<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON OCTOBER 18, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11
------------------
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)
/ / on January 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/X/ 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.
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<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
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
International Equity Fund
CLASS A AND B SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED JANUARY 1, 1997
TABLE OF CONTENTS
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<PAGE> 4
Prospectus dated January 1, 1997
TABLE OF CONTENTS
Page
----
The Group.......................................................
Fee Table.......................................................
Financial Highlights............................................
Investment Objectives and Policies..............................
Investment Restrictions.........................................
Valuation of Shares.............................................
How to Purchase and Redeem Shares...............................
Dividends and Taxes.............................................
Management of BB&T Mutual Funds Group...........................
General Information.............................................
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.
-i-
<PAGE> 5
BB&T MUTUAL FUNDS GROUP
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
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public eight separate investment funds (each,
a "Fund"). The Group also offers three separate investment Funds (the "Funds of
Funds"), offering Trust Shares only, which offer Shareholders a
professionally-managed investment program by purchasing shares of existing
mutual funds of the group (the "Underlying Funds"), Which are managed by BB&T.
Each Fund of the Group, except for the Funds of 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
<PAGE> 6
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.
The BB&T International Equity Fund (The "International Equity Fund")
seeks long-term capital appreciation through investment primarily in equity
securities of foreign issuers.
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 and other financial service providers approved
by the Distributor 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,
SOUTHERN NATIONAL 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
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<PAGE> 7
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, 1997.
-3-
<PAGE> 8
PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
<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 eight separately managed
portfolios (each a "Fund"). The Group also offers three
separate investment Funds (the "Funds of Funds"), offering
Trust Shares only, which offer Shareholders a
professionally-managed investment program by purchasing
shares of existing mutual funds of the Group (the
"Underlying Funds") which are managed by BB&T. Each Fund,
except for the Funds of 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. Shareholders obtaining Class B Shares
of the U.S. Treasury Fund upon an exchange of
Class B Shares of any other Fund, will be requested to
participate in the Auto Exchange Program in such a way that
their Class B Shares have been withdrawn from the U.S.
Treasury Fund within two years of purchase. This prospectus
relates only to Class A and Class B Shares.
Investment Objective and
Policies THE U.S. TREASURY FUND seeks current income with liquidity
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.
</TABLE>
-4-
<PAGE> 9
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.
The International Equity Fund seeks
long-term capital appreciation through
investment primarily in equity securities
of foreign issuers.
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.") An
investment in the International Equity
Fund may involve special risk
considerations. (See "Foreign Investments.")
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, Small Company Growth,
and International Equity Funds is equal to
that Fund's net asset value per Share plus
the applicable sales charge. The public
-5-
<PAGE> 10
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
and the international equity fund declare
and pay dividends quarterly.
Distributor BISYS Fund Services, Columbus, Ohio.
-6-
<PAGE> 11
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management
investment company. The Group consists of eight series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one
of eight separate investment funds (each a "Fund"). The Group also offers
three separate investment Funds (the "Funds of Funds"), offering Trust Shares
only, which offer Shareholders a professionally-managed investment program by
purchasing shares of existing mutual funds of the Group (the "Underlying
Funds"), which are managed by BB&T. Each Fund, except for the Funds of Funds,
offers 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 for exchange into Class B Shares of
any of the other Funds.
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-
U.S. TREASURY FUND INTERMEDIATE FUND INTERMEDIATE BOND 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%2 .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>
-7-
<PAGE> 12
<TABLE>
<CAPTION>
NORTH CAROLINA FUND GROWTH AND INCOME FUND BALANCED FUND
------------------- ---------------------- -------------
CLASS A CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES1
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 2.00% 4.50% 0% 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% 0% 5.00% 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) .50%3 .50%3 .50%3 .50%3 .50%3
12b-1 Fees (after voluntary fee
reductions) .15%4 .25%4 1.00% .25%4 1.00%
Other Expenses (after voluntary fee reductions) .40%5 .32%5 .32%5 .42%5 .42%5
Total Fund Operating Expenses
(after voluntary fee reductions) 1.05%7 1.07%7 1.82%7 1.17%7 1.92%7
<CAPTION>
SMALL COMPANY
GROWTH FUND INTERNATIONAL EQUITY FUND
----------- -------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES1
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 4.50% 0% 4.50% 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% 5.00% 0% 5.00%
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) 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions) .25%4 1.00% .25%4 1.00%
Other Expenses (after voluntary fee reductions) 1.25%5 1.25%5 .87%6 .87%6
Total Fund Operating Expenses
(after voluntary fee reductions) 2.50%7 3.25%7 2.12%7 2.87%
</TABLE>
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<PAGE> 13
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 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. 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 B 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, .37% for the
Growth and Income Fund, .47% for the Balanced Fund and 1.34% for the Small
Company Growth Fund.
6 With respect to Class A and B Shares of the International Equity Fund,
"Other Expenses" are based on estimated amounts for the current fiscal
year.
7 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/or distribution
fees, Total Fund Operating Expenses for Class A Shares, as a percentage of
average daily net assets would be
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<PAGE> 14
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, 2.84%
for the Small Company Growth Fund AND 2.37% for the International Equity
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, 2.08% for the
Short-Intermediate Fund, 2.00%for the Intermediate Bond Fund, 2.13% for the
North Carolina Fund, 2.11% for the Growth and Income Fund, 2.21% for the
Balanced Fund, and 3.34% for the Small Company Growth Fund.
-10-
<PAGE> 15
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
International Equity Fund $66 $108
</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
Short-Intermediate Fund
Assuming a complete
redemption at end of period................... $69 $90
Assuming no redemption........................ $19 $60
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Intermediate Bond Fund
Assuming a complete
redemption at end of period $69 $88
Assuming no redemption $19 $58
North Carolina Fund
Assuming a complete
redemption at end of period $69 $90
Assuming no redemption $19 $60
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
International Equity Fund
Assuming a complete
redemption at end of period $79 $119
Assuming no redemption $29 $89
</TABLE>
The purpose of the tables 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 of annual operating expenses of each Fund. THE FOREGOING EXAMPLES
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.
-12-
<PAGE> 17
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.")
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. No
information is provided for the International Equity Fund 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.
-13-
<PAGE> 18
<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%
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%
Ratio of net investment income
average net assets 4.81% 2.89% 2.58%
Ratio of expenses to average
net assets* 1.24% 1.32% 1.32%
Ratio of net investment income
to average net assets* 4.55% 2.51% 1.77%
<FN>
* 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.
</TABLE>
-14-
<PAGE> 19
<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 8.74% (1.86%) 7.80%
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%
Ratio of net investment income
average net assets 5.50% 5.01% 5.43%
Ratio of expenses to average
net assets* 1.58% 1.58% 1.56%
Ratio of net investment income to
average net assets* 5.09% 4.32% 4.42%
Portfolio turnover 106.81 7.06% 14.06%
<FN>
* 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.
</TABLE>
-15-
<PAGE> 20
<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 12.63% (4.48%) 10.53%
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%
Ratio of net investment income to
average net assets 6.22% 6.03% 6.26%
Ratio of expenses to average net
assets* 1.50% 1.56% 1.55%
Ratio of net investment income to
average net assets* 5.81% 5.43% 5.30%
Portfolio turnover 68.91% 0.38% 15.27%
<FN>
* 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.
</TABLE>
-16-
<PAGE> 21
<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 7.61% (1.33)% 6.60%
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%
Ratio of net investment income
to average net assets 3.63% 3.63% 3.80%
Ratio of expenses to average
net assets* 1.63% 1.66% 1.77%
Ratio of net investment income
to average net assets* 3.05% 2.72% 2.45%
Portfolio turnover 9.38% 0.56% 5.92%
<FN>
* 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.
</TABLE>
-17-
<PAGE> 22
<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 20.62% 3.33% 15.72%
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%
Ratio of net investment income to
average net assets 2.15% 2.26% 2.85%
Ratio of expenses to average net assets* 1.60% 1.65% 1.68%
Ratio of net investment income to
average net assets* 1.62% 1.52% 1.81%
Portfolio turnover 8.73% 21.30% 27.17%
<FN>
* 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.
