASSET VALUE, END OF PERIOD............................................................. $ 14.57
=====================
Total Return (excludes sales charge)....................................................... 45.70% (b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......................................................... $ 16,962
Ratio of expenses to average net assets.................................................. 2.33% (c)
Ratio of net investment loss to average net assets....................................... (1.34%)(c)
Ratio of expenses to average net assets*................................................. 2.42% (c)
Ratio of net investment loss to average net assets*...................................... (1.43%)(c)
Portfolio turnover (d)..................................................................... 46.97%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were reimbursed by the Adviser. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
9
<PAGE> 62
INVESTMENT OBJECTIVES AND POLICIES
U.S. TREASURY FUND
The investment objective of the U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term United States dollar-denominated obligations issued or guaranteed by
the U.S. Treasury, some of which may be subject to repurchase agreements.
All instruments in which the U.S. Treasury Fund invests are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940. All instruments in which the Fund invests will
have remaining maturities of 397 days or less, although instruments subject to
repurchase agreements and certain variable or floating rate obligations may bear
longer maturities. The average dollar weighted maturity of the securities in the
U.S. Treasury Fund will not exceed 90 days. Obligations purchased by the U.S.
Treasury Fund are limited to U.S. dollar-denominated obligations which the Board
of Trustees has determined present minimal credit risks. See "VALUATION OF
SHARES" and the Statement of Additional Information for further explanation of
the amortized cost valuation method.
THE FIXED INCOME FUNDS
The investment objective of the Short-Intermediate Fund, the Intermediate Bond
Fund and the Intermediate Bond Fund II (collectively the "Fixed Income Funds")
is to seek current income consistent with the preservation of capital. The
Short-Intermediate Fund will invest primarily in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase agreements, or in high
grade collateralized mortgage obligations ("CMOs"). At least 65% of the
Short-Intermediate Fund's assets will be invested in U.S. Government Securities.
The dollar-weighted average portfolio maturity of the Short-Intermediate Fund
will be from two to five years. The Intermediate Bond Fund and the Intermediate
Bond Fund II will also invest primarily in U.S. Government Securities, and at
least 65% of their total assets will be invested in bonds. Bonds for this
purpose will include both bonds (maturities of ten years or more) and notes
(maturities of one to ten years) of the U.S. Government. The dollar-weighted
average portfolio maturity of the Intermediate Bond Fund and the Intermediate
Bond Fund II will be from five to ten years. CMOs will be considered bonds for
this purpose if their expected average life is comparable to the maturity of
other bonds eligible for purchase by the Fixed Income Funds. The Fixed Income
Funds may also invest in short-term obligations, commercial bonds and the shares
of other investment companies.
Bonds, notes and debentures in which the Fixed Income Funds may invest may
differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
THE NORTH CAROLINA FUND AND THE NORTH CAROLINA FUND II
The North Carolina and North Carolina II Funds' investment objective is to
produce a high level of current interest income that is exempt from both federal
income tax and North Carolina personal income tax. Under normal market
conditions, the North Carolina Fund and the North Carolina Fund II will invest
at least 90% of their total assets in high grade obligations issued by or on
behalf of the State of North Carolina and its political subdivisions, the
interest on which, in the opinion of the issuer's bond counsel at the time of
issuance, is exempt both from federal income tax and North Carolina personal
income tax and not treated as a preference item for purposes of the federal
alternative minimum tax for individuals ("North Carolina Tax-Exempt
Obligations"). The North Carolina Fund and the North Carolina Fund II will
maintain a dollar-weighted average portfolio maturity of between three and ten
years, and no obligations in which the Funds invest will have remaining
maturities in excess of 25 years.
The North Carolina Fund and the North Carolina Fund II are not intended to
constitute a balanced investment program and are not designed for
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investors seeking capital appreciation. Investment in the North Carolina Fund
and the North Carolina Fund II would not be appropriate for tax-deferred plans,
such as IRA and Keogh plans. Investors should consult a tax or other financial
adviser to determine whether investment in the North Carolina Fund or the North
Carolina Fund II would be suitable for them.
THE GROWTH AND INCOME FUND AND THE GROWTH AND INCOME FUND II
The Growth and Income and the Growth and Income II Funds' investment objective
is to seek capital growth, current income or both, primarily through investment
in stocks. Under normal market conditions, the Growth and Income Fund and the
Growth and Income Fund II will invest at least 65% of their total assets in
stocks, which for this purpose may be either common stock, preferred stock,
warrants, or debt instruments that are convertible to common stock.
Equity securities purchased by the Growth and Income Fund and the Growth and
Income Fund II will be either traded on a domestic securities exchange or quoted
in the NASDAQ/NYSE system. While some stocks may be purchased primarily to
achieve the Growth and Income and Growth and Income II Funds' investment
objective for income, most stocks will be purchased by the Growth and Income
Fund and the Growth and Income Fund II primarily in furtherance of their
investment objective for growth. The Growth and Income Fund and the Growth and
Income Fund II will favor stocks of issuers which over a five year period have
achieved cumulative income in excess of the cumulative dividends paid to
shareholders.
Stocks such as those in which the Growth and Income Fund and the Growth and
Income Fund II may invest are more volatile and carry more risk than some other
forms of investment. Depending upon the performance of the Growth and Income and
Growth and Income II Funds' investments, the net asset value per Share of the
Funds may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.
The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.
The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are
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considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $1 billion at the
time of purchase. In making portfolio investments, the Small Company Growth Fund
will assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
invested in the instruments described below and under "Specific Investment
Policies."
Smaller, less seasoned companies may be subject to greater business risk than
larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.
ALL FUNDS
The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous.") There can be, of course, no
assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of the
Short-Intermediate, Intermediate Bond, Intermediate Bond II, North Carolina,
North Carolina II, Growth and Income, Growth and Income II, Balanced, and Small
Company Growth Funds (collectively, the "Variable NAV Funds"), the net asset
value per Share of each Variable NAV Fund will fluctuate.
SPECIFIC INVESTMENT POLICIES
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. A Fund
will enter into repurchase agreements for the purposes of maintaining liquidity
and obtaining favorable yields. Under the terms of a repurchase agreement, a
Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Bank, National Association ("PNC Bank") (the
Small Company Growth Fund's investment sub-adviser) with respect to the Small
Company Growth Fund). Except as described in the Statement of Additional
Information, there is no aggregate limitation on the amount of a Fund's total
assets that may be invested in instruments which are subject to repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, each Fund may
borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.
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WHEN-ISSUED SECURITIES
Each of the Funds except the U.S. Treasury Fund may purchase securities on a
when-issued or delayed-delivery basis. In addition, the Small Company Growth
Fund may sell securities on a "forward commitment" basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. When a Fund agrees to purchase securities on a
when-issued basis, the Fund's custodian must set aside cash or liquid Fund
securities equal to the amount of that commitment in a separate account and may
be required to subsequently place additional assets in the separate account to
maintain equivalence with the Fund's commitment. The ability to purchase
when-issued securities will provide a Fund with the flexibility of participating
in new issues of government securities, particularly mortgage-related
securities. Prior to delivery of when-issued securities, the securities are
subject to fluctuations in value, and no income accrues until their receipt. A
Fund engages in when-issued and delayed-delivery transactions only with the
intent of acquiring Fund securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed-delivery
transactions, the Funds rely on the seller to complete the transaction; its
failure to do so may cause a Fund to miss a price or yield considered to be
advantageous. A Fund expects that commitments by a Fund to purchase when-issued
securities will not exceed 25% of the value of its assets under normal market
conditions.
SHORT-TERM OBLIGATIONS
Each of the Funds except the U.S. Treasury Fund may invest in high quality,
short-term obligations (with maturities of 12 months or less) such as domestic
and foreign commercial paper (including variable-amount master demand notes),
bankers' acceptances, certificates of deposit and demand and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
agreements. Such investments will be limited to those obligations which, at the
time of purchase, (i) possess one of the two highest short-term ratings from at
least two nationally recognized statistical rating organizations ("NRSROs") (for
example, commercial paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2" by
Moody's), or (ii) do not possess a rating (i.e., are unrated) but are determined
by BB&T (or PNC Bank, with respect to the Small Company Growth Fund) to be of
comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund
and the Small Company Growth Fund will limit its investment in short-term
obligations to 35%.
Each of the Fixed Income Funds, the Growth and Income Fund, the Growth and
Income Fund II, and the Small Company Growth Fund may invest in short-term
obligations in order to acquire interest income combined with liquidity. For
temporary defensive purposes, as determined by BB&T (or, in the case of the
Small Company Growth Fund, PNC Bank), these investments may constitute 100% of
such Funds' portfolio and, in such circumstances, will constitute a temporary
suspension of such Funds' attempts to achieve their investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of the
Short-Intermediate, Intermediate Bond and Intermediate Bond II Funds. The Growth
and Income Fund, the Growth and Income Fund II, the Balanced Fund, and the Small
Company Growth Fund may also invest in U.S. Government Securities. The types of
U.S. Government Securities in which these Funds will invest include obligations
issued or guaranteed as to payment of principal and interest by the full faith
and credit of the U.S. Government, such as Treasury bills, notes, bonds and
certificates of indebtedness, and obligations issued or guaranteed by the
agencies or instrumentalities of the U.S. Government, but not supported by such
full faith and credit. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association and
the Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks, or the Federal Home Loan Mortgage Corporation,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
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U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities.
The Short-Intermediate, Intermediate Bond, Intermediate Bond II, Growth and
Income, Growth and Income II, Balanced and Small Company Growth Funds may also
invest in "zero coupon" U.S. Government Securities. These securities tend to be
more volatile than other types of U.S. Government Securities. Zero coupon
securities are debt instruments that do not pay current interest and are
typically sold at prices greatly discounted from par value. The return on a zero
coupon obligation, when held to maturity, equals the difference between the par
value and the original purchase price.
The U.S. Treasury Fund may invest in U.S. Government Securities to the extent
that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund and the North Carolina Fund II may invest in
U.S. Government Securities in connection with the purchase of taxable
obligations (as described below).
COLLATERALIZED MORTGAGE OBLIGATIONS
Each of the Fixed Income Funds, the Growth and Income Fund, the Growth and
Income Fund II, the Balanced Fund and the Small Company Growth Fund may also
invest in collateralized mortgage obligations ("CMOs"). CMOs are
mortgage-related securities which are structured on pools of mortgage
pass-through certificates or mortgage loans. CMOs are issued with a number of
classes or series which have different maturities and which may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the mortgage pool are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to its
maturity. Thus, the early retirement of a particular class or series of CMO held
by a Fund would have the same effect as the prepayment of mortgages underlying a
mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
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experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not fully developed. Stripped mortgage securities issued or
guaranteed by the U.S. Government and held by a Fund may be considered liquid
securities pursuant to guidelines established by the Group's Board of Trustees.
The Funds will not purchase a stripped mortgage security that is illiquid if, as
a result thereof, more than 15% of the value of the Fund's net assets would be
invested in such securities and other illiquid securities.
Unless stated otherwise, each Fund will limit its investment in CMOs to 25% of
the value of its total assets.
COMMERCIAL BONDS
The Growth and Income Fund, the Growth and Income Fund II, the Small Company
Growth Fund, and the Fixed Income Funds may invest up to 35% of their assets,
and the Balanced Fund also may invest in bonds, notes and debentures of a wide
range of U.S. corporate issuers. Debentures represent unsecured promises to pay,
while notes and bonds may be secured by mortgages on real property or security
interests in personal property.
Bonds, notes and debentures in which the Growth and Income Fund, the Growth
and Income Fund II, the Balanced Fund, and the Small Company Growth Fund may
invest may differ in interest rates, maturities and times of issuance and may
include CMOs (which are described above).
The Growth and Income Fund, the Growth and Income Fund II, the Balanced Fund,
the Small Company Growth Fund, and the Fixed Income Funds will invest only in
bonds, notes, and debentures which are rated at the time of purchase within the
three highest rating groups assigned by an NRSRO (for example, at least A by
Moody's or S&P), or, if unrated, which BB&T (or PNC Bank, with respect to the
Small Company Growth Fund) deems to be of comparable quality. The applicable
ratings are described in the Appendix to the Statement of Additional
Information. In the event that the rating of any debt securities falls below the
third highest rating category, these Funds will not be obligated to dispose of
such obligations and may continue to hold such obligations if, in the opinion of
BB&T (or PNC Bank, with respect to the Small Company Growth Fund), such
investment is considered appropriate under the circumstances.
COVERED CALL OPTIONS
The Growth and Income Fund, the Growth and Income Fund II, the Balanced Fund,
and the Small Company Growth Fund may engage in writing call options from time
to time as BB&T (or PNC Bank, with respect to the Small Company Growth Fund)
deems to be appropriate. Options are written solely as covered call options
(options on securities owned by the Fund). Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation. In
order to close out an option position, a Fund will enter into a "closing
purchase transaction"--the purchase of a call option on the same security with
the same exercise price and expiration date as any call option which it may
previously have written. Upon the sale of a portfolio security upon which it has
written a covered call option, a Fund must effect a closing purchase transaction
so as to avoid converting a covered call into a "naked call," i.e., a call
option on a security not owned by the Fund. If a Fund is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the option expires or the Fund delivers the underlying security
upon exercise. When writing a covered call option, a Fund, in return for the
premium, gives up the opportunity for profit from a price increase in the
underlying security above the exercise price but retains the risk of loss should
the price of the security decline.
FUTURES CONTRACTS
The Small Company Growth Fund may invest in futures contracts for hedging
purposes or for other purposes so long as aggregate initial margins and premiums
required for non-hedging positions do not exceed 5% of its net assets, after
taking into account any unrealized profits and losses on any such contracts into
which it has entered. The Small Company Growth Fund may not sell futures
contracts to hedge more than its total assets unless immediately after any such
transaction the aggregate amount of margin deposits on its existing futures
positions does not exceed 5% of its total assets.
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To enter into a futures contract, the Small Company Growth Fund must make a
deposit of initial margin with its custodian in a segregated account in the name
of its futures broker. Subsequent payments to or from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
security or index fluctuates, making the long and short positions in the futures
contracts more or less valuable.
The risks related to the use of futures contracts include: (i) the correlation
between movements in the market price of the portfolio investments (held or
intended for purchase) being hedged and in the price of the futures contract may
be imperfect; (ii) possible lack of a liquid secondary market for closing out
futures positions; (iii) the need for additional portfolio management skills and
techniques; and (iv) losses due to unanticipated market movements. Successful
use of futures by the Small Company Growth Fund is subject to the ability
correctly to predict movements in the direction of the market. For example, if
the Small Company Growth Fund uses futures contracts as a hedge against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities that it has hedged because the
Fund will have approximately equal offsetting losses in its future positions.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in future pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss or gain to the investor. Thus, a purchase or sale of a futures
contract may result in losses or gains in excess of the amount invested in the
contract.
FOREIGN INVESTMENTS
The Balanced Fund, the Growth and Income Fund, the Growth and Income Fund II,
and the Small Company Growth Fund may invest in foreign securities through the
purchase of American Depository Receipts or the purchase of securities on the
New York Stock Exchange but will not do so if immediately after a purchase and
as a result of the purchase the total value of such foreign securities owned by
a Fund would exceed 25% of the value of the total assets of a Fund. A Fund may
also invest in securities issued by foreign branches of U.S. banks and foreign
banks and in Canadian Commercial Paper and Europaper.
Investment in foreign securities is subject to special risks, such as future
adverse political and economic developments, possible seizure, currency
blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source and the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore less liquidity and greater price volatility than U.S. securities,
and the risk that custodian and brokerage costs may be higher.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the U.S. Treasury Fund may invest up
to 5% of the value of its total assets in the securities of any one money market
mutual fund (including Shares of the U.S. Treasury Fund, pursuant to exemptive
relief granted by the Securities and Exchange Commission) and up to 10% of its
total assets in more than one money market mutual fund. In order to avoid the
imposition of additional fees as a result of investments in Shares of the U.S.
Treasury Fund, BB&T and BISYS Fund Services (the "Administrator") (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP"--"Investment Adviser" and "Administrator
and Distributor") will reduce that portion of their usual asset-based service
fees from each investing Fund by an amount equal to their service fees from the
U.S. Treasury Fund that are attributable to those Fund investments. BB&T and the
Administrator will promptly forward such fees to the investing Funds. The Funds
will incur additional expenses due to the duplication of expenses as a result of
investing in securities of other unaffiliated money market mutual funds.
Additional restrictions on the Funds' investments in the securities of an
unaffiliated money market fund and/or the U.S. Treasury Fund are contained in
the Statement of Additional Information.
In order to generate additional income, each Fund except the North Carolina
Fund and the North Carolina Fund II may, from time to time, lend its portfolio
securities to broker-dealers, banks
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or institutional borrowers of securities. While the lending of securities may
subject a Fund to certain risks, such as delays or the inability to regain the
securities in the event the borrower was to default on its lending agreement or
enter into bankruptcy, the Fund will receive 100% collateral in the form of cash
or U.S. Government Securities. This collateral will be valued daily by BB&T (or
PNC Bank, with respect to the Small Company Growth Fund) and should the market
value of the loaned securities increase, the borrower will furnish additional
collateral to the Fund. During the time portfolio securities are on loan, the
borrower will pay the Fund any dividends or interest paid on such securities.
Loans are subject to termination by a Fund or the borrower at any time. While a
Fund will not have the right to vote securities on loan, the Funds intend to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. The Funds will only enter into loan arrangements
with broker-dealers, banks or other institutions which BB&T (or PNC Bank, with
respect to the Small Company Growth Fund) has determined are creditworthy under
guidelines established by the Group's Board of Trustees. Each Fund will restrict
its securities lending to 30% of its portfolio.
In order to generate income, the Short-Intermediate, Intermediate Bond,
Intermediate Bond II, Growth and Income, Growth and Income II, Balanced, and
Small Company Growth Funds may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/or income of the Funds in
order to take advantage of what BB&T (or PNC Bank, with respect to the Small
Company Growth Fund) believes are changes in market, industry or individual
company conditions or outlook. Any such trading would increase the portfolio
turnover rate of the Funds and their transaction costs.
PUTS
The North Carolina Fund, the North Carolina Fund II and the Small Company
Growth Fund may acquire "puts" with respect to securities held in their
respective portfolios. Under a put, a Fund would have the right to sell a
specified security within a specified period of time at a specified price. A put
would be sold, transferred, or assigned only with the underlying security. Each
of the North Carolina Fund, the North Carolina Fund II and the Small Company
Growth Fund expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a put either separately in cash or
by paying a higher price for Fund securities which are acquired subject to the
puts (thus reducing the yield to maturity otherwise available for the same
securities). The North Carolina Fund, the North Carolina Fund II and the Small
Company Growth Fund will acquire puts solely to facilitate Fund liquidity,
shorten the maturity of the underlying security, or permit the investment of its
funds at a more favorable rate of return.
OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE NORTH CAROLINA FUND
II
TAX-EXEMPT OBLIGATIONS
In addition to North Carolina Tax-Exempt Obligations, the North Carolina Fund
and the North Carolina Fund II may invest in tax-exempt obligations issued by or
on behalf of states other than North Carolina, territories and possessions of
the United States, the District of Columbia and their respective authorities,
agencies, instrumentalities, and political subdivisions the interest on which,
in the opinion of the issuer's counsel at the time of issuance, is exempt from
federal income tax and is not treated as a preference item for individuals for
purposes of the federal alternative minimum tax. Such securities and North
Carolina Tax-Exempt Obligations are hereinafter collectively referred to as
"Tax-Exempt Obligations."
Up to 10% of the North Carolina and North Carolina II Funds' total assets may
be invested in Tax-Exempt Obligations other than North Carolina Tax-Exempt
Obligations. If deemed appropriate for temporary defensive periods, as
determined by BB&T, the North Carolina Fund and the North Carolina Fund II may
suspend attempts to achieve their investment objective and may increase their
holdings in Tax-Exempt Obligations other than North Carolina Tax-Exempt
Obligations to over 10% of their total assets. Investments made for temporary
defensive purposes will not be intended to achieve the North Carolina and North
Carolina II Funds' investment objective with respect to North Carolina taxation,
but rather will be intended to preserve the value of the North Carolina and
North Carolina II Funds' Shares.
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The two principal classifications of Tax-Exempt Obligations which may be held
by the North Carolina Fund and the North Carolina Fund II are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by the North Carolina Fund and the North Carolina Fund II are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Also included within the general category of Tax-Exempt Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a state or political subdivision to finance the acquisition or
construction of equipment, land, or facilities.
Among other types of Tax-Exempt Obligations, the North Carolina Fund and the
North Carolina Fund II may purchase Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper and other forms
of short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
The North Carolina Fund and the North Carolina Fund II may also invest in
"moral obligation" securities, which are normally issued by special purpose
public authorities. However, such investments are expected to be limited by the
fact that North Carolina issuers are currently precluded by North Carolina State
law from issuing such securities. If the issuer of moral obligation securities
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.
The North Carolina Fund and the North Carolina Fund II invest in Tax-Exempt
Obligations which are rated at the time of purchase in one of the three highest
categories by an NRSRO in the case of bonds; one of the two highest categories
by an NRSRO in the case of notes; rated "SP-1" or higher by S&P or "MIG-2" or
higher by Moody's or rated at a comparable level of quality by another NRSRO in
the case of tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's
or rated at a comparable level of quality by another NRSRO in the case of
variable rate demand obligations. The North Carolina Fund and the North Carolina
Fund II may also purchase Tax-Exempt Obligations which are unrated at the time
of purchase but are determined to be of comparable quality by BB&T pursuant to
guidelines approved by the Group's Board of Trustees. The applicable ratings are
described in the Appendix to the Statement of Additional Information.
Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund, the North Carolina Fund II nor BB&T will review the
proceedings relating to the issuance of Tax-Exempt Obligations or the basis for
such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND AND THE NORTH CAROLINA FUND II
The North Carolina Fund and the North Carolina Fund II may invest up to 10% of
their net assets in taxable obligations or debt securities, the interest income
from which may be subject to the federal alternative minimum tax for both
individual and corporate shareholders. There is no limit on the amount of
taxable obligations that may be held for temporary defensive purposes. Taxable
obligations may include U.S. Government Securities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
domestic banks and domestic branches of foreign banks, commercial paper meeting
the North Carolina and North Carolina II Funds' quality standards (as described
above) for tax-exempt commercial paper, and shares issued by other open-end
registered investment companies issuing taxable dividends (as described above).
The North Carolina Fund and the North Carolina Fund II may hold uninvested cash
reserves pending investment, during temporary defensive periods or if, in the
opinion of BB&T, suitable North Carolina Tax-Exempt Obligations are unavailable.
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RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND
THE NORTH CAROLINA FUND II
Because the North Carolina Fund and the North Carolina Fund II will invest at
least 90% of the value of their total assets in North Carolina Tax-Exempt
Obligations and because they seek to maximize income derived from North Carolina
Tax-Exempt Obligations, they are more susceptible to factors adversely affecting
issuers of North Carolina Tax-Exempt Obligations than are comparable municipal
bond mutual funds that are not concentrated in these issuers to this degree.
Growth of North Carolina tax revenues slowed considerably during fiscal years
1990-92, requiring tax increases and budget adjustments, including hiring
freezes and restrictions, spending constraints, changes in timing of certain
collections and payments, and other short-term budget adjustments, that were
needed to comply with North Carolina's constitutional mandate for a balanced
budget. Fiscal years 1993, 1994 and 1995, however, ended with a positive General
Fund balance each year. By law, 25% of such positive fund balance was required
to be reserved in the General Fund of North Carolina as part of a "Savings
Reserve" (subject to a maximum reserve of 5% of the preceding fiscal year's
operating appropriation). An additional portion of such positive fund balance
was reserved in the General Fund as part of a "Reserve For Repair and Renovation
of State Facilities," leaving the remaining unrestricted fund balance at the end
of each such year available for future appropriations. See "SPECIAL
CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT OBLIGATIONS" in
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Tax-Exempt Obligations.
DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund and the North Carolina Fund II are non-diversified
funds under the Investment Company Act of 1940. This means they may concentrate
their investments in the securities of a limited number of issuers. Under the
Internal Revenue Code of 1986, as amended, the North Carolina Fund and the North
Carolina Fund II generally may not invest more than 25% of their assets in
securities of any one issuer (other than U.S. Government Securities) at the end
of each fiscal quarter and, with respect to 50% of their total assets, the Funds
may not invest more than 5% of their total assets in the securities of any one
issuer (other than U.S. Government Securities) at the end of each fiscal
quarter. Because of the relatively small number of issuers of North Carolina
Tax-Exempt Obligations, the North Carolina Fund and the North Carolina Fund II
are more likely to invest a higher percentage of their assets in the securities
of a single issuer than is an investment company that invests in a broad range
of tax-exempt securities. This concentration involves an increased risk of loss
to the North Carolina Fund and the North Carolina Fund II if the issuer is
unable to make interest or principal payments or if the market value of such
securities declines, and consequently may cause greater fluctuation in the net
asset value of the North Carolina and North Carolina II Funds' Shares.
VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina Fund and
the North Carolina Fund II may include variable and floating rate tax-exempt
notes with ratings that are similar to those described above. There may be no
active secondary market with respect to a particular variable or floating rate
note. Nevertheless, the periodic readjustments of their interest rates tend to
assure that their value to the North Carolina Fund and the North Carolina Fund
II will approximate their par value. Variable and floating rate notes for which
no readily available market exists will be purchased in an amount which,
together with other securities which are not readily marketable, exceeds 15% of
the North Carolina and North Carolina II Funds' total assets only if such notes
are subject to a demand feature that will permit the Funds to receive payment of
the principal within seven days after demand by the Funds.
STAND-BY COMMITMENTS
In addition, the North Carolina Fund and the North Carolina Fund II may
acquire "stand-by commitments" with respect to Tax-Exempt Obligations held in
their Funds. Under a stand-by commitment, a dealer would agree to purchase at
the North Carolina and the North Carolina II Funds' option specified Tax-Exempt
Obligations at a specified price. The North Carolina Fund and the North Carolina
Fund II will acquire stand-by commitments solely to facilitate Fund liquidity
and do not intend to exercise their rights thereunder for trading purposes.
Stand-by commitments acquired by the
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North Carolina Fund and the North Carolina Fund II may also be referred to as
"put" options.
PORTFOLIO TURNOVER
The portfolio turnover of each of the Funds (except the U.S. Treasury Fund)
may vary greatly from year to year as well as within a particular year. It is
presently anticipated that the portfolio turnover rate of the Small Company
Growth Fund will not exceed 200%. High turnover rates will generally result in
higher transaction costs to the Fund and may result in higher levels of taxable
realized gains to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund (see "GENERAL INFORMATION--Miscellaneous").
The U.S. Treasury Fund may not:
1. Purchase securities of any issuer, other than obligations issued or
guaranteed by the U.S. Government if, as a result, with respect to 75% of its
portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. In addition, although not a fundamental investment
restriction (and therefore subject to change without shareholder vote), to the
extent required by rules of the Securities and Exchange Commission the U.S.
Treasury Fund will apply this restriction to 100% of its portfolio.
Each Fixed Income Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase with respect to 75% of its portfolio, more
than 5% of the value of the Fund's total assets would be invested in such
issuer. There is no limit as to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
Each Fixed Income Fund, the Growth and Income Fund, the Growth and Income Fund
II, the Balanced Fund and the Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
The Growth and Income Fund, the Growth and Income Fund II, the Balanced Fund,
and the Small Company Growth Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations. There
is no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of a Fund's total assets at
the time of its borrowing. Each of the Funds (except the U.S.
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Treasury Fund) will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding. The U.S. Treasury Fund will not purchase securities while
borrowings are outstanding.
2. Make loans, except that each of the Funds may purchase or hold debt
securities and lend portfolio securities in accordance with its investment
objective and policies and may enter into repurchase agreements.
The North Carolina Fund and the North Carolina Fund II may not:
1. Write or sell puts, calls, straddles, spreads, or combinations thereof
except that the North Carolina Fund may acquire puts with respect to
Tax-Exempt Obligations in their portfolios and sell those puts in conjunction
with a sale of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of the value of the
North Carolina or North Carolina II Funds' total assets at the time of
purchase to be invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase agreements
secured by obligations of the U.S. Government or its agencies or
instrumentalities, and (b) this limitation shall not apply to Tax-Exempt
Obligations or governmental guarantees of Tax-Exempt Obligations. For purposes
of this limitation, a security is considered to be issued by the government
entity (or entities) whose assets and revenues back the security, or, with
respect to a private activity bond that is backed only by the assets and
revenues of a non-governmental user, such nongovernmental user.
The following is a non-fundamental investment restriction of the U.S. Treasury
Fund and therefore subject to change without shareholder vote.
The U.S. Treasury Fund may not:
1. Invest more than 10% of its assets in instruments which are not readily
marketable.
VALUATION OF SHARES
The net asset value of each of the Funds other than the U.S. Treasury Fund is
determined and its Shares are priced as of the close of regular trading of the
New York Stock Exchange (generally 4:00 p.m. Eastern Time) on each Business Day.
The net asset value of the U.S. Treasury Fund is determined and its Shares are
priced as of 12:00 p.m. and as of the close of regular trading of the New York
Stock Exchange (generally 4:00 p.m. Eastern Time) on each Business Day
("Valuation Times"). As used herein a "Business Day" constitutes any day on
which the New York Stock Exchange (the "NYSE") is open for trading, the Federal
Reserve Bank of Richmond is open, any other day except days on which there are
not sufficient changes in the value of the Fund's portfolio securities that the
Fund's net asset value might be materially affected, or days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, either the NYSE or the Federal Reserve Bank of Richmond is
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
Net asset value per Share for purposes of pricing sales and redemptions is
calculated by determining the value of the class's proportional interest in the
securities and other assets of a Fund, less (i) such class's proportional share
of general liabilities and (ii) the liabilities allocable only to such class,
and dividing such amount by the number of relevant class Shares outstanding.
The securities in each of the Funds, except the U.S. Treasury Fund, will be
valued at market value. If market quotations are not available, the securities
will be valued by a method which the Board of Trustees of the Group believes
accurately reflects fair value. For further information about the valuation of
investments, see the Statement of Additional Information.
The assets in the U.S. Treasury Fund are valued based upon the amortized cost
method. This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. If the Board of Trustees determines that the extent of
any deviation from a $1.00 price per share may result in material
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dilution or other unfair results to Shareholders, it will take such steps as it
considers appropriate to eliminate or reduce these consequences to the extent
reasonably practicable. This may include selling portfolio securities prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity of the U.S. Treasury Fund, adjusting or withholding dividends, or
utilizing a net asset value per share determined by using available market
quotations. Although the Group seeks to maintain the U.S. Treasury Fund's net
asset value per Share at $1.00, there can be no assurance that net asset value
will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF TRUST SHARES
Trust Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency,
custodial and other similar accounts maintained by or on behalf of Customers of
BB&T and its affiliates (individually a "Bank" and collectively the "Banks").
Trust Shares of the Special Trust Funds are only available for purchase by
common trust funds managed by BB&T or its affiliates.
Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of each of the Funds are sold at the net asset value per Trust
Share next determined after receipt by the Distributor of an order in good form
to purchase Trust Shares (see "VALUATION OF SHARES"). There is no sales charge
imposed by the Group in connection with the purchase of the Group's Trust
Shares.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Trust Shares of the Funds will be effected only on a Business Day
(as defined in "VALUATION OF SHARES"). An order for the U.S. Treasury Fund
received prior to a Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on the date of receipt.
An order received for the U.S. Treasury Fund received after the last Valuation
Time on any Business Day will be executed at net asset value determined as of
the next Valuation Time on the next Business Day. An order for a Variable NAV
Fund received prior to the Valuation Time on any Business Day will be executed
at the net asset value determined as of the Valuation Time on the date of
receipt. An order for a Variable NAV Fund received after the Valuation Time on
any Business Day will be executed at the net asset value determined as of the
Valuation Time on the next Business Day.
An order to purchase Trust Shares of the U.S. Treasury Fund will be deemed to
have been received by the Distributor only when federal funds with respect
thereto are available to the Group's custodian for investment. Federal funds are
monies credited to a bank's account within a Federal Reserve Bank. Payment for
an order to purchase Shares of the U.S. Treasury Fund which is transmitted by
federal funds wire will be available the same day for investment by the Group's
custodian, if received prior to the last Valuation Time (see "VALUATION OF
SHARES"). It is strongly recommended that investors of substantial amounts use
federal funds to purchase Shares of the U.S. Treasury Fund.
Shares of the U.S. Treasury Fund purchased before 12:00 noon, Eastern Time,
begin earning dividends on the same Business Day. All Shares of the U.S.
Treasury Fund continue to earn dividends through the day before their
redemption.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in
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the Group. Information concerning this Prospectus should be read in conjunction
with any such information received from the Participating Organizations or
Banks.
The Group reserves the right to reject any order for the purchase of its Trust
Shares in whole or in part, including purchases made with foreign and third
party drafts or checks.
EXCHANGE PRIVILEGE
Trust Shares of each Fund, other than the Special Trust Funds, may be
exchanged for Trust Shares of the other Funds, provided that the Shareholder
making the exchange is eligible on the date of the exchange to purchase Trust
Shares (with certain exceptions and subject to the terms and conditions
described in this prospectus). Trust Shares of each Fund, other than the Special
Trust Funds, may not be exchanged for Trust Shares of the Special Trust Funds.
Trust Shares of each Fund, other than the Special Trust Funds, may also be
exchanged for Class A Shares, if the Shareholder ceases to be eligible to
purchase Trust Shares. Trust Shares of each Fund may not be exchanged for Class
B Shares.
Trust Shares of the Special Trust Funds may be exchanged for Trust Shares of
the other Special Trust Funds as well as Trust Shares of the other Funds.
The Group does not impose a charge for processing exchanges of its Trust
Shares. However, the exchange of Trust Shares for Class A Shares will require
payment of the sales charge unless the sales charge is waived. Shareholders may
exchange their Trust Shares for Trust Shares of another Fund on the basis of the
relative net asset value of the Shares exchanged.
An exchange is considered a sale of Shares and will result in a capital gain
or loss for federal income tax purposes, which, in general, is calculated by
netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange.
A Shareholder wishing to exchange Trust Shares purchased through a
Participating Organization or Bank may do so by contacting the Participating
Organization or Bank. If an exchange request in good order is received by the
Distributor or the Transfer Agent by 12:00 noon (Eastern Time) on any Business
Day, the exchange usually will occur on that day. Any Shareholder who wishes to
make an exchange should obtain and review a prospectus describing the Fund and
class of Shares which he or she wishes to acquire before making the exchange.
The exchange privilege may be exercised only in those states where the class of
Shares of such other Fund may legally be sold. The Group reserves the right to
change the terms and conditions of the exchange privilege discussed herein upon
sixty days' written notice.
The Group's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
REDEMPTION OF SHARES
Shareholders may redeem their Trust Shares without charge on any day that net
asset value is calculated (see "VALUATION OF SHARES") and Shares may ordinarily
be redeemed by mail or by telephone. However, all or part of a Customer's Shares
may be required to be redeemed in accordance with instructions and limitations
pertaining to his or her account held by a Participating Organization or Bank.
For example, if a Customer has agreed to maintain a minimum balance in his or
her account, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Participating Organization or Bank may
redeem for and on behalf of the Customer, all or part of the Customer's Shares
to the extent necessary to maintain the required minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at
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an address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of record or sent electronically or mailed to a previously
designated bank account without a signature guarantee. See "Redemption by
Telephone" for further discussion on sending proceeds to your bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Registration Form. A Shareholder may have the proceeds mailed to the
address of record or sent electronically or mailed directly to a domestic
commercial bank account previously designated by the Shareholder on the Account
Registration Form. Under most circumstances, such payments will be transmitted
on the next Business Day following receipt of a valid request for redemption.
Such electronic redemption requests may be made by the Shareholder by telephone
to the Transfer Agent. The Transfer Agent will reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
presently $7.00 for each wire redemption. There is no charge for having payment
of redemption requests mailed or sent via the Automated Clearing House to a
designated bank account. For telephone redemptions, call the Group at (800)
228-1872. If not selected on the Account Registration form, the Shareholder will
automatically receive telephone redemption privileges. None of the Distributor,
the Group's transfer agent, BB&T or the Group will be liable for any losses,
damages, expense or cost arising out of any telephone transaction (including
exchanges and redemptions) effected in accordance with the Group's telephone
transaction procedures, upon instructions reasonably believed to be genuine. The
Group will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine; if these procedures are not
followed, the Group may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures include recording all phone
conversations, sending confirmations to Shareholders within 72 hours of the
telephone transaction, verifying the account name and a shareholder's account
number or tax identification number and sending redemption proceeds only to the
address of record or to a previously authorized bank account. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption request to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders of a Variable NAV Fund for next Business Day payments upon
redemptions of Shares if the request for redemption is received by the Transfer
Agent before the Valuation Time on a Business Day or, if the request for
redemption is received after the Valuation Time, to honor requests for payment
within two Business Days, unless it would be disadvantageous to the Group or the
Shareholders of the particular Fund to sell or liquidate portfolio securities in
an amount sufficient to satisfy requests for payments in that manner. The U.S.
Treasury Fund will attempt to honor requests from its Shareholders for same day
payment upon redemption of Shares if the request for redemption is received by
the Transfer Agent before 12:00 noon Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon Eastern Time, to honor
requests for payment on the next Business Day, unless it would be
disadvantageous to the U.S. Treasury Fund or its Shareholders to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares, which may take up to 15 days or more. To avoid delay in payment
upon redemption shortly after purchasing Shares, investors should purchase
Shares by certified check or by wire transfer. The Group intends to pay cash for
all Shares redeemed, but under abnormal conditions which may make payment in
cash unwise, the Group may make
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payment wholly or partly in portfolio securities at their then market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the Investment Company Act of 1940.
DIVIDENDS AND TAXES
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified, a Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute substantially all of their income on a timely
basis. Each Fund intends to avoid paying federal income and excise taxes by
timely distributing substantially all its net income and net realized capital
gains.
Dividends received by a Shareholder of a Fund that are derived from such
portfolio's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.
Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.
The net investment income of the Shares of the U.S. Treasury Fund is declared
daily as a dividend to Shareholders at the close of business on the day of
declaration. Dividends will generally be paid monthly. The U.S. Treasury Fund
does not expect to realize any long-term capital gains and, therefore, does not
foresee paying any "capital gains dividends" as described in the Code.
The amount of dividends payable with respect to the Trust Shares will exceed
dividends on Class A Shares, and the amount of dividends on Class A Shares will
exceed dividends on Class B Shares as a result of the Distribution and
Shareholder Services Plan fee applicable to Class A and Class B Shares.
A dividend on the Shares of the North Carolina, North Carolina II,
Short-Intermediate, Intermediate Bond, and Intermediate Bond II Funds is
declared daily, and a dividend on the Shares of the Growth and Income, Growth
and Income II and Balanced Funds is declared monthly. Net realized capital
gains, if any, are distributed at least annually to Shareholders of record.
Dividends for each of the Funds other than the Small Company Growth Fund will
generally be paid monthly. The Small Company Growth Fund declares and pays
dividends quarterly.
A Shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional Shares at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the BB&T Mutual Funds Group, Department L-1528, Columbus, OH
43260-1528, and will become effective with respect to dividends and
distributions having record dates after its receipt by the transfer agent.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Dividends are paid in cash not later than seven Business Days after a
Shareholder's complete redemption of his or her Shares.
Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month and paid during the following January are treated for tax
purposes as if they were received by each Shareholder on December 31 of the year
in which the dividends were declared.
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of the earnings and profits of a Fund
as determined for tax purposes. Because all of the net investment income of all
of the Funds except the Growth and Income, Growth and Income II, Balanced and
Small Company Growth Funds is expected to be interest income, it is anticipated
that no distributions will qualify for the dividends received deduction for
corporate Shareholders. Shareholders who are not subject to
25
<PAGE> 78
tax on their income generally will not have to pay federal income tax on amounts
distributed to them.
Dividends that are derived from interest on a Fund's investments in U.S.
Government Securities and that are received by a Shareholder who is a North
Carolina or South Carolina resident are currently eligible for exemption from
those states' income taxes. Such dividends may be eligible for exemption from
the state and local taxes of other jurisdictions as well, although state and
local tax authorities may not agree with this view. However, in North Carolina
and South Carolina, as well as in other states, distributions of income derived
from repurchase agreements and securities lending transactions generally will
not qualify for exemption from state and local income taxes.
The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND THE NORTH CAROLINA
FUND II
The portions of dividends paid for each year that are exempt from federal and
North Carolina income tax, respectively, will be designated within 60 days after
the end of that year and will be based for each of the North Carolina Fund and
the North Carolina Fund II upon the ratio of net tax-exempt income to total net
income earned by that Fund during the entire year. That ratio may be
substantially different from the ratio of net tax-exempt income to total net
income earned during any portion of the year. Thus, a Shareholder who holds
Shares in either the North Carolina Fund or the North Carolina Fund II for only
a part of the year may be allocated more or less tax-exempt dividends than would
be the case if the allocation were based on the ratio of net tax-exempt income
to total net income actually earned by such Fund while he or she was a
Shareholder of that Fund.
Distributions will not be subject to North Carolina income tax if made to
individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina income tax to the extent such distributions are either
(i) exempt from federal income tax and attributable to interest on obligations
of North Carolina or its political subdivisions, or Guam, Puerto Rico, or the
United States Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, or (ii) attributable to interest on
direct obligations of the United States.
Distributions designated by the Funds as "exempt-interest dividends" are not
generally subject to federal income tax. However, if the Shareholder receives
Social Security or railroad retirement benefits, the Shareholder should consult
his or her tax adviser to determine what effect, if any, an investment in either
Fund may have on the taxation of such benefits.
Dividends derived from interest income from certain types of securities in
which the North Carolina Fund and the North Carolina Fund II may invest may
subject individual and corporate investors to liability under the federal
alternative minimum tax. As a matter of policy, under normal market conditions,
not more than 10% of either Fund's total assets will be invested in securities
the interest on which is treated as a preference item for purposes of the
federal alternative minimum tax for individuals. To the extent the North
Carolina Fund or the North Carolina Fund II invests in securities the interest
on which is subject to federal alternative minimum tax, Shareholders, depending
on their tax status, may be subject to alternative minimum tax on that part of
the Fund's distributions derived from those securities. Interest income on all
Tax-Exempt Obligations is included in "adjusted current earnings" for purposes
of computing the alternative minimum tax applicable to corporate Shareholders of
the North Carolina Fund or the North Carolina Fund II.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina and
federal income tax purposes to the extent of the amount of such exempt-interest
dividend, even though, in the case of North Carolina, some portion of such
dividend actually may have been subject to North Carolina income tax. Although
the Treasury Department is authorized to issue regulations reducing such period
to as short as 31 days for regulated investment companies that regularly
distribute at least 90% of their net tax-exempt interest, no such regulations
have been issued as of the date of this Prospectus.
The North Carolina Fund and the North Carolina Fund II may at times purchase
Tax-Exempt Obligations at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of this market
discount will be
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<PAGE> 79
included in the Fund's ordinary income and will be taxable to shareholders as
such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund and the North Carolina Fund II of the
excess of net long-term capital gain over net short-term capital loss are
taxable to Shareholders as long-term capital gain, regardless of how long the
Shareholder has held Shares in the North Carolina Fund or the North Carolina
Fund II, except that distributions which are directly attributable to gains from
certain obligations of the State of North Carolina and its political
subdivisions that were issued before July 1, 1995 are exempt from North Carolina
State income tax. Distributions will be taxable as described above even if the
net asset value of a Share in the North Carolina Fund or the North Carolina Fund
II is reduced below the Shareholder's cost of that Share by the distribution of
income or gain realized on the sale of securities and the distribution is, as an
economic matter, a return of capital. If a shareholder purchases mutual fund
shares, receives a capital gain dividend and then sells the shares at a loss
within 6 months after purchasing the shares, the loss is treated as a long-term
capital loss to the extent of the capital gain dividend (or undistributed
capital gain).
Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.
Interest on indebtedness incurred by a Shareholder to purchase or carry Shares
is not deductible for federal and North Carolina income tax purposes to the
extent the North Carolina Fund or the North Carolina Fund II distributes
exempt-interest dividends during the Shareholder's taxable year. It is
anticipated that none of the distributions from the North Carolina Fund or the
North Carolina Fund II will be eligible for the dividends received deduction for
corporations.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional Tax Information
Concerning the North Carolina Fund and the North Carolina Fund II." However, the
foregoing and the material in the Statement of Additional Information are only
brief summaries of some of the important tax considerations generally affecting
the North Carolina Fund and the North Carolina Fund II and their Shareholders.
Accordingly, potential investors in the North Carolina Fund or the North
Carolina Fund II are urged to consult their tax advisers with specific reference
to their own tax situation and in particular regard to state and local tax
consequences of investment in the North Carolina Fund and the North Carolina
Fund II.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:
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<PAGE> 80
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE GROUP PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
*J. David Huber Chairman of the Board From December 1987 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, OH 43219
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
</TABLE>
- ------------
* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the Group for acting as
a Trustee. The officers of the Group (see the Statement of Additional
Information) receive no compensation directly from the Group for performing the
duties of their offices. BISYS Fund Services receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from
the Group for acting as Transfer Agent and for providing fund accounting
services to the Group. J. David Huber is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.
INVESTMENT ADVISER
BB&T is the investment adviser of each Fund. BB&T is the oldest bank in North
Carolina and is the principal bank affiliate of Southern National Corporation
("SNC"), a bank holding company that is a North Carolina corporation,
headquartered in Winston-Salem, North Carolina, which merged with BB&T Financial
Corporation, the former parent company of BB&T. As of September 30, 1995, SNC
had assets in excess of $20.7 billion. Through its subsidiaries, SNC operates
over 447 banking offices in North Carolina, South Carolina and Virginia,
providing a broad range of financial services to individuals and businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Small Company Growth Fund, PNC Bank) manages the Funds,
makes decisions with respect to, and places orders for, all purchases and sales
of its investment securities, and maintains its records relating to such
purchases and sales.
Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by
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<PAGE> 81
the U.S. Treasury Fund for investment advisory services is the lesser of: (a) a
fee computed daily and paid monthly at the annual rate of forty one hundredths
of one percent (.40%) of the U.S. Treasury Fund's average daily net assets;
sixty one-hundredths of one percent (.60%) of each Fixed Income Funds' and the
North Carolina and North Carolina II Funds' average daily net assets; and
seventy-four one-hundredths of one percent (.74%) of the Growth and Income and
Growth and Income II Funds' and Balanced Fund's average daily net assets;
(1.00%) of the Small Company Growth Fund's average daily net assets, or (b) such
fee as may from time to time be agreed upon in writing by the Group and BB&T. A
fee agreed to in writing from time to time by the Group and BB&T may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase the net income
of the fund during the period when such lower fee is in effect.
For the fiscal year ended September 30, 1995, the Funds paid the following
investment advisory fees: the U.S. Treasury Fund paid: .38% of its average daily
net assets; each of the Short-Intermediate U.S. Government Income, Intermediate
U.S. Government Bond, and North Carolina Funds paid: .45% of its average daily
net assets; each of the Growth and Income Stock and Balanced Funds paid: .45% of
its average daily net assets; and from December 7, 1994 (commencement of
operations) through September 30, 1995, the Small Company Growth Fund paid 1.00%
of its average daily net assets. The Special Trust Funds had not commenced
operations as of September 30, 1995.
The persons primarily responsible for the management of each of the Variable
NAV Funds of the Group other than the Small Company Growth Fund (which is
managed by a sub-adviser, described below), as well as their previous business
experience, are as follows:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
- ------------------------- ------------------------------------------------------------------
<S> <C>
Keith F. Karlawish Manager of the Intermediate Bond Fund and Short-Intermediate Fund
since September, 1994. From June, 1993 to September, 1994, Mr.
Karlawish was Assistant Manager of the Intermediate Bond Fund and
the Short-Intermediate Fund. From September, 1991 to June, 1993,
Mr. Karlawish was a Financial Analyst Team Leader for Branch
Banking and Trust Co. From June, 1990 (upon receiving his MBA
degree from the University of North Carolina at Chapel Hill) to
August, 1991, he was a Senior Market Analyst for Coopers &
Lybrand.
Richard B. Jones Manager of the Growth and Income Fund since February 1, 1993.
Manager of the Growth and Income Fund II since its inception.
Since 1987, Mr. Jones has been a portfolio manager in the BB&T
Trust Division.
Alice B. Flowers Manager of the North Carolina Fund since April, 1994. From
February, 1993 to April, 1994, Ms. Flowers served as co-manager of
the North Carolina Fund. Manager of the North Carolina Fund II
since its inception. She has been a securities trader and
portfolio manager in the BB&T Trust Division since 1985.
David R. Ellis Manager of the Balanced Fund since its inception. Since 1986, Mr.
Ellis has been a portfolio manager in the BB&T Trust Division.
</TABLE>
INVESTMENT SUB-ADVISER
PNC Bank, National Association ("PNC Bank") serves as the Investment
Sub-Adviser to the Small Company Growth Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, PNC Bank manages the
Fund, selects investments and places all orders for purchases and sales of the
Small Company Growth Fund's securities, subject to the general supervision of
the Group's Board of Trustees and BB&T and in accordance with the Small Company
Growth Fund's investment objective, policies and restrictions.
The person primarily responsible for the management of the Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the
Small Company Growth Fund since its inception, and has been Vice President and
Small Company Growth Fund Portfolio Manager for PNC Investment Management and
Research since 1992. He has been a portfolio manager at PNC Bank and its
predecessor, Provident National Bank, since 1986.
29
<PAGE> 82
PNC Bank, with offices located at 1835 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly owned indirect subsidiary of PNC Bank Corp. PNC
Bank Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania,
was the 13th largest bank holding company in the United States based on total
assets at September 30, 1995. PNC Bank Corp. operates banking subsidiaries in
Pennsylvania, Delaware, Florida, Indiana, Kentucky, Massachusetts, New Jersey
and Ohio and conducts certain non-banking operations throughout the United
States. Its major businesses include corporate banking, consumer banking,
private banking, mortgage banking and trust and mutual fund asset management.
With $85.9 billion in discretionary assets under management and $257.7 billion
of investment management and trust assets at September 30, 1995, PNC Bank Corp.
is one of the largest bank money managers as well as one of the largest
institutional mutual fund managers in the United States. Of such amounts at
September 30, 1995, PNC Bank had $76.8 billion in discretionary assets under
management and investment management and trust assets totaling $104.7 billion.
In addition to asset management and trust services, PNC Bank also provides a
wide range of domestic and international commercial banking and retail banking
services. PNC Bank's origins, and in particular its trust administration
services, date back to the mid-to-late 1800s.
For its services and expenses incurred under the Sub-Advisory Agreement, PNC
Bank is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the Small Company
Growth Fund's average daily net assets), which vary according to the level of
Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ---------------------------------- ----------
<S> <C>
Up to $50 million................. .50%
Next $50 million.................. .45%
Over $100 million................. .40%
</TABLE>
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund and also acts as the
Group's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates) under agreements approved by the
Group's Board of Trustees. BISYS Fund Services is wholly owned by The BISYS
Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. Under a management and administration agreement between the Group
and the Administrator, the fee payable by a Fund to the Administrator for
management administration services is the lesser of (a) a fee computed at the
annual rate of twenty one-hundredths of one percent (.20%) of a Fund's average
daily net assets or (b) such fee as may from time to time be agreed upon in
writing by the Group and the Administrator. A fee agreed to in writing from time
to time by the Group and the Administrator may be significantly lower than the
fee calculated at the annual rate and the effect of such lower fee would be to
lower a Fund's expenses and increase the net income of the Fund during the
period when such lower fee is in effect. For the period from October 1, 1994
through September 30, 1995, the Funds paid the following Administration fees (as
a percentage of each Fund's average daily net assets): .20% for each of the U.S.
Treasury; the Short-Intermediate, the Intermediate Bond, the Growth and Income
and the Balanced Funds; and .15% for the North Carolina Fund. No Administration
fees were paid by the Special Trust Funds for that period, as they had not
commenced operations as of September 30, 1995. For the period from December 7,
1994 (commencement of operations) to September 30, 1995, the Small Company
Growth Fund paid .20% in Administration fees (as a percentage of its average
daily net assets).
EXPENSES
BB&T and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the Group, Securities
and Exchange Commission fees, state securities qualification and renewal fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and
out-of-pocket expenses for
30
<PAGE> 83
fund accounting services, expenses incurred for pricing securities owned by a
Fund, certain insurance premiums, costs of maintenance of a Fund's existence,
costs and expenses of Shareholders' and Trustees' reports and meetings, and any
extraordinary expenses incurred in its operation. As a general matter, expenses
are allocated to the Class A, Class B and Trust Class of a Fund on the basis of
the relative net asset value of each class. At present, the only expenses that
will be borne solely by Class A and Class B Shares, other than in accordance
with the relative net asset value of the class, are expenses under the Group's
Distribution and Shareholder Services Plan ("Distribution Plan") which relate
only to the Class A and Class B Shares. For the fiscal year ended September 30,
1995, each Fund's total operating expenses for Trust Shares were as follows (as
a percentage of average daily net assets of each Fund): U.S. Treasury Fund:
.72%; Short-Intermediate Fund: .93%; Intermediate Bond Fund: .85%; North
Carolina Fund: .91%; Growth and Income Fund: .82%; and Balanced Fund: .92%.
Absent fee waivers by the Adviser and Administrator, these operating expenses
would have been: U.S. Treasury Fund: .75%; Short-Intermediate Fund: 1.08%;
Intermediate Bond Fund: 1.00%; North Carolina Fund: 1.13%; Growth and Income
Fund: 1.10%; and Balanced Fund: 1.21%. For the period from December 7, 1994
(commencement of operations) through September 30, 1995 operating expenses for
the Trust Shares of the Small Company Growth Fund were (as a percentage of
average daily net assets of the Fund) 2.33% (with waivers) and 2.42% (without
waivers).
The organizational expenses of the Small Company Growth Fund and the Special
Trust Funds have been capitalized and are being amortized in the first two years
of such Funds' operations. Such amortization will reduce the amount of income
available for payment as dividends.
BANKING LAWS
BB&T and PNC Bank each believes that it possesses the legal authority to
perform the investment advisory and sub-advisory services for the Group
contemplated by its investment advisory agreement with the Group and investment
and sub-advisory agreement with BB&T and described in this Prospectus without
violation of applicable banking laws and regulations, and has so represented to
the Group. Future changes in federal or state statutes and regulations relating
to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which BB&T and PNC Bank could continue to perform
such services for the Group. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass
Steagall Act" in the Statement of Additional Information for further discussion
of applicable banking laws and regulations.
DISTRIBUTION PLAN
The Distribution Plan contains a so-called "defensive" provision applicable to
all classes of Shares. Under this defensive provision to the extent that any
payment made to the Administrator, including payment of administration fees,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of Shares issued by the Group's Funds within the context of
Rule 12b-1 under the 1940 Act, such payment shall be deemed to be authorized by
the Distribution Plan.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on October 1, 1987
and commenced active operation on September 24, 1992. The Group has an unlimited
number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into seven series of Shares, one for
each of the following Funds: the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T
U.S. Treasury Money Market Fund, the BB&T Balanced Fund and the BB&T Small
Company Growth Fund. The Group also offers three additional series of Shares,
one for each of the following Special Trust Funds: the BB&T Intermediate U.S.
Government Bond Fund II, the BB&T Growth and Income Stock Fund II and the BB&T
North Carolina Intermediate Tax-Free Fund II. The Special Trust Funds offer
Trust Shares only and are only
31
<PAGE> 84
available for purchase by common trust funds managed by BB&T or its affiliates.
Each Fund, except for the Special Trust Funds, offers to the public three
classes of shares: Class A, Class B and Trust Shares. Each Share represents an
equal proportionate interest in a Fund with other Shares of the same series and
class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that Fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment Company Act of 1940, Shares shall be
voted by individual series, and (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of December 7, 1995, BB&T owned of record substantially all of the Trust
Shares of each of the Funds, other than the Special Trust Funds, and held voting
or investment power with respect to 99.1%, 99.9%, 99.9%, 99.3%, 98.7%, 99.2% and
100% of the Trust Shares of the U.S. Treasury Money Market, Short-Intermediate
U.S. Government, North Carolina Intermediate Tax-Free, Growth Stock and Income
Stock, Intermediate U.S. Government Bond, Balanced and Small Company Growth
Funds, respectively. BB&T may therefore be deemed to be a "controlling person"
of the Trust Shares of each of the Funds within the meaning of the Investment
Company Act of 1940. The Special Trust Funds had not commenced operations as of
September 30, 1995.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for the Group.
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) serves as transfer agent for and provides fund accounting services
to the Group.
OTHER CLASSES OF SHARES
In addition to Trust Shares, the Group also offers Class A and Class B Shares
of each Fund, other than the Special Trust Funds. Class A Shares are offered to
the general public at net asset value plus an applicable sales charge. Class B
shares are offered to the general public at net asset value without a sales
charge when purchased, but are subject to a sales charge if a Shareholder
redeems them prior to the sixth anniversary of purchase. Class A and Class B
Shares are also subject to a Distribution and Shareholder Services Plan fee. As
of the date of this Prospectus, however, Class B Shares were not yet being
offered in the Short-Intermediate Fund or the North Carolina Fund.
PERFORMANCE INFORMATION
From time to time, the U.S. Treasury Fund's annualized "yield" and "effective
yield" and total return for Trust Shares may be presented in advertisements,
sales literature and Shareholder reports. The "yield" of the U.S. Treasury Fund
is based upon the income earned by the U.S. Treasury Fund over a seven-day
period and then annualized, i.e. the income earned in the period is assumed to
be earned every seven days over a 52-week period and is stated as a percentage
of the investment. The "effective
32
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yield" of a U.S. Treasury Fund is calculated similarly but when annualized, the
income earned by the investment is assumed to be reinvested in Shares of the
Group and thus compounded in the course of a 52-week period. The effective yield
will be higher than the yield because of the compounding effect of this assumed
reinvestment.
Total return is calculated for the past year and the period since the
establishment of the U.S. Treasury Fund. Average annual total return is measured
by comparing the value of an investment in the U.S. Treasury Fund at the
beginning of the relevant period to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions). Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over the
relevant period instead of annualized.
From time to time performance information of a Variable NAV Fund showing its
average annual total return, aggregate total return, and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. In addition, tax equivalent yield may be presented
in advertisements, sales literature and shareholder reports of the North
Carolina Fund and the North Carolina Fund II. Average annual total return will
be calculated for the period since the establishment of a Fund and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. Average
annual total return is measured by comparing the value of an investment in a
Fund at the beginning of the relevant period to the redemption value of an
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for a Variable NAV Fund
earned during a recent 30-day period by the Fund's per Share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the results.
The North Carolina Fund and the North Carolina Fund II may also advertise its
tax equivalent yield, which reflects the amount of income subject to federal
income taxation that a taxpayer would have to earn in order to obtain the same
after-tax income as that derived from the yield of the Funds. The tax equivalent
yield will be significantly higher than the yield of the North Carolina Funds.
Each Fund may also present its average annual total return, aggregate total
return, yield and/or tax equivalent yield, as the case may be, excluding the
effect of a sales charge, if any.
The Variable NAV Funds may also calculate a distribution rate. Distribution
rates will be computed by dividing the distribution per Share of a class made by
a Fund over a twelve-month period by the maximum offering price per Share. The
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses. The calculation of income in the
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be calculated
separately for each Class of Shares. Because Trust Shares are not subject to
Distribution and Shareholder Services Plan fees, the yield and total return for
Trust Shares will be higher than that of the Class A or Class B Shares for the
same period.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/ Donoghue's MONEY
FUND REPORT and Ibbotson Associates, Inc. References may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger,
Pension and Investments, U.S.A. Today and local newspapers. In addition to
performance information, general information about the Funds that appears in a
33
<PAGE> 86
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Information about the performance of a Fund is based on a Fund's record up to
a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to the Group's the
BB&T Mutual Funds Group, Department L-1528, Columbus, OH 43260-1528 or by
calling toll free (800) 228-1872.
34
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 90
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
INVESTMENT SUB-ADVISER
(Small Company Growth Fund only)
PNC Bank, N.A.
1835 Market Street, 15th Floor
Philadelphia, PA 19103
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 91
CROSS REFERENCE SHEET
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
- ----------- -----------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History Additional Information - Description of Shares
Investment Objectives and Policies Investment objectives and policies
Management of BB&T Mutual Funds Group Management of BB&T Mutual Funds Group
Control Persons and Principal
Holders of Securities Miscellaneous
Investment Advisory and Other Services Management of BB&T Mutual Funds Group
Brokerage Allocation Management of the BB&T Mutual Funds Group
Capital Stock and Other Securities Valuation; Additional Purchase and Redemption Information;
Management of BB&T Mutual Funds Group; Redemptions;
Additional Information
Purchase, Redemption and Pricing
of Securities Being Offered Valuation; Additional Purchase and Redemption Information;
Management of BB&T Mutual Funds Group
Tax Status Additional Purchase and Redemption Information
</TABLE>
<PAGE> 92
<TABLE>
<S> <C>
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
</TABLE>
<PAGE> 93
________________
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1996
________________
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectuses of the BB&T U.S. Treasury Money
Market Fund, the BB&T Short-Intermediate U.S. Government Income Fund, the BB&T
Intermediate U.S. Government Bond Fund, the BB&T Intermediate U.S. Government
Bond Fund II, the BB&T Growth and Income Stock Fund, the BB&T Growth and Income
Stock Fund II, the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T
North Carolina Intermediate Tax-Free Fund II, the BB&T Balanced Fund and the
BB&T Small Company Growth Fund, which is dated the same date hereof (the
"Prospectus"). This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. Copies of the Prospectuses
may be obtained by writing BB&T Mutual Funds Group at 3435 Stelzer Road,
Columbus, Ohio 43219, or by telephoning toll free (800) 228-1872.
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BB&T MUTUAL FUNDS GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Puts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
Valuation of the U.S. Treasury Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
Valuation of the Growth and Income Fund, Growth and Income Fund II,
North Carolina Fund, North Carolina Fund II, Short-Intermediate Fund,
Intermediate Bond Fund, Intermediate Bond Fund II, Balanced Fund and
Small Company Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
Purchase of Class A and Class B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
Matters Affecting Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Additional Tax Information Concerning the North Carolina Fund . . . . . . . . . . . . . . . . . . . . . . . . B-22
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
Investment Sub-Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
Manager and Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-37
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-37
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Yields of the U.S. Treasury Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Calculation of Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-42
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-43
Organization and Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-48
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49
i
</TABLE>
<PAGE> 95
<TABLE>
<S> <C>
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-58
Independent Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-58
Audited Financial Statements as of September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . B-58
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-98
</TABLE>
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<PAGE> 96
STATEMENT OF ADDITIONAL INFORMATION
BB&T MUTUAL FUNDS GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management
investment company. The Group consists of seven series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one
of seven separate investment portfolios (each a "Fund"): the BB&T U.S.
Treasury Money Market Fund (the "U.S. Treasury Fund"), the BB&T
Short-Intermediate U.S. Government Income Fund (the "Short-Intermediate Fund"),
the BB&T Intermediate U.S. Government Bond Fund (the "Intermediate Bond Fund"),
the BB&T Growth and Income Stock Fund (the "Growth and Income Fund"), the BB&T
North Carolina Intermediate Tax-Free Fund (the "North Carolina Fund"), the BB&T
Balanced Fund (the "Balanced Fund") and the BB&T Small Company Growth Fund (the
"Small Company Growth Fund"). The Group also offers three additional series of
Shares, one for each of the following Funds (the "Special Trust Funds"): the
BB&T Intermediate U.S. Government Bond Fund II (the "Intermediate Bond Fund
II"), the BB&T Growth and Income Stock Fund II (the "Growth and Income Fund
II") and the BB&T North Carolina Intermediate Tax-Free Fund II (the "North
Carolina Fund II"). The Special Trust Funds offer Trust Shares only and are
only available for purchase by common trust funds managed by BB&T or its
affiliates. Each Fund, except for the Special Trust Funds, offers to the
public three classes of Shares: Class A Shares, Class B Shares and Trust
Shares. Much of the information contained in this Statement of Additional
Information expands on subjects discussed in the Prospectuses. Capitalized
terms not defined herein are defined in the Prospectuses. No investment in
Shares of a Fund should be made without first reading the applicable
Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the information pertaining to
portfolio instruments of each Fund as set forth in the Prospectuses.
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("NRSROs") that may be
used by BB&T and PNC Bank, National Association ("PNC Bank") with regard to
portfolio investments for the Funds and provides a description of relevant
ratings assigned by each such NRSRO. A rating by an NRSRO may be used only
where the NRSRO is neither controlling, controlled by, nor under common control
with the issuer of, or any issuer, guarantor, or provider of credit support
for, the instrument.
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BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds
except the U.S. Treasury Fund may invest in bankers' acceptances, certificates
of deposit, and demand and time deposits. Bankers' acceptances are negotiable
drafts or bills of exchange typically drawn by an importer or exporter to pay
for specific merchandise, which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' acceptances will be those guaranteed by domestic and foreign
banks, if at the time of investment such banks have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand
and time deposits will be those of domestic and foreign banks and savings and
loan associations, if (a) at the time of investment they have capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements) or (b) the principal amount of the
instrument is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Fund, may
invest in commercial paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
VARIABLE AMOUNT MASTER DEMAND NOTE. Variable amount master demand
notes, in which the Growth and Income Fund, Growth and Income Fund II, Small
Company Growth Fund, Short-Intermediate Fund, Intermediate Bond Fund,
Intermediate Bond Fund II and Balanced Fund (the Short-Intermediate Fund, the
Intermediate Bond Fund and the Intermediate Bond Fund II are sometimes referred
to collectively as the "Fixed Income Funds") may invest, are unsecured demand
notes that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
They are also referred to as variable rate demand notes. Because these notes
are direct lending arrangements between the Fund and the issuer, they are not
normally traded. Although there may be no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time or during
specified periods not exceeding one year, depending upon the instrument
involved, and may resell the note at any time to a third party. The absence of
such an active secondary market, however, could make it difficult for the Fund
to dispose of a variable amount master demand note if the issuer defaulted on
its payment obligations or during periods when the Fund is not entitled to
exercise their demand rights, and the Fund could, for this or other reasons,
suffer a loss to the extent of the default. While the notes are not typically
rated by credit rating agencies, issuers of variable amount master demand notes
must satisfy the criteria for commercial paper. BB&T (or PNC Bank, with
respect to the Small Company Growth Fund) will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial
B-2
<PAGE> 98
status and ability to meet payment on demand. Where necessary to ensure that
a note is of "high quality," the Fund will require that the issuer's obligation
to pay the principal of the note be backed by an unconditional bank letter or
line of credit, guarantee or commitment to lend. In determining
dollar-weighted average portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the period of time remaining
until the principal amount can be recovered from the issuer through demand.
FOREIGN INVESTMENT. The Growth and Income, Growth and Income II,
Balanced, and Small Company Growth Funds may invest in certain obligations or
securities of foreign issuers. Permissible investments include Eurodollar
Certificates of Deposit ("ECDs") which are U.S. dollar denominated
certificates of deposit issued by branches of foreign and domestic banks
located outside the United States, Yankee Certificates of Deposit ("Yankee
CDs") which are certificates of deposit issued by a U.S. branch of a foreign
bank, denominated in U.S. dollars and held in the United States, Eurodollar
Time Deposits ("ETD's") which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank, and Canadian Time Deposits ("CTD's")
which are U.S. dollar denominated certificates of deposit issued by Canadian
offices of major Canadian Banks, Canadian Commercial Paper, which is commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and European commercial paper, which is U.S. dollar denominated
commercial paper of an issuer located in Europe. The Funds may invest in
foreign commercial paper, including Canadian and European commercial paper as
described above. Investments in securities issued by foreign branches of U.S.
banks, foreign banks, or other foreign issuers, including American Depository
Receipts ("ADRs") and securities purchased on foreign securities exchanges, may
subject the Fund to investment risks that differ in some respects from those
related to investment in obligations of U.S. domestic issuers or in U.S.
securities markets. Such risks include future adverse political and economic
developments, possible seizure, currency blockage, nationalization or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, and
the adoption of other foreign governmental restrictions. Additional risks
include currency exchange risks, less publicly available information, the risk
that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements than those applicable to domestic branches of U.S. banks. A Fund
will acquire such securities only when BB&T (or PNC Bank, with respect to the
Small Company Growth Fund) believes the risks associated with such investments
are minimal.
REPURCHASE AGREEMENTS. Securities held by each of the Group's Funds
may be subject to repurchase agreements. Under the terms of a repurchase
agreement, a Fund would acquire
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securities from member banks of the Federal Deposit Insurance Corporation with
capital, surplus, and undivided profits of not less than $100,000,000 (as of
the date of their most recently published financial statements) and from
registered broker-dealers which BB&T deems creditworthy under guidelines
approved by the Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest) and BB&T (or PNC Bank, with respect to the Small Company
Growth Fund) will monitor the collateral's value to ensure that it equals or
exceeds the repurchase price (including accrued interest). In addition,
securities subject to repurchase agreements will be held in a segregated
account. If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement, or to the extent that the
disposition of such securities held by the Fund were delayed pending court
action. Additionally, if the seller should be involved in bankruptcy or
insolvency proceedings, a Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
security to the seller's estate. Securities subject to repurchase agreements
will be held by the Group's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the Investment Company Act of 1940 (the
"1940 Act").
REVERSE REPURCHASE AGREEMENT. As discussed in the Prospectus, each of
the Group's Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and
agree to repurchase the securities at a mutually agreed-upon date and price.
Each Fund intends to enter into reverse repurchase agreements only to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account assets consistent with the Fund's
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that
such equivalent value is maintained. Such assets will include U.S. Government
securities or other liquid high quality debt securities or high grade debt
securities. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Fund may decline below the price at which a
Fund is obligated to repurchase the securities. Reverse repurchase agreements
are considered to be borrowings by a Fund under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. The U.S. Treasury Fund will invest
exclusively in bills, notes and bonds issued or guaranteed by the U.S.
Treasury. Such obligations are
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<PAGE> 100
supported by the full faith and credit of the U.S. Government. Each of the
other Funds may invest in such obligations and in other obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such
other obligations may include those which are supported by the full faith and
credit of the U.S. Government; others which are supported by the right of the
issuer to borrow from the Treasury; others which are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others which are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies and
instrumentalities if it is not obligated to do so by law. A Fund will invest
in the obligations of such agencies and instrumentalities only when BB&T (and
PNC Bank, with respect to the Small Company Growth Fund) believes that the
credit risk with respect thereto is minimal.
VARIABLE AND FLOATING RATE NOTE. The North Carolina Fund and the
North Carolina Fund II may acquire variable and floating rate notes, subject to
the Funds' investment objective, policies and restrictions. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. A floating rate note is one
whose terms provide for the adjustment of its interest rate whenever a
specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes
are frequently not rated by credit rating agencies; however, unrated variable
and floating rate notes purchased by the North Carolina Fund and the North
Carolina Fund II will be determined by BB&T under guidelines established by the
Group's Board of Trustees to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under the Funds' investment
policies. In making such determinations, BB&T will consider the earning power,
cash flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating rate
note purchased by the North Carolina Fund and the North Carolina Fund II, the
Funds may resell the note at any time to a third party. The absence of an
active secondary market, however, could make it difficult for the North
Carolina Fund and the North Carolina Fund II to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
obligations and the North Carolina Fund and the North Carolina Fund II could,
as a result or for other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes acquired by the North Carolina Fund
and the North Carolina Fund II may have maturities of more than three years, as
follows:
1. A note that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than annually will be
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deemed by the North Carolina Fund and the North Carolina Fund II to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
2. A variable rate note, the principal amount of which is scheduled
on the face of the instrument to be paid in one year or less, will be deemed by
the North Carolina Fund and the North Carolina Fund II to have a maturity equal
to the period remaining until the next readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature will be
deemed by the North Carolina Fund and the North Carolina Fund II to have a
maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by the North Carolina Fund and the North Carolina Fund II to have a
maturity equal to the period remaining until the principal amount can be
recovered through demand.