</TABLE>
-18-
<PAGE> 23
<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 18.00% (0.64%) 2.88%
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%
Ratio of net investment income to
average net assets 4.27% 4.02% 4.39%
Ratio of expenses to average net assets* 1.71% 1.75% 2.00%
Ratio of net investment income to
average net assets* 3.73% 3.25% 2.89%
Portfolio turnover 23.68% 12.91% 8.32%
<FN>
* 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.
</TABLE>
-19-
<PAGE> 24
SMALL COMPANY GROWTH FUND
-------------------------
<TABLE>
<CAPTION>
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 (b) 45.30%
Annualized Ratios/Supplementary Data:
Net Assets, End of Period (000) $1,096
Ratio of expenses to
average net assets 2.50%
Ratio of net investment loss
to average net assets (1.56%)
Ratio expenses to
average net assets* 2.84%
Ratio of net investment income
to average net assets (1.90%)
Portfolio Turnover 46.97%
======
<FN>
* 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.
</TABLE>
-20-
<PAGE> 25
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
-21-
<PAGE> 26
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 investment 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.
-22-
<PAGE> 27
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
-23-
<PAGE> 28
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.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek
long-term capital appreciation through investment primarily in equity securities
of foreign issuers. During normal market conditions, the International Equity
Fund will normally invest at least 80%, and, in any event, at least 65%, of the
value of its total assets in equity securities. Equity securities include common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depositary
receipts of companies.
During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks within countries included in the
Morgan Stanley Capital International Europe, Australia and the Far East Index
("EAFE"). The Fund will be diversified across countries, industry groups and
companies with investment at all times in at least three foreign countries.
When choosing securities, a value investment style is employed so that
the investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its dividend growth rate will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as expected economic growth among certain
foreign countries, expected levels of inflation, government policies influencing
business conditions, and the outlook for currency relationships.
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
-24-
<PAGE> 29
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, Small Company Growth, and International Equity 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, Or CastleInternational Asset Management Limited
("CastleInternational"), the International Equity Fund's Investment sub-adviser
with respect to the International Equity 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
-25-
<PAGE> 30
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, and the International Equity Fund may purchase and 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. The International Equity Fund's when-issued purchases and forward
commitments are not expected to exceed 25% of the value of its total assets
absent unusual market conditions.
SHORT-TERM OBLIGATIONS
The Fixed Income Funds, the North Carolina Fund, the Growth and Income
Fund, the Balanced Fund, and the Small Company Growth 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
-26-
<PAGE> 31
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.
Pending investment, to meet anticipated redemption requests, or as a
temporary defensive measure if its investment sub-adviser determines that market
conditions warrant, the international equity fund may also invest without
limitation in high quality money market instruments. High quality money market
instruments include u.S. Government obligations, u.S. Government agency
obligations, dollar denominated obligations of foreign issuers issued in the
U.S., Bank obligations, including U.S. Subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements, and
obligations of supranational organizations. Generally, such obligations will
mature within one year from the date of settlement, but may mature within two
years from the date of settlement.
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, the Small Company Growth Fund, and the International Equity
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 average life of a
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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,
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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 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
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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.
OPTIONS AND FUTURES CONTRACTS
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.
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.
To the extent consistent with its investment objective, the
International Equity Fund may write covered call options, buy put options, buy
call options, and write secured put options for the purpose of hedging or
earning additional income, which may be deemed speculative or, cross-hedging.
These options may relate to particular securities, financial instruments,
foreign currencies, stock or bond indices or the yield differential between two
securities, and may or may not be listed on a securities exchange and may or may
not be
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issued by the Options Clearing Corporation. The Fund will not purchase put and
call options where the aggregate premiums on outstanding options exceed 5% of
its net assets at the time of purchase, and will not write options on more than
25% of the value of its net assets (measured at the time an option is written).
Options trading is a highly specialized activity that entails greater than
ordinary investment risks. In addition, unlisted options are not subject to the
protections afforded purchasers of listed options issued by the Options Clearing
Corporation, which performs the obligations of its members if they default.
To the extent consistent with its investment objective, the
International Equity Fund may also invest in futures contracts and options on
futures contracts to commit funds awaiting investment in stocks or maintain cash
liquidity or, for other hedging purposes. The value of the Fund contracts may
equal or exceed 100% of the Fund's total assets, although the Fund will not
purchase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options entered into for other than bona fide
hedging purposes is 5% or less of its net assets.
Futures contracts obligate the International Equity Fund, at maturity,
to take or make delivery of securities, the cash value of a securities index or
a stated quantity of a foreign currency. The may sell a futures contract in
order to offset an expected decrease in the value of its portfolio positions
that might otherwise result from a market decline or currency exchange
fluctuation. The Fund may do so either to hedge the value of its securities
portfolio as a whole, or to protect against declines occurring prior to sales of
securities in the value of the securities to be sold. In addition, the Fund may
utilize futures contracts in anticipation of changes in the composition of its
holdings or in currency exchange rates.
The International Equity Fund may purchase and sell call and put
options on futures contracts traded on an exchange or board of trade. When the
Fund purchases an option on a futures contract, it has the right to assume a
position as a purchaser or a seller of a futures contract at a specified
exercise price during the option period. When the Fund sells an option on a
futures contract, it becomes obligated to sell or buy a futures contract if the
option is exercised. In connection with the Fund's position in a futures
contract or related option, the Fund will create a segregated account of liquid
high grade assets or will otherwise cover its position in accordance with
applicable SEC requirements.
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; (iv) losses due to unanticipated market
movements; and (v) a sub-adviser's inability to predict correctly the direction
of securities prices, interest rates, currency exchange rates, and other
economic factors. Successful use of futures is subject to the ability correctly
to predict movements in the direction of the market. For example, if the Fund
uses futures contracts as a hedge against the possibility of a decline in the
market adversely
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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.
A Fund's ability to engage in options and futures transactions and to
sell related securities may be limited by tax considerations.
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 ("ADRS") 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.
During normal market conditions, the International Equity Fund will
invest at least 90% and, in any event, at least 65%, of its total assets in
securities of foreign issuers. The International Equity Fund invests primarily
in equity securities of issuers located in countries included in EAFE. EAFE is
an index composed of a sample of companies representative of the market
structure of 20 European and Pacific Basin countries. The Index represents the
evolution of an unmanaged portfolio consisting of all domestically listed
stocks. Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Malaysia,
Spain, Sweden, Switzerland, and the United Kingdom are currently included in
EAFE.
The International Equity Fund may invest in both sponsored and
unsponsored ADRs, European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs") and other similar global instruments. ADRs typically are
issued by an american bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts, are receipts issued in europe, typically
by foreign banks and trust companies, that evidence ownership of either foreign
or domestic underlying securities. GDRs are depository receipts structured like
global debt issues to facilitate trading on an international basis. Unsponsored
ADR, EDR and GDR programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, available
information concerning the issuers may not be as current as for sponsored ADRs,
EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more
volatile than if such instruments were sponsored by the issuer.
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Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. Or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.
In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly, a
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
The expense ratio of the International Equity Fund can be expected to
be higher than that of funds investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as the higher cost of investment research, higher cost of custody of
foreign securities, higher commissions paid on comparable transactions on
foreign markets, foreign income taxes withheld at the source and additional
costs arising from delays in settlements of transactions involving foreign
securities.
The International Equity Fund may also invest its assets in countries
with emerging economies or securities markets. These countries may include
Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic,
Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico, Morocco,
Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela And Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these
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countries and the limited volume of trading in securities in these countries may
make investments in the countries illiquid and more volatile than investments in
Japan or most Western European countries. There may be little financial or
accounting information available with respect to issuers located in certain
emerging market countries, and it may be difficult as a result to access the
value or prospects of an investment in such issuers. The International Equity
Fund intends to limit its investment in emerging market securities to 20% of its
total assets.
The International Equity Fund may use forward foreign currency exchange
contracts to hedge against movements in the value of foreign currencies
(including the European Currency Unit (ECU)) relative to the U.S. dollar in
connection with specific portfolio transactions or with respect to portfolio
positions. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specified currency at a future date at a price set at the
time of the contract. Foreign currency exchange contracts do not eliminate
fluctuations in the values of portfolio securities but rather allow the Fund to
establish a rate of exchange for a future point in time.
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 addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.
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
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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 or
CastleInternational, with respect to the International Equity 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 or CastleInternational with
respect to the International Equity Fund) has determined are creditworthy under
guidelines established by the Group's Board of Trustees. Each Fund will restrict
its securities lending to 30% (33 1/3% with respect to the International Equity
Fund) of its total assets.
In order to generate income, the Short-Intermediate, Intermediate Bond,
Growth and Income, Balanced, Small Company Growth, and International Equity
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 or CastleInternational, with respect to the International Equity 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. The International Equity Fund May also
acquire puts as described in "Options and Futures Contracts."
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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
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.
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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
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<PAGE> 42
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 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, with respect to 50% of its total assets, 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 the remaining 50% of its total assets, the North
Carolina 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.
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<PAGE> 43
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 International
Equity 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.
2. 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
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<PAGE> 44
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 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.
2. 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.
The International Equity Fund may not:
1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities)
if more than 5% of the value of the Fund's total assets would (taken
at current value) be invested in the securities of such issuer, or
more than 10% of the issuer's outstanding voting securities would be
owned by the Fund, except that up to 25% of the value of the Fund's
total assets may (taken at current value) be invested without regard
to these limitations. For purposes of this limitation, a security is
considered to be issued by the entity (or
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<PAGE> 45
Entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantors
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value
of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be
invested in the 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 (i) instruments issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivision, and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their partners if their activities are primarily related
to financing the activities of the 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.
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% (one-third with respect to the
International Equity Fund) 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 (one-third of the value of the Fund's total assets at the
time of such borrowing with respect to the International Equity Fund)
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
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<PAGE> 46
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.
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<PAGE> 47
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.
Most securities held by the International Equity Fund are priced based
on their market value as determined by reported sales prices on the mean between
their bid and asked prices. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Trustees. The amortized cost method of
valuation will also be used with respect to debt obligations with sixty days or
less remaining to maturity unless the fund's sub-adviser under the supervision
of the Board of Trustees determines such method does not represent fair value.
For further information about the valuation of investments, see the
Statement of Additional Information.
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.
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<PAGE> 48
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 only 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 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
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<PAGE> 49
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>
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<PAGE> 50
The public offering of a Class A Share of each of the Intermediate
Bond, Growth and Income, Balanced and Small Company Growth, and International
Equity 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 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
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<PAGE> 51
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 a BB&T correspondent bank or other 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
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;
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<PAGE> 52
(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.
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<PAGE> 53
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 Distributor 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
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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 A
YEAR(S) 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
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<PAGE> 55
qualifying retirement 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.
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<PAGE> 56
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.
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 last Valuation Time on any Business Day will be
executed at the net asset value determined as of the last Valuation Time on the
date of receipt. An order for a Variable NAV Fund received after the last
Valuation Time on any Business Day will be executed at the net asset value
determined as of the last 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
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<PAGE> 57
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.
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<PAGE> 58
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
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<PAGE> 59
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 Class A Shares of the BB&T U.S. Treasury
Money Market Fund and use those proceeds to benefit from dollar-cost-averaging
by automatically making purchases of shares of another BB&T Mutual Fund. With
shareholder authorization, the Group's transfer agent will withdraw the amount
specified (subject to the applicable minimums) from the shareholder's Treasury
Money Market Fund account and will automatically invest that amount in Class A
Shares of the BB&T Fund designated by the Shareholder at the public offering
price 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
Treasury Money Market Fund account and maintain a minimum account balance of
$1,000.
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
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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 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
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<PAGE> 61
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 for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last 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
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<PAGE> 62
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 redeem, 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.
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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 and the International
Equity Fund declare and pay 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. Certain dividends paid by the Growth and
Income, Balanced , Small Company Growth , and
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International Equity Funds, and so-designated by the Funds may qualify for the
dividends received deduction for corporate shareholders. Because all of the net
investment income of the remaining Funds is expected to be interest income, it
is anticipated that no distributions from such funds will qualify for the
dividends received deduction. Distributions of net realized capital gains are
taxable to Shareholders as long-term capital gains regardless of how long the
Shareholder has held Shares in the Fund. 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 INTERNATIONAL EQUITY FUND
Dividends and certain interest income earned by the International
Equity Fund from foreign securities may be subject to foreign withholding taxes
or other taxes. So long as more than 50% of the value of a Fund's total assets
at the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that the
International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
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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
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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 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
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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 six Trustees, three 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:
<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,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall from 1985 to December, 1993,
P.O. Box 109 Vice Chairman, Carolina Power
Raleigh, NC 27602 & Light Company
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, Foundation
NC 27106
*W. Ray Long Trustee Executive Vice President, Branch
434 Fayetteville Street Mall Banking and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of Engineered
Greenville, SC 29615 Custom Plastics Corporation
from 1969 to 1990
Sean M. Kelly Trustee From 1993 to present, Senior Vice
150 2nd Avenue, North President of Client Services of BISYS
Suite 1170 Fund Services; prior to 1993, Senior
St. Petersburgh, FL 33701 Vice President of Concord Financial Group.
<FN>
* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.
</TABLE>
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<PAGE> 68
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 and Sean M. Kelly are employees 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
Southern National Corporation, the former parent company of BB&T. As of
September 30, 1996, SNC had assets in excess of $21.1 billion. Through its
subsidiaries, SNC operates over 425 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 and, with respect
to the International Equity Fund, CastleInternational) 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 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
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Fund's and Balanced Fund's average daily net assets; (1.00%) of the Small
Company Growth Fund's average daily net assets; and 1.00% of the International
Equity 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 and
International Equity Funds (which are managed by sub-advisers, 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. Mr.
Karlawish earned a B.S. in Business Administration from the
University of Richmond, and an MBA from the University of
North Carolina at Chapel Hill .
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. He holds a B.S. in Business
Administration from Miami (Ohio) University and an MBA
from Ohio State University
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. She earned a B.S. degree in Business
</TABLE>
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<PAGE> 70
<TABLE>
<S> <C>
Administration from Barton College, and an
A.A.S. degree in Accounting from Wilson
Technical Community College.
David R. Ellis Manager of the Balanced Fund since its
inception and Manager of the Funds of
Funds since inception. Since 1986, Mr. Ellis
has been a portfolio manager in the BB&T
Trust Division. He holds a B.S. degree in
Business Administration from the University
of North Carolina at Chapel Hill.
</TABLE>
INVESTMENT SUB-ADVISERS
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 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.
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<PAGE> 71
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>
CastleInternational Asset Management Limited serves as the Investment
sub-adviser to the International Equity Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, CastleInternational
manages the Fund, selects investments and places all orders for purchases and
sales of the International Equity Fund's securities, subject to the general
supervision of the Group's Board of Trustees and BB&T and in accordance with the
International Equity Fund's investment objective, policies, and restrictions.
For its services and expenses incurred under the Sub-Advisory
Agreement, CastleInternational is entitled to a fee, payable by BB&T. The fee is
computed daily and paid quarterly at the following annual rates (as a percentage
of the International Equity 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>
The person primarily responsible for the management of the
International Equity Fund is Gordon Anderson. Mr. Anderson has served as
Managing Director and Chief Investment Officer of CastleInternational Asset
Management Limited since 1996. Prior to joining CastleInternational, Mr.
Anderson was the Investment Director of Dunedin Fund Managers Ltd. Mr. Anderson
has been the Portfolio Manager for the Compass Capital Funds(TM) International
Equity Portfolio since 1996.
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)
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<PAGE> 72
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
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
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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%; and 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.
The organizational expenses of the International Equity 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, PNC Bank, and CastleInternational 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 , PNC Bank, AND
CastleInternational 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
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<PAGE> 74
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 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
Southern National 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.
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<PAGE> 75
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 Eight 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 , the BB&T Small Company
Growth Fund and the BB&T International Equity Fund. The Group also offers three
additional series of Shares: the BB&T Capital Manager Conservative Growth Fund,
The BB&T Capital Manager Moderate Growth Fund, and the BB&T Capital Manager
Growth Fund (collectively, the "Funds of Funds"). The Funds of Funds Offer Trust
Shares only. Each Fund, except for the Funds of 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. 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. 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, (ii) when the Trustees have determined that
the matter affects only the interests of a particular series or class, and (iii)
only
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<PAGE> 76
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 October 15, 1996 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 : 62.84%
and 35.60% of the Class A SHARES of the U.S. Treasury Money Market Fund and
Balanced Fund, 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. The International Equity Fund had not commenced operations as of
October 15, 1996.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for the Group. Bank of New York serves as the Custodian for the
International Equity Fund.