As used above, a note is "subject to a demand feature" where the North
Carolina Fund and the North Carolina Fund II are entitled to receive the
principal amount of the note either at any time on no more than 30 days' notice
or at specified intervals not exceeding three years in the case of the North
Carolina Fund and the North Carolina Fund II.
TAX-EXEMPT OBLIGATIONS. Under normal market conditions, the North
Carolina Fund and the North Carolina Fund II will invest at least 90% of their
total assets in high grade obligations issued by or on behalf of the State of
North Carolina and its political subdivisions, the interest on which, in the
opinion of the issuer's bond counsel at the time of issuance, is exempt both
from federal income tax and North Carolina personal income tax and not treated
as a preference item for purposes of the federal alternative minimum tax for
individuals ("North Carolina Tax-Exempt Obligations"). In addition to North
Carolina Tax-Exempt Obligations, the North Carolina Fund and the North Carolina
Fund II may invest in Tax-Exempt Obligations issued by or on behalf of states
other than North Carolina, territories and possessions of the United States,
the District of Columbia and their respective authorities, agencies,
instrumentalities, and political subdivisions, the interest on which, in the
opinion of the issuer's counsel at the time of issuance, is exempt from federal
income tax and is not treated as a preference item for individuals for purposes
of the federal alternative minimum tax. Such securities and North Carolina
Tax-Exempt Obligations are hereinafter collectively referred to as "Tax-Exempt
Obligations."
Tax-Exempt Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by
or on behalf of public authorities to finance various privately-operated
facilities
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are included within the term Tax-Exempt Obligations if the interest paid
thereon is both exempt from federal income tax and not treated as a preference
item for individuals for purposes of the federal alternative minimum tax.
Tax-Exempt Obligations may also include General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes,
Project Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other
forms of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus, the two principal classifications of
Tax-Exempt Obligations consist of "general obligation" and "revenue" issues.
The North Carolina Fund and the North Carolina Fund II are permitted to invest
in Tax-Exempt Obligations and may also acquire "moral obligation" issues, which
are normally issued by special purpose authorities. There are, of course,
variations in the quality of Tax-Exempt Obligations, both within a particular
classification and between classifications, and the yields on Tax-Exempt
Obligations depend upon a variety of factors, including general money market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's and S&P
represent their opinions as to the quality of Tax-Exempt Obligations. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and Tax-Exempt Obligations with the same maturity,
interest rate and rating may have different yields, while Tax-Exempt
Obligations of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by the North Carolina Fund, an
issue of Tax-Exempt Obligations may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Funds. Neither
event would under all circumstances require the elimination of such an
obligation from the North Carolina and the North Carolina II Funds' investment
portfolio. However, the obligation generally would be retained only if such
retention was determined by the Board of Trustees to be in the best interests
of the North Carolina Fund.
An issuer's obligations for its Tax-Exempt Obligations are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to
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levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Tax-Exempt Obligations may be
materially adversely affected by litigation or other conditions.
Although lease obligations do not constitute general obligations of
the issuer for which the lessee's unlimited taxing power is pledged, the lease
obligation is frequently assignable and backed by the lessee's covenant to
budget for, appropriate, and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. These securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional securities. Certain investments in lease obligations may be
illiquid. Under guidelines established by the Board of Trustees, the following
factors will be considered when determining the liquidity of a lease
obligation: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the obligation and the number of
potential buyers; (3) the willingness of dealers to undertake to make a market
in the obligation; and (4) the nature of the marketplace trades.
WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, the
Short-Intermediate Fund, the Intermediate Bond Fund, the Intermediate Bond Fund
II, the Growth and Income Fund, the Growth and Income Fund II, the North
Carolina Fund, the North Carolina Fund II, the Balanced Fund, and the Small
Company Growth Fund each may purchase securities on a when-issued basis, and
the Small Company Growth Fund may purchase securities on a forward commitment
basis (I.E., for delivery beyond the normal settlement date at a stated price
and yield). When these Funds agree to purchase securities on a when-issued or
forward commitment basis, the Funds' custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, a Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that any such Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
When a Fund engages in when-issued or forward commitment transactions,
it relies on the seller to consummate the trade. Failure of the seller to do
so may result in the Fund incurring a loss or missing the opportunity to obtain
a price considered to be advantageous. In addition, the purchase of securities
on a when-issued or forward commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Each of the Funds does not intend to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objective.
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CALLS. The Growth and Income, Growth and Income II, Balanced, and
Small Company Growth Funds may write (sell) "covered" call options and purchase
options to close out options previously written by it. Such options must be
listed on a National Securities Exchange and issued by the Options Clearing
Corporation. The purpose of writing covered call options is to generate
additional premium income for the Growth and Income, Growth and Income II, and
Balanced Funds. This premium income will serve to enhance the Growth and
Income, Growth and Income II, Small Company Growth and Balanced Funds' total
return and will reduce the effect of any price decline of the security involved
in the option. Covered call options will generally be written on securities
which, in BB&T's (or PNC Bank's, with respect to the Small Company Growth Fund)
opinion, are not expected to make any major price moves in the near future but
which, over the long term, are deemed to be attractive investments for the
Growth and Income, Growth and Income II, Balanced and Small Company Growth
Funds.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to
deliver the underlying security against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by repurchasing
an option identical to that previously sold. To secure the writer's obligation
to deliver the underlying security in the case of a call option, a writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation. The Funds will
write only covered call options. This means that a Fund will only write a call
option on a security which it already owns. (In order to comply with the
requirements of the securities laws in several states, a Fund will not write a
covered call option if, as a result, the aggregate market value of all
portfolio securities covering call options or subject to put options exceeds
25% of the market value of its net assets.)
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call
option, a Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security above the exercise price, but
retains the risk of loss should the price of the security decline. Unlike one
who owns securities not subject to an option, a Fund does not have any control
over the point at which it may be required to sell the underlying securities,
because it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which a Fund has
written expires, a Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is
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exercised, a Fund will realize a gain or loss from the sale of the underlying
security. The security covering the call will be maintained in a segregated
account of a Fund's custodian. A Fund does not consider a security covered by
a call to be "pledged" as that term is used in its policy which limits the
pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, BB&T (or PNC Bank, with respect to the Small
Company Growth Fund), in determining whether a particular call option should be
written on a particular security, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will
exist for those options. The premium received by a Fund for writing covered
call options will be recorded as a liability in a Fund's statement of assets
and liabilities. This liability will be readjusted daily to the option's
current market value, which will be the latest sale price at the time at which
the net asset value per share of a Fund is computed (close of the New York
Stock Exchange), or, in the absence of such sale, the latest asked price. The
liability will be extinguished upon expiration of the option, the purchase of
an identical option in the closing transaction, or delivery of the underlying
security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being
called, or to permit the sale of the underlying security. Furthermore,
effecting a closing transaction will permit a Fund to write another call option
on the underlying security with either a different exercise price or expiration
date or both. If a Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is, of course, no assurance that a Fund will be able to effect such
closing transactions at a favorable price. If a Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security.
This could result in higher transaction costs. A Fund will pay transaction
costs in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, a Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
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A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
PUTS. The North Carolina Fund and the North Carolina Fund II may
acquire "puts" with respect to Tax-Exempt Obligations held in its portfolio,
and the Small Company Growth Fund may acquire puts with respect to the
securities in its portfolio. A put is a right to sell a specified security (or
securities) within a specified period of time at a specified exercise price.
Each of these Funds may sell, transfer, or assign a put only in conjunction
with the sale, transfer, or assignment of the underlying security or
securities.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities subject to the put (excluding
any accrued interest which the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period.
Puts may be acquired by the North Carolina, North Carolina II and
Small Company Growth Funds to facilitate the liquidity of their portfolio
assets or to shorten the maturity of underlying assets. Puts may also be used
to facilitate the reinvestment of assets at a rate of return more favorable
than that of the underlying security.
The North Carolina, North Carolina II and Small Company Growth Funds
will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for puts either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
The North Carolina, North Carolina II and Small Company Growth Funds
intend to enter into puts only with dealers, banks, and broker-dealers which,
in BB&T's opinion (or PNC Bank's opinion, with respect to the Small Company
Growth Fund), present minimal credit risks.
RISK FACTORS RELATING TO OPTION. There are several risks associated
with transactions in put and call options. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may
be
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insufficient trading interest in certain options, restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
that had been issued by the Options Clearing Corporation as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms. In addition, the success of a hedging strategy based on options
transactions may depend on the ability of the Fund's investment adviser or
investment sub-adviser to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates.
FUTURES CONTRACTS AND RELATED OPTIONS. The Small Company Growth Fund
may invest in futures contracts and options thereon (interest rate futures
contracts or index futures contracts, as applicable). Positions in futures
contracts may be closed out only on an exchange which provides a secondary
market for such futures. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Thus, it may not be possible to close a futures position. In the event
of adverse price movements, the Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.
Successful use of futures by the Fund is also subject to the
sub-adviser's ability to correctly predict movements in the direction of the
market. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition,
in some situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the
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time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Utilization of futures transactions by the Fund involves the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement, during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
To the extent that such futures and options are not for "bona fide
hedging purposes" (as defined by the CFTC), the aggregate initial margin and
premiums on such positions (excluding the amount by which options are in the
money) will not exceed 5% of the Small Company Growth Fund's total assets at
current value. The Small Company Growth Fund, however, may invest more than
such amount for bona fide hedging purposes, and may also invest more than such
amount if it obtains authority to do so from the appropriate regulatory
agencies without rendering the Fund a commodity pool operator or adversely
affecting its status as an investment company for Federal securities law or
income tax purposes.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult to impossible to liquidate existing positions or to recover excess
variation margin payments.
Investment Restrictions
- -----------------------
Except as provided otherwise, the following investment restrictions
may be changed with respect to a particular Fund only by a vote of a majority
of the outstanding Shares of that Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectus).
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None of the Funds of the Group may:
1. Purchase securities on margin, sell securities short, participate
on a joint or joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent that a Fund
may be deemed to be an underwriter under certain securities laws in the
disposition of "restricted securities" acquired in accordance with such Fund's
investment objectives and policies;
2. Purchase or sell commodities, commodity contracts (including
futures contracts, with respect to each Fund other than the Small Company
Growth Fund, which may purchase futures contracts) oil, gas or mineral
exploration or development programs, or real estate (although investments by
the Growth and Income Fund, Growth and Income Fund II, North Carolina Fund,
North Carolina Fund II, Short-Intermediate Fund, Intermediate Bond Fund,
Intermediate Bond Fund II, Balanced Fund and Small Company Growth Fund in
marketable securities of companies engaged in such activities and in securities
secured by real estate or interests therein are not hereby precluded);
3. Invest in securities of other investment companies, except as such
securities may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets; PROVIDED, HOWEVER, that (i) the Growth and Income
Fund, Growth and Income Fund II, North Carolina Fund, North Carolina Fund II,
Short-Intermediate Fund, Intermediate Bond Fund, Intermediate Bond Fund II,
Balanced Fund and Small Company Growth Fund may purchase securities of a money
market fund, including securities of the U.S. Treasury Fund (none of the Funds
will invest in the U.S. Treasury Fund until exemptive relief from the
Securities and Exchange Commission is received); (ii) the North Carolina Fund
and the North Carolina Fund II may purchase securities of a money market fund
which invests primarily in high quality short-term obligations exempt from
federal income tax, if, with respect to each such Fund, immediately after such
purchase, the acquiring Fund does not own in the aggregate (a) more than 3% of
the acquired company's outstanding voting securities, (b) securities issued by
the acquired company having an aggregate value in excess of 5% of the value of
the total assets of the acquiring Fund, or (c) securities issued by the
acquired company and all other investment companies (other than Treasury stock
of the acquiring Fund) having an aggregate value in excess of 10% of the value
of the acquiring Fund's total assets; (iii) the Small Company Growth Fund may
purchase shares of other investment companies in accordance with the provisions
of the Investment Company Act of 1940, as amended, and the rules and
regulations promulgated thereunder; and (iv) this restriction 3 is not
fundamental with respect to the Small Company Growth Fund and may therefore be
changed by a vote of a majority of the Trustees of the Group.
The U.S. Treasury Fund may not buy common stocks or voting securities,
or state, municipal, or private activity bonds. The U.S. Treasury Fund, North
Carolina Fund, North Carolina Fund II, Short-Intermediate Fund, Intermediate
Bond Fund and Intermediate Bond Fund II may not write or purchase call options.
Each of the Funds may not write put options.
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The U.S. Treasury Fund, Short-Intermediate Fund, Intermediate Bond Fund and
Intermediate Bond Fund II may not purchase put options. The North Carolina
Fund and the North Carolina Fund II may not invest in private activity bonds
where the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operation.
The following investment restrictions are considered non-fundamental
and therefore may be changed by a vote of a majority of the Trustees of the
Group:
None of the Funds may:
1. Enter into a repurchase agreement with a maturity in excess of
seven days if such investment, together with other instruments in the Fund
which are not readily marketable, exceeds 15% of such Fund's net assets except
that the U.S. Treasury Fund will limit its investment in such securities to 10%
of its net assets;
2. Invest more than 10% of total assets in the securities of issuers
which together with any predecessors have a record of less than three years of
continuous operation;
3. Invest in any issuer for purposes of exercising control or
management; and
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Group's Funds is
calculated by dividing the lesser of a Fund's purchases or sales of portfolio
securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities at the
time of acquisition were one year or less. For the periods from October 1,
1993 to September 30, 1994, and from October 1, 1994 to September 30, 1995, the
portfolio turnover rates for each of the Funds other than the U.S. Treasury
Fund, and the Small Company Growth Fund and Special Trust Funds (which had not
yet commenced operations), were as follows: Short-Intermediate U.S. Government
Fund: 7.06% and 106.81%, respectively; Intermediate U.S. Government Fund:
.38% and 68.91%, respectively; Growth and Income Stock Fund: 21.30% and 8.73%,
respectively; North Carolina Tax-Free Fund: .56% and 9.38%, respectively; and
Balanced Fund: 12.91% and 23.68%; respectively. For the period from
commencement of operations, December 7, 1994, to September 30,
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1995, the portfolio turnover rate for the Small Company Growth Fund was
46.97%. The change in portfolio turnover rate of the Intermediate U.S.
Government Fund from 1993 to 1994 was the result of the significant growth in
the number of shareholders of the Fund and, accordingly, the Fund's assets
which resulted in a positive cash flow for the Fund; this positive cash flow
enabled the Fund to acquire additional securities without having to make
concurrent sales of securities. High turnover rates will generally result in
higher transaction costs to the Funds and may result in higher levels of
taxable realized gains to a Fund's shareholders. It is expected that the
portfolio turnover rates of the Special Trust Funds will be identical to those
of the existing Funds of the same name. The portfolio turnover rate may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of Shares. A higher portfolio
turnover rate for each of the Group's Funds other than the U.S. Treasury Fund
may lead to increased taxes and transaction costs. Portfolio turnover will not
be a limiting factor in making investment decisions.
Because the U.S. Treasury Fund intends to invest entirely in
securities with maturities of less than one year and because the Securities and
Exchange Commission requires such securities to be excluded from the
calculation of the portfolio turnover rate, the portfolio turnover with respect
to the U.S. Treasury Fund was zero percent for the periods from October 1, 1993
to September 30, 1994 and from October 1, 1994 to September 30, 1995, and is
expected to remain zero percent for regulatory purposes.
VALUATION
The net asset value of each of the Funds, other than the U.S. Treasury
Fund, is determined and its Shares are priced as of the close of regular
trading of the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on
each Business Day ("Valuation Time"). The net asset value of the U.S. Treasury
Fund is determined and it Shares are priced as of 12:00 p.m. and as of the
close of regular trading of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time) on each Business Day ("Valuation Times"). As used herein a
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading, the Federal Reserve Bank of Richmond is open, any
other day except days on which there are not sufficient changes in the value of
the Fund's portfolio securities that the Fund's net asset value might be
materially affected, or days during which no Shares are tendered for redemption
and no orders to purchase Shares are received. Currently, either the NYSE or
the Federal Reserve Bank of Richmond is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.
Valuation of the U.S. Treasury Fund
- -----------------------------------
The U.S. Treasury Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost
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initially and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. This method may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
the U.S. Treasury Fund would receive if it sold the instrument. The value of
securities in the U.S. Treasury Fund can be expected to vary inversely with
changes in prevailing interest rates.
Pursuant to Rule 2a-7, the U.S. Treasury Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will not
purchase any security with a remaining maturity of more than thirteen months
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
The Group's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the U.S.
Treasury Fund's investment objective, to stabilize the net asset value per
Share of the U.S. Treasury Fund for purposes of sales and redemptions at
$1.00. These procedures include review by the Trustees, at such intervals as
they deem appropriate, to determine the extent, if any, to which the net asset
value per Share of the Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Trustees promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from the Fund's $1.00 amortized cost price per Share
may result in material dilution or other unfair results to new or existing
investors, they will take such steps as they consider appropriate to eliminate
or reduce to the extent reasonably practicable any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average portfolio maturity,
withholding or reducing dividends, reducing the number of the Fund's
outstanding Shares without monetary consideration, or utilizing a net asset
value per Share determined by using available market quotations.
VALUATION OF THE GROWTH AND INCOME FUND, GROWTH AND INCOME FUND II, NORTH
CAROLINA FUND, NORTH CAROLINA FUND II, SHORT-INTERMEDIATE FUND, INTERMEDIATE
BOND FUND, INTERMEDIATE BOND FUND II, BALANCED FUND AND SMALL COMPANY GROWTH
FUND
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal
market (closing sales prices if the principal market is an exchange) in which
such securities are normally traded. Unlisted securities for which market
quotations are readily available will be valued at the current quoted bid
prices. Other securities and assets for which quotations are not readily
available, including restricted securities and securities purchased in private
transactions, are valued at their fair market value in BB&T's (or PNC Bank's,
with respect to the Small Company Growth Fund) best judgment under procedures
established by, and under the supervision of the Group's Board of Trustees.
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Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Growth and Income Fund, the Growth and Income
Fund II, the North Carolina Fund, the North Carolina Fund II, the
Short-Intermediate Fund, the Intermediate Bond Fund, the Intermediate Bond Fund
II, the Balanced Fund and the Small Company Growth Fund are the existence of
restrictions upon the sale of the security by the Fund, the absence of a market
for the security, the extent of any discount in acquiring the security, the
estimated time during which the security will not be freely marketable, the
expenses of registering or otherwise qualifying the security for public sale,
underwriting commissions if underwriting would be required to effect a sale,
the current yields on comparable securities for debt obligations traded
independently of any equity equivalent, changes in the financial condition and
prospects of the issuer, and any other factors affecting fair market value. In
making valuations, opinions of counsel may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for
public sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such
factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations of normal institutional trading units of debt securities
and would not rely exclusively on quoted prices. The methods used by the
pricing service and the valuations so established will be reviewed by the Group
under the general supervision of the Group's Board of Trustees. Several
pricing services are available, one or more of which may be used by BB&T and
PNC Bank from time to time.
Investments in debt securities with remaining maturities of 60 days or
less may be valued based upon the amortized cost method.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares in each of the Group's Funds are sold on a
continuous basis by BISYS Fund Services ("BISYS"). In addition to purchasing
Shares directly from BISYS, Class A, Class B or Trust Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at BB&T, or BB&T's affiliated or correspondent banks. Customers
purchasing Shares of the Group may include officers, directors, or employees of
BB&T or BB&T's affiliated or correspondent banks. Trust Shares of the Special
Trust Funds are only available for purchase by common trust funds managed by
BB&T or its affiliates.
Purchase of Class A and Class B Shares
- --------------------------------------
As stated in the Class A and Class B Prospectus, the public offering
price of Class A Shares of the Growth and Income Fund, North Carolina Fund,
Short-Intermediate Fund,
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Intermediate Bond Fund, Balanced Fund and Small Company Growth Fund is their
net asset value next computed after an order is received, plus a sales charge
which varies based upon the quantity purchased. The public offering price of
such Class A Shares of the Group is calculated by dividing net asset value by
the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "How to Purchase
and Redeem Shares" in the Class A and Class B Prospectus). The offering price
is rounded to two decimal places each time a computation is made. The sales
charge scale set forth in the Class A and Class B Prospectus applies to
purchases of Class A Shares of such a Fund by a Purchaser.
As stated in the Class A and Class B Prospectus, shares of The U.S.
Treasury Fund and Class B Shares of each Fund are sold at their net asset value
per share, as next computed after an order is received. However, as discussed
in the Class A and Class B Prospectus, the Class B Shares are subject to a
Contingent Deferred Sales Charge if they are redeemed prior to the sixth
anniversary of purchase. Class B Shares of the U.S. Treasury Fund will be
issued only in exchange for Class B Shares of any of the other Funds, or as a
temporary investment subject to a mandatory exchange out of the U.S. Treasury
Fund for Class B Shares of any of the other Funds within two years of purchase.
Certain sales of Class A Shares are made without a sales charge, as
described in the Class A and Class B Prospectus under the caption "Sales Charge
Waivers," to promote goodwill with employees and others with whom BISYS, BB&T
and/or the Group have business relationships, and because the sales effort, if
any, involved in making such sales is negligible.
As the Group's principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the Group to dealers. BISYS re-allows
the applicable sales charge as dealer discounts and brokerage commissions.
Dealer allowances expressed as a percentage of offering price for all offering
prices are set forth in the Class A and Class B Prospectus (see "How to
Purchase and Redeem Shares"). From time to time, BISYS will make expense
reimbursements for special training of a dealer's registered representatives in
group meetings or to help pay the expenses of sales contests. Neither BISYS
nor dealers are permitted to delay the placement of orders to benefit
themselves by a price change.
Matters Affecting Redemption
- ----------------------------
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as a result of which (i) disposal by the Group of securities owned by it is not
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reasonably practical or (ii) it is not reasonably practical for the Company to
determine the fair market value of its total net assets.
The Group may redeem any class of Shares involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940
Act. See "Valuation of the Money Market Funds" above.
ADDITIONAL TAX INFORMATION
It is the policy of each of the Group's Funds to qualify for the
favorable tax treatment accorded regulated investment companies under
Subchapter M of the Code. By following such policy, each of the Group's Funds
expects to eliminate or reduce to a nominal amount the federal income taxes to
which such Fund may be subject.
In order to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, a Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale of stock,
securities, and foreign currencies, or other income (including but not limited
to gains from options, futures, or forward contracts) derived with respect to
its business of investing in such stock, securities, or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of certain
assets (including stocks and securities) held for less than three months; (c)
each year distribute at least 90% of its dividend, interest (including
tax-exempt interest), and certain other income and the excess, if any, of its
net short-term capital gains over its net long-term capital losses; and (d)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of its assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited in respect of any one issuer to a value not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar, or related trades or businesses. The 30% of gross income test
described above may restrict a Fund's ability to sell certain assets held (or
considered under Code rules to have been held) for less than three months and
to engage in certain hedging transactions (including hedging transactions in
options and futures) that in some circumstances could cause certain Fund assets
to be treated as held for less than three months.
A non-deductible excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined) for the calendar year plus 98% of their capital
gain net income for the 1-year period ending on October 31 of such calendar
year plus any undistributed amounts from prior years. For the foregoing
purposes, a
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Fund is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year. If distributions
during a calendar year by a Fund were less than the required amount, the Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Each of the Group's Funds will be required in certain cases to
withhold and remit to the United States Treasury 31% of taxable dividends and
other distributions paid to any Shareholder who has provided either an
incorrect taxpayer identification number or no number at all, who is subject to
withholding by the Internal Revenue Service for failure properly to report
payments of interest or dividends, or who fails to provide a certified
statement that he or she is not subject to "backup withholding."
A Fund's transactions in futures contracts, options, and
foreign-currency-denominated securities, and certain other investment and
hedging activities of the Fund, will be subject to special tax rules (including
"mark-to-market," "straddle," "wash sale," and "short sale" rules), the effect
of which may be to accelerate income to the Fund, defer losses to the Fund,
cause adjustments in the holding periods of the Fund's assets, convert
short-term capital losses into long-term capital losses, and otherwise affect
the character of the Fund's income. These rules could therefore affect the
amount, timing, and character of distributions to Shareholders. Income earned
as a result of these transactions would, in general, not be eligible for the
dividends received deduction or for treatment as exempt-interest dividends when
distributed to Shareholders. The Funds will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Funds.
Although each Fund expects to qualify as a "regulated investment
company" ("RIC") and to be relieved of all or substantially all Federal income
taxes, depending upon the extent of their activities in states and localities
in which their offices are maintained, in which their agents or independent
contractors are located, or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or
localities. If for any taxable year a Fund does not qualify for the special
Federal tax treatment afforded a RIC, all of its taxable income will be subject
to Federal income tax at regular corporate rates at the Fund level (without any
deduction for distributions to its Shareholders). In addition, distributions
to Shareholders will be taxed as ordinary income even if the distributions are
attributable to capital gains or exempt interest earned by the Fund.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the Group's Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of a Fund or its Shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectuses and this Statement of
Additional Information is based on tax laws and regulations
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which are in effect on the date of the Prospectuses and this Statement of
Additional Information; such laws and regulations may be changed by legislative
or administrative action.
Additional Tax Information Concerning the North Carolina Fund
- -------------------------------------------------------------
As indicated in the Prospectuses, the North Carolina Fund and the
North Carolina Fund II are designed to provide North Carolina Shareholders with
current tax-exempt interest income. The Funds are not intended to constitute a
balanced investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the North Carolina Fund and the North Carolina Fund II
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, so-called Keogh or
H.R. 10 plans, and individual retirement accounts. Such plans and accounts are
generally tax-exempt and, therefore, would not realize any additional benefit
from the dividends of the North Carolina Fund and the North Carolina Fund II
being tax-exempt, and such dividends would be ultimately taxable to the
beneficiaries when distributed to them.
In addition, the North Carolina Fund and the North Carolina Fund II
may not be appropriate investments for Shareholders who are "substantial users"
of facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business, and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds represent more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities, or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related person"
includes certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders. Each
Shareholder who may be considered a "substantial user" should consult a tax
adviser with respect to whether exempt-interest dividends would retain the
exclusion under Section 103 of the Code if the Shareholder were treated as a
"substantial user" or a "related person."
The Code permits a RIC which invests at least 50% of its total assets
in Tax-Exempt Obligations to pass through to its investors, tax- free, net
Tax-Exempt Obligations interest income. The policy of the North Carolina Fund
and the North Carolina Fund II is to pay each year as dividends substantially
all such Funds' Tax-Exempt Obligations interest income net of certain
deductions. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the North Carolina Fund and the North
Carolina Fund II and designated as an exempt-interest dividend in a written
notice mailed to Shareholders within sixty days after the close of the Funds'
taxable year, but not to exceed in the aggregate the net Tax-Exempt Obligations
interest received by the Funds during the taxable year. The percentage of the
total dividends paid for any taxable year which qualifies as federal
exempt-interest dividends will be the same for all Shareholders receiving
dividends from the North
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Carolina Fund and the North Carolina Fund II during such year, regardless of
the period for which the Shares were held.
While the North Carolina Fund and the North Carolina Fund II do not
expect to realize any significant amount of long-term capital gains, any net
realized long-term capital gains will be distributed annually. The North
Carolina Fund and the North Carolina Fund II will have no tax liability with
respect to such distributed gains, and the distributions will be taxable to
Shareholders as long-term capital gains, regardless of how long a Shareholder
has held the Shares of the North Carolina Fund or the North Carolina Fund II.
Such distributions will be designated as a capital gains dividend in a written
notice mailed by the North Carolina Fund and the North Carolina Fund II to
Shareholders within sixty days after the close of the Funds' taxable year.
Distributions of exempt-interest dividends, to the extent attributable
to interest on North Carolina Tax-Exempt Obligations and to interest on direct
obligations of the United States (including territories thereof), are not
subject to North Carolina individual or corporate income tax. Distributions of
gains attributable to certain obligations of the State of North Carolina and
its political subdivisions issued prior to July 1, 1995 are not subject to
North Carolina individual or corporate income tax; however, distributions of
gains attributable to such types of obligations that were issued after June 30,
1995 will be subject to North Carolina individual or corporate income tax.
While the North Carolina Fund and the North Carolina Fund II do not
expect to earn any significant amount of investment company taxable income,
taxable income earned by the North Carolina Fund and the North Carolina Fund II
will be distributed to Shareholders. In general, the investment company
taxable income will be the taxable income of the North Carolina Fund and the
North Carolina Fund II (for example, short-term capital gains) subject to
certain adjustments and excluding the excess of any net long-term capital gains
for the taxable year over the net short-term capital loss, if any, for such
year. Any such income will be taxable to Shareholders as ordinary income
(whether paid in cash or additional Shares).
As indicated in the Prospectuses, the Funds may acquire puts with
respect to Tax-Exempt Obligations held in the portfolios. See "INVESTMENT
OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the North
Carolina Fund and the North Carolina Fund II is to limit the acquisition of
puts to those under which the North Carolina Fund and the North Carolina Fund
II will be treated for Federal income tax purposes as the owner of the
Tax-Exempt Obligations acquired subject to the put and the interest on the
Tax-Exempt Obligations will be tax-exempt to such Funds. Although the Internal
Revenue Service has issued a published ruling that provides some guidance
regarding the tax consequences of the purchase of puts, there is currently no
guidance available from the Internal Revenue Service that definitively
establishes the tax consequences of many of the types of puts that the North
Carolina Fund and the North Carolina Fund II could acquire under the 1940 Act.
Therefore,
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although the North Carolina Fund and the North Carolina Fund II will only
acquire a put after concluding that it will have the tax consequences described
above, the Internal Revenue Service could reach a different conclusion from
that of the North Carolina Fund and the North Carolina Fund II. If the North
Carolina Fund and the North Carolina Fund II were not treated as the owners of
the Tax-Exempt Obligations, income from such securities would probably not be
tax exempt.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting purchasers of Shares of the North Carolina
Fund and the North Carolina Fund II. No attempt has been made to present a
detailed explanation of the Federal or state income tax treatment of the North
Carolina Fund and the North Carolina Fund II or their Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of the North Carolina Fund and the
North Carolina Fund II are urged to consult their tax advisers with specific
reference to their own tax situation. In addition, the foregoing discussion is
based on tax laws and regulations which are in effect on the date of this
Statement of Additional Information; such laws and regulations may be changed
by legislative or administrative action.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS
The concentration of investments in North Carolina Tax-Exempt
Obligations by the North Carolina Fund and the North Carolina Fund II raises
special investment considerations. In particular, changes in the economic
condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities, and authorities could adversely
affect the value of the North Carolina Fund and the North Carolina Fund II and
their portfolio securities. This section briefly describes current economic
trends in North Carolina. The information set forth below is derived from
official statements prepared in connection with the issuance of North Carolina
Tax-Exempt Obligations and other sources that are generally available to
investors. The Group has not independently verified this information.
The State of North Carolina has two major operating funds: the General
Fund and the Highway Fund. In addition, the 1989 General Assembly created the
Highway Trust Fund to provide funding for a major highway construction program.
North Carolina derives most of its revenue from taxes, including individual
income tax, corporation income tax, sales and use taxes, corporation franchise
tax, alcoholic beverage tax, insurance tax, inheritance tax, tobacco products
tax, and soft drink tax. North Carolina receives other non-tax revenues which
are also deposited in the General Fund. The most important are Federal funds
collected by North Carolina agencies, university fees and tuition, interest
earned by the North Carolina Treasurer on investments of General Fund moneys
and revenues from the judicial branch. The proceeds from the motor fuel tax,
highway use tax and motor vehicle license tax are deposited in the Highway Fund
and the Highway Trust Fund.
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During the 1989-92 budget years, growth of North Carolina tax revenues
slowed considerably, requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in timing of
certain collections and payments, and other short-term budget adjustments
necessary to comply with North Carolina's constitutional mandate for a balanced
budget. Many areas of North Carolina government were affected. Reductions in
capital spending, local government aid, and the use of the budget stabilization
reserve, combined with other budget adjustments, brought the budget into
balance. Tax increases in the fiscal 1992 budget included a $.01 increase in
the North Carolina sales tax and increases in the personal and corporate income
tax rates, as well as increases in the tax on cigarettes and alcohol, among
other items.
Fiscal year 1992 ended with a positive fund balance of approximately
$164.8 million. By law, $41.2 million of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve," leaving an unrestricted General Fund balance at June 30,
1992 of $123.6 million. Fiscal year 1993 ended with a positive General Fund
balance of approximately $537.3 million. Of this amount, $134.3 million was
reserved in the Savings Reserve and $57 million was reserved in a Reserve for
Repair and Renovation of State Facilities, leaving an unrestricted General Fund
balance at June 30, 1993 of $346 million. Fiscal year 1994 ended with a
positive General Fund balance of approximately $444.7 million. An additional
$178 million was available from a reserved fund balance. Of this aggregate
amount, $155.7 million was reserved in the Savings Reserve (bringing the total
reserve to $210.6 million after prior withdrawals) and $60 million was reserved
in the Reserve for Repair and Renovation of State Facilities (bringing the
total reserve to $60 million after prior withdrawals), leaving an unrestricted
General Fund balance at June 30, 1994 of $407 million. Fiscal year 1995 ended
with a positive general fund balance of approximately $343.4 million. An
additional $269.9 million was available from a reserved fund balance. Of this
aggregate amount, $146.3 million was reserved in the Savings Reserve (bringing
the total reserve to $423.6 million after prior contributions) and $146.3
million was reserved in the Reserve for Repair and Renovation of State
Facilities (bringing the total reserve to $146.3 million after prior
withdrawals), leaving an unrestricted General Fund balance at June 30, 1995 of
$320.7 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present financial statements in conformity with
generally accepted accounting principles. Based on a modified accrual basis,
the General Fund balance at June 30, 1993 and 1994 was $681.5 million and
$1,240.9 million, respectively. The foregoing results for fiscal year 1995 are
based upon unaudited financial information supplied by the office of State
Budget and Management. Modified accrual basis results were not available as of
the date this summary was prepared.
The 1995-97 biennium budget adopted by the General Assembly authorized
continuation funding from the General Fund of $9,512 million for fiscal 1996
and $9,763
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million for fiscal 1997. Expansion funds of $280 million for fiscal 1996 were
approved, along with capital improvements of $114 million for such fiscal year.
For fiscal 1997, $267 million of expansion funds were approved, along with $157
million of capital improvements. Tax reductions of approximately $363 million
for fiscal 1996 and $400 million for fiscal 1997 were authorized, principally
through the repeal of North Carolina's intangible personal property tax and
reductions in North Carolina's unemployment and personal income taxes. The
General Assembly also took several measures that benefitted North Carolina's
Department of Corrections, including a reservation of $33 million to build new
prison beds. State workers generally received a 2% pay increase. The General
Assembly also passed a package of tort reform bills that included a cap on
punitive damage awards.
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject
to change which may be material and affect the budget. The Congress of the
United States is considering a number of matters affecting the Federal
government's relationship with state governments that, if enacted into law,
could affect fiscal and economic policies of the states, including North
Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina
Employment Security Commission (the "Commission"), in November 1994, North
Carolina ranked ninth among the states in non-agricultural employment and
eighth in manufacturing employment. The Commission estimated North Carolina's
seasonally adjusted unemployment rate in October 1995 to be 3.9% of the labor
force, as compared with an unemployment rate of 5.5% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet
its financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds -
Federal Retirees. In DAVIS V. MICHIGAN (1989), the United States Supreme
Court ruled that a Michigan income tax statute which taxed federal retirement
benefits while exempting those paid by state and local governments violated the
constitutional doctrine of intergovernmental tax immunity. At the time of the
DAVIS decision, North Carolina law contained similar exemptions in favor of
state and local retirees. Those exemptions were repealed prospectively,
beginning with the 1989 tax year. All public pension and retirement benefits
are now entitled to a $4,000 annual exclusion.
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Following DAVIS, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In
1991, the North Carolina Supreme Court ruled in favor of the State in the state
court action, concluding that DAVIS could only be applied prospectively and
that the taxes collected from the federal retirees were thus not improperly
collected. In 1993, the United States Supreme Court vacated that decision and
remanded the case back to the North Carolina Supreme Court. The North Carolina
Supreme Court then ruled in favor of the State on the grounds that the federal
retirees had failed to comply with state procedures for challenging
unconstitutional taxes. The United States District Court ruled in favor of the
defendants in the companion federal case, and a petition for reconsideration
was denied. Plaintiffs appealed to the United States Court of Appeals, which
concurred with the lower court's ruling. The United States Supreme Court
rejected an appeal, ruling that the lawsuit was a state matter, leaving the
North Carolina Supreme Court's ruling in force.
An additional lawsuit was recently filed in State court by Federal
pensioners to recover State income taxes paid on Federal retirement benefits.
This case grew out of a claim by Federal pensioners in the original Federal
court case in SWANSON. In the new lawsuit, the plaintiffs allege that when the
State granted an increase in retirement benefits to State retirees in the same
legislation that equalized tax treatment between state and Federal retirees,
the increased benefits to State retirees constituted an indirect violation of
DAVIS. The lawsuit seeks a refund of taxes paid by Federal retirees on Federal
retirement benefits received in the years 1989 through 1993 and refunds or
monetary relief sufficient to equalize the alleged on-going discriminatory
treatment for those years. An extension of time to answer the complaint has
been filed by the North Carolina Attorney General, who believes that sound
legal authority and arguments support the denial of this claim.
2. Bailey v. State of North Carolina -- State Tax Refunds - State
Retirees. State and local governmental retirees filed a class action suit in
1990 as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the
North Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to
comply with state law requirements for challenging unconstitutional taxes and
the United States Supreme Court denied review. In 1992, many of the same
plaintiffs filed a new lawsuit alleging essentially the same claims, including
breach of contract, unconstitutional impairment of contract rights by the State
in taxing benefits that were allegedly promised to be tax-exempt and violation
of several state constitutional provisions.
On May 31, 1995 the Superior Court issued an order ruling in favor of
the plaintiffs. Under the terms of the order, the Superior Court found that
the act of the General Assembly that repealed the tax exemption on State and
local government retirement benefits is null, void, and unenforceable and that
retirement benefits which
B-27
<PAGE> 123
were vested before August 1989 are exempt from taxation. The North Carolina
Attorney General intends to pursue an appeal from this order.
The North Carolina Attorney General's Office estimates that the amount
in controversy is approximately $40-$45 million annually for the tax years 1989
through 1991. In addition, it is anticipated that the decision reached in this
case will govern the resolution of tax refund claims made by retired state and
local government employees for taxes paid on retirement benefit income for tax
years after 1991. Furthermore, if the order of the Superior Court is upheld,
its provisions would apply prospectively to prevent future taxation of State
and local government retirement benefits that were vested before August 1989.
3. Fulton Corp. v. Justus. The State's intangible personal
property tax levied on certain shares of stock has been challenged by the
plaintiff on grounds that it violates the United States Constitution Commerce
Clause by discriminating against stock issued by corporations that do all or
part of their business outside the State. The plaintiff in the action is a
North Carolina corporation that does all or part of its business outside the
State. The plaintiff seeks to invalidate the tax in its entirety and to
recover tax paid on the value of its shares in other corporations. The North
Carolina Court of Appeals invalidated the taxable percentage deduction and
excised it from the statute beginning with the 1994 tax year. The effect of
this ruling is to increase collections by rendering all stock taxable on 100%
of its value. The North Carolina Supreme Court reversed the Court of Appeals
and held that the tax is valid and constitutional. The plaintiff's petition
for review by the United States Supreme Court was granted. A decision is
expected by mid-1996. Net collections from the tax for the fiscal year ended
June 30, 1993 amounted to $120.6 million. The North Carolina Attorney
General's Office believes that sound legal arguments support the State's
position. In April 1995, the North Carolina General Assembly repealed North
Carolina's intangible personal property tax, effective for taxable years
beginning on or after January 1, 1995.
In October, 1993, the State issued a total of $194.7 million general
obligation bonds (consisting of $87.5 million Prison and Youth Services
Facilities Bonds, $61 million Public Improvement Refunding Bonds, $30.2 million
Highway Refunding Bonds, and $16 million Clean Water Refunding Bonds). An
additional $67.5 million general obligation bonds (Prison and Youth Services
Facilities Bonds) were issued in November, 1993. On November 2, 1993, a total
of $740 million general obligation bonds (consisting of $310 million University
Improvement Bonds, $250 million Community College Bonds, $145 million Clean
Water Bonds, and $35 million State Parks Bonds) were approved by the voters of
the State. Pursuant to this authorization, the State issued $400 million
general obligation bonds (Capital Improvement Bonds) in January, 1994. The
proceeds of these Capital Improvement Bonds may be used for any purpose for
which the proceeds of the University Improvement Bonds, Community College
Bonds, and State Parks Bonds may be used (none of such proceeds may be used for
Clean Water purposes). An additional $60 million general obligation bonds
(Clean Water Bonds) were issued in September and October, 1994. The remaining
$85 million
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<PAGE> 124
in general obligation bonds (Clean Water Bonds) were issued in June and July,
1995. The offering of the remaining $195 million of these authorized bonds is
anticipated to occur over the next two years.
Currently, Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, and Fitch Investors Service, Inc. rate North Carolina general obligation
bonds Aaa, AAA, and AAA, respectively. See the Appendix to this Statement of
Additional Information.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
Officers
- --------
The officers of each Fund of the Group, their current addresses, and
principal occupations during the past five years are as follows (if no address
is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During the Past 5 Years
- ---------------- ---------------- -----------------------
<S> <C> <C>
J. David Huber Chairman and Trustee From December 19897 to present, employee
of BISYS Fund Services.
D'Ray M. Brewer President and From February 1990 to present, employee of
Secretary BISYS Fund Services; April 1987 to
November 1989, employee of Pamco
Securities and Insurance Services.
George R. Landreth Treasurer From December, 1992 to present, employee
of BISYS Fund Services; from July, 1991 to
December, 1992, employee of PNC Financial
Corp.; from October, 1984 to July, 1991,
employee of The Central Trust Co., N.A.
Richard B. Ille Vice President and From July 1990 to present, employee of
Assistant Secretary BISYS Fund Services; from May 1989 to July
1990, employee of BISYS Fund Services
Ohio, Inc.
Alaina J. Metz Assistant Secretary From June 1995 to present, employee, BISYS
Fund Services; from May 1989 - June 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</TABLE>
B-29
<PAGE> 125
<TABLE>
<S> <C> <C>
Steven G. Mintos Vice President From January, 1987 to present, employee
and Limited Partner of BISYS Fund
Services; from 1988 to present, Vice
President of BISYS Fund Services Ohio,
Inc., in 1986, Vice President of BISYS
Fund Services Ohio, Inc.
Roy E. Rogers Vice President From September, 1986 to present, employee
of BISYS Fund Services or BISYS Fund
Services Ohio, Inc.
Charles L. Booth Assistant Secretary From April, 1988 to present, employee of
BISYS Fund Services.
</TABLE>
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services
(formerly known as The Winsbury Company) receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. (formerly known as
The Winsbury Service Corporation) receives fees from the Group for acting as
Transfer Agent and for providing fund accounting services to the Group.
COMPENSATION TABLE 1
--------------------
Total
<TABLE>
<CAPTION>
Pension or Compen-
Retirement sation
Aggregate Benefits Estimated from the
Compensation Accrued As Annual Group
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Group Expenses Retirement Trustee
- -------------- ------------ ------------ ------------- --------
<S> <C> <C> <C> <C>
J. David Huber None None None None
Chairman of the Board
W. Ray Long None None None None
Trustee
William E. Graham $6,625 None None $6,625
Trustee
Thomas W. Lambeth $6,625 None None $6,625
Trustee
Robert W. Stewart $6,625 None None $6,625
Trustee
<FN>
1 Figures are for the Funds' fiscal year ended September 30, 1995. The
Group includes seven separate series ("Funds"), as well as three
additional series (the "Special Trust Funds").
</FN>
</TABLE>
B-30
<PAGE> 126
Investment Adviser
- ------------------
Investment advisory and management services are provided to each Fund
of the Group by BB&T pursuant to an Investment Advisory Agreement ("Advisory
Agreement") dated October 1, 1992.
The Advisory Agreement provides that BB&T shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Group in
connection with the performance of such Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of BB&T in the performance of its
duties, or from reckless disregard by BB&T of its duties and obligations
thereunder.
Unless sooner terminated, the Advisory Agreement will continue in
effect until September 30, 1996 as to each of the U.S. Treasury Fund, Growth
and Income Fund, Growth and Income Fund II, North Carolina Fund, North Carolina
Fund II, Short-Intermediate Fund, Intermediate Bond Fund, Intermediate Bond
Fund II, Balanced Fund and Small Company Growth Fund and from year to year if
such continuance is approved at least annually by the Group's Board of Trustees
or by vote of the holders of a majority of the outstanding Shares of that Fund
(as defined under "GENERAL INFORMATION - Miscellaneous"). The Advisory
Agreement is terminable as to a particular Fund at any time upon 60 days'
written notice without penalty by the Trustees, by vote of the holders of a
majority of the outstanding Shares of that Fund, or by BB&T. The Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
For the period from commencement of operations of each fund to
September 30, 1993 none of the Funds paid any investment advisory fees to BB&T
because all such fees were waived. For the fiscal year ended September 30,
1994, the Funds paid the following investment advisory fees to BB&T: U.S.
Treasury Fund: $204,566; Short-Intermediate U.S. Government Fund: $130,609;
Intermediate U.S. Government Fund: $173,548; Growth and Income Stock Fund:
$242,139; North Carolina Tax-Free Fund: $94,776; and Balanced Fund: $96,932.
The Small Company Growth Fund and the Special Trust Funds had not commenced
operations as of September 30, 1994. For the fiscal year ended September 30,
1995, the Funds paid the following investment advisory fees to BB&T: U.S.
Treasury Fund: $388,183 (which is $21,654 less than the maximum amount of
advisory fees, if charged); Short-Intermediate U.S. Government Fund: $228,774
(which is $74,712 less than the maximum amount of advisory fees, if charged);
Intermediate U.S. Government Fund: $353,884 (which is $116,052 less than the
maximum amount of advisory fees, if charged); Growth and Income Stock Fund
$530,197 (which is $328,103 less than the maximum amount of advisory fees, if
charged); North Carolina Tax-Free Fund: $170,331 (which is $56,780 less than
the maximum amount of advisory fees, if charged); and Balanced Fund: $224,803
(which is $144,035 less than the maximum amount of
B-31
<PAGE> 127
advisory fees, if charged). For the period from commencement of operations,
December 7, 1994, to September 30, 1995 the Small Company Growth Fund paid
$67,765 in investment advisory fees to BB&T (which is $497 less than the
maximum amount of advisory fees, if charged). The Special Trust Funds had not
commenced operations as of September 30, 1995.
Investment Sub-Adviser
- ----------------------
Investment sub-advisory and management services are provided to the
Small Company Growth Fund by PNC Bank, National Association ("PNC Bank")
pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of
November 9, 1994 between BB&T and PNC Bank.
The Sub-Advisory Agreement provides that PNC Bank shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Group in connection with the performance of such Sub-Advisory Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of PNC Bank in the performance of its
duties, or from reckless disregard by PNC Bank of its duties and obligations
thereunder.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 1996 and thereafter will continue from year to year
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty by the
Trustees, by vote of the holders of a majority of the outstanding Shares of the
Fund, or, on 60 days' written notice, by PNC Bank, or by BB&T. The Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Small Company Growth Fund did not pay any investment sub-advisory
fees to PNC Bank for the period ended September 30, 1994 because the Fund had
not yet commenced operations. For the period from commencement of operations,
December 7, 1994, to September 30, 1995, the Small Company Growth Fund paid
$34,132 in investment sub-advisory fees to PNC Bank.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Group may
include descriptions of the investment sub-adviser including, but not limited
to, (i) descriptions of the sub-adviser's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings
related to the sub-adviser's operations.
B-32
<PAGE> 128
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreement, BB&T (and PNC Bank, with respect
to the Small Company Growth Fund) determines, subject to the general
supervision of the Board of Trustees of the Group and in accordance with each
Fund's investment objective and restrictions, which securities are to be
purchased and sold by a Fund, and which brokers are to be eligible to execute
such Fund's portfolio transactions. Purchases and sales of portfolio
securities with respect to the Growth and Income Fund, Growth and Income Fund
II, North Carolina Fund, North Carolina Fund II, Short-Intermediate Fund,
Intermediate Bond Fund, Intermediate Bond Fund II, and Small Company Growth
Fund usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
include a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment
of negotiated brokerage commissions. Transactions in the over-the-counter
market are generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere. While
BB&T (and PNC Bank, with respect to the Small Company Growth Fund) generally
seeks competitive spreads or commissions, the Group may not necessarily pay the
lowest spread or commission available on each transaction, for reasons
discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by BB&T (and PNC Bank, with respect to the Small Company
Growth Fund) in its best judgment and in a manner deemed fair and reasonable to
Shareholders. The major consideration in allocating brokerage business is the
assurance that the best execution is being received on all transactions
effected for all accounts. Brokerage will at times be allocated to firms that
supply research, statistical data and other services when the terms of the
transaction and the capabilities of different broker/dealers are consistent
with the guidelines set forth in Section 28(e) of the Securities Exchange Act
of 1934. Information so received is in addition to and not in lieu of services
required to be performed by BB&T (and PNC Bank, with respect to the Small
Company Growth Fund) and does not reduce the advisory fees payable to BB&T or
PNC Bank. Such information may be useful to BB&T or PNC Bank in serving both
the Group and other clients and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to BB&T or PNC Bank
in carrying out its obligations to the Group.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable rules and regulations, BB&T and PNC Bank will not
execute portfolio transactions on behalf of the Funds through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with BB&T, PNC Bank, BISYS Fund
Services, or their affiliates, and will not give preference to BB&T's or PNC
Bank's
B-33
<PAGE> 129
correspondents with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund of the Group are made independently
from those for the other Funds or any other investment company or account
managed by BB&T and PNC Bank. Any such other investment company or account may
also invest in the same securities as the Group. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund
and another Fund of the Group, investment company or account, the transaction
will be averaged as to price and available investments will be allocated as to
amount in a manner which BB&T or PNC Bank believes to be equitable to the
Fund(s) and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by a Fund. To the extent permitted by
law, BB&T and PNC Bank may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for the other Funds or for other
investment companies or accounts in order to obtain best execution. As
provided by the Advisory Agreement and the Sub-Advisory Agreement, in making
investment recommendations for the Group, BB&T and PNC Bank will not inquire or
take into consideration whether an issuer of securities proposed for purchase
or sale by the Group is a customer of BB&T, PNC Bank, their parents,
subsidiaries, or affiliates, and, in dealing with their customers, BB&T, PNC
Bank, their parents, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Group.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM V. INVESTMENT COMPANY INSTITUTE that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
In the BOARD OF GOVERNORS case, the Supreme Court also stated that if a bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a bank performing
investment advisory services for an investment company would not violate the
Glass-Steagall Act.
B-34
<PAGE> 130
BB&T and PNC Bank believe that they possess the legal authority to
perform the services for each Fund contemplated by the Advisory Agreement and
Sub-Advisory Agreement and described in the Prospectuses and this Statement of
Additional Information and has so represented in the Advisory Agreement and
Sub-Advisory Agreement. Future changes in either federal or state statutes and
regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict BB&T or PNC Bank
from continuing to perform such services for the Group. Depending upon the
nature of any changes in the services which could be provided by BB&T or PNC
Bank, the Board of Trustees of the Group would review the Group's relationship
with BB&T and PNC Bank and consider taking all action necessary in the
circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of BB&T, PNC Bank, or their affiliated and
correspondent banks (the "Banks") in connection with Customer's purchases of
Shares of the Group, the Banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per Share or result in financial losses to any Customer.
Manager and Administrator
- -------------------------
BISYS serves as administrator (the "Administrator") to each Fund
pursuant to the Management and Administration Agreement dated as of October 1,
1992, as amended (the "Administration Agreement"). The Administrator assists
in supervising all operations of each Fund (other than those performed by BB&T
and PNC Bank under the Advisory Agreement and Sub-Advisory Agreement, those
performed by Star Bank, N.A. (the "Custodian") under its custodial services
agreement with the Group and those performed by BISYS Fund Services Ohio, Inc.
under its transfer agency and shareholder service and fund accounting
agreements with the Group). The Administrator is a broker-dealer registered
with the Securities and Exchange Commission, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
monitor the net asset value of the U.S. Treasury Fund, to maintain office
facilities for the Group, to maintain the Group's financial accounts and
records, and to furnish the Group statistical and research data and certain
bookkeeping services, and certain other services required by the Group. The
Administrator prepares annual and semi-annual reports to the Securities and
Exchange Commission, prepares Federal and state tax returns, prepares filings
with state securities commissions, and generally assists in supervising all
aspects of the Group's operations other than those performed by BB&T under the
Advisory Agreement, those by Star Bank, N.A. under its custodial services
agreement with the Group and those performed by BISYS Fund Services Ohio, Inc.
under its transfer agency and shareholder service and fund accounting
B-35
<PAGE> 131
agreements with the Group. Under the Administration Agreement, the
Administrator may delegate all or any part of its responsibilities thereunder.
Under the Administration Agreement for expenses assumed and services
provided as manager and administrator, the Administrator receives a fee from
each Fund equal to the lesser of (a) a fee computed at the annual rate of
twenty one-hundredths of one percent (.20%) of such Fund's average daily net
assets or (b) such fee as may from time to time be agreed upon in writing by
the Group and the Administrator. A fee agreed to in writing from time to time
by the Group and the Administrator may be significantly lower than the fee
calculated at the annual rate and the effect of such lower fee would be to
lower a Fund's expenses and increase the net income of such Fund during the
period when such lower fee is in effect.
For the periods from commencement of operations of each Fund to
September 30, 1993, for the fiscal year ended September 30, 1994 and for the
fiscal year ended September 30, 1995, each of the Funds paid the following
administration fees to the Administrator: U.S. Treasury Fund: $143,544,
$161,741, and $204,919, respectively; Short-Intermediate U.S. Government Fund:
$59,421, $103,554, and $101,143, respectively; Intermediate U.S. Government
Fund: $113,178, $136,908, and $156,602 respectively; Growth and Income Stock
Fund: $113,897, $191,291, and $231,669 (which is $282 less than the maximum
amount of administration fees, if charged), respectively; North Carolina
Tax-Free Fund: $15,206, $22,474, and $56,787 (which is $18,917 less than the
maximum amount of administration fees, if charged), respectively; and Balanced
Fund: $3,077, $71,791, and $99,630, respectively. For the period from
commencement of operations to September 30, 1995, the Small Company Growth Fund
paid $13,553 in administration fees to the Administrator (which is $95 less
than the maximum amount of administration fees, if charged). The Small
Company Growth Fund had not commenced operations for the period ended September
30, 1993 or the fiscal year ended September 30, 1995 and therefore paid no
administration fees for those periods. As of September 30, 1995, the Special
Trust Funds had not yet commenced operations and therefore paid no
administration fees for any of the above-mentioned periods.
The Administration Agreement shall, unless sooner terminated as
provided in the Administration Agreement (described below), continue until
September 30, 1997. Thereafter, the Administration Agreement shall be renewed
automatically for successive five year terms, unless written notice not to
renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable with respect to a particular Fund only upon mutual agreement of
the parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60 days
notice by the Group's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the Group in connection with the matters to
which the Administration
B-36
<PAGE> 132
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
Expenses
- --------
If total expenses incurred by any of the Funds in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
BB&T, PNC Bank, and the Administrator will reduce their own fees by the amount
of such excess in proportion to their respective fees. As of the date of the
Prospectuses and this Statement of Additional Information, there are no state
expense limitations applicable to the Group. Any fee reduction by BB&T, PNC
Bank, and the Administrator will be estimated daily and reconciled on a monthly
basis. Fees imposed upon customer accounts by BB&T, PNC Bank, or their
affiliated or correspondent banks for cash management services are not included
within Group expenses for purposes of any such expense limitation. Each Fund
also bears expenses incurred in pricing securities owned by the Fund.
Distributor
- -----------
BISYS serves as distributor to each Fund of the Group pursuant to a
Distribution Agreement dated October 1, 1993, (the "Distribution Agreement").
The Distribution Agreement provides that, unless sooner terminated it will
continue in effect for continuous one-year periods if such continuance is
approved at least annually (i) by the Group's Board of Trustees or by the vote
of a majority of the outstanding Shares of the Funds or Fund subject to such
Distribution Agreement, and (ii) by the vote of a majority of the Trustees of
the Group who are not parties to such Distribution Agreement or interested
persons (as defined in the 1940 Act) of any party to such Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
The fee of .50% of average daily net assets of Class A Shares of each
Fund (which has been voluntarily reduced to .25%) and the fee of 1.00% of
average daily net assets of Class B Shares of each Fund payable under the
Fund's Distribution Plan, to which Class A and Class B Shares of each Fund of
the Group are subject, is described in the Class A and Class B Prospectus.
For the period from commencement of operations of each Fund to
September 30, 1993, and for the fiscal years ended September 30, 1994 and
September 30, 1995, each of the Funds paid the following fees under the
Distribution Plan for Investor Shares (now redesignated as Class A Shares):
U.S. Treasury Fund: $345, $2,502, and $14,832 (which is $14,832 less than the
maximum amount of fees under the Distribution Plan, if charged), respectively;
Short-Intermediate U.S. Government Fund: $10,635, $27,203, and $19,162 (which
is $19,117 less than the maximum amount of fees under the Distribution
B-37
<PAGE> 133
Plan, if charged), respectively; Intermediate U.S. Government Fund: $4,086,
$17,090, and $15,210 (which is $15,187 less than the maximum amount of fees
under the Distribution Plan, if charged), respectively; Growth and Income Stock
Fund: $6,133, $18,374, and $21,918 (which is $21,955 less than the maximum
amount of fees under the Distribution Plan, if charged), respectively; North
Carolina Tax-Free Fund: $2,812, $20,507, and $13,671 (which is $31,865 less
than the maximum amount of fees under the Distribution Plan, if charged),
respectively; and Balanced Fund: $233, $16,172, and $20,985 (which is $20,993
less than the maximum amount of fees under the Distribution Plan, if charged),
respectively. For the period from commencement of operations, December 7,
1994, to September 30, 1995, the Small Company Growth Fund paid $935 in fees
under the Distribution Plan for Investor Shares (which is $950 less than the
maximum amount of fees under the Distribution Plan, if charged). The Small
Company Growth Fund had not yet commenced operations for the period ended
September 30, 1993 or the fiscal year ended September 30, 1994 and, therefore,
paid no distribution fees during those periods.
The Distribution Plan was initially approved on August 18, 1992 by the
Fund's Board of Trustees, including a majority of the trustees who are not
interested persons of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan (the
"Independent Trustees"). An Amended and Restated Distribution Plan reflecting
the creation of Class B Shares was approved on September 21, 1995. The
Distribution Plan provides for fees only upon the Class A and Class B Shares of
each Fund.
On October 1, 1993, The Winsbury Company (now known as BISYS Fund
Services) and its affiliated companies, including The Winsbury Service
Corporation (now known as BISYS Fund Services Ohio, Inc.), were acquired by the
BISYS Group, Inc., a publicly held company which is a provider of information
processing, loan servicing and 401(k) administration and record-keeping
services to and through banking and other financial organizations.
The Distribution Agreement is the successor to the previous
distribution agreement, which terminated automatically by its terms upon
consummation of the acquisition of Winsbury by The BISYS Group, Inc. The
Distribution Agreement was unanimously approved by the Board of Trustees of the
Group, and is materially identical to the terminated distribution agreement.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plan may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plan may be amended by vote of
the Fund's Board of Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for such purpose, except that any change in
the Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of the holders of that Fund's Class A
and
B-38
<PAGE> 134
Class B Shares. The Group's Board of Trustees will review on a quarterly and
annual basis written reports of the amounts received and expended under the
Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plan) indicating the purposes for which such
expenditures were made.
Custodian
- ---------
Star Bank, N.A. serves as the Group's Custodian.
Transfer Agent and Fund Accounting Services
- -------------------------------------------
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) serves as transfer agent to each Fund of the Group pursuant to a
Transfer Agency Agreement with the Group.
BISYS Fund Services Ohio, Inc. also provides fund accounting services
to each of the Funds pursuant to a Fund Accounting Agreement with the Group.
Under the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc. receives a
fee from each Fund at the annual rate of .03% of such Fund's average daily net
assets, subject to a minimum annual fee.
Independent Accountants
- -----------------------
KPMG Peat Marwick LLP ("KPMG") has been selected as independent
certified public accountants. KPMG's address is Two Nationwide Plaza, Suite
1600, Columbus, Ohio 43215.
Legal Counsel
- -------------
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800
East, Washington, DC 20005 are counsel to the Group.
PERFORMANCE INFORMATION
Yields of the U.S. Treasury Fund
- --------------------------------
As summarized in the Prospectuses of the U.S. Treasury Fund under the
heading "Performance Information," the "yield" of the U.S. Treasury Fund for a
seven-day period (a "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by
B-39
<PAGE> 135
365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include the value
of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares,
but will not include realized gains or losses or unrealized appreciation or
depreciation on portfolio investments. Yield may also be calculated on a
compound basis (the "effective yield") which assumes that net income is
reinvested in Fund shares at the same rate as net income is earned for the base
period.
The yield and effective yield of the U.S. Treasury Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund.
For comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for
that base period only and calculated by the methods described above.
With respect to Investor Shares (now redesignated as Class A Shares),
for the seven-day period ended September 30, 1995, the yield and effective
yield of the U.S. Treasury Fund calculated as described above was 4.80% and
4.92%, respectively. With respect to Trust Shares, for the seven-day period
ended September 30, 1995, the yield and effective yield of the U.S. Treasury
Fund calculated as described above was 5.05% and 5.18%, respectively.
There is no yield information available for Class B Shares, which had
not commenced operations as of the date of this Statement of Additional
Information.
Yields of the Other Funds of the Group
- --------------------------------------
As summarized in the Prospectuses under the heading "Performance
Information," yields of the Growth and Income Fund, Growth and Income Fund II,
North Carolina Fund, North Carolina Fund II, Short-Intermediate Fund,
Intermediate Bond Fund, Intermediate Bond Fund II, Balanced Fund and Small
Company Growth Fund will be computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by the maximum
offering price per share (reduced by any undeclared earned income expected to
be paid shortly as a dividend) on the last trading day of that period,
according to the following formula:
a-b
30-Day Yield = 2[( ----- +1)6-1]
cd
In the above formula, "a" represents dividends and interest earned by
a particular class during the 30-day base period; "b" represents expenses
accrued to a particular class for the 30-day base period (net of
reimbursements); "c" represents the average daily number of shares of a
particular class outstanding during the 30-day base period that were entitled
to receive
B-40
<PAGE> 136
dividends; and "d" represents the maximum offering price per share of a
particular class on the last day of the 30-day base period.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed
by mortgages or other assets) and may include recognition of a pro rata portion
of the stated dividend rate of dividend paying portfolio securities. The yield
of each of the Growth and Income Fund, Growth and Income Fund II, North
Carolina Fund, North Carolina Fund II, Short-Intermediate Fund, Intermediate
Bond Fund, Intermediate Bond Fund II, Balanced Fund and Small Company Growth
Fund will vary from time to time depending upon market conditions, the
composition of the Fund's portfolio and operating expenses of the Group
allocated to each Fund. These factors and possible differences in the methods
used in calculating yield should be considered when comparing a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of the Fund's
shares and to the relative risks associated with the investment objectives and
policies of the Growth and Income Fund, Growth and Income Fund II, North
Carolina Fund, North Carolina Fund II, Short-Intermediate Fund, Intermediate
Bond Fund, Intermediate Bond Fund II, Balanced Fund and Small Company Growth
Fund.
The North Carolina Fund and the North Carolina Fund II may also
advertise a "tax equivalent yield" and a "tax equivalent effective yield." Tax
equivalent yield will be computed by dividing that portion of the North
Carolina and North Carolina II Funds' yield which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the yield of the Fund that is not tax-exempt. The tax
equivalent effective yield for the North Carolina Fund and the North Carolina
Fund II is computed by dividing that portion of the effective yield of the
North Carolina Fund and the North Carolina Fund II which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the effective yield of the Fund that is not
tax-exempt.
With respect to Investor Shares (now redesignated as Class A Shares),
for the 30-day period ended September 30, 1995, the yields of the Funds were as
follows: Short-Intermediate Fund -- 4.71% (with maximum sales load) and 4.81%
(with no sales load); Intermediate Bond -- 5.13% (with maximum sales load) and
5.24% (with no sales load); North Carolina Tax-Free Fund -- 3.29% (with maximum
sales load) and 3.36% (with no sales load); and Balanced Fund -- 3.33% (with
maximum sales load) and 3.46% (with no sales load). With respect to Investor
Shares, the tax-equivalent yield for the North Carolina Tax-Free Fund for the
same period was 5.45% (with maximum sales load) and 5.56% (with no sales load).
With respect to Trust Shares, for the 30-day period ended September
30, 1995, the yields of each of the Funds were as follows: Short-Intermediate
Fund -- 5.05%; Intermediate Bond Fund -- 5.49%; North Carolina Tax-Free Fund --
3.51%; and
B-41
<PAGE> 137
Balanced Fund -- 3.72% (with no sales load). With respect to Trust Shares, the
tax-equivalent yield for the North Carolina Tax-Free Fund for the same period
was 5.81%. There is no yield information available for the Trust Shares of the
Special Trust Funds or for the Class B Shares of each Fund, which had not
commenced operations as of the date of this Statement of Additional
Information.
Investors in the Growth and Income Fund, Growth and Income Fund II,
North Carolina Fund, North Carolina Fund II, Short-Intermediate Fund,
Intermediate Bond Fund, Intermediate Bond Fund II, Balanced Fund and Small
Company Growth Fund are specifically advised that share prices, expressed as
the net asset values per share, will vary just as yields will vary.
Calculation of Total Return
- ---------------------------
Total Return is a measure of the change in value of an investment in a
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the
net asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for
the hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
With respect to Investor Shares (now redesignated as Class A Shares),
for the period since commencement of operations of each of the Funds through
September 30, 1995, average annual total returns (with maximum sales load) for
the Short-Intermediate, Intermediate Bond, Growth and Income, North Carolina
Tax-Free, and Balanced Funds were 4.34%, 5.29%, 11.53%, 3.58%, and 6.71%,
respectively. For the same period, average annual total returns (without sales
load) for the Short-Intermediate, Intermediate Bond, Growth and Income, North
Carolina Tax-Free, U.S. Treasury and Balanced Funds were 5.07%, 5.99%, 13.08%,
4.28%, 3.40% and 8.68%, respectively.
With respect to Trust Shares, for the period since commencement of
operations of each of the Funds through September 30, 1995, average annual
total return for the Short-Intermediate, Intermediate Bond, Growth and Income,
North Carolina, U.S. Treasury and Balanced Funds were 5.30%, 6.24%, 13.37%,
4.39%, 3.60% and 8.81%, respectively. The Special Trust Funds had not
commenced operations as of September 30, 1995.
B-42
<PAGE> 138
With respect to Investor Shares (now redesignated as Class A Shares),
for the one-year period ended September 30, 1995, average annual total returns
(with maximum sales load) for the Short-Intermediate, Intermediate Bond, Growth
and Income, North Carolina Tax-Free, and Balanced Funds were 6.52%, 10.38%,
15.79%, 5.45%, and 13.24%, respectively. For the same period, average annual
total returns (without sales load) for the Short-Intermediate, Intermediate
Bond, Growth and Income, North Carolina Tax-Free, U.S. Treasury and Balanced
Funds were 8.74%, 12.63%, 20.62%, 7.61%, 4.81% and 18.00%, respectively.
With respect to Trust Shares, for the one-year period ended September
30, 1995, average annual total return for the Short-Intermediate, Intermediate
Bond, Growth and Income, North Carolina, U.S. Treasury and Balanced Funds were
9.01%, 12.91%, 20.88%, 7.77%, 5.07% and 18.23%, respectively. The Special
Trust Funds had not commenced operations as of September 30, 1995.
For the period from December 7, 1994 (the inception of the Small
Company Growth Fund) to September 30, 1995, the aggregate total return of the
Fund's Investor Shares was 39.44% (with maximum sales load) and 45.70% (with no
sales load), and the aggregate total return of the Fund's Trust Shares was
45.30%. Aggregate total return is calculated similarly to annual total return,
except that the return is aggregated, rather than annualized.
The yields, effective yields, tax-equivalent yields, tax-equivalent
effective yields, and total return set forth above were calculated for each
class of each Fund's Shares. No yield information is available for Class B
Shares or the Trust Shares of the Special Trust Funds, which had not commenced
operations as of the date of this Statement of Additional Information.
At any time in the future, yields and total return may be higher or
lower than past yields, there can be no assurance that any historical results
will continue.
Performance Comparisons
- -----------------------
YIELD AND TOTAL RETURN. From time to time, performance information
for the Funds showing their average annual total return and/or yield may be
included in advertisements or in information furnished to present or
prospective shareholders and the ranking of those performance figures relative
to such figures for groups of mutual funds categorized by Lipper Analytical
Services as having the same investment objectives may from time to time be
included in advertisements.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principals
(such as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic
B-43
<PAGE> 139
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds within the Group, (5) descriptions of investment strategies for one
or more of such Funds; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, insured bank products,
annuities, qualified retirement plans and individual stocks and bonds), which
may or may not include the Funds; (7) comparisons of investment products
(including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in one or more of the Funds. The Funds may also
include in these communications calculations, such as hypothetical compounding
examples, that describe hypothetical investment results, such performance
examples will be based on an express set of assumptions and are not indicative
of performance of any of the Funds.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500
stocks (the "S&P 500") is a market value-weighted and unmanaged index showing
the changes in the aggregate market value of 500 Stocks relative to the base
period 1941-43. The S&P 500 is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks of
a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S.
Treasury; all publicly issued debt of all agencies of the U.S. Government and
all quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Lehman Brothers Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1
B-44
<PAGE> 140
million, have at least one year to maturity and be rated "Baa" or higher
("investment grade") by a nationally recognized statistical rating organization
("NRSRO").
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield
or performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by BB&T or
its affiliated or correspondent banks for cash management services will reduce
a Fund's effective yield to Customers.
In addition, with respect to the North Carolina Fund and the North
Carolina Fund II, the benefits of tax-free investments may be communicated in
advertisements or communications to shareholders. For example, the table below
presents the approximate yield that a taxable investment must earn at various
income brackets to produce after-tax yields equivalent to those of tax-exempt
investments yielding from 3.00% to 5.50%. The yields below are for
illustration purposes only and are not intended to represent current or future
yields for the North Carolina Fund and the North Carolina Fund II, which may be
higher or lower than those shown. The rates shown in the table below are
subject to adjustment for the Internal Revenue Service inflation indexation.
Investors should consult their tax advisers with specific reference to their
own tax situation.
B-45
<PAGE> 141
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND, AND
NORTH CAROLINA FUND II
<TABLE>
<CAPTION>
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C.
INCOME MARGINAL MARGINAL MARGINAL .............. TAX-EXEMPT YIELDS .............
(1995) TAX RATE TAX RATE TAX RATE 3.00 3.50%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38%
FROM
$12,750 TO
$23,350 15.00% 7.00% 20.95% 3.80% 4.43%
FROM
$23,350 TO
$56,350 28.00% 7.00% 33.04% 4.48% 5.23%
FROM
$56,350 TO
$60,000 31.00% 7.00% 35.83% 4.68% 5.45%
FROM
$60,000 TO
$117,950 31.00% 7.75% 36.35% 4.71% 5.50%
FROM
$117,950 TO
$256,500 36.00% 7.75% 40.96% 5.08% 5.93%
OVER
$256,500 39.60% 7.75% 44.28% 5.38% 6.28%
SINGLE RETURN
SAMPLE
TAXABLE .............................. TAX-EXEMPT YIELDS ..................................