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.
-72-
<PAGE> 77
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 and
other financial service providers approved by the Distributor 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 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
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<PAGE> 78
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, general information about the Funds that appears in a
publication
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<PAGE> 79
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
at the following address: the BB&T Mutual Funds Group, Department L-1528,
Columbus, OH 43260-1528 or by calling toll free (800) 228-1872.
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<PAGE> 80
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
INVESTMENT SUB-ADVISER
(International Equity Fund Only)
CastleInternational Asset Management Limited
7 Castle Street
Edinburgh, Scotland EH3 3AM
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
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<PAGE> 81
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
International Equity Fund
Funds of Funds
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund
TRUST SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED JANUARY 1, 1997
<PAGE> 82
TABLE OF CONTENTS
Page
----
The Group...................................................
Fee Table...................................................
Financial Highlights........................................
Investment Objectives and Policies..........................
Investment Restrictions.....................................
Valuation of Shares.........................................
How to Purchase and Redeem Shares...........................
Dividends and Taxes.........................................
Management of BB&T Mutual Funds Group.......................
General Information.........................................
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.
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<PAGE> 83
BB&T MUTUAL FUNDS GROUP
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
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public eight separate investment funds
(each, a "Fund"). The Group also offers three separate investment Funds, (the
"FUNDS OF Funds") offering Trust Shares only, which offer Shareholders a
professionally-managed investment program by purchasing shares of existing
mutual funds of the Group (the "Underlying Funds"), which are managed by BB&T.
Each Fund of the Group, except for the Funds of 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.
<PAGE> 84
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.
The BB&T International Equity Fund (the "International Equity Fund")
seeks long-term capital appreciation through investment primarily in equity
securities of foreign issuers.
The BB&T Capital Manager Conservative Growth Fund (the "Capital Manager
Conservative Growth Fund") seeks capital appreciation and income by investing
primarily in a group of diversified BB&T mutual funds which invest primarily
in equity and fixed income securities.
The BB&T Capital Manager Moderate Growth Fund (the "Capital Manager
Moderate Growth Fund") seeks capital appreciation and, secondarily, income by
investing primarily in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
The BB&T Capital Manager Growth Fund (The "Capital Manager Growth
Fund") seeks capital appreciation by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in equity securities.
This Prospectus relates to the Trust Shares of the Group, which are
offered to BB&T and its affiliates and other financial service providers
approved by the Distributor for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial or similar capacity. 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,
SOUTHERN NATIONAL CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK.
SUCH SHARES ARE NOT
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<PAGE> 85
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, 1997.
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<PAGE> 86
PROSPECTUS SUMMARY
The Group BB&T Mutual Funds Group, (the "Group") a
Massachusetts business trust, is an open-end
management investment company which
currently consists of eight separately
managed portfolios (each a "Fund"). The
Group also offers three separate
investment Funds, (the "Funds of Funds"),
offering Trust Shares only, which offer
Shareholders a professionally-managed
investment program by purchasing shares of
existing mutual funds of the Group (the
"Underlying Funds"), which are managed by
BB&T. Each Fund, except for the Funds of
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 and
Policies THE U.S. TREASURY FUND seeks current income
with liquidity 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.
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<PAGE> 87
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.
The International Equity Fund seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.
The Capital Manager Conservative Growth Fund seeks capital
appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.
The Capital Manager Moderate Growth Fund Seeks capital
appreciation and, secondarily, income by investing primarily
in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
The Capital Manager Growth Fund seeks capital appreciation
by investing primarily in a group of diversified BB&T mutual
funds which invest primarily in equity securities.
Funds of Funds Capital Manager Conservative Growth, Capital Manager
Moderate Growth and Capital Manager Growth Funds intend to
primarily invest in the shares of other BB&T mutual funds.
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 involves special
risk considerations. (See "Other Investment Policies of the
North Carolina Fund.") An investment in the International
Equity Fund may involve special risk considerations. (See
"Foreign Investments.") The net asset value of the Funds of
Funds will fluctuate with changes in the equity markets and
the value of the Underlying Funds in which they invest. For
a complete description of the manner in which the funds of
funds will allocate their assets among the Underlying Funds,
and the special risk considerations applicable to the Funds
of Funds, see "The Funds of Funds."
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.
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<PAGE> 88
The public offering price of the
Short-Intermediate, Intermediate Bond,
North Carolina, Growth and Income, Balanced,
Small Company Growth, International Equity,
Capital Manager Conservative Growth, Capital
Manager Moderate Growth, and Capital Manager
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,
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,
International Equity Fund, and the Funds of
Funds declare and pay dividends quarterly.
Distributor BISYS Fund Services, Columbus, Ohio.
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<PAGE> 89
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management
investment company. The Group consists of eight series of units of beneficial
interest ("Shares"), each representing interests in one of eight separate
investment funds (each a "Fund"). The Group also offers three separate
investment Funds (the "Funds of Funds"), offering Trust Shares only, which
offer Shareholders a professionally-managed investment program by purchasing
shares of existing mutual funds of the Group (the "Underlying Funds"), which are
managed by BB&T. Each Fund, except for the Funds of 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
TREASURY INTERMEDIATE BOND
FUND FUND FUND
---- ---- ------
TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES1
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0%
Redemption Fees (as a percentage
of amount reduced, if
applicable)2 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after voluntary
fee reductions) .40% .50%3 .50%3
12b-1 Fee 0% 0% 0%
Other Expenses (after voluntary
fee reductions)4 .32% .43% .35%
--- --- ---
Total Fund Operating Expenses
(after voluntary fee
reductions)5 .72% .93% .85%
=== === ===
</TABLE>
-7-
<PAGE> 90
<TABLE>
<CAPTION>
NORTH GROWTH SMALL
CAROLINA AND INCOME BALANCED COMPANY
FUND FUND FUND GROWTH FUND
---- ---- ------ -----------
TRUST TRUST TRUST TRUST
CLASS CLASS CLASS 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) .50%3 .50%3 .50%3 1.00%
12b-1 Fees 0% 0% 0% 0%
Other Expenses (after voluntary
fee reductions) .41%4 .32%4 .42%4 1.33%4
Total Fund Operating Expenses
(after voluntary fee reductions) .91%6 .82%6 .92%6 2.33%6
<CAPTION>
INTERNATIONAL
EQUITY
FUND
----
TRUST
CLASS
-----
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of offering pri 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage of
amount reduced, if applicable)(2) 0%
Exchange Fee $ 0
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees 1.00%
12b-1 Fees 0%
Other Expenses .87%(5)
Total Fund Operating Expenses 1.87%
</TABLE>
-8-
<PAGE> 91
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 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, North
Carolina; and .74% for the Growth and Income and Balanced Funds.
4 Absent voluntary fee reductions, "Other Expenses" as a percentage of
average daily net assets for Trust 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 1.42% for the
Small Company Growth Fund.
5 With respect to the International Equity Fund, "Other Expenses" Are based
on estimated amounts for the current fiscal year.
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 advisory fees, Total Fund Operating
Expenses for Trust Shares, as a percentage of average daily net assets,
would be .74% for the U.S. Treasury Fund, 1.08% for the Short-Intermediate
Fund, 1.00% for the Intermediate Bond Fund, 1.13% for the North Carolina
Fund, 1.10% for the Growth and Income Fund, 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:
-9-
<PAGE> 92
<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
North Carolina Fund $9 $29 $ 50 $112
Growth and Income Fund $8 $26 $ 46 $101
Balanced Fund $ 9 $29 $ 51 $113
Small Company Growth Fund $24 $73
International Equity Fund $19 $59
</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.
-10-
<PAGE> 93
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Trust Shares of the Funds of Funds will bear,
either directly or indirectly.
<TABLE>
<CAPTION>
Capital Manager Capital Manager Capital Manager
Conservative Moderate
Growth Fund Growth Fund Growth Fund
----------- ----------- -----------
Trust Class Trust Class Trust Class
----------- ----------- -----------
<S> <C> <C> <C>
Shareholder Transaction Expenses1
Maximum Sales Load Imposed On
Purchases (as a percentage of
offering price) 0% 0% 0%
Maximum Sales Load Imposed On
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0%
Redemption Fees (as a percentage
of amount reduced, if
applicable)(2) 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees .25% .25% .25%
12B-1 Fee 0% 0% 0%
Other Expenses(3) .58% .58% .58%
Total Fund Operating Expenses .83% .83% .83%
</TABLE>
-11-
<PAGE> 94
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 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 "Other Expenses" are based on estimated amounts for the current fiscal
year.
The Funds of Funds will each indirectly bear its pro rata share of fees
and expenses incurred by the Underlying Funds and the investment returns of each
Fund of Funds will be net of the expenses of the Underlying Funds.
The following charts provide the expense ratio for each of the
Underlying Funds in which each Fund of Funds invests. The chart below provides
the expense ratios which include any voluntary reduction in fees.
<TABLE>
<CAPTION>
Name of Underlying Fund Expense Ratio
----------------------- -------------
<S> <C>
U.S. Treasury Fund .72%
Short-Intermediate Fund .93%
Intermediate Bond Fund .85%
Growth and Income Fund .82%
Balanced Fund .92%
Small Company Growth Fund 2.33%
International Equity Fund 1.87%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Class Shares of the Capital Manager Conservative Growth Fund is 1.93%,
for the Capital Manager Moderate Growth Fund is 2.05%, And for the Capital
Manager Growth Fund is 2.12%.
The chart below provides the expense ratios for each of the Underlying
Funds, absent any voluntary reductions in fees.
-12-
<PAGE> 95
<TABLE>
<CAPTION>
Name of Underlying Fund Expense Ratio
----------------------- -------------
<S> <C>
U.S. Treasury Fund .75%
Short-Intermediate Fund 1.08%
Intermediate Bond Fund 1.00%
Growth And Income Fund 1.10%
Balanced Fund 1.21%
Small Company Growth Fund 2.42%
International Equity Fund 1.87%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Class Shares of the Capital Manager Conservative Growth Fund is 2.09%,
For the Capital Manager Moderate Growth Fund is 2.21%, and for the capital
manager growth fund is 2.29%.
EXAMPLE:
On the basis of estimated expenses for the Funds of Funds, including voluntary
fee reductions, set forth on page 12, the following examples illustrate the
expenses you would pay on a $1,000 investment in Trust Shares of the Funds of
Funds, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund $20 $61
Capital Manager Moderate Growth Fund $21 $64
Capital Manager Growth Fund $22 $66
Absent voluntary fee reductions, the dollar amounts in the above
example would be as follows:
1 Year 3 Years
------ -------
Capital Manager Conservative Growth Fund $21 $65
Capital Manager Moderate Growth Fund $22 $69
Capital Manager Growth Fund $23 $72
</TABLE>
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant
to a sales charge.
The purpose of the tables above is to assist a potential investor in
the Funds of Funds in understanding the various costs and expenses that an
investor in the Trust Shares of each Fund of Funds 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 EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
-13-
<PAGE> 96
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 International Equity Fund and the Funds of Funds had not commenced
operations as of September 30, 1996.
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.
-14-
<PAGE> 97
<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%
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%
Ratio of net investment income
average net assets 4.97% 2.97% 2.71%
Ratio of expenses to average net assets* 0.75% 0.83% 0.81%
Ratio of net investment income
to average net assets* 4.95% 2.82% 2.27%
<FN>
* 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.
</TABLE>
-15-
<PAGE> 98
<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 9.01% (1.66%) 8.01%
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%
Ratio of net investment income
average net assets 5.78% 5.20% 5.60%
Ratio of expenses to average
net assets* 1.08% 1.08% 1.05%
Ratio of net investment income to
average net assets* 5.64% 4.83% 4.94%
Portfolio turnover 106.81% 7.06% 14.06%
<FN>
* 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.
</TABLE>
-16-
<PAGE> 99
<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 12.91% (4.23%) 10.76%
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%
Ratio of net investment income to
average net assets 6.43% 6.27% 6.45%
Ratio of expenses to average net
assets* 1.00% 1.06% 1.03%
Ratio of net investment income to
average net assets* 6.28% 5.91% 5.82%
Portfolio turnover 68.91% 0.38% 15.27%
<FN>
* 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.
</TABLE>
-17-
<PAGE> 100
<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 7.77% (1.18%) 6.62%
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%
Ratio of net investment income
to average net assets 3.78% 3.77% 3.80%
Ratio of expenses to average
net assets* 1.13% 1.17% 1.30%
Ratio of net investment income
to average net assets* 3.55% 3.24% 2.92%
Portfolio turnover 9.38% 0.56% 5.92%
<FN>
* 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.
</TABLE>
-18-
<PAGE> 101
<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 20.88% 3.58% 16.06%
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%
Ratio of net investment income to
average net assets 2.40% 2.51% 3.08%
Ratio of expenses to average net assets* 1.10% 1.15% 1.17%
Ratio of net investment income to
average net assets* 2.11% 2.02% 2.31%
Portfolio turnover 8.73% 21.30% 27.17%
<FN>
* 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.
</TABLE>
-19-
<PAGE> 102
<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 18.23% (0.42%) 2.74%
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%
Ratio of net investment income to
average net assets 4.51% 4.22% 4.44%
Ratio of expenses to average net assets* 1.21% 1.25% 1.47%
Ratio of net investment income to
average net assets* 4.22% 3.70% 3.42%
Portfolio turnover 23.68% 12.91% 8.32%
<FN>
* 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.
</TABLE>
-20-
<PAGE> 103
<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 (b) 45.70%
Annualized Ratios/Supplementary Data:
Annualized Net Assets, End of Period (000) $16,962
Ratio of expenses to
average net assets 2.33%
Ratio of net investment loss
to average net assets (1.34%)
Ratio of expenses to
average net assets* 2.42%
Ratio of net investment loss
to average net assets* (1.43%)
Portfolio Turnover 46.97%
<FN>
- ---------------------
* 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.
</TABLE>
-21-
<PAGE> 104
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 and the
Intermediate Bond Fund (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.
-22-
<PAGE> 105
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 investment 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
-23-
<PAGE> 106
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
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.
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THE FUNDS OF FUNDS
The investment objective of the Capital Manager Conservative Growth
Fund is to seek capital appreciation and income by investing primarily in a
group of diversified BB&T mutual Funds which invest primarily in equity and
fixed income securities.
The investment objective of the Capital Manager Moderate Growth Fund is
to seek capital appreciation and, secondarily, income by investing primarily in
a group of diversified BB&T mutual Funds which invest primarily in equity and
fixed income securities.
The investment objective of the Capital Manager Growth Fund is to seek
capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.
Under normal market conditions, each Fund of Funds will invest at least
65% of its total assets in seven Underlying Funds of the Group. These assets
will be allocated within the ranges indicated below.
The Conservative Growth Fund will invest 25% to 55% of its assets in
Underlying Funds which invest primarily in equity securities, 45% to 75% of its
assets in Underlying Funds which invest primarily in fixed income securities and
up to 20% of its assets in the U.S. Treasury Money Market Fund.
Capital Manager Conservative Growth Fund
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
Equity Funds
<S> <C>
Growth and Income Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Fixed Income Funds
Short-intermediate Fund 0%-75%
Intermediate Bond Fund 0%-75%
Money Market Fund
U.s. Treasury Fund 0%-20%
</TABLE>
Capital Manager Moderate Growth Fund
The Moderate Growth Fund will invest 45% to 75% of its assets in
Underlying Funds which invest primarily in equity securities, 25% to 55% of its
assets in Underlying Funds which invest primarily in fixed income securities and
up to 15% of its assets in the U.S. Treasury Money Market Fund.
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<PAGE> 108
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
Equity Funds
<S> <C>
Growth and Income Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Fixed Income Funds
Short-intermediate Fund 0%-55%
Intermediate Bond Fund 0%-55%
Money Market Fund
U.s. Treasury Fund 0%-15%
</TABLE>
The Growth Fund will invest 60% to 90% of its assets in Underlying
Funds which invest primarily in equity securities, 10% to 40% of its assets in
Underlying Funds which invest primarily in fixed income securities and up to 10%
of its assets in the U.S. Treasury Money Market Fund.