INCOME
(1995) 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------
- -------------------------------------------------------------------------------------------------------
FROM
$0 TO
$12,750 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$12,750 TO
$23,350 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$23,350 TO
$56,350 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$56,350 TO
$60,000 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$60,000 TO
$117,950 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$117,950 TO
$256,500 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$256,500 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-46
<PAGE> 142
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND AND NORTH CAROLINA FUND II
<TABLE>
<CAPTION>
MARRIED
FILING JOINTLY COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C.
INCOME MARGINAL MARGINAL MARGINAL ............ TAX-EXEMPT YIELDS ...............
(1995) TAX RATE TAX RATE TAX RATE 3.00 3.50%
- ------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38%
FROM
$21,250 TO
$39,000 15.00% 7.00% 20.95% 3.80% 4.43%
FROM
$39,000 TO
$94,250 28.00% 7.00% 33.04% 4.48% 5.23%
FROM
$94,250 TO
$100,000 31.00% 7.00% 35.83% 4.68% 5.45%
FROM
$100,000 TO
$143,600 31.00% 7.75% 36.35% 4.71% 5.50%
FROM
$143,600 TO
$256,500 36.00% 7.75% 40.96% 5.08% 5.93%
OVER
$256,500 39.60% 7.75% 44.28% 5.38% 6.28%
MARRIED
FILING JOINTLY
SAMPLE
TAXABLE .................................. TAX-EXEMPT YIELDS .....................................
INCOME
(1995) 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------
- -------------------------------------------------------------------------------------------------------------
FROM
$0 TO
$21,250 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$21,250 TO
$39,000 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$39,000 TO
$94,250 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$94,250 TO
$100,000 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$100,000 TO
$143,600 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$143,600 TO
$256,500 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$256,500 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-47
<PAGE> 143
The "combined Federal and N.C. Marginal Tax Rate" represents the
combined federal and North Carolina tax rates available to taxpayers who
itemize deductions adjusted to account for the federal deduction of state taxes
paid.
Such data are for illustrative purposes only and are not intended to
indicate past or future performance results of the North Carolina Fund or the
North Carolina Fund II. Actual performance of the Fund may be more or less
than that noted in the hypothetical illustrations.
ADDITIONAL INFORMATION
Organization and Description of Shares
- --------------------------------------
The Group was organized as a Massachusetts business trust by the
Agreement and Declaration of Trust, dated October 1, 1987, under the name
"Shelf Registration Trust IV." The Group's Agreement and Declaration of Trust
has been amended two times: (1) on June 25, 1992 to change the Group's name,
and (2) on August 18, 1992, to provide for the issuance of multiple classes of
shares. A copy of the Group's Amended and Restated Agreement and Declaration
of Trust, (the "Declaration of Trust") is on file with the Secretary of State
of The Commonwealth of Massachusetts. The Declaration of Trust authorizes the
Board of Trustees to issue an unlimited number of Shares, which are units of
beneficial interest. The Group presently has seven series of Shares offered to
the public which represent interests in the U.S. Treasury Fund, Growth and
Income Fund, North Carolina Fund, Short-Intermediate Fund, Intermediate Bond
Fund, Balanced Fund, and Small Company Growth Fund respectively. The Group
also offers three additional series of Shares which represent interests in the
Growth and Income Fund II, the North Carolina Fund II, and the Intermediate
Bond Fund II. These Special Trust Funds offer Trust Shares only, which are
only available for purchase by common trust funds managed by BB&T and its
affiliates. The Group's Declaration of Trust authorizes the Board of Trustees
to divide or redivide any unissued Shares of the Group into one or more
additional series.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Group's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the Group and its Shares," shares of the
Group are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, shares shall be voted by individual
B-48
<PAGE> 144
series, (ii) when the Trustees have determined that the matter affects only
the interests of a particular series or class, then only Shareholders of such
series or class shall be entitled to vote thereon, and (iii) only the holders
of Class A and Class B Shares will be entitled to vote on matters submitted to
Shareholder vote with regard to the Distribution Plan applicable to such class.
There will normally be no meetings of Shareholders for the purposes of electing
Trustees unless and until such time as less than a majority of the Trustees
have been elected by the Shareholders, at which time the Trustees then in
office will call a Shareholders' meeting for the election of Trustees. In
addition, Trustees may be removed from office by a written consent signed by
the holders of two-thirds of the outstanding shares of the Group and filed with
the Group's custodian or by vote of the holders of two-thirds of the
outstanding shares of the Group at a meeting duly called for the purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares of any Fund. Except as set forth above, the
Trustees shall continue to hold office and may appoint their successors.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Group's Declaration of Trust disclaims Shareholder liability for
acts or obligations of the Group and requires that notice of such disclaimer be
given in every agreement, obligation or instrument entered into or executed by
the Group or the Trustees. The Declaration of Trust provides for
indemnification out of a Fund's property for all loss and expense of any
Shareholder of such Fund held liable on account of being or having been a
Shareholder. Thus, the risk of a Shareholder incurring financial loss on
account of Shareholder liability is limited to circumstances in which a Fund
would be unable to meet its obligations.
The Agreement and Declaration of Trust states further that no Trustee,
officer or agent of the Group shall be personally liable in connection with the
administration or preservation of the assets of the Group or the conduct of the
Group's business; nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act expect for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties.
The Agreement and Declaration of Trust also provides that all persons having
any claim against the Trustees or the Group shall look solely to the assets of
the Group for payment.
Miscellaneous
- -------------
The Group may include information in its Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for
one or more of the Funds within the Group, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
Shareholders of the activities of the Group for the most recent fiscal year or
half-year and to provide the
B-49
<PAGE> 145
views of the Investment Adviser and/or Group officers regarding expected
trends and strategies.
The organizational expenses of the Group have been allocated to each
Fund and are being amortized over a period of two years from the commencement
of the public offering of Shares of the Group. In the event any of the initial
Shares of the Group are redeemed during the amortization period by any holder
thereof, the redemption proceeds will be reduced by a pro rata portion of any
unamortized organization expenses in the same proportion as the number of
initial Shares being redeemed bears to the total number of initial Shares
outstanding at the time of redemption. Investors purchasing Shares of the
Group subsequent to the date of the Prospectus and this Statement of Additional
Information bear such expenses only as they are amortized against a Fund's
investment income.
The Group is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Group.
As of December 7, 1995 the following persons owned of record or
beneficially 5% or more of the Class A or Trust Shares of the listed Funds:
U.S. Treasury Money Market Fund - Class A Shares
------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 10,761,535.020 62.58%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Joseph Riddle III and 1,879,220.510 10.87%
George Armstrong
Trust Joseph P. Riddle III
and Carolyn R. Armstrong
and Sharlene R. Williams
Revocable Insurance Trust
P.O. Box 53646
Fayetteville, N.C. 28305
</TABLE>
B-50
<PAGE> 146
U.S. Treasury Money Market Fund - Trust Shares
----------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 124,841,401.520 89.46%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Benefit Service Corporation 11,613,527.690 8.31%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 700
Atlanta, GA 30309
</TABLE>
Short Intermediate U.S. Government Fund - Class A Shares
--------------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Henry Fibers, Inc. 68,646.341 9.96%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
Stephens, Inc. 121,890.830 17.68%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-51
<PAGE> 147
Short Intermediate U.S. Government Fund - Trust Shares
------------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Benefit Service Corporation II 309,646.760 6.84%
1375 Peachtree St., Suite 700
Atlanta, GA 30309
Wilbranch 1,510,076.095 33.37%
Reinvest
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Wilbranch 2,657,518.451 58.73%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
Intermediate U.S. Government Bond Fund - Class A Shares
-------------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 212,127.384 40.98%
For the Exclusive Benefit of
Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-52
<PAGE> 148
Intermediate U.S. Government Bond Fund - Trust Shares
-----------------------------------------------------
<TABLE>
<CAPTION>
Percentage Owned
----------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Benefit Service Corporation 490,426.516 5.93%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 700
Atlanta, GA 30309
Wilbranch 2,055,370.168 24.84%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Wilbranch 5,520,885.980 66.72%
Reinvest
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
Growth and Income Stock Fund - Class A Shares
---------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 192,774.075 22.09%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-53
<PAGE> 149
Growth and Income Stock Fund - Trust Shares
-------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 3,956,662.625 33.41%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Benefit Service Corporation 758,736.100 6.41%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 700
Atlanta, GA 30309
Wilbranch 6,910,359.556 58.34%
Reinvest
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
North Carolina Intermediate Tax-Free Fund - Class A Shares
----------------------------------------------------------
<TABLE>
<CAPTION>
Percent Owed
------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 196,245.279 22.35%
Reinvest
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Helen H. Hendricks 53,803.121 6.13%
277 Beechwood Dr.
Mocksville, NC 27028
</TABLE>
B-54
<PAGE> 150
North Carolina Intermediate Tax-Free Fund - Trust Shares
--------------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 2,648,959.155 100%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
Balanced Fund - Class A Shares
------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 422,876.958 48.45%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
Balanced Fund - Trust Shares
----------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 742,274.901 14.77%
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Wilbranch 3,922,804.697 78.07%
Reinvest
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
B-55
<PAGE> 151
Small Company Growth Fund - Class A Shares
------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens Inc. 21,599.674 19.90%
For The Exclusive Benefit
Of Our Customers
111 Center St.
Little Rock, AR 72201
</TABLE>
Small Company Growth Fund - Trust Shares
----------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 810,905.840 62.29%
Reinvest
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Wilbranch 417,093.504 32.04
Cash
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
</TABLE>
As of December 7, 1995, BB&T owned of record substantially all of the
outstanding Trust Shares of each of the Funds, and held voting or investment
power with respect to 99.1%, 99.9%, 99.9%, 99.3%, 98.7%, 99.2% and 100% of the
Trust Shares of the U.S. Treasury Money Market, Short-Intermediate U.S.
Government, North Carolina Intermediate Tax-Free, Growth Stock and Income
Stock, Intermediate U.S. Government Bond, Balanced, and Small Company Growth
Funds, respectively. As a result, BB&T may be deemed to be a "controlling
person" of the Trust Shares of each of the Funds under the 1940 Act. As of
September 29, 1995, the Special Trust Funds had not commenced operations.
Stephens Inc., For the Exclusive Benefit of Our Customers, 111 Center
Street, Little Rock, AR 72201: record owner with respect to 62.58%, 40.98% and
48.45% of the Class A Shares of the U.S. Treasury Money Market, Intermediate
U.S. Government Bond and Balanced Funds, respectively. Accordingly, Stephens,
Inc. may be deemed to be a "controlling person" of the Investor Shares of the
Funds of which it is a shareholder.
B-56
<PAGE> 152
The Prospectuses of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee.
The Prospectuses of the Funds and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectuses of the Funds and this Statement of
Additional Information.
B-57
<PAGE> 153
FINANCIAL STATEMENTS
Independent Auditors Report
Audited Financial Statements as of September 30, 1995
B-58
<PAGE> 154
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of
BB&T Mutual Funds Group:
We have audited the accompanying statements of assets and liabilities of the
BB&T Mutual Funds Group -- U.S. Treasury Money Market Fund, Short-Intermediate
U.S. Government Income Fund, Intermediate U.S. Government Bond Fund, North
Carolina Intermediate Tax-Free Fund, Growth and Income Stock Fund, Balanced Fund
and Small Company Growth Fund, including the schedules of portfolio investments,
as of September 30, 1995, and the related statements of operations, statements
of changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the BB&T Mutual Funds Group's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising the BB&T Mutual Funds Group at September
30, 1995, the results of their operations, the changes in their net assets and
the financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 16, 1995
B-59
<PAGE> 155
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
U.S.
TREASURY SHORT-INTERMEDIATE INTERMEDIATE
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT
FUND INCOME FUND BOND FUND
------------ ------------------ ---------------
<S> <C> <C> <C>
ASSETS:
Investments, at value...................................... $ 69,290,147 $ 51,455,190 $83,046,793
Repurchase agreements...................................... 65,333,196
------------ ------------------ ---------------
134,623,343 51,455,190 83,046,793
Interest receivable........................................ 29,661 943,873 1,197,107
Prepaid expenses........................................... 5,655 2,183
------------ ------------------ ---------------
Total Assets....................................... 134,653,004 52,404,718 84,246,083
------------ ------------------ ---------------
LIABILITIES:
Dividends payable.......................................... 524,888 247,666 420,056
Accrued expenses and other payables:
Investment advisory fees............................... 42,299 21,753 34,373
Administration fees.................................... 21,150 8,701 13,749
Distribution fees...................................... 2,642 1,463 1,100
Accounting and transfer agent fees..................... 3,845 5,320 5,451
Other.................................................. 27,242 13,350 19,533
------------ ------------------ ---------------
Total Liabilities.................................. 622,066 298,253 494,262
------------ ------------------ ---------------
NET ASSETS:
Capital.................................................... 134,030,938 53,283,058 83,739,873
Undistributed net investment income........................ 5,718
Net unrealized appreciation on investments................. 141,131 1,222,853
Accumulated undistributed net realized losses on investment
transactions............................................. (1,317,724) (1,216,623)
------------ ------------------ ---------------
Net Assets......................................... $134,030,938 $ 52,106,465 $83,751,821
============= ================= ===============
Net Assets
Investor Class......................................... $ 13,947,892 $ 7,101,935 $ 5,173,383
Trust Class............................................ 120,083,046 45,004,530 78,578,438
------------ ------------------ ---------------
Total.............................................. $134,030,938 $ 52,106,465 $83,751,821
============= ================= ===============
Outstanding units of beneficial interest (shares)
Investor Class......................................... 13,947,892 718,579 523,612
Trust Class............................................ 120,083,046 4,551,421 7,944,872
------------ ------------------ ---------------
Total.............................................. 134,030,938 5,270,000 8,468,484
============= ================= ===============
Net asset value
Investor Class--redemption price per share............. $ 1.00 $ 9.88 $ 9.88
Trust Class--offering and redemption price per share... 1.00 9.89 9.89
============= ================= ===============
Maximum Sales Charge (Investor Class)...................... 2.00% 2.00%
================= ===============
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of
net asset value adjusted to nearest cent) per
share--Investor Class.................................... $ 1.00 (a) $ 10.08 $ 10.08
============= ================= ===============
Investments, at cost....................................... $134,623,343 $ 51,314,059 $81,823,940
============= ================= ===============
</TABLE>
- ---------
(a) Offering price and redemption price are the same for the U.S. Treasury Money
Market Fund.
See notes to financial statements.
B-60
<PAGE> 156
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NORTH CAROLINA GROWTH AND SMALL COMPANY
INTERMEDIATE INCOME STOCK BALANCED GROWTH
TAX-FREE FUND FUND FUND FUND
-------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value.............................. $ 36,466,086 $157,031,202 $58,704,084 $18,035,329
Cash............................................... 478
Interest and dividends receivable.................. 479,205 338,347 579,035 16,644
Unamortized organization costs..................... 13,229
Receivable from adviser............................ 20,079
Prepaid expenses................................... 6,059 11,596 8,032
------------- ----------- ----------- ------------
Total Assets............................... 36,951,350 157,381,145 59,291,151 18,085,759
------------- ----------- ----------- ------------
LIABILITIES:
Dividends payable.................................. 109,860 212,313 186,699
Payable to brokers for investments purchased....... 597,510
Accrued expenses and other payables:
Investment advisory fees....................... 15,212 62,774 23,769 14,190
Administration fees............................ 4,564 25,110 9,508 2,838
Distribution fees.............................. 1,085 2,195 1,910 210
Accounting and transfer agent fees............. 3,674 5,575 5,174 3,390
Other.......................................... 9,024 30,683 13,330 7,499
------------- ----------- ----------- -------------
Total Liabilities.......................... 143,419 936,160 240,390 28,127
------------- ----------- ----------- -------------
NET ASSETS:
Capital............................................ 36,477,531 132,510,060 54,397,463 14,633,202
Undistributed net investment loss.................. (92,263)
Net unrealized appreciation on investments......... 408,350 23,024,049 5,045,189 3,781,210
Accumulated undistributed net realized gains
(losses) on investment transactions.............. (77,950) 910,876 (391,891) (264,517)
------------- ----------- ----------- ------------
Net Assets................................. $ 36,807,931 $156,444,985 $59,050,761 $18,057,632
============= =========== =========== ============
Net Assets
Investor Class................................. $ 8,716,921 $10,842,146 $ 9,256,795 $ 1,095,603
Trust Class.................................... 28,091,010 145,602,839 49,793,966 16,962,029
------------- ----------- ----------- ------------
Total...................................... $ 36,807,931 $156,444,985 $59,050,761 $18,057,632
============= ============= =========== ============
Outstanding units of beneficial interest (shares)
Investor Class................................. 858,931 836,152 838,797 75,426
Trust Class.................................... 2,767,497 11,210,329 4,520,644 1,164,384
------------- ----------- ----------- ------------
Total...................................... 3,626,428 12,046,481 5,359,441 1,239,810
============= =========== =========== ============
Net asset value
Investor Class--redemption price per share..... $ 10.15 $ 12.97 $ 11.04 $ 14.53
Trust Class--offering and redemption price per
share........................................ 10.15 12.99 11.01 14.57
============= =========== ========== ============
Maximum Sales Charge (Investor Class).............. 2.00% 4.00% 4.00% 4.00%
============= =========== ========== ============
Maximum Offering Price (100%/(100%-Maximum Sales
Charge) of net asset value adjusted to nearest
cent) per share--Investor Class.................. $ 10.36 $ 13.51 $ 11.50 $ 15.14
============= =========== ========== ============
Investments, at cost............................... $ 36,057,736 $134,007,153 $53,658,895 $14,254,119
============= =========== ========== ============
</TABLE>
See notes to financial statements.
B-61
<PAGE> 157
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
U.S.
TREASURY SHORT-INTERMEDIATE INTERMEDIATE
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT
FUND INCOME FUND BOND FUND
------------ ------------------ ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................................ $5,842,430 $ 3,394,971 $ 5,704,702
----------- ------------ -----------
Total Income......................................... 5,842,430 3,394,971 5,704,702
----------- ------------ -----------
EXPENSES:
Investment advisory fees................................... 409,837 303,486 469,936
Administration fees........................................ 204,919 101,143 156,602
Distribution fees.......................................... 29,664 38,279 30,397
Custodian and accounting fees.............................. 53,477 51,806 51,815
Legal and audit fees....................................... 27,165 15,447 23,432
Organization costs......................................... 207 828 413
Trustees' fees and expenses................................ 6,713 3,111 5,666
Transfer agent fees........................................ 36,680 45,715 44,295
Registration and filing fees............................... 241 4,338 1,765
Printing costs............................................. 18,292 16,975 21,728
Other...................................................... 5,758 3,443 5,268
Expenses voluntarily reduced............................... (36,486) (93,829) (131,239)
----------- ------------ -----------
Total Expenses....................................... 756,467 490,742 680,078
----------- ------------ -----------
Net Investment Income...................................... 5,085,963 2,904,229 5,024,624
----------- ------------ -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investment transactions............. (1,125,416) (1,194,343)
Change in unrealized appreciation on investments........... 2,643,412 5,832,579
----------- ------------ -----------
Net realized/unrealized gains on investments............... 1,517,996 4,638,236
----------- ------------ -----------
Change in net assets resulting from operations............. $5,085,963 $ 4,422,225 $ 9,662,860
=========== ============ ===========
</TABLE>
See notes to financial statements.
B-62
<PAGE> 158
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NORTH CAROLINA GROWTH AND SMALL COMPANY
INTERMEDIATE INCOME STOCK BALANCED GROWTH
TAX-FREE FUND FUND FUND FUND(A)
-------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................................... $1,771,895 $ 323,820 $2,055,182 $ 64,787
Dividend income.................................... 3,405,070 653,671 2,512
---------- ----------- ---------- -----------
Total Income................................. 1,771,895 3,728,890 2,708,853 67,299
---------- ----------- ---------- -----------
EXPENSES:
Investment advisory fees........................... 227,111 858,300 368,838 68,262
Administration fees................................ 75,704 231,951 99,630 13,648
Distribution fees.................................. 45,536 43,873 41,978 1,885
Custodian and accounting fees...................... 46,277 55,906 54,031 58,570
Legal and audit fees............................... 10,984 34,424 14,910 4,043
Organization costs................................. 138 344 10,747
Trustees' fees and expenses........................ 2,746 8,029 3,649 608
Transfer agent fees................................ 43,044 60,847 46,029 25,785
Registration and filing fees....................... 4,242 7,181 6,395 1,366
Printing costs..................................... 14,836 14,079 6,314 1,789
Other.............................................. 2,679 6,853 3,375 70
Expenses voluntarily reduced....................... (117,564) (350,340) (165,028) (7,132)
---------- ----------- ---------- ------------
Total expenses before reimbursement.......... 355,733 971,447 480,121 179,641
Reimbursement of expenses.................... (20,079)
---------- ----------- ---------- ------------
Total Expenses............................... 355,733 971,447 480,121 159,562
---------- ----------- ---------- ------------
Net Investment Income (Loss)....................... 1,416,162 2,757,443 2,228,732 (92,263)
---------- ----------- ---------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment
transactions..................................... (77,950) 1,084,821 (361,045) (264,517)
Change in unrealized appreciation on investments... 1,483,907 18,939,826 6,451,498 3,781,210
---------- ----------- ---------- -----------
Net realized/unrealized gains on investments....... 1,405,957 20,024,647 6,090,453 3,516,693
---------- ----------- ---------- -----------
Change in net assets resulting from operations..... $2,822,119 $22,782,090 $8,319,185 $ 3,424,430
========== =========== ========== ===========
</TABLE>
- ---------
(a) For the period from December 7, 1994 (commencement of operations) through
September 30, 1995.
See notes to financial statements.
B-63
<PAGE> 159
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
----------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR
------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------------------------------ -----------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 5,085,963 $ 285,363 $ 4,800,600 $ 2,401,193 $ 28,928
------------- ------------ ------------- ------------- -----------
Change in net assets resulting
from operations................. 5,085,963 285,363 4,800,600 2,401,193 28,928
------------- ------------ ------------- ------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (5,085,963) (285,363) (4,800,600) (2,401,193) (28,928)
------------- ------------ ------------- ------------- -----------
Change in net assets from
shareholder distributions....... (5,085,963) (285,363) (4,800,600) (2,401,193) (28,928)
------------- ------------ ------------- ------------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 413,983,846 39,015,125 374,968,721 436,739,006 8,607,901
Dividends reinvested............ 507,038 235,433 271,605 105,939 21,083
Cost of shares redeemed......... (359,409,516) (26,788,169) (332,621,347) (433,136,762) (7,422,587)
------------- ------------ ------------- ------------- -----------
Change in net assets from share
transactions.................... 55,081,368 12,462,389 42,618,979 3,708,183 1,206,397
------------- ------------ ------------- ------------- -----------
Change in net assets.............. 55,081,368 12,462,389 42,618,979 3,708,183 1,206,397
NET ASSETS:
Beginning of period............. 78,949,570 1,485,503 77,464,067 75,241,387 279,106
------------- ------------ ------------- ------------- -----------
End of period................... $ 134,030,938 $ 13,947,892 $ 120,083,046 $ 78,949,570 $ 1,485,503
============= ============ ============= ============= ===========
SHARE TRANSACTIONS:
Issued.......................... 413,983,846 39,015,125 374,968,721 436,739,006 8,607,901
Reinvested...................... 507,038 235,433 271,605 105,939 21,083
Redeemed........................ (359,409,516) (26,788,169) (332,621,347) (433,136,762) (7,422,587)
------------- ------------ ------------- ------------- -----------
Change in shares.................. 55,081,368 12,462,389 42,618,979 3,708,183 1,206,397
============ =========== ============ ============ ==========
<CAPTION>
TRUST
<S> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 2,372,265
-------------
Change in net assets resulting
from operations................. 2,372,265
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (2,372,265)
-------------
Change in net assets from
shareholder distributions....... (2,372,265)
-------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 428,131,105
Dividends reinvested............ 84,856
Cost of shares redeemed......... (425,714,175)
-------------
Change in net assets from share
transactions.................... 2,501,786
-------------
Change in net assets.............. 2,501,786
NET ASSETS:
Beginning of period............. 74,962,281
-------------
End of period................... $ 77,464,067
============
SHARE TRANSACTIONS:
Issued.......................... 428,131,105
Reinvested...................... 84,856
Redeemed........................ (425,714,175)
-------------
Change in shares.................. 2,501,786
============
</TABLE>
See notes to financial statements.
B-64
<PAGE> 160
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
----------------------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR TRUST
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------------------------- --------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 2,904,229 $ 421,136 $ 2,483,093 $ 2,667,188 $ 751,097 $ 1,916,091
Net realized losses on
investment transactions....... (1,125,416) (193,547) (931,869) (192,308) (49,485) (142,823)
Net change in unrealized
appreciation (depreciation) on
investments................... 2,643,412 384,878 2,258,534 (3,405,619) (1,030,587) (2,375,032)
----------- ---------- ----------- ----------- ---------- ----------
Change in net assets resulting
from operations................. 4,422,225 612,467 3,809,758 (930,739) (328,975) (601,764)
----------- ---------- ----------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (2,904,229) (421,136) (2,483,093) (2,667,188) (751,192) (1,915,996)
From net realized gains on
investments................... (26,544) (8,671) (17,873)
----------- ---------- ----------- ----------- ---------- ----------
Change in net assets from
shareholder distributions....... (2,904,229) (421,136) (2,483,093) (2,693,732) (759,863) (1,933,869)
----------- ---------- ----------- ----------- ---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 16,642,791 238,092 16,404,699 20,838,661 5,917,567 14,921,094
Dividends reinvested............ 778,260 335,908 442,352 859,609 586,860 272,749
Cost of shares redeemed......... (15,385,757) (4,008,351) (11,377,406) (19,081,759) (9,985,347) (9,096,412)
----------- ---------- ----------- ----------- ---------- ----------
Change in net assets from share
transactions.................... 2,035,294 (3,434,351) 5,469,645 2,616,511 (3,480,920) 6,097,431
----------- ---------- ----------- ----------- ---------- ----------
Change in net assets.............. 3,553,290 (3,243,020) 6,796,310 (1,007,960) (4,569,758) 3,561,798
NET ASSETS:
Beginning of period............. 48,553,175 10,344,955 38,208,220 49,561,135 14,914,713 34,646,422
----------- ---------- ----------- ----------- ---------- ----------
End of period................... $ 52,106,465 $ 7,101,935 $ 45,004,530 $ 48,553,175 $10,344,955 $38,208,220
=========== ========== =========== =========== ========== ==========
SHARE TRANSACTIONS:
Issued.......................... 1,718,480 24,465 1,694,015 2,082,458 586,106 1,496,352
Reinvested...................... 80,130 34,730 45,400 86,281 58,821 27,460
Redeemed........................ (1,581,451) (417,677) (1,163,774) (1,929,430) (1,017,081) (912,349)
----------- ---------- ----------- ----------- ---------- ----------
Change in shares.................. 217,159 (358,482) 575,641 239,309 (372,154) 611,463
=========== ========== =========== =========== ========== ==========
</TABLE>
See notes to financial statements.
B-65
<PAGE> 161
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR
--------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------------------------- ----------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 5,024,624 $ 377,937 $ 4,646,687 $ 4,275,563 $ 412,238
Net realized losses on
investment transactions....... (1,194,343) (97,955) (1,096,388) (16,562) (1,816)
Net change in unrealized
appreciation (depreciation) on
investments................... 5,832,579 454,421 5,378,158 (7,226,527) (752,184)
------------ ----------- ------------ ------------ -----------
Change in net assets resulting
from operations................. 9,662,860 734,403 8,928,457 (2,967,526) (341,762)
------------ ----------- ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (5,024,624) (377,937) (4,646,687) (4,275,563) (412,292)
From net realized gains on
investments................... (104,773) (9,254)
------------ ----------- ------------ ------------ -----------
Change in net assets from
shareholder distributions....... (5,024,624) (377,937) (4,646,687) (4,380,336) (421,546)
------------ ----------- ------------ ------------ -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 23,171,044 322,927 22,848,117 36,134,520 3,133,265
Dividends reinvested............ 3,929,840 320,094 3,609,746 3,571,711 342,161
Cost of shares redeemed......... (23,210,413) (2,597,921) (20,612,492) (22,189,202) (1,177,879)
------------ ----------- ------------ ------------ -----------
Change in net assets from share
transactions.................... 3,890,471 (1,954,900) 5,845,371 17,517,029 2,297,547
------------ ----------- ------------ ------------ -----------
Change in net assets.............. 8,528,707 (1,598,434) 10,127,141 10,169,167 1,534,239
NET ASSETS:
Beginning of period............. 75,223,114 6,771,817 68,451,297 65,053,947 5,237,578
------------ ----------- ------------ ------------ -----------
End of period................... $ 83,751,821 $ 5,173,383 $ 78,578,438 $ 75,223,114 $ 6,771,817
============ =========== ============ ============ ===========
SHARE TRANSACTIONS:
Issued.......................... 2,419,901 34,521 2,385,380 3,706,922 310,750
Reinvested...................... 414,007 33,838 380,169 362,184 34,820
Redeemed........................ (2,420,431) (270,549) (2,149,882) (2,268,815) (123,726)
------------ ----------- ------------ ------------ -----------
Change in shares.................. 413,477 (202,190) 615,667 1,800,291 221,844
============ =========== ============ ============ ===========
<CAPTION>
TRUST
<S> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 3,863,325
Net realized losses on
investment transactions....... (14,746)
Net change in unrealized
appreciation (depreciation) on
investments................... (6,474,343)
------------
Change in net assets resulting
from operations................. (2,625,764)
------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (3,863,271)
From net realized gains on
investments................... (95,519)
------------
Change in net assets from
shareholder distributions....... (3,958,790)
------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 33,001,255
Dividends reinvested............ 3,229,550
Cost of shares redeemed......... (21,011,323)
------------
Change in net assets from share
transactions.................... 15,219,482
------------
Change in net assets.............. 8,634,928
NET ASSETS:
Beginning of period............. 59,816,369
------------
End of period................... $ 68,451,297
============
SHARE TRANSACTIONS:
Issued.......................... 3,396,172
Reinvested...................... 327,364
Redeemed........................ (2,145,089)
------------
Change in shares.................. 1,578,447
============
</TABLE>
See notes to financial statements.
B-66
<PAGE> 162
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
----------------------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR TRUST
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------------------------- --------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 1,416,162 $ 330,842 $ 1,085,320 $ 1,385,916 $ 495,411 $ 890,505
Net realized losses on
investment transactions....... (77,950) (17,801) (60,149)
Net change in unrealized
appreciation (depreciation) on
investments................... 1,483,907 318,089 1,165,818 (1,872,922) (719,709) (1,153,213)
------------ ----------- ------------ ------------ ----------- -----------
Change in net assets resulting
from operations................. 2,822,119 631,130 2,190,989 (487,006) (224,298) (262,708)
------------ ----------- ------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (1,416,162) (330,842) (1,085,320) (1,385,916) (495,443) (890,473)
From net realized gains on
investments................... (42,900) (17,774) (25,126)
------------ ----------- ------------ ------------ ----------- -----------
Change in net assets from
shareholder distributions....... (1,416,162) (330,842) (1,085,320) (1,428,816) (513,217) (915,599)
------------ ----------- ------------ ------------ ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 10,916,979 560,783 10,356,196 17,551,624 5,538,486 12,013,138
Dividends reinvested............ 278,161 278,140 21 438,378 438,368 10
Cost of shares redeemed......... (14,646,808) (3,505,541) (11,141,267) (11,043,767) (7,851,161) (3,192,606)
------------ ----------- ------------ ------------ ----------- -----------
Change in net assets from share
transactions.................... (3,451,668) (2,666,618) (785,050) 6,946,235 (1,874,307) 8,820,542
------------ ----------- ------------ ------------ ----------- -----------
Change in net assets.............. (2,045,711) (2,366,330) 320,619 5,030,413 (2,611,822) 7,642,235
NET ASSETS:
Beginning of period............. 38,853,642 11,083,251 27,770,391 33,823,229 13,695,073 20,128,156
------------ ----------- ------------ ------------ ----------- -----------
End of period................... $ 36,807,931 $ 8,716,921 $ 28,091,010 $ 38,853,642 $11,083,251 $27,770,391
============ =========== ============ ============ =========== ===========
SHARE TRANSACTIONS:
Issued.......................... 1,107,634 56,493 1,051,141 1,746,068 546,801 1,199,267
Reinvested...................... 28,266 28,264 2 43,495 43,494 1
Redeemed........................ (1,480,683) (358,791) (1,121,892) (1,105,431) (788,108) (317,323)
------------ ----------- ------------ ------------ ----------- -----------
Change in shares.................. (344,783) (274,034) (70,749) 684,132 (197,813) 881,945
=========== =========== ============ ============ =========== ===========
</TABLE>
See notes to financial statements.
B-67
<PAGE> 163
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR TRUST
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------------------------- --------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 2,757,443 $ 188,855 $ 2,568,588 $ 2,380,026 $ 165,916 $ 2,214,110
Net realized gains on investment
transactions.................. 1,084,821 83,203 1,001,618 2,230,099 173,474 2,056,625
Net change in unrealized
appreciation (depreciation) on
investments................... 18,939,826 1,403,235 17,536,591 (1,357,242) (104,932) (1,252,310)
------------ ----------- ------------ ------------ ---------- ------------
Change in net assets resulting
from operations................. 22,782,090 1,675,293 21,106,797 3,252,883 234,458 3,018,425
------------ ----------- ------------ ------------ ---------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (2,757,443) (187,792) (2,569,651) (2,380,026) (169,426) (2,210,600)
From net realized gains on
investments................... (1,084,821) (83,203) (1,001,618) (965,529) (68,029) (897,500)
In excess of net realized gains
on investments................ (1,260,922) (108,268) (1,152,654)
------------ ----------- ------------ ------------ ---------- ------------
Change in net assets from
shareholder distributions....... (5,103,186) (379,263) (4,723,923) (3,345,555) (237,455) (3,108,100)
------------ ----------- ------------ ------------ ---------- ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 57,688,354 2,464,804 55,223,550 37,024,984 2,617,619 34,407,365
Dividends reinvested............ 3,097,037 378,623 2,718,414 2,300,354 228,419 2,071,935
Cost of shares redeemed......... (19,347,795) (1,270,600) (18,077,195) (30,271,987) (879,115) (29,392,872)
------------ ----------- ------------ ------------ ---------- ------------
Change in net assets from share
transactions.................... 41,437,596 1,572,827 39,864,769 9,053,351 1,966,923 7,086,428
------------ ----------- ------------ ------------ ---------- ------------
Change in net assets.............. 59,116,500 2,868,857 56,247,643 8,960,679 1,963,926 6,996,753
NET ASSETS:
Beginning of period............. 97,328,485 7,973,289 89,355,196 88,367,806 6,009,363 82,358,443
------------ ----------- ------------ ------------ ---------- ------------
End of period................... $156,444,985 $10,842,146 $145,602,839 $ 97,328,485 $7,973,289 $ 89,355,196
============ =========== ============ =========== ========= ===========
SHARE TRANSACTIONS:
Issued.......................... 4,774,121 205,305 4,568,816 3,275,381 231,882 3,043,499
Reinvested...................... 275,871 33,975 241,896 204,044 20,295 183,749
Redeemed........................ (1,633,604) (111,033) (1,522,571) (2,685,789) (77,733) (2,608,056)
------------ ----------- ------------ ------------ ---------- ------------
Change in shares.................. 3,416,388 128,247 3,288,141 793,636 174,444 619,192
=========== ========== =========== =========== ========= ===========
</TABLE>
See notes to financial statements.