Capital Manager Growth Fund
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
Equity Funds
<S> <C>
Growth And Income Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Fixed Income Funds
Short-intermediate Fund 0%-40%
Intermediate Bond Fund 0%-40%
Money Market Fund
U.s. Treasury Fund 0%-10%
</TABLE>
The allocation of each Fund of Funds' assets among the Underlying Funds
will be made by BB&T under the supervision of the Group's Board of Trustees
within the percentage ranges set forth in the table above. BB&T will make
allocation decisions
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<PAGE> 109
according to its outlook for the economy, financial markets, and relative market
valuation of the underlying Funds. BB&T may vary the allocation within the above
ranges. There is no assurance that the FundS of FundS will achieve their stated
objectives.
The Funds of Funds' net asset value will fluctuate with changes in the
equity markets and the value of the Underlying Funds in which they invest. Each
Fund of Funds' investment return is diversified by its investment in the
Underlying Funds, which invest in growth and income stocks, foreign securities,
debt securities, and cash and cash equivalents.
With their remaining assets, the Funds of Funds may make direct
investments in any domestic and foreign securities and other instruments which
the Underlying Funds may purchase, as described in this prospectus.
The Funds of Funds and the Underlying Funds are permitted for temporary
defensive purposes to invest up to 100% of their assets in short-term fixed
income securities. Such securities include obligations of the U.S. Government
and its agencies and instrumentalities, commercial paper, bank certificates of
deposit, repurchase agreements, bankers' acceptances, variable amount master
demand notes, and bank money market deposit accounts. The Funds of Funds and the
Underlying Funds may also hold cash for liquidity purposes.
To the extent the Funds of Funds or the Underlying Funds are engaged in
a temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Funds of Funds are concentrated in the
Underlying Funds, so each Fund of Funds' performance is directly related to the
performance of the Underlying Funds. In addition, as a matter of fundamental
policy, each Fund of Funds must allocate its investments among the Underlying
Funds within certain ranges. As a result, the Funds of Funds do not have the
same flexibility to invest as mutual funds without such constraints.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek
long-term capital appreciation through investment primarily in equity securities
of foreign issuers. During normal market conditions, the International Equity
Fund will normally invest at least 80%, and, in any event, at least 65%, of the
value of its total assets in equity securities. Equity securities include common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depositary
receipts of companies.
During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks in countries included in the Morgan
Stanley Capital International Europe, Australia and the Far East Index ("EAFE").
The Fund will be diversified across countries, industry groups and companies
with investment at all times in at least three foreign countries.
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<PAGE> 110
When choosing securities, a value investment style is employed so that
the investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its dividend growth rate will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as expected economic growth among certain
foreign countries, expected levels of inflation, government policies influencing
business conditions, and the outlook for currency relationships.
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, Small Company Growth, and International Equity Funds (collectively,
the "Variable NAV Funds"), the net asset value per Share of each Variable NAV
Fund will fluctuate. Correspondingly, The net asset value of the Funds of Funds
will fluctuate with changes in the value of the Underlying Funds in which they
invest.
SPECIFIC INVESTMENT POLICIES
The following is a description of certain of the permitted investments
for the Funds. As described above in "The Funds of Funds," each Fund of Funds
may also invest directly in certain of the following instruments which the
underlying Funds may purchase. For a more detailed description, see the
Statement of Additional Information.
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 or CastleInternational Asset Management Limited
("CastleInternational") the International Equity Fund's investment sub-adviser,
with respect to the International Equity Fund). Except as described in the
Statement of
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<PAGE> 111
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, and the International Equity Fund may purchase and 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. The International Equity Fund's when-issued purchases and forward
commitments are not expected to exceed 25% of the value of its total assets
absent unusual market conditions.
SHORT-TERM OBLIGATIONS
The Fixed Income Funds, the North Carolina Fund, the Growth And
Income Fund, the Balanced Fund and the Small Company Growth 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
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<PAGE> 112
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.
Pending investment, to meet anticipated redemption requests, or as a
temporary defensive measure if its investment sub-adviser determines that market
conditions warrant, the International Equity Fund may also invest without
limitation in high quality money market instruments. High quality money market
instruments include U.S. government obligations, U.S. government agency
obligations, dollar denominated obligations of foreign issuers issued in the
U.S., bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and
obligations of supranational organizations. Generally, such obligations will
mature within one year from the date of settlement, but may mature within two
years from the date of settlement.
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, the Small Company Growth Fund, and the International
Equity 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
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<PAGE> 113
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, 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
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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 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.
OPTIONS AND FUTURES CONTRACTS
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
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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.
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.
To the extent consistent with its investment objective, the
International Equity Fund may write covered call options, buy put options, buy
call options and write secured put options for the purpose of hedging or earning
additional income, which may be deemed speculative or, cross-hedging. These
options may relate to particular securities, financial instruments, foreign
currencies, stock or bond indices or the yield differential between two
securities, and may or may not be listed on a securities exchange and may or may
not be issued by the Options Clearing Corporation. The Fund will not purchase
put and call options where the aggregate premiums on outstanding options exceed
5% of its net assets at the time of purchase, and will not write options on more
than 25% of the value of its net assets (measured at the time an option is
written). Options trading is a highly specialized activity that entails greater
than ordinary investment risks. In addition, unlisted options are not subject to
the protections afforded purchasers of listed options issued by the Options
Clearing Corporation, which performs the obligations of its members if they
default.
To the extent consistent with its investment objective, the
International Equity Fund may also invest in futures contracts and options on
futures contracts to commit Funds awaiting investment in stocks or maintain cash
liquidity or for other hedging purposes. The value of the Fund's contracts may
equal or exceed 100% of the Fund's total assets, although the Fund will not
purchase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options entered into for other than bona fide
hedging purposes is 5% or less of its net assets.
Futures contracts obligate the Fund, at maturity, to take or make
delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency.
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The Fund may sell a futures contract in order to offset an expected decrease in
the value of its portfolio positions that might otherwise result from a market
decline or currency exchange fluctuation. The Fund may do so either to hedge the
value of its securities portfolio as a whole, or to protect against declines
occurring prior to sales of securities in the value of the securities to be
sold. In addition, the Fund may utilize futures contracts in anticipation of
changes in the composition of its holdings or in currency exchange rates.
The International Equity Fund may purchase and sell call and put
options on futures contracts traded on an exchange or board of trade. When the
Fund purchases an option on a futures contract, it has the right to assume a
position as a purchaser or a seller of a futures contract at a specified
exercise price during the option period. When the Fund sells an option on a
futures contract, it becomes obligated to sell or buy a futures contract if the
option is exercised. In connection with the Fund's position in a futures
contract or related option, the Fund will create a segregated account of liquid
high grade assets or will otherwise cover its position in accordance with
applicable SEC requirements.
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; (iv) losses due to unanticipated market
movements; and (v) a sub-adviser's inability to predict correctly the direction
of securities prices, interest rates, currency exchange rates, and other
economic factors. Successful use of futures is subject to the ability
correctly to predict movements in the direction of the market. For example, if
the 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.
A Fund's ability to engage in options and futures transactions and to
sell related securities may be limited by tax considerations.
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 ("ADRS") 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.
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During normal market conditions, the International Equity Fund will
invest at least 90% and, in any event, at least 65%, of its total assets in
securities of foreign issuers. The International Equity Fund invests primarily
in equity securities of issuers located in countries included in EAFE. EAFE is
an index composed of a sample of companies representative of the market
structure of 20 European and Pacific Basin countries. The index represents the
evolution of an unmanaged portfolio consisting of all domestically listed
stocks. Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Malaysia,
Spain, Sweden, Switzerland and the United Kingdom are currently included in
EAFE.
The International Equity Fund may invest in both sponsored and
unsponsored ADRS, European Depository Receipts ("EDRS"), Global Depository
Receipts ("GDRS") and other similar global instruments. ADRS typically are
issued by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRS, which are sometimes referred
to as continental depository receipts, are receipts issued in Europe, typically
by foreign banks and trust companies, that evidence ownership of either foreign
or domestic underlying securities. GDRS are depository receipts structured like
global debt issues to facilitate trading on an international basis. Unsponsored
ADR, EDR and GDR programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, available
information concerning the issuers may not be as current as for sponsored ADRS,
EDRS and GDRS, and the prices of unsponsored ADRS, EDRS and GDRS may be more
volatile than if such instruments were sponsored by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of Funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. Or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.
In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. Companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly, a
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
The expense ratio of the International Equity Fund can be expected to
be higher than that of Funds investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as the higher cost of investment research, higher cost of custody of
foreign securities, higher commissions paid
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on comparable transactions on foreign markets, foreign income taxes withheld at
the source, and additional costs arising from delays in settlements of
transactions involving foreign securities.
The International Equity Fund may also invest its assets in countries
with emerging economies or securities markets. These countries may include
Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic,
Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico, Morocco,
Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in emerging market securities to 20%
of its total assets.
The International Equity Fund may use forward foreign currency exchange
contracts to hedge against movements in the value of foreign currencies
(including the European Currency Unit (ECU)) relative to the U.S. dollar in
connection with specific portfolio transactions or with respect to portfolio
positions. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specified currency at a future date at a price set at the
time of the contract. Foreign currency exchange contracts do not eliminate
fluctuations in the values of portfolio securities but rather allow the Fund to
establish a rate of exchange for a future point in time. The Funds of Funds may
not use forward foreign currency exchange contracts.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the U.S. Treasury Fund may
invest in money market funds. For a description of the Funds of Funds'
practices, see "Funds of Funds." Each other 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, except the Funds of
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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 addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.
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 or CastleInternational with respect to the International Equity
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
or CastleInternational with respect to the International Equity Funds) has
determined are creditworthy under guidelines established by the Group's Board of
Trustees. Each Fund will restrict its securities lending to 30% (33 1/3% with
respect to the International Equity Fund) of its total assets.
In order to generate income, the Short-Intermediate, Intermediate Bond,
Growth and Income, Balanced, Small Company Growth, and International
Equity 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 or CastleInternational, with respect to the International Equity
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).
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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
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.
The International Equity Fund may acquire puts as described in
"Options and Futures Contracts."
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
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.
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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 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
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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 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, with respect to 50% of its total assets, 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 the remaining 50% of its total
assets, the North Carolina 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 the 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.
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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 Funds of
Funds will not exceed 50%. It is presently anticipated that the portfolio
turnover rate of the International Equity Fund will not exceed 200%. High
turnover rates will generally result in higher transaction costs to a 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.
2. 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.
Each of the Funds of Funds 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
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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, repurchase agreements secured by obligations of
the U.S. Government or its agencies or instrumentalities or securities
issued by "regulated investment companies" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"); (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.
2. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities or "regulated investment companies" as defined in
the Code, 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.
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.
2. 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.
The International Equity Fund may not:
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1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities)
if more than 5% of the value of the Fund's total assets would (taken at
current value) be invested in the securities of such issuer, or more
than 10% of the issuer's outstanding voting securities would be owned
by the Fund, except that up to 25% of the value of the Fund's total
assets may (taken at current value) be invested without regard to these
limitations. For purposes of this limitation, a security is considered
to be issued by the entity (or entities) whose assets and revenues back
the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities
issued and guaranteed by the grantor, and owned by the Fund, does not
exceed 10% of the value of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be
invested in the 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 (i) instruments issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase
agreements secured by the instruments described in clause (i); (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 the 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.
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% (one-third with respect to the
International Equity Fund) 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 (one-third of the value of the Fund's total assets at the
time of such borrowing with respect to the International Equity Fund)
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
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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 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.
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.
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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.
Most securities held by the International Equity Fund are priced based
on their market value as determined by reported sales prices or the mean between
their bid and asked prices. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Trustees. The amortized cost method of
valuation will also be used with respect to debt obligations with sixty days or
less remaining to maturity unless the Fund's sub-adviser under the supervision
of the Board of Trustees determines such method does not represent fair value.
For further information about the valuation of investments, see the
Statement of Additional Information.
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
Branch Banking & Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.
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
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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 or the Funds of Funds received prior to the last Valuation
Time on any Business Day will be executed at the net asset value determined as
of the last Valuation Time on the date of receipt. An order for a Variable NAV
Fund or the Funds of Funds received after the last Valuation Time on any
Business Day will be executed at the net asset value determined as of the last
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 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 and the Funds of Funds may be exchanged for
Trust Shares of the other Funds and the Funds of 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
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<PAGE> 129
of each Fund 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.
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
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<PAGE> 130
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 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 for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last 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
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<PAGE> 131
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.
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 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
investment 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.
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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, the
International Equity Fund, and the Funds of Funds declare and pay 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. Certain dividends paid by the Growth
and Income, Balanced, Small Company Growth, International Equity and Funds
of Funds, and so-designated by the Funds may qualify for the dividends received
deduction for corporate shareholders. Because all of the net investment income
of the remaining Funds is expected to be interest income, it is anticipated that
no distributions from such Funds will qualify for the dividends received
deduction. Distributions of net realized capital gains are taxable to
Shareholders as long-term capital gains regardless of how long the Shareholder
has held Shares in the Fund. 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.
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TAX CONSIDERATIONS RELATING TO THE
INTERNATIONAL EQUITY FUND
Dividends and certain interest income earned by the International
Equity Fund from foreign securities may be subject to foreign withholding taxes
or other taxes. So long as more than 50% of the value of the Fund's total assets
at the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that the
International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
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 for the North Carolina
Fund upon the ratio of net tax-exempt income to total net income earned by
the 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 the North Carolina Fund
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 Fund while he or
she was a Shareholder of the 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 the Fund may have on the taxation of such benefits.
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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
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 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
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.
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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 six Trustees, three 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:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During Past 5 Years
- ---------------- -------------- -------------------
<S> <C> <C>
*J. David Huber Chairman of From December 1987 to present,
3435 Stelzer Road the Board employee of BISYS Fund
Columbus, OH 43219 Services.
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams; from
Fayetteville Street Mall 1985 to December, 1993, Vice
P.O. Box 109 Chairman, Carolina Power & Light
Raleigh, NC 27602 Compa ny
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, NC 27106 Foundation
*W. Ray Long Trustee Executive Vice President, Branch
434 Fayetteville Street Mall Banking and Trust Company
Raleigh, NC 276 01
Robert W. Stewart Trustee Retired; Chairman and Chief
</TABLE>
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<TABLE>
<S> <C>
201 Huntington Road Executive Officer of Engineer ed
Greenville, SC 29615 Custom Plastics Corporation from
1969 to 1990
*Sean M. Kelly Trustee From 1993 to present, Senior Vice President
150 2nd Avenue, North of Client Services of BISYS Fund Services;
Suite 1170 prior to 1993, Senior Vice President of
St. Petersburgh, FL 33701 Concord Financial Group.
</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 and Sean M. Kelly are employees 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
Southern National Corporation, the former parent company of BB&T. As of
September 30, 1996, SNC had assets in excess of $21.1 billion. Through its
subsidiaries, SNC operates over 425 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 and, with
respect to the International Equity Fund, CastleInternational) 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 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
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daily net assets; 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; twenty-five
one-hundredths of one percent (.25%) of each Funds of the Funds' average daily
net assets; and 1.00% of the International Equity 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 Fund of Funds and
the International Equity Fund had not commenced operations as of September 30,
1996.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the Group (other than the Small Company Growth and
International Equity Funds which are managed by sub- advisers, described
below), and the Funds of Funds as well as their previous business experience,
are as follows:
Portfolio Manager Business Experience
----------------- -------------------
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. Mr. Karlawish earned
a B.S. in Business Administration from the
University of Richmond, and an MBA from the
University of North Carolina at Chapel
Hill.
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. He holds a B.S. in
Business Administration from Miami (Ohio)
University and MBA from Ohio State
University.
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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. She
earned a B.S. degree in Business
Administration from Barton College, and an
A.A.S. degree in Accounting from Wilson
Technical Community College.