B-68
<PAGE> 164
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED FUND
--------------------------------------------------------------------------------------------
TOTAL INVESTOR TRUST TOTAL INVESTOR TRUST
--------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
--------------------------------------------- ------------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 2,228,732 $ 358,163 $ 1,870,569 $ 1,524,569 $ 269,076 $ 1,255,493
Net realized losses on
investment transactions....... (361,045) (61,792) (299,253) (30,364) (3,195) (27,169)
Net change in unrealized
appreciation (depreciation) on
investments................... 6,451,498 1,087,109 5,364,389 (1,731,930) (349,069) (1,382,861)
------------ ----------- ------------ ----------- ---------- -----------
Change in net assets resulting
from operations................. 8,319,185 1,383,480 6,935,705 (237,725) (83,188) (154,537)
------------ ----------- ------------ ----------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income...... (2,228,732) (355,479) (1,873,253) (1,524,569) (270,511) (1,254,058)
------------ ----------- ------------ ----------- ---------- -----------
Change in net assets from
shareholder distributions....... (2,228,732) (355,479) (1,873,253) (1,524,569) (270,511) (1,254,058)
------------ ----------- ------------ ----------- ---------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 18,039,983 1,398,339 16,641,644 32,900,987 6,905,011 25,995,976
Dividends reinvested............ 1,590,880 350,315 1,240,565 975,003 231,677 743,326
Cost of shares redeemed......... (14,945,721) (2,079,598) (12,866,123) (6,781,693) (792,707) (5,988,986)
------------ ----------- ------------ ----------- ---------- -----------
Change in net assets from share
transactions.................... 4,685,142 (330,944) 5,016,086 27,094,297 6,343,981 20,750,316
------------ ----------- ------------ ----------- ---------- -----------
Change in net assets.............. 10,775,595 697,057 10,078,538 25,332,003 5,990,282 19,341,721
NET ASSETS:
Beginning of period............. 48,275,166 8,559,738 39,715,428 22,943,163 2,569,456 20,373,707
------------ ----------- ------------ ----------- ---------- -----------
End of period................... $ 59,050,761 $ 9,256,795 $ 49,793,966 $48,275,166 $8,559,738 $39,715,428
============ =========== ============ =========== ========== ===========
SHARE TRANSACTIONS:
Issued.......................... 1,719,005 133,311 1,585,694 3,281,982 681,340 2,600,642
Reinvested...................... 156,859 34,562 122,297 97,912 23,275 74,637
Redeemed........................ (1,469,697) (206,078) (1,263,619) (680,663) (79,573) (601,090)
------------ ----------- ------------ ----------- ---------- -----------
Change in shares.................. 406,167 (38,205) 444,372 2,699,231 625,042 2,074,189
============ =========== ============ =========== ========== ===========
</TABLE>
See notes to financial statements.
B-69
<PAGE> 165
BB&T MUTUAL FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
----------------------------------------
TOTAL INVESTOR TRUST
----------------------------------------
----------------------------------------
<S> <C> <C> <C>
DECEMBER 7, 1994 TO
SEPTEMBER 30, 1995(A)
----------------------------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss....................................................... $ (92,263) $ (5,871) $ (86,392)
Net realized losses on investment transactions............................ (264,517) (13,458) (251,059)
Net change in unrealized appreciation on investments...................... 3,781,210 206,234 3,574,976
----------- ---------- -----------
Change in net assets resulting from operations.............................. 3,424,430 186,905 3,237,525
----------- ---------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................................... 15,189,335 938,909 14,250,426
Cost of shares redeemed................................................... (556,133) (30,211) (525,922)
----------- ---------- -----------
Change in net assets from share transactions................................ 14,633,202 908,698 13,724,504
----------- ---------- -----------
Change in net assets........................................................ 18,057,632 1,095,603 16,962,029
NET ASSETS:
Beginning of period
----------- ---------- -----------
End of period............................................................. $18,057,632 $1,095,603 $16,962,029
=========== ========== ===========
SHARE TRANSACTIONS:
Issued.................................................................... 1,280,823 77,577 1,203,246
Redeemed.................................................................. (41,013) (2,151) (38,862)
----------- ---------- -----------
Change in shares............................................................ 1,239,810 75,426 1,164,384
=========== ========== ===========
</TABLE>
- ---------
(a) Period from commencement of operations.
See notes to financial statements.
B-70
<PAGE> 166
BB&T MUTUAL FUNDS GROUP
U.S. TREASURY MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ----------------------------- ------------
<S> <C> <C>
U.S. TREASURY BILLS (51.7%):
10,000,000 10/12/95..................... $ 9,982,843
5,000,000 10/19/95..................... 4,986,300
10,000,000 11/2/95...................... 9,952,000
10,000,000 11/24/95..................... 9,918,512
10,000,000 12/14/95..................... 9,889,000
10,000,000 1/11/96...................... 9,846,150
10,000,000 2/1/96....................... 9,819,942
5,000,000 2/22/96...................... 4,895,400
------------
Total U.S. Treasury Bills 69,290,147
------------
Total Investments 69,290,147
------------
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ----------------------------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (48.7%):
22,000,000 H.S.B.C. Securities, 6.40%,
10/2/95 (Collateralized by
23,750,000 U.S. Treasury
Bills, 9/19/96, market
value-- $22,498,190)....... $ 22,000,000
20,000,000 Lehman Brothers, 6.38%,
10/2/95 (Collateralized by
13,590,000 U.S. Treasury
Bonds, 12.75%, 11/15/10,
market
value--$20,622,363)........ 20,000,000
23,333,196 NationsBank, 6.42%, 10/2/95
(Collateralized by
23,100,000 U.S. Treasury
Notes, 6.88%, 8/31/99,
market value--
$23,912,308)............... 23,333,196
------------
Total Repurchase Agreements 65,333,196
------------
Total (Cost--$134,623,343)(a) $134,623,343
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $134,030,938.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
B-71
<PAGE> 167
BB&T MUTUAL FUNDS GROUP
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (6.8%):
Federal Home Loan Bank:
2,500,000 6.17%, 3/8/01.................. $ 2,505,850
1,000,000 7.28%, 7/25/01................. 1,050,170
-----------
Total U.S. Government Agencies 3,556,020
-----------
U.S. TREASURY NOTES (91.1%):
1,000,000 9.50%, 11/15/95................ 1,004,490
1,000,000 9.38%, 4/15/96................. 1,019,450
2,500,000 7.63%, 4/30/96................. 2,527,200
3,000,000 7.88%, 7/15/96................. 3,048,780
6,000,000 6.88%, 3/31/97................. 6,091,980
1,000,000 6.75%, 5/31/97................. 1,013,950
1,500,000 8.88%, 11/15/97................ 1,587,810
4,500,000 5.63%, 1/31/98................. 4,476,780
5,000,000 8.25%, 7/15/98................. 5,294,400
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
U.S. TREASURY NOTES, CONTINUED:
3,000,000 5.88%, 3/31/99................. $ 2,992,020
3,000,000 8.00%, 8/15/99................. 3,205,140
1,500,000 6.36%, 1/15/00................. 1,520,415
2,500,000 6.75%, 4/30/00................. 2,570,300
4,000,000 6.38%, 8/15/02................. 4,060,360
7,000,000 6.25%, 2/15/03................. 7,039,970
-----------
Total U.S. Treasury Notes 47,453,045
-----------
INVESTMENT COMPANIES (0.9%):
446,125 Federated Cash Reserves U.S.
Treasury Fund................ 446,125
-----------
Total Investment Companies 446,125
-----------
Total (Cost--$51,314,059)(a) $51,455,190
===========
</TABLE>
- ---------
Percentages indicated are based on net assets of $52,106,465.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $14,219.
Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $ 713,379
Unrealized depreciation.............. (586,467)
---------
Net unrealized appreciation.......... $ 126,912
=========
</TABLE>
See notes to financial statements.
B-72
<PAGE> 168
BB&T MUTUAL FUNDS GROUP
INTERMEDIATE U.S. GOVERNMENT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (15.3%):
Federal Home Loan Bank:
2,000,000 8.38%, 10/25/99............... $ 2,154,480
3,000,000 7.36%, 7/1/04................. 3,176,100
Federal Home Loan Mortgage Corp.:
3,271,847 7.50%, 7/1/07, Pool #E00108... 3,327,828
Government National Mortgage Assoc.:
4,086,580 7.50%, 3/15/23, Pool
#342553....................... 4,127,936
-----------
Total U.S. Government Agencies 12,786,344
-----------
U.S. TREASURY BONDS (17.1%):
1,000,000 8.00%, 8/15/01................ 1,017,670
3,000,000 12.00%, 5/15/05............... 4,227,990
5,000,000 9.38%, 2/15/06................ 6,175,550
1,000,000 8.38%, 8/15/08................ 1,128,420
1,500,000 9.13%, 5/15/09................ 1,774,095
-----------
Total U.S. Treasury Bonds 14,323,725
-----------
U.S. TREASURY NOTES (59.1%):
1,000,000 9.38%, 4/15/96................ 1,019,450
2,000,000 7.88%, 7/15/96................ 2,032,520
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<S> <C> <C>
U.S. TREASURY NOTES, CONTINUED:
7,000,000 6.50%, 5/15/97................ $ 7,070,840
4,500,000 7.00%, 4/15/99................ 4,644,135
3,000,000 8.50%, 11/15/00............... 3,322,830
6,000,000 7.88%, 8/15/01................ 6,523,560
7,500,000 6.38%, 8/15/02................ 7,613,175
7,000,000 6.25%, 2/15/03................ 7,039,970
5,000,000 5.88%, 2/15/04................ 4,891,450
5,000,000 7.25%, 8/15/04................ 5,343,300
-----------
Total U.S. Treasury Notes 49,501,230
-----------
U.S. TREASURY STRIPS (6.3%):
10,000,000 11/15/05...................... 5,291,200
-----------
Total U.S. Treasury Strips 5,291,200
-----------
INVESTMENT COMPANIES (1.4%):
1,144,294 Federated Cash Reserves U.S.
Treasury Fund................. 1,144,294
-----------
Total Investment Companies 1,144,294
-----------
Total (Cost--$81,823,940)(a) $83,046,793
===========
</TABLE>
- ---------
Percentages indicated are based on net assets of $83,751,821.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $55,219.
Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $ 1,837,231
Unrealized depreciation.............. (669,597)
-----------
Net unrealized appreciation.......... $ 1,167,634
===========
</TABLE>
See notes to financial statements.
B-73
<PAGE> 169
BB&T MUTUAL FUNDS GROUP
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
BONDS (96.0%):
Education Bonds (1.1%):
400,000 Educational Facilities, Bowman Gray Medical School, 4.40%*, 9/1/20, LOC: Wachovia Bank,
NC...................................................................................... $ 400,000
-----------
Health Care Bonds (6.0%):
650,000 Charlotte Mecklenburg Hospital, Revenue Bonds, 5.70%, 1/1/01.............................. 676,813
500,000 Charlotte Mecklenburg Hospital, Revenue Bonds, 5.90%, 1/1/02.............................. 526,875
600,000 Medical Care Commission Hospital, Rex Hospital, 4.70%, 6/1/98............................. 603,750
400,000 Medical Care Commission, Presbyterian Health Services Corp., 5.70%, 10/1/04, Callable
10/1/02 @ 102........................................................................... 417,500
-----------
2,224,938
-----------
Housing Bonds (1.8%):
205,000 Housing Finance Authority, Revenue Bond, 3.95%*, 3/1/14................................... 205,000
445,000 Housing Finance Authority, Revenue Bond, 3.95%*, 9/1/16................................... 445,000
-----------
650,000
-----------
North Carolina General Obligation Bonds (82.9%):
500,000 Asheville, General Obligations, 4.80%, 6/1/06............................................. 486,250
470,000 Buncombe County, General Obligations, 5.00%, 3/1/00....................................... 479,400
500,000 Buncombe County, General Obligations, 5.00%, 3/1/03....................................... 510,625
1,000,000 Cary, General Obligations, 5.50%, 2/1/01.................................................. 1,047,500
545,000 Charlotte, General Obligations, 6.80%, 10/1/97............................................ 572,250
395,000 Charlotte, General Obligations, 5.20%, 7/1/01............................................. 411,788
1,000,000 Charlotte, General Obligations, 7.00%, 7/1/01, Pre-Refunded 7/1/96 @ 102.................. 1,042,500
1,000,000 City Of Durham, General Obligations, 4.90%, 2/1/04........................................ 1,010,000
500,000 City Of Durham, General Obligations, 5.00%, 2/1/05........................................ 505,625
275,000 Cleveland County, General Obligations, 7.10%, 6/1/99...................................... 300,438
600,000 Cleveland County, General Obligations, 5.10%, 6/1/03...................................... 606,750
650,000 Cumberland County, General Obligations, 5.60%, 2/1/97..................................... 663,000
400,000 Durham County, General Obligations, 5.20%, 3/1/01......................................... 415,500
340,000 Durham County, General Obligations, 5.20%, 3/1/05......................................... 348,925
500,000 Durham & Wake Counties, General Obligations, 5.75%, 4/1/02................................ 533,125
700,000 Forsyth County, General Obligations, 4.70%, 2/1/99........................................ 708,750
265,000 Forsyth County, General Obligations, 5.40%, 6/1/04, Callable 6/1/02 @ 101................. 275,931
450,000 Goldsboro, General Obligations, 4.90%, 6/1/99............................................. 455,625
550,000 Greensboro, General Obligations, 6.00%, 3/1/98............................................ 573,375
500,000 Greenville, General Obligations, 4.80%, 3/1/02............................................ 504,375
1,000,000 Guilford County, General Obligations, 4.80%, 4/1/99....................................... 1,016,250
300,000 Hickory, General Obligations, 6.50%, 5/1/99............................................... 320,625
680,000 High Point, General Obligations, 4.40%, 4/1/02............................................ 662,150
500,000 Lee County, General Obligations, 5.50%, 2/1/00............................................ 519,375
1,000,000 Lincoln County, General Obligations, 4.70%, 6/1/01........................................ 1,011,250
1,000,000 Lincoln County, General Obligations, 4.80%, 6/1/04........................................ 993,750
700,000 Mecklenburg County, General Obligations, 5.75%, 3/1/03, Callable 3/1/02 @ 100.5........... 747,250
500,000 Moore County, General Obligations, 4.75%, 6/1/03.......................................... 495,000
500,000 New Hanover County, General Obligations, 4.30%, 1/1/02.................................... 489,375
</TABLE>
Continued
B-74
<PAGE> 170
BB&T MUTUAL FUNDS GROUP
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
BONDS, CONTINUED:
North Carolina General Obligation Bonds, continued:
1,000,000 New Hanover County, General Obligations, 4.50%, 9/1/03.................................... $ 981,250
1,500,000 North Carolina State, General Obligations, 5.75%, 3/1/98.................................. 1,558,125
500,000 North Carolina State, General Obligations, 4.70%, 2/1/01.................................. 505,625
670,000 Orange County, General Obligations, 5.10%, 6/1/00......................................... 687,588
500,000 Orange County, General Obligations, 5.10%, 6/1/06......................................... 503,750
500,000 Orange County, General Obligations, 5.10%, 6/1/07......................................... 502,500
500,000 Pitt County, General Obligations, 6.60%, 2/1/96........................................... 504,375
1,000,000 Pitt County, General Obligations, 4.80%, 2/1/00........................................... 1,017,500
985,000 Raleigh, General Obligations, 4.70%, 2/1/00............................................... 1,007,163
400,000 Rocky Mount, General Obligations, 5.50%, 5/1/97........................................... 407,500
700,000 Rowan County, General Obligations, 5.50%, 4/1/05.......................................... 730,625
165,000 Union County, General Obligations, 5.80%, 3/1/97.......................................... 168,505
200,000 Union County, General Obligations, 5.80%, 3/1/05, Callable 3/1/02 @ 101.5................. 209,500
500,000 Wilkes County, General Obligations, 5.00%, 6/1/01......................................... 503,125
1,000,000 Wake County, General Obligations, 4.50%, 4/1/03........................................... 986,250
1,000,000 Wake County, General Obligations, 4.80%, 4/1/03........................................... 987,500
1,000,000 Wilmington, General Obligations, 4.60%, 3/1/02............................................ 992,500
505,000 Winston Salem, General Obligations, 6.50%, 6/1/99......................................... 543,505
-----------
30,503,643
-----------
Utility Bonds (4.2%):
1,500,000 Municipal Power Catawba Project, Revenue Bonds, 9.00%, 1/1/14, Pre-Refunded 1/1/96 @
102..................................................................................... 1,548,750
-----------
Total Bonds 35,327,331
-----------
INVESTMENT COMPANIES (3.1%):
748,248 North Carolina Municipal Cash Trust....................................................... 748,248
390,507 PNC North Carolina Municipal Money Market Portfolio....................................... 390,507
-----------
Total Investment Companies 1,138,755
-----------
Total (Cost--$36,057,736)(a) $36,466,086
===========
</TABLE>
- ---------
Percentages indicated are based on net assets of $36,807,931.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $470,780
Unrealized depreciation.............. (62,430)
--------
Net unrealized appreciation.......... $408,350
========
</TABLE>
* Variable rate investments. The rate reflected on the Schedule of Investments
is the rate in effect at September 30, 1995.
See notes to financial statements.
B-75
<PAGE> 171
BB&T MUTUAL FUNDS GROUP
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<S> <C> <C>
COMMON STOCKS (95.1%):
Apparel (0.8%):
23,500 V.F. Corp. ................... $ 1,198,500
-------------
Banks (4.7%):
64,300 Boatmens Bancshares, Inc. .... 2,379,100
31,000 J. P. Morgan & Co. ........... 2,398,625
60,400 Wachovia Corp. ............... 2,604,750
-------------
7,382,475
-------------
Beverages (2.5%):
63,600 Anheuser-Busch Co. ........... 3,967,050
-------------
Broadcasting (0.7%):
13,745 CBS, Inc. .................... 1,097,882
-------------
Business Equipment & Services (3.2%):
25,400 Dun & Bradstreet Corp. ....... 1,470,025
82,000 Pitney Bowes, Inc. ........... 3,444,000
-------------
4,914,025
-------------
Capital Equipment (1.5%):
39,300 Illinois Tool Works........... 2,313,787
-------------
Chemicals--Specialty (3.9%):
28,500 Air Products & Chemicals,
Inc. ....................... 1,485,562
26,200 Monsanto Corp. ............... 2,639,650
36,600 Vulcan Materials Co. ......... 1,939,800
-------------
6,065,012
-------------
Coal (0.8%):
24,300 Mapco, Inc. .................. 1,251,450
-------------
Communication Equipment (2.0%):
57,300 Harris Corp. ................. 3,144,337
-------------
Computers (5.2%):
37,900 Apple Computer, Inc. ......... 1,411,775
36,800 Hewlett Packard Co. .......... 3,068,200
63,500 Honeywell, Inc. .............. 2,722,562
9,600 International Business
Machines.................... 906,000
-------------
8,108,537
-------------
Construction Materials (0.7%):
22,800 PPG Industries................ 1,060,200
-------------
Containers (1.1%):
57,100 Ball Corp. ................... 1,691,587
-------------
Defense (2.3%):
53,600 Lockheed Martin Corp. ........ 3,597,900
-------------
Electrical Equipment (1.9%):
29,200 Emerson Electric.............. 2,087,800
13,200 General Electric Co. ......... 841,500
-------------
2,929,300
-------------
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Electronic Components (1.2%):
36,200 Avnet, Inc. .................. $ 1,868,825
-------------
Food & Related Products (3.2%):
35,000 Hershey Foods................. 2,253,125
96,200 Supervalu, Inc. .............. 2,825,875
-------------
5,079,000
-------------
Forest & Paper Products (2.6%):
16,300 Kimberly Clark Corp. ......... 1,094,137
64,300 Weyerhaeuser Co. ............. 2,933,687
-------------
4,027,824
-------------
Health Care (3.8%):
50,100 Glaxo Holdings................ 1,208,662
28,600 Humana, Inc.(b)............... 575,575
37,500 Johnson & Johnson............. 2,779,687
39,600 U.S. Healthcare, Inc. ........ 1,400,850
-------------
5,964,774
-------------
Household-General Products (3.1%):
26,400 Premark International,
Inc. ....................... 1,343,100
19,450 Unilever New York Shares...... 2,528,500
17,200 Whirlpool Corp. .............. 993,300
-------------
4,864,900
-------------
Insurance (6.3%):
98,600 Aon Corp. .................... 4,030,275
17,164 First Colony Corp. ........... 463,428
56,600 Lincoln National Corp. ....... 2,667,275
40,700 SAFECO Corp. ................. 2,670,938
-------------
9,831,916
-------------
Leisure Time Industry (1.4%):
68,100 Hasbro, Inc. ................. 2,119,613
-------------
Metals (2.4%):
27,100 Phelps Dodge Corp. ........... 1,697,138
64,900 Trinity Industries............ 2,011,900
-------------
3,709,038
-------------
Motor Vehicles (1.5%):
77,200 Ford Motor Co. ............... 2,402,850
-------------
Multiple Industry (2.7%):
86,900 Corning Glass................. 2,487,513
30,200 Minnesota Mining &
Manufacturing............... 1,706,300
-------------
4,193,813
-------------
Petroleum (7.8%):
54,500 Ashland Oil, Inc. ............ 1,818,938
62,700 Chevron Corp., Inc. .......... 3,048,788
</TABLE>
Continued
B-76
<PAGE> 172
BB&T MUTUAL FUNDS GROUP
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Petroleum, continued:
25,500 Mobil Corp. .................. $ 2,540,437
45,100 Phillips Petroleum Co. ....... 1,465,750
28,600 Royal Dutch Petroleum Co. .... 3,510,650
-------------
12,384,563
-------------
Pharmaceuticals (5.4%):
44,300 Bristol Myers Squibb Co. ..... 3,228,363
60,500 Rhone-Poulenc Rorer........... 2,752,750
47,600 Schering Plough Corp. ........ 2,451,400
-------------
8,432,513
-------------
Photographic Equipment (0.3%):
8,900 Eastman Kodak Co. ............ 527,325
-------------
Publishing (1.7%):
21,700 Gannett Co., Inc. ............ 1,185,363
31,700 Houghton Mifflin Co. ......... 1,474,050
-------------
2,659,413
-------------
Railroad (0.3%):
5,500 CSX Corp. .................... 462,688
-------------
Retail (5.1%):
110,500 K-Mart Corp. ................. 1,602,250
64,700 Limited, Inc. ................ 1,229,300
63,400 May Department Stores Co. .... 2,773,750
67,800 Melville Corp. ............... 2,339,100
-------------
7,944,400
-------------
Security Brokers & Dealers (1.1%):
64,425 AG Edwards.................... 1,715,316
-------------
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ -------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Tobacco (0.9%):
16,500 Phillip Morris Cos., Inc. .... $ 1,377,750
-------------
Trucking & Shipping (1.0%):
68,000 Alexander & Baldwin........... 1,632,000
-------------
Utilities-Electric (2.2%):
61,200 FPL Group, Inc. .............. 2,501,550
27,200 Texas Utilities Co. .......... 948,600
-------------
3,450,150
-------------
Utilities-Gas (2.8%):
45,900 Consolidated Natural Gas
Co. ........................ 1,853,213
94,400 NICOR, Inc. .................. 2,572,400
-------------
4,425,613
-------------
Utilities-Telephone (7.0%):
45,600 Ameritech Corp. .............. 2,376,900
23,400 A T & T Corp. ................ 1,538,550
57,200 SBC Communications, Inc. ..... 3,146,000
113,000 Sprint Corp. ................. 3,955,000
-------------
11,016,450
-------------
Total Common Stocks 148,812,776
-------------
INVESTMENT COMPANIES (5.3%):
2,223,178 Federated Cash Reserves U.S.
Treasury Fund............... 2,223,178
5,995,248 Federated Short-Term U.S.
Government Trust............ 5,995,248
-------------
Total Investment Companies 8,218,426
-------------
Total (Cost--$134,007,153)(a) $ 157,031,202
=============
</TABLE>
- ---------
Percentages indicated are based on net assets of $156,444,985.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $26,105,088
Unrealized depreciation.............. (3,081,039)
-----------
Net unrealized appreciation.......... $23,024,049
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-77
<PAGE> 173
BB&T MUTUAL FUNDS GROUP
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS (45.9%):
Apparel (0.4%):
5,000 V. F. Corp. ................... $ 255,000
-----------
Banks (2.2%):
5,000 Banc One Corp. ................ 182,500
9,700 Boatmens Bancshares, Inc. ..... 358,900
2,500 J. P. Morgan & Co. ............ 193,437
2,800 PNC Financial Corp. ........... 78,050
11,000 Wachovia Corp. ................ 474,375
-----------
1,287,262
-----------
Beverages (1.5%):
7,500 Anheuser-Busch Co. ............ 467,812
8,500 PepsiCo, Inc. ................. 433,500
-----------
901,312
-----------
Business Equipment & Services (2.1%):
3,000 Dun & Bradstreet Corp. ........ 173,625
5,000 Harris Corp. .................. 274,375
10,600 Pitney Bowes, Inc. ............ 445,200
2,500 Xerox Corp. ................... 335,937
-----------
1,229,137
-----------
Capital Equipment (0.4%):
4,000 Illinois Tool Works............ 235,500
-----------
Chemicals (2.2%):
4,700 Air Products & Chemicals,
Inc. ........................ 244,987
5,500 E. I. Dupont De Nemours Co. ... 378,125
8,000 Ethyl Corporation.............. 89,000
6,100 Monsanto Corp. ................ 614,575
-----------
1,326,687
-----------
Computers (2.8%):
4,100 Apple Computer Incorporated.... 152,725
10,000 Hewlett Packard Co. ........... 833,750
11,500 Honeywell, Inc. ............... 493,062
1,800 International Business
Machines..................... 169,875
-----------
1,649,412
-----------
Construction Materials (0.6%):
8,200 PPG Industries................. 381,300
-----------
Defense (0.9%):
4,000 Lockheed Martin Corp. ......... 268,500
3,000 Raytheon Co. .................. 255,000
-----------
523,500
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (1.4%):
4,500 Emerson Electric............... $ 321,750
8,000 General Electric Co. .......... 510,000
-----------
831,750
-----------
Electronic Components (0.4%):
5,000 Avnet, Inc. ................... 258,125
-----------
Financial Services (0.8%):
3,200 American Express Co. .......... 142,000
10,000 American General Corp. ........ 373,750
-----------
515,750
-----------
Food & Related (2.4%):
3,000 Fleming Companies, Inc. ....... 72,000
3,000 General Mills, Inc. ........... 167,250
7,200 H. J. Heinz Co. ............... 329,400
7,000 Hershey Foods.................. 450,625
13,000 Supervalu, Inc. ............... 381,875
-----------
1,401,150
-----------
Forest & Paper Products (1.1%):
6,000 International Paper Co. ....... 252,000
200 Kimberly Clark Corp. .......... 13,425
8,000 Weyerhaeuser Co. .............. 365,000
-----------
630,425
-----------
Health Care (2.6%):
4,700 Abbott Laboratories............ 200,338
2,000 Bausch & Lomb.................. 82,750
7,400 Glaxo Holdings................. 178,525
7,500 Johnson & Johnson.............. 555,938
5,000 Merck & Company, Inc. ......... 280,000
6,500 U.S. Healthcare, Inc. ......... 229,937
-----------
1,527,488
-----------
Household-Appliances (0.7%):
6,800 Whirlpool Corp. ............... 392,700
-----------
Household Products (0.9%):
1,000 Procter & Gamble Co. .......... 77,000
3,500 Unilever New York Shares....... 455,000
600 U.S. Industries, Inc.(b)....... 9,300
-----------
541,300
-----------
Insurance (2.3%):
2,000 Aetna Life & Casualty Co. ..... 146,750
3,300 American International Group,
Inc. ........................ 280,500
3,500 Lincoln National Corp. ........ 164,938
</TABLE>
Continued
B-78
<PAGE> 174
BB&T MUTUAL FUNDS GROUP
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance, continued:
8,500 SAFECO Corp. .................. $ 557,813
7,500 USLIFE Corp. .................. 219,374
-----------
1,369,375
-----------
Leisure Time Industry (0.9%):
2,800 Hasbro, Inc. .................. 87,150
7,500 The Walt Disney Co. ........... 430,313
-----------
517,463
-----------
Metal Fabrication (0.3%):
6,000 Trinity Industries............. 186,000
-----------
Motor Vehicles (0.6%):
7,300 Ford Motor Co. ................ 227,213
2,500 General Motors Corp. .......... 117,187
-----------
344,400
-----------
Multiple Industry (1.3%):
10,000 Corning Glass.................. 286,250
12,000 Hanson Trust American
Depository Receipts.......... 195,000
5,200 Minnesota Mining &
Manufacturing................ 293,800
-----------
775,050
-----------
Petroleum (4.0%):
6,000 Ashland, Inc. ................. 200,250
4,400 Atlantic Richfield Co. ........ 472,450
10,500 Chevron Corp., Inc. ........... 510,563
5,500 Mobil Corp. ................... 547,937
5,100 Royal Dutch Petroleum Co. ..... 626,025
-----------
2,357,225
-----------
Pharmaceuticals (1.8%):
6,700 Bristol Myers Squibb Co. ...... 488,263
11,000 Schering Plough Corp. ......... 566,500
-----------
1,054,763
-----------
Photographic Equipment (0.2%):
2,200 Eastman Kodak Co. ............. 130,350
-----------
Publishing (0.8%):
3,800 Gannett Co., Inc. ............. 207,575
2,000 McGraw Hill, Inc. ............. 163,500
2,000 Tribune Co. ................... 132,750
-----------
503,825
-----------
Railroad (0.4%):
3,600 Norfolk Southern Corp. ........ 269,100
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Restaurants (0.1%):
3,000 Darden Restaurants, Inc.(b).... $ 34,500
-----------
Retail (2.7%):
3,000 Dayton Hudson Corp. ........... 227,625
2,500 J.C. Penney, Inc. ............. 124,063
13,000 K-Mart Corp. .................. 188,500
9,000 May Department Stores Co. ..... 393,750
10,000 Melville Corporation........... 345,000
11,300 Rite-Aid....................... 316,400
-----------
1,595,338
-----------
Security Brokers & Dealers (0.2%):
4,000 AG Edwards..................... 106,500
-----------
Tobacco (0.5%):
3,500 Philip Morris Cos., Inc. ...... 292,250
-----------
Trucking & Shipping (0.3%):
6,200 Alexander & Baldwin............ 148,800
-----------
Utilities-Electric (2.0%):
2,800 American Electric Power,
Inc. ........................ 101,850
5,000 Duke Power Co. ................ 216,875
11,000 FPL Group, Inc. ............... 449,625
12,000 Scana Corp. ................... 288,000
3,500 Texas Utilities Co. ........... 122,063
-----------
1,178,413
-----------
Utilities-Gas (1.4%):
14,500 NICOR, Inc. ................... 395,125
10,400 Williams Cos., Inc. ........... 405,600
-----------
800,725
-----------
Utilities-Telephone (2.4%):
6,600 Ameritech Corp. ............... 344,025
5,900 A T & T Corp. ................. 387,925
4,900 Pacific Telesis Group.......... 150,675
14,800 Sprint Corp. .................. 518,000
-----------
1,400,625
-----------
Telecommunications (0.3%):
4,900 Airtouch(b).................... 150,063
-----------
Total Common Stocks 27,102,563
-----------
U.S. TREASURY BONDS (6.4%):
1,500,000 11.13%, 8/15/03................ 1,955,580
1,500,000 9.38%, 2/15/06................. 1,852,665
-----------
Total U.S. Treasury Bonds 3,808,245
-----------
U.S. TREASURY NOTES (41.4%):
3,000,000 7.13%, 10/15/98................ 3,098,970
</TABLE>
Continued
B-79
<PAGE> 175
BB&T MUTUAL FUNDS GROUP
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
U.S. TREASURY NOTES, CONTINUED:
3,000,000 8.00%, 8/15/99................. $ 3,205,140
3,000,000 8.50%, 11/15/00................ 3,322,830
3,500,000 7.75%, 2/15/01................. 3,770,025
2,500,000 7.50%, 5/15/02................. 2,689,250
2,500,000 6.38%, 8/15/02................. 2,537,725
2,500,000 6.25%, 2/15/03................. 2,514,275
3,000,000 7.88%, 11/15/04................ 3,337,170
-----------
Total U.S. Treasury Notes 24,475,385
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
INVESTMENT COMPANIES (5.6%):
2,346,110 Federated Cash Reserves
U.S. Treasury Fund......... $ 2,346,110
971,781 Federated Short-Term U.S.
Government Trust............. 971,781
-----------
Total Investment Companies 3,317,891
-----------
Total (Cost--$53,658,895)(a) $58,704,084
===========
</TABLE>
- ---------
Percentages indicated are based on net assets of $59,050,761.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................ $5,695,075
Unrealized depreciation................ (649,886)
----------
Net unrealized appreciation............ $5,045,189
==========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-80
<PAGE> 176
BB&T MUTUAL FUNDS GROUP
SMALL COMPANY COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS (82.2%):
Business Services (2.2%):
6,600 ABR Information Services,
Inc.(b)...................... $ 166,650
8,400 Acxiom Corp.(b)................ 237,300
-----------
403,950
-----------
Commercial Goods & Services (4.8%):
6,000 Accustaff, Inc.(b)............. 220,500
4,700 Norrell Corp. ................. 152,750
4,000 Robert Half International,
Inc.(b)...................... 136,500
6,100 Sitel Corp.(b)................. 149,450
7,100 U.S. Delivery Systems,
Inc.(b)...................... 204,125
-----------
863,325
-----------
Computer Hardware (3.8%):
4,500 Cognex Corp.(b)................ 217,125
10,000 Cybex Corp.(b)................. 250,000
2,000 Electronics for Imaging,
Inc.(b)...................... 143,250
5,100 Integrated Measurement
System(b).................... 67,575
-----------
677,950
-----------
Computer Software (14.4%):
5,100 American Management Systems,
Inc. ........................ 136,425
200 Arcsys, Inc.(b)................ 8,250
7,600 Aspen Technologies, Inc.(b).... 228,000
1,500 Baan Co.(b).................... 67,500
2,700 CBT Group(b)................... 128,925
5,400 CyCare Systems, Inc.(b)........ 179,550
800 Datalogix(b)................... 11,400
3,400 Davidson & Associates,
Inc.(b)...................... 118,150
1,000 Dendrite International,
Inc.(b)...................... 15,250
2,400 Discreet Logic, Inc.(b)........ 132,000
5,100 Epic Design Technology,
Inc.(b)...................... 247,350
5,300 HCIA, Inc.(b).................. 136,475
2,900 Hummingbird Communications(b).. 108,025
3,500 Imnet Systems, Inc.(b)......... 90,125
100 Legato Systems, Inc.(b)........ 2,650
5,500 Macromedia, Inc.(b)............ 314,187
2,300 Medic Computer Systems,
Inc.(b)...................... 116,725
7,200 NetManage, Inc.(b)............. 171,000
1,000 Novadigm, Inc.(b).............. 16,875
800 Premenos Technology Corp.(b)... 26,000
6,000 Softkey International,
Inc.(b)...................... 265,500
400 Spyglass, Inc.(b).............. 18,300
1,200 Touchstone Software Corp.(b)... 12,900
1,200 Videoserver, Inc.(b)........... 42,300
-----------
2,593,862
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Consumer Goods & Services (0.7%):
6,500 USA Detergents, Inc.(b)........ $ 134,875
-----------
Electrical Equipment (1.3%):
200 C. P. Clarke Corp.(b).......... 5,100
8,100 Micrel, Inc.(b)................ 226,800
-----------
231,900
-----------
Electronic Components (3.5%):
900 Act Manufacturing, Inc.(b)..... 12,712
4,200 International Rectifier
Corp.(b)..................... 169,050
2,400 MEMC Electronic Materials(b)... 65,100
3,150 Phototronics, Inc.(b).......... 105,525
2,700 Recoton Corp.(b)............... 74,250
6,400 Tower Semiconductor Ltd.(b).... 208,000
-----------
634,637
-----------
Electronic Instruments (0.2%):
3,600 Telcom Semiconductor,
Inc.(b)...................... 41,400
-----------
Entertainment (1.5%):
6,100 Regal Cinemas, Inc.(b)......... 250,862
1,000 Speedway Motorsports,
Inc.(b)...................... 26,000
-----------
276,862
-----------
Environmental Services (1.9%):
2,700 Sanifill, Inc.(b).............. 88,425
6,100 United Waste Systems,
Inc.(b)...................... 254,675
-----------
343,100
-----------
Financial Services (1.3%):
5,800 Jayhawk Acceptance Corp.(b).... 84,825
6,300 WFS Financial, Inc.(b)......... 143,325
-----------
228,150
-----------
Homebuilders-Mobile Homes (0.2%):
2,500 Southern Energy Homes,
Inc(b)....................... 39,688
-----------
Hospital Supply & Management (1.0%):
3,600 Physician Sales & Service(b)... 172,800
-----------
Hotels & Gaming (0.9%):
7,500 Doubletree Corp.(b)............ 166,875
-----------
Insurance (0.1%):
600 United Dental Care, Inc.(b).... 18,000
-----------
Leisure Time Industry (2.6%):
5,000 Hollywood Entertainment
Corp.(b)..................... 107,188
4,500 Movie Gallery, Inc.(b)......... 192,375
4,350 Scientific Games Holdings
Corp.(b)..................... 162,581
-----------
462,144
-----------
</TABLE>
Continued
B-81
<PAGE> 177
BB&T MUTUAL FUNDS GROUP
SMALL COMPANY COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Machinery & Equipment (2.9%):
1,200 ASM Lithography Holding(b)..... $ 52,650
6,000 Electro Scientific Industries,
Inc.(b)...................... 209,250
6,300 FSI International, Inc.(b)..... 209,475
700 Ontrak Systems, Inc.(b)........ 19,337
1,000 Silicon Valley Group,
Inc.(b)...................... 38,625
-----------
529,337
-----------
Medical (1.2%):
2,400 Clintrials Research(b)......... 48,600
2,800 Quintiles Transnational
Corp.(b)..................... 165,200
-----------
213,800
-----------
Medical Equipment & Supplies (5.5%):
1,700 Arrow International, Inc. ..... 73,525
6,300 Gulf South Medical Supply,
Inc.(b)...................... 155,138
3,400 IDEXX Laboratories, Inc.(b).... 126,650
1,400 Isolyser Co., Inc.(b).......... 47,775
5,400 Medisense, Inc.(b)............. 130,275
4,400 Orthofix International
N.V.(b)...................... 68,200
6,000 Steris Corp.(b)................ 252,750
2,000 Target Therapeutics, Inc.(b)... 140,000
-----------
994,313
-----------
Medical--Hospital Management & Services (6.0%):
4,500 American Homepatient,
Inc.(b)...................... 114,750
4,900 American Oncology
Resources(b)................. 210,700
7,000 Medpartners, Inc.(b)........... 220,500
3,100 Occusystems, Inc.(b)........... 64,325
2,600 Omnicare, Inc. ................ 101,400
6,700 Orthodontic Centers of America,
Inc. (b)..................... 216,075
1,800 Pediatrix Medical Group(b)..... 36,900
3,150 Phycor, Inc.(b)................ 107,888
-----------
1,072,538
-----------
Motor Vehicles (1.1%):
9,000 Copart, Inc.(b)................ 204,750
-----------
Pharmaceuticals (1.5%):
9,100 Dura Pharmaceuticals,
Inc.(b)...................... 270,725
-----------
Publishing (0.5%):
300 Desktop Data, Inc.(b).......... 10,425
2,500 Gartner Group, Inc.(b)......... 81,875
-----------
92,300
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Restaurants (2.3%):
5,000 Applebee's International,
Inc.(b)...................... $ 136,250
6,700 Landry's Seafood Restaurants,
Inc.(b)...................... 120,600
1,500 Logan Roadhouse, Inc.(b)....... 26,250
3,100 Papa John's International,
Inc.(b)...................... 139,500
-----------
422,600
-----------
Retail (9.2%):
2,100 Bed Bath & Beyond, Inc.(b)..... 64,050
10,000 Books-A-Million, Inc.(b)....... 176,250
2,000 Dollar Tree Stores, Inc.(b).... 68,000
9,000 Friedman's, Inc., Class A(b)... 195,750
2,000 Global Directmail Corp.(b)..... 49,250
5,100 Just For Feet, Inc.(b)......... 156,825
5,500 Kenneth Cole Productions(b).... 193,188
5,300 Men's Warehouse, Inc.(b)....... 190,800
1,800 Micro Warehouse, Inc.(b)....... 82,350
1,000 Oakley, Inc.(b)................ 29,625
5,000 Petco Animal Supplies,
Inc.(b)...................... 130,000
3,000 Piercing Pagoda, Inc.(b)....... 42,000
4,500 Sunglass Hut International,
Inc.(b)...................... 225,000
3,750 Trend-Lines, Inc.(b)........... 49,687
-----------
1,652,775
-----------
Telecommunications (7.6%):
3,000 Adtran, Inc.(b)................ 104,250
800 Coherent Communications Systems
Corp. (b).................... 22,000
9,400 EIS International, Inc.(b)..... 168,025
6,600 Gilat Satellite Networks
Ltd.(b)...................... 181,500
2,800 Madge Networks N.V.(b)......... 89,600
9,200 Microcom, Inc.(b).............. 173,650
3,000 Shiva Corp.(b)................. 183,750
6,500 Tekelec(b)..................... 146,250
3,600 U.S. Robotics Corp.(b)......... 306,900
-----------
1,375,925
-----------
Textile (3.1%):
2,400 Authentic Fitness Corp.(b)..... 54,000
4,500 Nautica Enterprises, Inc.(b)... 154,125
6,100 Quiksilver, Inc.(b)............ 165,463
3,800 St. John Knits, Inc. .......... 185,250
-----------
558,838
-----------
</TABLE>
Continued
B-82
<PAGE> 178
BB&T MUTUAL FUNDS GROUP
SMALL COMPANY COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Wholesale (0.9%):
6,000 Peak Technologies Group,
Inc.(b)...................... $ 159,000
-----------
Total Common Stocks 14,836,419
-----------
U.S. GOVERNMENT AGENCIES (11.6%):
Federal Home Loan Mortgage Corp.:
2,106,000 9/29/95........................ 2,104,894
-----------
Total U.S. Government Agencies 2,104,894
-----------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------- -----------
<S> <C> <C>
U.S. TREASURY NOTES (6.1%):
1,100,000 5.88%, 6/30/00................. $ 1,094,016
-----------
Total U.S. Treasury Notes 1,094,016
-----------
Total (Cost--$14,254,119)(a) $18,035,329
-----------
</TABLE>
- ---------
Percentages indicated are based on net assets of $18,057,632.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................ $3,943,162
Unrealized depreciation................ (161,952)
----------
Net unrealized appreciation............ $3,781,210
==========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-83
<PAGE> 179
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. ORGANIZATION:
The BB&T Mutual Funds Group ("The Group") was organized on October 1, 1987
and is registered under the Investment Company Act of 1940, as amended ("the
1940 Act"), as a diversified, open-end investment company established as a
Massachusetts business trust. Between the date of organization and the date
of commencement of operations, the Group had no operations other than
incurring organizational expenses and the sale of initial units of beneficial
interest ("shares").
The Group is authorized to issue an unlimited number of shares without par
value. The BB&T Mutual Funds Group offers shares of the U.S. Treasury Money
Market Fund, the Short-Intermediate U.S. Government Income Fund, the
Intermediate U.S. Government Bond Fund, the North Carolina Intermediate
Tax-Free Fund, the Growth and Income Stock Fund, the Balanced Fund and the
Small Company Growth Fund (referred to individually as a "Fund" and
collectively, the "Group"). The Group has issued two classes of shares in
each Fund: Investor Shares and Trust Shares. Investor Shares are sold with a
front-end sales charge on the Short-Intermediate U.S. Government Income Fund,
the Intermediate U.S. Government Bond Fund, the North Carolina Intermediate
Tax-Free Fund, the Growth and Income Stock Fund, the Balanced Fund and the
Small Company Growth Fund (collectively, "the variable net asset funds").
Both classes of shares in a Fund have identical rights and privileges except
with respect to the distribution fees borne by the Investor Shares, expenses
allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares and the exchange privilege of each class
of shares. Sales of shares of the Group may be made to customers of Branch
Banking & Trust Company (BB&T) and its affiliates, to all accounts of
correspondent banks of BB&T and to the general public. BB&T serves as
investment adviser to the Group.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Group in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
SECURITIES VALUATION:
Investments of the U.S. Treasury Money Market Fund are valued at either
amortized cost, which approximates market value, or at original cost, which
combined with accrued interest, approximates market value. Under the
amortized cost method, discount or premium is amortized on a constant basis
to the maturity of the security. In addition, the U.S. Treasury Money Market
Fund may not (a) purchase any instrument with a remaining maturity greater
than thirteen months unless such instrument is subject to a demand feature,
or (b) maintain a dollar-weighted average portfolio maturity which exceeds 90
days.
Investments in common stocks, commercial paper, corporate bonds, municipal
securities, U.S. Government securities, and U.S. Government agency securities
of the variable net asset value funds are valued at their market values
determined on the latest available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Investments in investment companies are
valued at their respective net asset values as reported by such companies.
The
Continued
B-84
<PAGE> 180
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1995
differences between cost and market values of such investments are reflected
as unrealized appreciation or depreciation.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium or
discount. Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS:
Each Fund of the Group may acquire repurchase agreements from member banks of
the Federal Deposit Insurance Corporation and from registered broker/dealers
who BB&T deems creditworthy under guidelines approved by the Board of
Trustees, subject to the seller's agreement to repurchase such securities at
a mutually agreed-upon date and price. The repurchase price generally equals
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller, under a repurchase agreement, is required
to maintain the value of collateral held pursuant to the agreement at not
less than the repurchase price (including accrued interest). Securities
subject to repurchase agreements are held by the Fund's custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the 1940
Act.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly and
distributable net realized capital gains, if any, are declared and
distributed at least annually for the U.S. Treasury Money Market Fund, the
Short-Intermediate U.S. Government Income Fund, the Intermediate U.S.
Government Bond Fund and the North Carolina Intermediate Tax-Free Fund.
Dividends from net investment income are declared and paid monthly and
distributable net realized capital gains, if any, are declared and
distributed at least annually for the Growth and Income Stock Fund and the
Balanced Fund. Dividends from net investment income are declared monthly and
paid quarterly and distributable net realized capital gains, if any, are
declared and distributable at least annually for the Small Company Growth
Fund.
During the year ended September 30, 1994, the Group adopted Statement of
Position 93-2, Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. Accordingly, timing differences relating to shareholder
distributions are reflected in the components of net assets and permanent
book and tax basis differences relating to shareholder distributions have
been reclassified to additional paid-in capital. Net investment income, net
realized gains and net assets were not affected by this change.
Continued
B-85
<PAGE> 181
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1995
Dividends from net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for mortgage-backed securities and deferrals of
certain losses.
FEDERAL INCOME TAXES:
It is the policy of each Fund of the Group to qualify or continue to qualify
as a regulated investment company by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income and
net realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
OTHER:
Expenses that are directly related to one of the Funds are charged directly
to that Fund. Other operating expenses for the Group are prorated to the
Funds on the basis of relative net assets. All expenses incurred in
connection with the Group's organization and registration under the 1940 Act
and the Securities Act of 1933 were paid by the Group. Such expenses are
being amortized over a period of two years commencing with the initial public
offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended September 30, 1995 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Short-Intermediate U.S. Government Income Fund................ $ 53,437,746 $ 51,764,922
Intermediate U.S. Government Bond Fund........................ $ 58,195,273 $ 51,876,267
North Carolina Intermediate Tax-Free Fund..................... $ 3,266,907 $ 4,861,937
Growth and Income Stock Fund.................................. $ 45,400,182 $ 9,701,887
Balanced Fund................................................. $ 15,692,148 $ 11,159,823
Small Company Growth Fund(a).................................. $ 16,206,145 $ 3,793,717
</TABLE>
---------------
(a) For the period from December 7, 1994 (commencement of operations) through
September 30, 1995.
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Group by BB&T. PNC Bank
serves as sub-investment advisor to the Small Company Growth Fund. Under the
terms of the investment advisory agreement, BB&T is entitled to receive fees
based on a percentage of the average net assets of each of the Funds. Under
the terms of the sub-investment advisory agreement, PNC Bank is entitled to
receive fees based on a percentage of the average net assets of the Small
Company Growth Fund.
Continued
B-86
<PAGE> 182
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1995
The Winsbury Company Limited Partnership d/b/a The Winsbury Company
("Winsbury") is an Ohio limited partnership. The sole general partner of
Winsbury is BISYS Fund Services, Inc. The sole limited partner of Winsbury is
WC Subsidiary Corporation. BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc. and WC Subsidiary Corporation are all subsidiaries of The BISYS
Group, Inc. On October 10, 1995, Winsbury changed its name to BISYS Fund
Services Limited Partnership d/b/a BISYS Fund Services.
Winsbury, with whom certain officers and trustees of the Group are
affiliated, serves the Fund as administrator. Such officers and trustees are
paid no fees directly by the Funds for serving as officers and trustees of
the Group. Under the terms of the administration agreement, Winsbury's fees
are computed daily as a percentage of the average net assets of each of the
Funds. Winsbury also serves as the Group's distributor and is entitled to
receive commissions on sales of shares of the variable net asset value funds.
For the year ended September 30, 1995, Winsbury received $86,071 from
commissions earned on sales of shares of the Group's variable net asset value
funds of which $55,923 was reallowed to BB&T, an investment dealer of the
Group's shares. Winsbury receives no fees from the Funds for providing
distribution services to the money market funds. BISYS Fund Services, Ohio,
Inc., (the Company), an affiliate of Winsbury, serves the Group as Transfer
Agent and Mutual Fund Accountant. Under the terms of the Transfer Agent and
Accounting Agreement, the Company's fee is based on the number of
shareholders and as a percentage of average net assets, respectively.
The Group has adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 under the 1940 Act for the Investor shares,
pursuant to which each Fund is authorized to pay or reimburse Winsbury, as
distributor, a periodic amount, calculated at an annual rate not to exceed
.50% of the average daily net asset value of the Fund. These fees are used by
Winsbury to pay banks, including the investment adviser, broker dealers and
other institutions, or to reimburse Winsbury or its affiliates, for
administration, distribution and shareholder services in connection with the
distribution of Fund shares.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios.
Information regarding these transactions is as follows for the year ended
September 30, 1995.
<TABLE>
<CAPTION>
U.S.
TREASURY SHORT-INTERMEDIATE INTERMEDIATE
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT
FUND INCOME FUND BOND FUND
------------ ------------------ ---------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .40% .60% .60%
Voluntary fee reductions...................... $ 21,654 $ 74,712 $ 116,052
ADMINISTRATION FEES:
Annual fee (percentage of average net
assets)..................................... .20% .20% .20%
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .50% .50% .50%
Voluntary fee reductions...................... $ 14,832 $ 19,117 $ 15,187
TRANSFER AGENT AND MUTUAL FUND ACCOUNTANT
FEES........................................ $ 78,908 $ 88,370 $ 87,144
</TABLE>
Continued
B-87
<PAGE> 183
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NORTH CAROLINA GROWTH AND SMALL COMPANY
INTERMEDIATE INCOME STOCK BALANCED GROWTH
TAX-FREE FUND FUND FUND FUND(A)
-------------- ------------ -------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)................................ .60% .74% .74% 1.00%
Voluntary fee reductions................. $ 56,780 $328,103 $144,035 $ 497
ADMINISTRATION FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)................................ .20% .20% .20% .20%
Voluntary fee reductions................. $ 18,917 $ 282 $ 95
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of average net
assets)................................ .50% .50% .50% .50%
Voluntary fee reductions................. $ 31,865 $ 21,955 $ 20,993 $ 950
TRANSFER AGENT AND MUTUAL FUND ACCOUNTANT
FEES................................... $ 81,128 $107,884 $ 90,269 $66,301
Voluntary fee reductions................. $ 10,002 $ 5,590
EXPENSES REIMBURSED...................... $20,079
</TABLE>
- ---------
(a) For the period from December 7, 1994 (commencement of operations) through
September 30, 1995.
5. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The BB&T Mutual Funds Group designates the following eligible distributions
for the dividends received deductions for corporations:
<TABLE>
<CAPTION>
GROWTH AND
INCOME STOCK BALANCED
FUND FUND
------------ --------
<S> <C> <C>
Dividend Income............................................... $3,405,070 $653,671
Dividend Income Per Share--Investor........................... $ 0.229 $ 0.105
Dividend Income Per Share--Trust.............................. $ 0.256 $ 0.111
</TABLE>
6. EXEMPT-INTEREST INCOME DESIGNATIONS (UNAUDITED):
The BB&T Mutual Funds Group designates the following exempt-interest
dividends for the North Carolina Intermediate Tax-Free Fund's taxable year
ended September 30, 1995:
<TABLE>
<S> <C>
Exempt-Interest Dividends............................................... $ 1,372,894
Exempt-Interest Dividends Per Share--Investor........................... $ 0.347
Exempt-Interest Dividends Per Share--Trust.............................. $ 0.361
</TABLE>
100% of the exempt-interest income for the North Carolina Intermediate
Tax-Free Fund's taxable year ended September 30, 1995 was from North Carolina
securities.
7. FEDERAL INCOME TAXES (UNAUDITED):
For federal income tax purposes, the Balanced Fund has capital loss
carryforwards as of September 30, 1995, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
------- -------
<S> <C> <C>
Balanced Fund...................................................... $ 482 2001
30,364 2002
</TABLE>
B-88
<PAGE> 184
BB&T MUTUAL FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1995
8. SPECIAL SHAREHOLDER MEETING (UNAUDITED):
On February 14, 1995, a special meeting of the shareholders of the BB&T
Mutual Funds Group was held to consider various proposals, including, among
other things, the approval of a new Investment Advisory Agreement between the
Group and BB&T, to be effective upon consummation of a planned merger between
Southern National Corporation and BB&T Financial Corporation. In addition,
the meeting was held to consider the approval of a new Sub-Advisory Agreement
between BB&T and PNC Bank and to approve the election of the Board of
Trustees of the BB&T Mutual Funds Group.
ELECTION OF TRUSTEES -- The shareholders of the BB&T Mutual Funds Group, as a
group, were requested to direct the proxies to vote for or withhold authority
to vote for the election of certain individuals to serve as Trustees of the
BB&T Mutual Funds Group. The shareholders of the BB&T Mutual Funds approved
each nominee. The results of such solicitation are as follows:
<TABLE>
<CAPTION>
VOTES
NOMINEE VOTES FOR WITHHELD
- ------------------------------------- ------------ ------------
<S> <C> <C>
J. David Huber....................... 126,043,297 93,919
William E. Graham, Jr................ 126,043,298 93,919
Thomas W. Lambeth.................... 126,036,469 94,651
W. Ray Long.......................... 125,787,993 94,477
Robert W. Stewart.................... 126,040,868 94,477
</TABLE>
INVESTMENT ADVISORY AGREEMENT -- The shareholders of each Fund approved a new
Investment Advisory Agreement with respect to each Fund as follows:
<TABLE>
<CAPTION>
FUND IN FAVOR OPPOSED ABSTAIN
- ------------------------------------- ---------- ------- ---------
<S> <C> <C> <C>
U.S. Treasury Money Market Fund...... 94,274,256 165,806 4,342,384
Short-Intermediate U.S. Government
Income Fund........................ 3,996,834 0 278,790
Intermediate U.S. Government Bond
Fund............................... 7,157,009 153,605 16,569
North Carolina Intermediate Tax-Free
Fund............................... 3,109,520 0 100,418
Growth and Income Stock Fund......... 7,753,941 0 517,270
Balanced Fund........................ 3,998,490 8,106 15,243
Small Company Growth Fund............ 250,221 0 0
</TABLE>
SUB-INVESTMENT ADVISORY AGREEMENT -- The shareholders of the Small Company
Growth Fund approved a new Sub-Investment Advisory Agreement with respect to
the Fund as follows:
<TABLE>
<CAPTION>
FUND IN FAVOR OPPOSED ABSTAIN
- ------------------------------------- ---------- ------- ---------
<S> <C> <C> <C>
Small Company Growth Fund............ 250,221 0 0
</TABLE>
B-89
<PAGE> 185
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
--------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
--------------------- -------------------- -----------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
--------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income.................... 0.047 0.050 0.027 0.030 0.026 0.027
-------- -------- -------- ------- -------- --------
Total from Investment Activities..... 0.047 0.050 0.027 0.030 0.026 0.027
-------- -------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income.................... (0.047) (0.050) (0.027) (0.030) (0.026) (0.027)
-------- -------- -------- ------- -------- --------
Total Distributions.................. (0.047) (0.050) (0.027) (0.030) (0.026) (0.027)
-------- -------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ========
Total Return............................... 4.81% 5.07% 2.76% 3.01% 2.60%(b) 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $13,948 $120,083 $ 1,486 $77,464 $ 279 $74,962
Ratio of expenses to average net
assets................................. 0.98% 0.72% 0.94% 0.67% 0.51%(c) 0.38%(c)
Ratio of net investment income to average
net assets............................. 4.81% 4.97% 2.89% 2.97% 2.58%(c) 2.71%(c)
Ratio of expenses to average net
assets*................................ 1.24% 0.75% 1.32% 0.83% 1.32%(c) 0.81%(c)
Ratio of net investment income to average
net assets*............................ 4.55% 4.95% 2.51% 2.82% 1.77%(c) 2.27%(c)
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
B-90
<PAGE> 186
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
-------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -----------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
-------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.60 $ 9.61 $ 10.29 $ 10.30 $ 10.00 $ 10.00
-------- ------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income..................... 0.53 0.56 0.50 0.52 0.47 0.49
Net realized and unrealized gains (losses)
on investments.......................... 0.29 0.28 (0.68) (0.68) 0.30 0.30
-------- ------- -------- ------- -------- --------
Total from Investment Activities...... 0.82 0.84 (0.18) (0.16) 0.77 0.79
-------- ------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income..................... (0.54) (0.56) (0.50) (0.52) (0.48) (0.49)
Net realized gains........................ (0.01) (0.01)
-------- ------- -------- ------- -------- --------
Total Distributions................... (0.54) (0.56) (0.51) (0.53) (0.48) (0.49)
-------- ------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 9.88 $ 9.89 $ 9.60 $ 9.61 $ 10.29 $ 10.30
======= ======= ======= ======= ======= =======
Total Return (excludes sales charge)........ 8.74% 9.01% (1.86%) (1.66%) 7.80%(b) 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........... $7,102 $45,005 $10,345 $38,208 $14,915 $34,646
Ratio of expenses to average net assets... 1.17% 0.93% 0.89% 0.71% 0.56%(c) 0.39%(c)
Ratio of net investment income to average
net assets.............................. 5.50% 5.78% 5.01% 5.20% 5.43%(c) 5.60%(c)
Ratio of expenses to average net
assets*................................. 1.58% 1.08% 1.58% 1.08% 1.56%(c) 1.05%(c)
Ratio of net investment income to average
net assets*............................. 5.09% 5.64% 4.32% 4.83% 4.42%(c) 4.94%(c)
Portfolio turnover(d)..................... 106.81% 106.81% 7.06% 7.06% 14.06% 14.06%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-91
<PAGE> 187
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
-------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -----------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
-------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.33 $ 9.34 $10.39 $ 10.40 $10.00 $ 10.00
-------- ------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income..................... 0.59 0.61 0.59 0.62 0.63 0.64
Net realized and unrealized gains (losses)
on investments.......................... 0.55 0.55 (1.04) (1.04) 0.39 0.40
-------- ------- -------- ------- -------- --------
Total from Investment Activities...... 1.14 1.16 (0.45) (0.42) 1.02 1.04
-------- ------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income..................... (0.59) (0.61) (0.59) (0.62) (0.63) (0.64)
Net realized gains........................ (0.02) (0.02)
-------- ------- -------- ------- -------- --------
Total Distributions................... (0.59) (0.61) (0.61) (0.64) (0.63) (0.64)
-------- ------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 9.88 $ 9.89 $ 9.33 $ 9.34 $10.39 $ 10.40
======= ======= ======= ======= ======= =======
Total Return (excludes sales charge)........ 12.63% 12.91% (4.48%) (4.23%) 10.53%(b) 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........... $5,173 $78,578 $6,772 $68,451 $5,238 $59,816
Ratio of expenses to average net assets... 1.09% 0.85% 0.96% 0.70% 0.59%(c) 0.39%(c)
Ratio of net investment income to average
net assets.............................. 6.22% 6.43% 6.03% 6.27% 6.26%(c) 6.45%(c)
Ratio of expenses to average net
assets*................................. 1.50% 1.00% 1.56% 1.06% 1.55%(c) 1.03%(c)
Ratio of net investment income to average
net assets*............................. 5.81% 6.28% 5.43% 5.91% 5.30%(c) 5.82%(c)
Portfolio turnover(d)..................... 68.91% 68.91% 0.38% 0.38% 15.27% 15.27%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-92
<PAGE> 188
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
-------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -----------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
-------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.78 $ 9.78 $ 10.29 $ 10.29 $ 10.00 $ 10.00
-------- ------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income..................... 0.36 0.37 0.36 0.38 0.36 0.36
Net realized and unrealized gains (losses)
on investments.......................... 0.37 0.37 (0.50) (0.50) 0.29 0.29
-------- ------- -------- ------- -------- --------
Total from Investment Activities...... 0.73 0.74 (0.14) (0.12) 0.65 0.65
-------- ------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income..................... (0.36) (0.37) (0.36) (0.38) (0.36) (0.36)
Net realized gains........................ (0.01) (0.01)
-------- ------- -------- ------- -------- --------
Total Distributions................... (0.36) (0.37) (0.37) (0.39) (0.36) (0.36)
-------- ------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $10.15 $ 10.15 $ 9.78 $ 9.78 $ 10.29 $ 10.29
======= ======= ======= ======= ======= ========
Total Return (excludes sales charge)........ 7.61% 7.77% (1.33%) (1.18%) 6.60%(b) 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........... $8,717 $28,091 $11,083 $27,770 $13,695 $20,128
Ratio of expenses to average net assets... 1.05% 0.91% 0.75% 0.63% 0.43%(c) 0.42%(c)
Ratio of net investment income to average
net assets.............................. 3.63% 3.78% 3.63% 3.77% 3.80%(c) 3.80%(c)
Ratio of expenses to average net
assets*................................. 1.63% 1.13% 1.66% 1.17% 1.77%(c) 1.30%(c)
Ratio of net investment income to average
net assets*............................. 3.05% 3.55% 2.72% 3.24% 2.45%(c) 2.92%(c)
Portfolio turnover(d)..................... 9.38% 9.38% 0.56% 0.56% 5.92% 5.92%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-93
<PAGE> 189
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
-----------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
--------------------- --------------------- -------------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
--------------------- --------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 11.26 $ 11.28 $ 11.26 $ 11.28 $ 10.00 $ 10.00
-------- -------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income.................... 0.25 0.28 0.25 0.28 0.28 0.30
Net realized and unrealized gains on
investments............................ 1.98 1.98 0.12 0.11 1.27 1.28
-------- -------- -------- ------- -------- --------
Total from Investment Activities..... 2.23 2.26 0.37 0.39 1.55 1.58
-------- -------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income.................... (0.25) (0.28) (0.26) (0.28) (0.29) (0.30)
Net realized gains....................... (0.12) (0.12) (0.11) (0.11)
In excess of net realized gains.......... (0.15) (0.15)
-------- -------- -------- ------- -------- --------
Total Distributions.................. (0.52) (0.55) (0.37) (0.39) (0.29) (0.30)
-------- -------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD............. $ 12.97 $ 12.99 $ 11.26 $ 11.28 $ 11.26 $ 11.28
======= ======== ====== ======= ====== =======
Total Return (excludes sales charge)....... 20.62% 20.88% 3.33% 3.58% 15.72%(b) 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $ 10,842 $145,603 $ 7,973 $89,355 $ 6,009 $ 82,358
Ratio of expenses to average net
assets................................. 1.07% 0.82% 0.92% 0.66% 0.63%(c) 0.40%(c)
Ratio of net investment income to average
net assets............................. 2.15% 2.40% 2.26% 2.51% 2.85%(c) 3.08%(c)
Ratio of expenses to average net
assets*................................ 1.60% 1.10% 1.65% 1.15% 1.68%(c) 1.17%(c)
Ratio of net investment income to average
net assets*............................ 1.62% 2.11% 1.52% 2.02% 1.81%(c) 2.31%(c)
Portfolio turnover(d).................... 8.73% 8.73% 21.30% 21.30% 27.17% 27.17%
</TABLE>
- ---------
* During the period certain accounting fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-94
<PAGE> 190
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BALANCED FUND
-------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 1, 1993 TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -----------------------
INVESTOR TRUST INVESTOR TRUST INVESTOR TRUST
-------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.76 $ 9.74 $10.20 $ 10.18 $10.00 $ 10.00
-------- ------- -------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income..................... 0.44 0.46 0.38 0.40 0.08 0.09
Net realized and unrealized gains (losses)
on investments.......................... 1.27 1.27 (0.44) (0.44) 0.21 0.18
-------- ------- -------- ------- -------- --------
Total from Investment Activities...... 1.71 1.73 (0.06) (0.04) 0.29 0.27
-------- ------- -------- ------- -------- --------
DISTRIBUTIONS
Net investment income..................... (0.43) (0.46) (0.38) (0.40) (0.09) (0.09)
-------- ------- -------- ------- -------- --------
Total Distributions................... (0.43) (0.46) (0.38) (0.40) (0.09) (0.09)
-------- ------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $11.04 $ 11.01 $ 9.76 $ 9.74 $10.20 $ 10.18
-------- ------- -------- ------- -------- --------
Total Return (excludes sales charge)........ 18.00% 18.23% (0.64%) (0.42%) 2.88%(b) 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........... $9,257 $49,794 $8,560 $39,715 $2,569 $20,374
Ratio of expenses to average net assets... 1.17% 0.92% 0.98% 0.73% 0.50%(c) 0.44%(c)
Ratio of net investment income to average
net assets.............................. 4.27% 4.51% 4.02% 4.22% 4.39%(c) 4.44%(c)
Ratio of expenses to average net
assets*................................. 1.71% 1.21% 1.75% 1.25% 2.00%(c) 1.47%(c)
Ratio of net investment income to average
net assets*............................. 3.73% 4.22% 3.25% 3.70% 2.89%(c) 3.42%(c)
Portfolio turnover(d)..................... 23.68% 23.68% 12.91% 12.91% 8.32% 8.32%
</TABLE>
- ---------
* During the period certain accounting fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-95
<PAGE> 191
BB&T MUTUAL FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL COMPANY
GROWTH FUND
------------------------
DECEMBER 7, 1994 TO
SEPTEMBER 30, 1995(A)
------------------------
INVESTOR TRUST
------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $10.00 $ 10.00
-------- -------
INVESTMENT ACTIVITIES
Net investment income.............................................................. (0.08) (0.07)
Net realized and unrealized gains on investments................................... 4.61 4.64
-------- -------
Total from Investment Activities............................................... 4.53 4.57
-------- -------
NET ASSET VALUE, END OF PERIOD....................................................... $14.53 $ 14.57
======= =======
Total Return (excludes sales charge)................................................. 45.30%(b) 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).................................................... $1,096 $16,962
Ratio of expenses to average net assets............................................ 2.50%(c) 2.33%(c)
Ratio of net investment income to average net assets............................... (1.56%)(c) (1.34%)(c)
Ratio of expenses to average net assets*........................................... 2.84%(c) 2.42%(c)
Ratio of net investment income to average net assets*.............................. (1.90%)(c) (1.43%)(c)
Portfolio turnover(d).............................................................. 46.97% 46.97%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. In addition,
certain expenses were reimbursed. If such voluntary fee reductions and
reimbursements had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to financial statements.
B-96
<PAGE> 192
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by BB&T with regard to portfolio investments for
the Funds include Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA Inc.
(collectively, "IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth
below is a description of the relevant ratings of each such NRSRO. The NRSROs
that may be utilized by BB&T and the description of each NRSRO's ratings is as
of the date of this Statement of Additional Information, and may subsequently
change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
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 risk 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.
B-97
<PAGE> 193
Ba Bonds which are rated 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 in the future. Uncertainty of position
characterizes bonds in this class.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB Debt rated BB is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury
debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
A- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
B-98
<PAGE> 194
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk
albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:
B-99
<PAGE> 195
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
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, may 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 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.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).
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-100
<PAGE> 196
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
B-101
<PAGE> 197
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
Short-Term Loan/Municipal Note Ratings
- --------------------------------------
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Short-Term Debt Ratings
- -----------------------
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has
been assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a
timely basis.
B-102
<PAGE> 198
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated "TBW-1."
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
Definitions of Certain Money Market Instruments
- -----------------------------------------------
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
B-103
<PAGE> 199
Obligations issued by agencies and instrumentalities of the U.S.
Government include such agencies and instrumentalities as the Government
National Mortgage Association, the Export-Import Bank of the United States, the
Tennessee Valley Authority, the Farmers Home Administration, the Federal Home
Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as
those of the Government National Mortgage Association are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. A Fund will invest
in the obligations of such instrumentalities only when the investment adviser
believes that the credit risk with respect to the instrumentality is minimal.
B-104
<PAGE> 200
Registration Statement
of
BB&T MUTUAL FUNDS GROUP
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements.
Included in Part A:
- Financial Highlights
Included in Part B:
- Independent Auditors' Report, dated
November 16, 1995.
- Statements of Assets and Liabilities as of
September 30, 1995 (audited).
- Statements of Operations for the year ended
September 30, 1995 (audited).
- Statements of Changes in Net Assets for the
years or periods ended September 30, 1995 and
September 30, 1994 (audited).
- Schedules of Portfolio Investments as of
September 30, 1995 (audited).
- Notes to Financial Statements for the year ended
September 30, 1995 (audited).
- Financial Highlights for the years or periods
ended September 30, 1995, September 30, 1994 and
the periods ended September 30, 1993 (audited).
C-1
<PAGE> 201
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust (the
"Declaration of Trust") dated as of
October 1, 1987 is incorporated by
reference to Exhibit 1(a) to the
Registration Statement of the Registrant
on Form N-1A (filed June 30, 1992).
(b) Amendment No. 1 to Declaration of Trust,
dated as of June 25, 1992 is incorporated
by reference to Exhibit 1(b) to the
Registration Statement of the Registrant
on Form N-1A (filed June 30, 1992).
(c) Amended and Restated Agreement and
Declaration of Trust dated August 18, 1992
is incorporated by reference to Exhibit
1(c) to Post-Effective Amendment No. 1 to
the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(2) By-laws are incorporated by reference to Exhibit
2 to Pre-Effective Amendment No. 1 the
Registration Statement of the Registrant on Form
N-1A (filed on September 9, 1992).
(3) None.
(4) None.
(5) (a) Investment Advisory Agreement between the
Registrant and Branch Banking and Trust
Company is incorporated by reference to
Exhibit 5(a) to Post-Effective Amendment
No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(b) Schedule A to the Investment Advisory
Agreement between the Registrant and
Branch Banking and Trust Company is
incorporated by reference to Exhibit 5(b)
to Post-Effective Amendment No. 6 to the
Registration Statement of the Registrant
on Form N-1A (filed on June 1, 1995).
(c) Form of Revised Schedule A to the
Investment Advisory Agreement between the
Registrant and Branch Banking and Trust
Company is incorporated by reference to
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<PAGE> 202
Exhibit 5(c) to Post-Effective Amendment
No. 7 to the Registration Statement of the
Registrant on Form N- 1A (filed October
18, 1995).
(d) Sub-Advisory Agreement between Branch
Banking and Trust Company and PNC Bank,
National Association is incorporated by
reference to Exhibit (5)(c) to
Post-Effective Amendment No. 5 to the
Registration Statement of the Registrant
on Form N-1A (filed December 2, 1994).
(e) Schedule A to the Sub-Advisory Agreement
between Branch Banking and Trust Company
and PNC Bank, National Association is
incorporated by reference to Exhibit
(5)(d) to Post-Effective Amendment No. 5
to the Registration Statement of the
Registrant on Form N-1A (filed December 2,
1994).
(6) (a) Distribution Agreement between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 1 to
the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(b) Revised Schedules A-C to the Distribution
Agreement between the Registrant and BISYS
Fund Services (formerly known as The
Winsbury Company) are incorporated by
reference to Exhibit (6)(b) to
Post-Effective Amendment No. 6 to the
Registration Statement of the Registrant
on Form N-1A (filed on June 1, 1995).
(c) Form of Revised Schedule A to the
Distribution Agreement between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is incorporated by reference to Exhibit
6(c) to Post-Effective Amendment No. 7 to
the Registration Statement of the
Registrant on Form N-1A (filed on October
18, 1995).
(7) None.
(8) (a) Custody Agreement between the Registrant
and Star Bank, N.A. is incorporated by
reference to Exhibit 8(a) to Post-
C-3
<PAGE> 203
Effective Amendment No. 1 to the
Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
(b) Revised Appendix B to the Custody
Agreement between the Registrant and Star
Bank, N.A. is incorporated by reference to
Exhibit 8(b) to Post-Effective Amendment
No. 4 to the Registration Statement on
Form N-1A (filed October 4, 1994).
(c) Form of Revised Appendix B to the Custody
Agreement between the Registrant and Star
Bank, N.A. is incorporated by reference
to Exhibit 8(c) to Post-Effective
Amendment No. 7 to the Registration
Statement of the Registrant on Form N-1A
(filed on October 18, 1995).
(9) (a) Management and Administration Agreement
between the Registrant and BISYS Fund
Services (formerly know as The Winsbury
Company) is incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment
No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(b) Transfer Agency Agreement between the
Registrant and BISYS Fund Services Ohio,
Inc. (formerly known as The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(b) to
Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
(c) Fund Accounting Agreement between the
Registrant and BISYS Fund Services Ohio,
Inc. (formerly known as The Winsbury
Service Corporation) is incorporated by
reference to
Exhibit 9(c) to Post-Effective Amendment
No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(d) License Agreement between the Registrant
and Branch Banking and Trust Company is
incorporated by reference to Exhibit 9(d)
to Post-Effective Amendment No. 1 to the
C-4
<PAGE> 204
Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
(e) Revised Schedule A to the Management and
Administration Agreement between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is incorporated by reference to Exhibit
(9)(e) to Post-Effective Amendment No. 6
to the Registration Statement of the
Registrant on Form N-1A (filed June 1,
1995).
(f) Form of Revised Schedule A to the
Management and Administration Agreement
between the Registrant and BISYS Fund
Services (formerly known as The Winsbury
Company) is incorporated by reference to
Exhibit 9(f) to Post-Effective Amendment
No. 7 to the Registration Statement of the
Registrant on Form N-1A (filed October 18,
1995).
(g) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and BISYS
Fund Services Ohio, Inc. (formerly known
as The Winsbury Service Corporation) is
incorporated by reference to Exhibit
(9)(f) to Post-Effective Amendment No. 6
to the Registration Statement of the
Registrant on Form N-1A (filed June 1,
1995).
(h) Form of Revised Schedule A to the Fund
Accounting Agreement between the
Registrant and BISYS Fund Services Ohio,
Inc. (formerly known as The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(h) to
Post-Effective Amendment No. 7 to the
Registration Statement of the Registrant
on Form N-1A (filed October 18, 1995).
(10) Opinion of Ropes & Gray is incorporated by
reference to Exhibit 10 of Pre-Effective
Amendment No. 1 to the Registration
Statement of the Registrant on Form N-1A
(filed September 9, 1992).
(11) (a) Consent of KPMG Peat Marwick LLP is filed
herewith.
(b) Consent of Ropes & Gray is filed herewith.
C-5
<PAGE> 205
(12) None.
(13) Purchase Agreement dated September 3, 1992
between Registrant and Winsbury Associates
is incorporated by reference to Exhibit 13
of Pre-Effective Amendment No. 2 to the
Registration Statement of the Registrant
Form N-1A (filed September 23, 1992).
(14) None.
(15) (a) Distribution and Shareholder Services Plan
between the Registrant and BISYS Fund
Services (formerly known as The Winsbury
Company) is incorporated by reference to
Exhibit 15(a) to Post-Effective Amendment
No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(b) Form of Amended and Restated Distribution
and Shareholder Services Plan between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is incorporated by reference to Exhibit
15(b) to Post-Effective Amendment No. 7 to
the Registration Statement of the
Registrant on Form N-1A (filed October 18,
1995).
(c) Servicing Agreement with respect to
Shareholder Services between Branch
Banking and Trust Company and BISYS Fund
Services (formerly known as The Winsbury
Company) is incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment
No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24,
1993).
(d) Revised Schedule A to the Distribution and
Shareholder Services Plan between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is incorporated by reference to Exhibit
15(c) to Post- Effective Amendment No. 6
to the Registration Statement of the
Registrant on Form N-1A (filed June 1,
1995).
(e) Form of Amended and Restated Schedule A to
the Amended and Restated Distribution and
Shareholder Services Plan between the
Registrant and BISYS Fund Services
(formerly
C-6
<PAGE> 206
known as The Winsbury Company) is
incorporated by reference to Exhibit 15(e)
to Post-Effective Amendment No. 7 to the
Registration Statement of the Registrant
on Form N-1A (filed October 18, 1995).
(f) Revised Schedule A to the Servicing
Agreement with Branch Banking and Trust
Company and BISYS Fund Services (formerly
known as The Winsbury Company) is
incorporated by reference to Exhibit
(15)(d) to Post-Effective Amendment No. 6
to the Registration Statement of the
Registrant on Form N-1A (filed June 1,
1995).
(16) (a) Performance Calculation Schedules relating
to period ended September 30, 1993 for
each Fund other than the Small Company
Growth Fund are incorporated by reference
to Exhibit 16 to Post-Effective Amendment
No. 2 to the Registration Statement of the
Registrant on Form N-1A (filed November
24, 1993).
(b) Performance Calculation Schedules relating
to period ended March 31, 1995 for the
Small Company Growth Fund are incorporated
by reference to Exhibit (16)(b) to
Post-Effective Amendment No. 6 to the
Registration Statement of the Registrant
on Form N-1A (filed June 1, 1995)
(17) Financial Data Schedule
(a) U.S. Treasury Money Market (Class A)
(b) U.S. Treasury Money Market (Trust
Class)
(c) Short Intermediate U.S. Government
Income Fund (Class A)
(d) Short Intermediate U.S. Government
Income Fund (Trust Class)
(e) Intermediate U.S. Government Bond Fund
(Class A)
(f) Intermediate U.S. Government Bond Fund
(Trust Class)
(g) N.C. Intermediate Tax Free Fund
(Class A)
(h) N.C. Intermediate Tax Free Fund (Trust
Class)
(i) Growth & Income Stock (Class A)
(j) Growth & Income Stock (Trust Class)
(k) Balanced (Class A)
(l) Balanced (Trust Class)
(m) Small Company Growth (Class A)
(n) Small Company Growth (Trust Class)
(18) Multiple Class Plan for BB&T Mutual Funds
Group adopted by the Board of Trustees on
September 21, 1995 is incorporated by
reference to Exhibit 18 to Post-Effective
Amendment No. 7 to the Registration
Statement of the Registrant on Form N-1A
(filed October 18, 1995).
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None.
C-7
<PAGE> 207
Item 26. Number of Holders of Securities
-------------------------------
As of November 30, 1995, the number of record holders of
Trust Shares of the Registrant's respective series of Trust
Shares were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders of Trust Shares
--------------- -----------------------
<S> <C>
U.S. Treasury Fund 7
Short-Intermediate Fund 5
Intermediate Bond Fund 9
North Carolina Fund 1
Growth and Income Fund 8
Balanced Fund 8
Small Company Growth Fund 7
Intermediate Bond Fund II 0
North Carolina Fund II 0
Growth and Income Fund II 0
</TABLE>
As of November 30, 1995, the number of record holders of
Class A Shares of the Registrant's respective series of
Class A Shares were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders of Class A Shares
--------------- -------------------------
<S> <C>
U.S. Treasury Fund 191
Short-Intermediate Fund 216
Intermediate Bond Fund 140
</TABLE>
C-8
<PAGE> 208
<TABLE>
<S> <C>
North Carolina Fund 173
Growth and Income Fund 684
Balanced Fund 371
Small Company Growth Fund 324
</TABLE>
As of November 30, 1995, the number of recordholders of
Class B Shares of the Registrant's respective series of
Class B Shares were as follows:
<TABLE>
<CAPTION>
Number of Record Holders
Title of Series of Class B Shares
--------------- ------------------------------
<S> <C>
U.S. Treasury Fund 0
Short-Intermediate Fund 0
Intermediate Bond Fund 0
North Carolina Fund 0
Growth and Income Fund 0
Balanced Fund 0
Small Company Growth Fund 0
</TABLE>
Item 27. Indemnification
---------------
Article VIII, Sections 1 and 2 of the Registrant's
Declaration of Trust provides as follows:
"Trustees, Officers, etc.
-------------------------
Section 1. The Trust shall indemnify each of its Trustees
and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred
to as a "Covered Person") against all liabilities and
expenses, including but not limited to
C-9
<PAGE> 209
amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may
have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person except
with respect to any matter as to which such Covered Person
shall have been finally adjudicated in any such action,
suit or other proceeding to be liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties),
shall be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf
of such Covered Person to repay amounts so paid to the
Trust if it is ultimately determined that indemnification
of such expenses is not authorized under this Article,
provided, however, that either (a) such Covered Person
shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses
arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees
then in office act on the matter), or independent legal
counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe
that such Covered Person will be found entitled to
indemnification under this Article.
Compromise Payment
------------------
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any
other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith in
the reasonable belief that his action was in the best
interests of the Trust or (b) is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in the
best interests of the Trust, after notice that it involves
such indemnification, by at least a majority of the
disinterested Trustees acting on
C-10
<PAGE> 210
the matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a
determination, based upon a review of readily available
facts (as opposed to a full trial type inquiry) that such
Covered Person acted in good faith in the reasonable belief
that his action was in the best interests of the Trust and
is not liable to the Trust or its Shareholders by reasons
of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon
a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person
appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the
Trust and that such indemnification would not protect such
Person against any liability to the Trust to which he would
otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Any approval
pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification
if such Covered Person is subsequently adjudicated by a
court of competent jurisdiction not to have acted in good
faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or to have
been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of
expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense
of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with
the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C-11
<PAGE> 211
Indemnification for the Group's principal underwriter is
provided for in the Distribution Agreement incorporated
herein by reference as Exhibit 6(a).
In addition, the Trust maintains a directors and officer
liability insurance policy with a maximum coverage of
$3,000,000.
Item 28. Business and Other Connections of Investment Adviser and
--------------------------------------------------------
Investment Sub-Adviser.
-----------------------
BB&T is the investment adviser to each fund. BB&T is the
oldest bank in North Carolina and is the principal bank
affiliate of Southern National Corporation ("SNC"), a bank
and savings and loan holding company. As of September
30, 1995, SNC had assets in excess of $20.7 billion.
Through its subsidiaries, SNC operates over 447 banking
offices in North Carolina, South Carolina and Virginia,
providing a broad range of financial services to
individuals and businesses.
In addition to general commercial, mortgage and retail
banking services, BB&T also provides trust, investment,
insurance and travel services. BB&T has provided
investment management services through its Trust and
Investment Services Division since 1912. BB&T employs an
experienced staff of professional portfolio managers and
traders who use a disciplined investment process that
focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment
funds for its fiduciary accounts for more than 15 years and
currently manages assets of more than $4.5 billion.
Set forth below is information as to any other business,
vocation or employment of a substantial nature (other than
service in wholly-owned subsidiaries or the parent
corporation of BB&T) in which each director or senior
officer of the Registrant's investment adviser is, or at
any time during the past two fiscal years has been, engaged
for his own account or in the capacity of director,
officer, employee, partner or trustee.
C-12
<PAGE> 212
<TABLE>
<CAPTION>
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
----------------------------- ---------------------------
<S> <C>
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Henry G. Williamson, Jr.
Director and Chief Administrative
Officer
Kelly S. King
Director and President
Joseph B. Alala, Jr. President
Director Alala, Mullen, Holland, and Cooper, P.A. (Attorneys)
Gastonia, N.C.
G. Robert Aston, Jr. President & CEO
Director Commerce Bank
Virginia Beach, V.A.
W. Watson Barnes, Sr. President
Director Wilson Petroleum Company, Inc.
Wilson, N.C.
William F. Black
Director
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W. G. Clark III President
Director Clark Industries, Inc.
Tarboro, N.C.
Jesse W. Corbett, Jr.
Director
</TABLE>
C-13
<PAGE> 213
<TABLE>
<S> <C>
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Fred H. Deaton, Jr. Personal Investments
Director Statesville, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Andrew S. Fine Attorney at Law
Director Fine, Fine, Legum & Fine, P.C.
Virginia Beach, V.A.
Paul S. Goldsmith President
Director William Goldsmith Co., Inc.
Greenville, S.C.
Robert E. Green
Executive Vice President
Dr. Lloyd Vincent Hackley President
Director NC System of Community Colleges
Raleigh, N.C.
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, V.A.
James A. Hardison
Director
</TABLE>
C-14
<PAGE> 214
<TABLE>
<S> <C>
Dr. Richard Janeway Executive Vice President for Health Affairs and
Director Executive Dean, Bowman Gray School of Medicine
Winston-Salem, N.C.
James E. Heins Telecommunications Consultant
Director Pinehurst, N.C.
Donald Charles Hiscott President & CEO
Director Southeastern Regional Medical Center
Pinehurst, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate Diagnostic Center
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc., McCauley Moving & Storage
of Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
Charles E. Nichols Attorney at Law, North Carolina Trust Center
Director Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
</TABLE>
C-15
<PAGE> 215
<TABLE>
<S> <C>
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
Theodore Reaves Reynolds Attorney at Law, Senior Partner
Director Reynolds & Pendergrass, P.A.
Raleigh, N.C.
Larry J. Waggoner
Director
A. Bruce Williams
Director
A. Tab Williams Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
William B. Young, M.D. Retired Specialist in Internal Medicine, Wilson, N.C.
Director
Robert L. Brady
Director
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Greensboro, N.C.
</TABLE>
C-16
<PAGE> 216
<TABLE>
<S> <C>
Charles F. Ailstock Attorney at Law
Director Charleston, S.C.
Luther C. Boliek
Director
Robert K. Bouknight Bouknight Firm
Director Lexington, S.C.
Vasa W. Cate, M.D. Consultants and Gastroenterology
Director Charleston, S.C.
Raymond S. Caughman Chairman and CEO
Director Lexington State Bank
Lexington, S.C.
Harry A. Chapman, Jr. Attorney at Law
Director Chapman, Harter & Groves
Greenville, S.C.
Henry C. Clinkscales President, Clinkscales Drug, Inc.
Director Belton, S.C.
G. Lee Cory
President
Curtis H. Dickerson East Coast Truck Lines, Inc.
Director Columbia, S.C.
Robert N. Hubbs
Director
William N. Geiger Chairman, Development Properties, Inc.
Director Columbia, S.C.
Harvey Graham, Jr.
Director
Albin S. Johnson Columbia Farms, Inc.
Director Leesville, S.C.
</TABLE>
C-17
<PAGE> 217
<TABLE>
<S> <C>
Oren O. Jones Attorney at Law
Director Jones, Spitz, Moorehead & Baird
Anderson, S.C.
Reamer B. King President, King Cadillac, Oldsmobile-
Director GMC Truck, Inc.
Florence, S.C.
Robert E. Kneece, Sr. Attorney at Law
Director Kneece, Kneece, Ashley & Gibbons
Robert E. Livingston Livingston Insurance Agency
Director West Columbia, S.C.
John J. Martin, Jr. Autosystems, Inc.
Director Greenville, S.C.
Thurmon McLamb McLamb Reality
Director Little River, S.C.
F. A. McClure, Jr.
Director
Thomas Travis Medlock Lide, Montgomery, Potts & Medlock
Director Columbia, S.C.
F.M. Smith Smith-Shealy Steel Service
Director West Columbia, S.C.
Senator J. Verne Smith President, The Tire Exchange
Director Greer, S.C.
Jerry D. Stanaland Land Development
Director North Myrtle Beach, S.C.
Heyward M. Sullivan President, Hales, Inc.
Director Greenville, S.C.
Nick A. Theodore President
Director William Goldsmith Agency
Greenville, S.C.
</TABLE>
C-18
<PAGE> 218
<TABLE>
<S> <C>
Willard G. Wade President, WB&W, Inc.
Director Spartanburg, S.C.
Robert H. Yeargin Chairman, CEO
Director Yeargin Properties, Inc.
Greenville, S.C.
J. Rutledge Young, Jr. Young, Clement, Rivers & Tisdale
Director Charleston, S.C.
</TABLE>
PNC, Bank, National Association ("PNC Bank") is the
investment sub-adviser to the Small Company Growth Fund.
PNC Bank, with offices located at 1835 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned
indirect subsidiary of PNC Bank Corp. PNC Bank Corp., a
bank holding company headquartered in Pittsburgh,
Pennsylvania, was the 12th largest bank holding company
in the United States based on total assets at September
30, 1995. PNC Bank Corp. operates banking subsidiaries in
Pennsylvania, Delaware, Florida, Indiana, Kentucky,
Massachusetts, New Jersey and Ohio and conducts certain
nonbanking operations throughout the United States. Its
major businesses include corporate banking, consumer
banking, private banking, mortgage banking and trust and
mutual fund asset management. With $85.9 billion in
discretionary assets under management and $257.7 billion
of investment management and trust assets at September
30, 1995, PNC Bank Corp. is one of the largest bank money
managers as well as one of the largest institutional mutual
fund managers in the United States. Of such amounts at
September 30, 1995, PNC Bank had $76.8 billion in
discretionary assets under management and investment
management and trust assets totaled $104.7 billion. In
addition to asset management and trust services, PNC Bank
also provides a wide range of domestic and international
commercial banking and retail banking services. PNC Bank's
origins, and in particular its trust administration
services, date back to the mid-to-late 1800s.
Set forth below is information as to any other business,
vocation or employment of a substantial nature (except that
certain directors, officers and executives of PNC Bank also
hold various positions with and engage in business for PNC
Bank Corp., and/or certain of its other subsidiaries) in
which each director or senior officer of the Registrant's
sub-adviser is, or at
C-19
<PAGE> 219
any time during the past two fiscal years has been, engaged
for his own account or in the capacity of director,
officer, employee, partner or trustee.
PNC Bank, National Association
Directors
<TABLE>
<CAPTION>
Position with Other Substantial Type of
PNC Bank Name Business Connections Business
- ----------- ---- -------------------- --------
<S> <C> <C> <C>
Director B.R. Brown Chairman and C.E.O. Coal
of Consol Inc.
Consol Plaza
Pittsburgh, PA 15241
Director Constance E. Clayton, Associate Dean, School of Medical
Ed.D Public Health, Professor of
Pediatrics
Medical College of Pennsylvania,
Hahnemann Univ.
430 E. Sedgewick Street
Philadelphia, PA 19119
Director Eberhard Faber IV Chairman and C.E.O. Pencil
of E.F.L., Inc.
450 Hedge Road
P.O. Box 49
Bear Creek, PA 18602
Director Dr. Stuart Heydt President and C.E.O. Medical
Geisinger Foundation
100 N. Academy Avenue
Danville, PA 17822-2201
Director Edward P. Junker, III Vice Chairman Banking
and Vice PNC Bank, N.A.
Chairman Ninth and State Streets
Erie, PA 16553
Director Thomas A. McConomy Chairman, Calgon Carbon Manufac-
Corporation turing
</TABLE>
C-20
<PAGE> 220
<TABLE>
<S> <C> <C> <C> <C>
413 Woodland Road
Sewickley, PA 15143
Director Thomas H. O'Brien Chairman Banking
and Chairman PNC Bank, N.A.
One PNC Plaza, 30th Flr.
Pittsburgh, PA 15265
Director Dr. J. Dennis O'Connor Professor of Biological Education
Sciences, University of Pittsburgh
321 Clapp Hall
Pittsburgh, PA 15260
Director Rocco A. Ortenzio Chairman and C.E.O. Medical
Continental Medical
Systems, Inc.
P.O. Box 715 Mechanicsburg, PA 17055
Director Jane G. Pepper President Horticulture
Pennsylvania Horticultural
Society
325 Walnut Street
Philadelphia, PA 19106-2777
Director Robert C. Robb, Jr. President, Lewis, Eckert, Financial
Robb & Company and
425 One Plymouth Meeting Management
Plymouth Meeting, PA 19462 Consultants
Director, James E. Rohr President and C.E.O. Banking
President PNC Bank, N.A.
and Chief One PNC Plaza, 30th Flr.
Executive Officer Pittsburgh, PA 15265
Director Daniel M. Rooney President, Pittsburgh Steelers Football
300 Stadium Circle
Pittsburgh, PA 15212
</TABLE>
C-21
<PAGE> 221
<TABLE>
<S> <C> <C> <C>
Director Seth E. Schofield Chairman and C.E.O. Airline
USAir Group, Inc. and
USAir, Inc.
2345 Crystal Drive
Arlington, VA 22227
</TABLE>
C-22
<PAGE> 222
PNC Bank, National Association
Executive Officers
<TABLE>
<S> <C> <C>
Thomas H. O'Brien Chairman
James E. Rohr President and Chief Executive Officer
Edward P. Junker, III Vice Chairman
Charles C. Pearson, Jr. President and CEO, PNC Bank, N.A.
Central PA
Edward V. Randall, Jr. President and CEO, PNC Bank, N.A.
Pittsburgh
Richard L. Smoot President and CEO, PNC Bank, N.A.
Philadelphia
David E. Zuern President and CEO, PNC Bank, N.A.
Northwest PA
Richard C. Caldwell Executive Vice President
J. Richard Carnall Executive Vice President
Joe R. Irwin Executive Vice President
Herbert G. Executive Vice President
Summerfield, Jr.
George Lula Senior Vice President
</TABLE>
C-23
<PAGE> 223
Item 29. Principal Underwriter.
----------------------
(a) BISYS Fund Services (formerly known as The Winsbury Company)
acts as distributor and administrator for the Registrant. BISYS
Fund Services also distributes the securities of The Riverfront
Funds, Inc., the MMA Praxis Mutual Funds, the MarketWatch Funds,
The Coventry Group, the Conestoga Family of Funds, the Pacific
Capital Funds, The Parkstone Group of Funds, The HighMark Group,
The Sessions Group, the American Performance Funds, AmSouth Mutual
Funds, The Victory Portfolios, The ARCH Tax-Exempt Trust, the
Qualivest Funds, the Summit Investment Trust, The M.S.D.&T Funds,
Inc. and The ARCH Fund, Inc., each of which is a management
investment company. The parent of BISYS Fund Services, Inc. (the
sole general partner of BISYS Fund Services) is The BISYS Group,
Inc.
(b) Partners of BISYS Fund Services as of the date of this Part C
are as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are as follows:
C-24
<PAGE> 224
<TABLE>
<S> <C>
(1) The BB&T Mutual Funds Group
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Trust Investments
(Investment Adviser)
(3) PNC Bank, National Association
1835 Market Street, 15th Floor
Philadelphia, PA 19103
(Investment Sub-Adviser to the Small Company
Growth Fund)
(4) BISYS Fund Services (formerly known as The
Winsbury Company) 3435 Stelzer Road Columbus, Ohio 43219
(Manager, Administrator and Distributor)
(5) Star Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45201
(6) BISYS Fund Services Ohio, Inc.
(formerly known as The Winsbury
Service Corporation)
3435 Stelzer Road
Columbus, Ohio 43219
(Transfer and Shareholder Servicing Agent,
Provider of Fund Accounting Services)
(7) Ropes & Gray
One Franklin Square, 1301 K Street, N.W., Suite
800 East Washington, D.C. 20005
(Declaration of Trust, Bylaws, Minutes Book)
</TABLE>
C-25
<PAGE> 225
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
The Registrant undertakes to call a meeting of
Shareholders, at the request of at least 10% of the
Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and
to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of
1940.
The Registrant undertakes to furnish to each person to whom
a prospectus is delivered a copy of the Registrant's latest
annual report to shareholders upon request and without
charge.
The Registrant undertakes on behalf of The BB&T
Intermediate U.S. Government Bond Fund II, The BB&T Growth
and Income Stock Fund II and The BB&T North Carolina
Intermediate Tax-Free Fund II to file a post-effective
amendment, including financial statements which need not be
certified, within four to six months from the commencement
of operations of each of the Intermediate Bond Fund II, the
Growth and Income Fund II and the North Carolina Fund II.
C-26
<PAGE> 226
NOTICE
------
A copy of the Agreement and Declaration of Trust, as amended, of The
BB&T Mutual Funds Group is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that this instrument
is executed on behalf of the Registrant by officers of the registrant as
officers and not individually and that the obligations of or arising out of
this instrument are not binding upon any of the trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Registrant.
C-27
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the 1933 Act and has duly caused this
Post-Effective Amendment No. 8 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Washington, District of Columbia on this 26th day of December, 1995.
THE BB&T MUTUAL FUNDS GROUP
Registrant
/S/ J. David Huber
-----------------------------------
*J. David Huber
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ J. David Huber Chairman December 26, 1995
- ------------------
*J. David Huber
/S/ William E. Graham Trustee December 26, 1995
- ---------------------
*William E. Graham
/S/ Thomas W. Lambeth Trustee December 26, 1995
- ---------------------
*Thomas W. Lambeth
/S/ George Landreth Treasurer December 26, 1995
- -------------------
*George Landreth
/S/ W. Ray Long Trustee December 26, 1995
- ---------------
*W. Ray Long
/S/ Robert W. Stewart Trustee December 26, 1995
- ---------------------
*Robert W. Stewart
*By:/S/ Alan G. Priest
------------------
Alan G. Priest
Attorney-in-Fact
</TABLE>
C-28
<PAGE> 228
POWER OF ATTORNEY
-----------------
Robert W. Stewart, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Group, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee Robert W. Stewart
and/or officer of the Fund any and all amendments to the Group's Registration
Statement as filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue thereof.
Dated: 2-15-94
--------------------
/s/ Robert W. Stewart
----------------------------------
Robert W. Stewart
<PAGE> 229
POWER OF ATTORNEY
-----------------
Thomas Willis Lambeth, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Group, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee Thomas Willis
Lambeth and/or officer of the Fund any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue thereof.
Dated: 2-15-94
--------------------
/s/ Thomas Willis Lambeth
----------------------------------
Thomas Willis Lambeth
<PAGE> 230
POWER OF ATTORNEY
-----------------
W. Ray Long, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Group, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee W. Ray Long
and/or officer of the Fund any and all amendments to the Group's Registration
Statement as filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue thereof.
Dated: 2-15-94
--------------------
/s/ W. Ray Long
----------------------------------
W. Ray Long
<PAGE> 231
POWER OF ATTORNEY
-----------------
William E. Graham, Jr., whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Group, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee William E.
Graham, Jr. and/or officer of the Fund any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue thereof.
Dated: 2-15-94
--------------------
/s/ William E. Graham, Jr.
----------------------------------
William E. Graham, Jr.
<PAGE> 232
POWER OF ATTORNEY
-----------------
J. David Huber, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Group, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee J. David Huber
and/or officer of the Fund any and all amendments to the Group's Registration
Statement as filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue thereof.
Dated: 2-15-94
--------------------
/s/ J. David Huber
----------------------------------
J. David Huber
<PAGE> 233
POWER OF ATTORNEY
- -----------------
George R. Landreth, whose signature appears below, does hereby constitute and
appoint Martin E. Lybecker, Alan G. Priest and Linda Dallas Rich, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The BB&T Mutual Funds Group (the "Group"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments to the Fund's Registration Statement on
Form N-1A pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name
and on behalf of the undersigned, George R. Landreth as an officer of the Fund,
any and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorneys and
agents, or any of them, shall do or cause to be done by virtue thereof.
Dated: March 22, 1993
--------------
/s/ George R. Landreth
-----------------------------
George R. Landreth
Treasurer
<PAGE> 234
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C>
(11)(a) Consent of KPMG Peat Marwick LLP.
(11)(b) Consent of Ropes & Gray.
(27) Financial Data Schedule
(a) U.S. Treasury Money Market (Class A)
(b) U.S. Treasury Money Market (Trust Class)
(c) Short Intermediate U.S. Government
Income Fund (Class A)
(d) Short Intermediate U.S. Government
Income Fund (Trust Class)
(e) Intermediate U.S. Government Bond Fund (Class A)
(f) Intermediate U.S. Government Bond Fund (Trust Class)
(g) N.C. Intermediate Tax Free Fund (Class A)
(h) N.C. Intermediate Tax Free Fund (Trust Class)
(i) Growth & Income Stock (Class A)
(j) Growth & Income Stock (Trust Class)
(k) Balanced (Class A)
(l) Balanced (Trust Class)
(m) Small Company Growth (Class A)
(n) Small Company Growth (Trust Class)
</TABLE>
<PAGE> 1
EXHIBIT (11)(a)
Consent of KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Two Nationwide Plaza Telephone 614-248-2300 Telefax 614-249-2348
Columbus, OH 43215
Auditors' Consent
The Board of Trustees of
The BB&T Mutual Funds Group:
We consent to the use of our report dated November 16, 1995, included herein,
for The BB&T Mutual Funds Group (comprised of The BB&T U.S. Treasury Money
Market Fund, The BB&T Short-Intermediate U.S. Government Income Fund, The BB&T
Intermediate U.S. Government Bond Fund, The BB&T North Carolina Intermediate
Tax-Free Fund, The BB&T Growth and Income Stock Fund, The BB&T Balanced Fund,
and the BB&T Small Company Growth Fund) for the year ended September 30, 1995
and the periods indicated therein, and the references to our firm under the
headings "Financial Highlights" in the Prospectuses and "Independent
Accountants" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Columbus, Ohio
December 19, 1995
<PAGE> 1
EXHIBIT (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made part of Post-Effective
Amendment No. 8 to the Registration Statement of the BB&T Mutual Funds Group on
Form N-1A under the Securities Act of 1933, as amended.
ROPES & GRAY
Washington, D.C.
December 20, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> U.S. TREASURY MONEY MARKET
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 134,623
<INVESTMENTS-AT-VALUE> 134,623
<RECEIVABLES> 30
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,653
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 622
<TOTAL-LIABILITIES> 622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,031
<SHARES-COMMON-STOCK> 134,031
<SHARES-COMMON-PRIOR> 78,950
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 134,031
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,842
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<NET-INVESTMENT-INCOME> 5,086
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,086
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 413,984
<NUMBER-OF-SHARES-REDEEMED> 359,410
<SHARES-REINVESTED> 507
<NET-CHANGE-IN-ASSETS> 55,081
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 792
<AVERAGE-NET-ASSETS> 102,459
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.047
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<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> [BLANK]
<AVG-DEBT-PER-SHARE> [BLANK]
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> U.S. TREASURY MONEY MARKET
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 134,623
<INVESTMENTS-AT-VALUE> 134,623
<RECEIVABLES> 30
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,653
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<OTHER-ITEMS-LIABILITIES> 622
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,086
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<NUMBER-OF-SHARES-SOLD> 413,984
<NUMBER-OF-SHARES-REDEEMED> 359,410
<SHARES-REINVESTED> 507
<NET-CHANGE-IN-ASSETS> 55,081
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 792
<AVERAGE-NET-ASSETS> 102,459
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> SHORT INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 51,314
<INVESTMENTS-AT-VALUE> 51,455
<RECEIVABLES> 944
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,405
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 298
<TOTAL-LIABILITIES> 298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,283
<SHARES-COMMON-STOCK> 5,270
<SHARES-COMMON-PRIOR> 5,053
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,318
<ACCUM-APPREC-OR-DEPREC> 141
<NET-ASSETS> 52,106
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,395
<OTHER-INCOME> 0
<EXPENSES-NET> 491
<NET-INVESTMENT-INCOME> 2,904
<REALIZED-GAINS-CURRENT> (1,125)
<APPREC-INCREASE-CURRENT> 2,643
<NET-CHANGE-FROM-OPS> 4,422
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,904
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,718
<NUMBER-OF-SHARES-REDEEMED> 1,581
<SHARES-REINVESTED> 80
<NET-CHANGE-IN-ASSETS> 3,553
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 192
<GROSS-ADVISORY-FEES> 303
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 585
<AVERAGE-NET-ASSETS> 50,581
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.54
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> [BLANK]
<AVG-DEBT-PER-SHARE> [BLANK]
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> SHORT INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 51,314
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<TOTAL-ASSETS> 52,405
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,283
<SHARES-COMMON-STOCK> 5,270
<SHARES-COMMON-PRIOR> 5,053
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<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 491
<NET-INVESTMENT-INCOME> 2,904
<REALIZED-GAINS-CURRENT> (1,125)
<APPREC-INCREASE-CURRENT> 2,643
<NET-CHANGE-FROM-OPS> 4,422
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<OVERDIST-NET-GAINS-PRIOR> 192
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 585
<AVERAGE-NET-ASSETS> 50,581
<PER-SHARE-NAV-BEGIN> 9.61
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<PER-SHARE-NAV-END> 9.89
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
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<TOTAL-LIABILITIES> 494
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<PAID-IN-CAPITAL-COMMON> 83,740
<SHARES-COMMON-STOCK> 8,468
<SHARES-COMMON-PRIOR> 8,055
<ACCUMULATED-NII-CURRENT> 6
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,217
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,705
<OTHER-INCOME> 0
<EXPENSES-NET> 680
<NET-INVESTMENT-INCOME> 5,025
<REALIZED-GAINS-CURRENT> (1,194)
<APPREC-INCREASE-CURRENT> 5,833
<NET-CHANGE-FROM-OPS> 9,663
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 2,420
<NUMBER-OF-SHARES-REDEEMED> 2,420
<SHARES-REINVESTED> 414
<NET-CHANGE-IN-ASSETS> 8,529
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 17
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 811
<AVERAGE-NET-ASSETS> 78,323
<PER-SHARE-NAV-BEGIN> 9.33
<PER-SHARE-NII> 0.59
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<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> [BLANK]
<AVG-DEBT-PER-SHARE> [BLANK]
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
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<TOTAL-ASSETS> 84,246
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<SHARES-COMMON-PRIOR> 8,055
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<EXPENSES-NET> 680
<NET-INVESTMENT-INCOME> 5,025
<REALIZED-GAINS-CURRENT> (1,194)
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<EQUALIZATION> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 811
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<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> 0.61
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> N.C. INTERMEDIATE TAX FREE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 36,058
<INVESTMENTS-AT-VALUE> 36,466
<RECEIVABLES> 479
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,951
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143
<TOTAL-LIABILITIES> 143
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,478
<SHARES-COMMON-STOCK> 3,626
<SHARES-COMMON-PRIOR> 3,971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 78
<ACCUM-APPREC-OR-DEPREC> 408
<NET-ASSETS> 36,808
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,772
<OTHER-INCOME> 0
<EXPENSES-NET> 356
<NET-INVESTMENT-INCOME> 1,416
<REALIZED-GAINS-CURRENT> (79)
<APPREC-INCREASE-CURRENT> 1,484
<NET-CHANGE-FROM-OPS> 2,822
<EQUALIZATION> 0
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<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 473
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<PER-SHARE-NII> 0.36
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> N.C. INTERMEDIATE TAX FREE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 36,058
<INVESTMENTS-AT-VALUE> 36,466
<RECEIVABLES> 479
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<TOTAL-ASSETS> 36,951
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<TOTAL-LIABILITIES> 143
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,478
<SHARES-COMMON-STOCK> 3,626
<SHARES-COMMON-PRIOR> 3,971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 78
<ACCUM-APPREC-OR-DEPREC> 408
<NET-ASSETS> 36,808
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,772
<OTHER-INCOME> 0
<EXPENSES-NET> 356
<NET-INVESTMENT-INCOME> 1,416
<REALIZED-GAINS-CURRENT> (79)
<APPREC-INCREASE-CURRENT> 1,484
<NET-CHANGE-FROM-OPS> 2,822
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,416
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,108
<NUMBER-OF-SHARES-REDEEMED> 1,481
<SHARES-REINVESTED> 28
<NET-CHANGE-IN-ASSETS> 2,046
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 473
<AVERAGE-NET-ASSETS> 37,852
<PER-SHARE-NAV-BEGIN> 9.78
<PER-SHARE-NII> 0.37
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<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> GROWTH & INCOME STOCK
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
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<NAME> GROWTH & INCOME STOCK
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 061
<NAME> BALANCED
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
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<NAME> BALANCED
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 071
<NAME> SMALL COMPANY GROWTH
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<S> <C>
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<PERIOD-START> OCT-01-1994
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
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<NAME> SMALL COMPANY GROWTH
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<S> <C>
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</TABLE>