David R. Ellis Manager of the Balanced Fund since its
inception and Manager of the Funds of Funds
since inception. Since 1986, Mr. Ellis has
been a portfolio manager in the BB&T Trust
Division. He holds a B.S. degree in Business
Administration from the University of North
Carolina at Chapel Hill. Mr. Ellis will
serve as the Manager of the Funds of Funds.
INVESTMENT SUB-ADVISERS
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 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
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<PAGE> 139
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>
CastleInternational Asset Management Limited serves as the Investment
SubAdviser to the International Equity Fund pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, CastleInternational manages the
Fund, selects investments and places all orders for purchases and sales of the
International Equity Fund's securities, subject to the general supervision of
the Group's Board of Trustees and BB&T and in accordance with the International
Equity Fund's investment objective, policies and restrictions.
For its services and expenses incurred under the Sub-Advisory
Agreement, CastleInternational is entitled to a fee, payable by BB&T. The fee is
computed daily and paid quarterly at the following annual rates (as a percentage
of the International Equity 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>
The person primarily responsible for the management of the
International Equity Fund is Gordon Anderson. Mr. Anderson has served as
Managing Director and Chief Investment Officer of CastleInternational Asset
Management Limited since 1996. Prior to joining CastleInternational, Mr.
Anderson was the Investment Director of Dunedin Fund Managers Ltd. Mr. Anderson
has served as the Portfolio Manager for the Compass Capital Funds(sm)
International Equity Portfolio since 1996.
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
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<PAGE> 140
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 Funds of Funds or the
International Equity Fund for that period, as they had not commenced operations
as of September 30, 1996. 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 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, the Funds
of Funds, and the International Equity Fund have been capitalized and are
being amortized in the first two years of each such Funds' operations. Such
amortization will reduce the amount of income available for payment as
dividends.
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<PAGE> 141
BANKING LAWS
BB&T , PNC Bank, and CastleInternational 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 , PNC Bank, and
CastleInternational 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 eight 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 , BB&T Small Company
Growth Fund, and the BB&T International Equity Fund. The Group also offers three
additional series of Shares, one for each of the following Funds of Funds: the
BB&T Capital Manager Conservative Growth Fund, the BB&T Capital Manager Moderate
Growth Fund, and the BB&T Capital Manager Growth Fund. The Funds of Funds offer
Trust Shares only . Each Fund, except for the Funds of 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.
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<PAGE> 142
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 October 15, 1996, BB&T owned of record substantially all of the
Trust Shares of each of the Funds and held voting or investment power with
respect to 8.47%, 93.78%, 100%, 84.94%, 92.70%, 82.22%, and 85.60% 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 Funds of Funds and the International Equity Fund had not
commenced operations as of October 15, 1996.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for the Group. Bank of New York serves as the Custodian for the
International Equity Fund.
BISYS Fund Services Ohio, Inc. 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 Funds of 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.
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<PAGE> 143
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 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 and
the Funds of Funds 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
or for a Fund of Funds 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 Funds. 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 and the Funds of 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
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<PAGE> 144
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
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
at the following address -- the BB&T Mutual Funds Group, Department L-1528,
Columbus, OH 43260-1528 or by calling toll free (800) 228-1872.
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<PAGE> 145
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
INVESTMENT SUB-ADVISER
(International Equity Fund only)
CastleInternational Asset Management Limited
7 Castle Street
Edinburgh, Scotland EH3 3AM
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
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<PAGE> 146
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> 147
<TABLE>
<S> <C>
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
</TABLE>
<PAGE> 148
BB&T MUTUAL FUNDS GROUP
Statement of Additional Information
January 1, 1997
----------------
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 Growth and Income Stock Fund,
the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T Balanced Fund ,
the BB&T Small Company Growth Fund, the BB&T International Equity Fund, the BB&T
Capital Manager Conservative Growth Fund, the Capital Manager Moderate Growth
Fund, and the Capital Manager 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> 149
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
Valuationof the Growth and Income Fund, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced
Fund, Small Company Growth Fund, Capital Manager Conservative
Growth Fund, Capital Manager Moderate
Growth Fund and Capital Manager Growth Fund.................................................... B-17
Valuation of the International Equity 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 Advisers.................................................................................... B-30
Investment Sub- Advisers................................................................................ B-32
Portfolio Transactions.................................................................................. B-32
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
</TABLE>
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<TABLE>
<S> <C>
Shareholder and Trustee Liability..........................................................................B-49
Miscellaneous..............................................................................................B-49
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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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 eight series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one of
eight 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"), the BB&T Small Company Growth Fund (the "Small Company
Growth Fund" and the BB&T International Equity Fund (the "International Equity
Fund"). The Group also offers three additional series of Shares, the BB&T
Capital Manager Conservative Growth Fund, the BB&T Capital Manager Moderate
Growth Fund, and the BB&T Capital Manager Growth Fund (the "Funds of Funds")
which offer Shareholders a professionally-managed investment program by
purchasing shares of existing mutual funds of the Group (the "Underlying Funds")
which are managed by BB&T (each Fund and the Funds of Funds are collectively,
"Funds"). Each Fund, except for the Funds of Funds, offers to the public three
classes of Shares: Class A Shares, Class B Shares and Trust Shares. The Funds of
Funds offers Trust Shares only. 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") and
CastleInternational Asset Management Limited ("CastleInternational") 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
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common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instrument.
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.
Commercial paper purchaseable by the International Equity Fund includes
"Section 4(2) paper," a term that includes debt obligations issued in reliance
on the "private placement" exemption from registration afforded by Section 4(2)
of the Securities Act of 1933. Section 4(2) paper is restricted as to
disposition under the Federal securities laws, and is frequently sold (and
resold) to institutional investors such as the Fund through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. Certain transactions in Section 4(2) paper may
qualify for the registration exemption provided in Rule 144A under the
Securities Act of 1933.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Growth and Income Fund, Small Company Growth Fund,
Short-Intermediate Fund, Intermediate Bond Fund and Balanced Fund (the
Short-Intermediate Fund and the Intermediate Bond Fund are sometimes referred
to collectively as the "Fixed Income Funds") and the Funds of 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
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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 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 Fund, Balanced Fund, Small
Company Growth Fund, International Equity Fund and the Funds of 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
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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. The Growth and Income Fund, Balanced Fund, Small Company Growth
Fund, and the Funds of Funds 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.
FOREIGN CURRENCY TRANSACTIONS. The International Equity Fund may use
forward foreign currency exchange contracts. Forward foreign currency exchange
contracts involve an obligation to purchase or sell a specified currency at a
future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Fund to establish a rate of exchange for a future point in
time. The Fund may use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the "ECU" used
in the European Community) relative to the U.S. dollar in connection with
specific portfolio transactions or with respect to portfolio positions. The
Fund may enter into forward foreign currency exchange contracts when deemed
advisable by its sub-adviser under two circumstances. First, when entering into
a contract for the purchase or sale of a security, the Fund may enter into a
forward foreign currency exchange contract for the amount of the purchase or
sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.
Second, when the Fund's sub-adviser anticipates that a particular
foreign currency may decline relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. With respect to any forward foreign currency contract, it will not
generally be possible to match precisely the amount covered by the contract and
the value of the securities involved due to the changes in the values of such
securities resulting from market movements between the date the forward contract
is entered into and the date it matures. In addition, while forward contracts
may offer protection from losses resulting from declines in the value of a
particular foreign
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currency, they also limit potential gains which might result from increases in
the value of such currency. The Fund will also incur costs in connection with
forward foreign currency exchange contracts and conversions of foreign
currencies and U.S. dollars.
A separate account of a Fund consisting of cash or liquid securities
equal to the amount of the Fund's assets that could be required to consummate
forward contracts entered into under the second circumstance, as set forth
above, will be established with the Fund's custodian. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will be equal the amount of such
commitments by the Fund.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire 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 or CastleInternational with respect to the International
Equity 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").
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REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each of
the 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 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 or CastleInternational with
respect to the International Equity Fund) believes that the credit risk with
respect thereto is minimal.
SUPRANATIONAL ORGANIZATIONAL OBLIGATIONS. The International Equity Fund
may purchase debt securities of supranational organizations such as the European
Coal and Steel Community, the European Economic Community and the World Bank,
which are chartered to promote economic development.
INVESTMENT GRADE DEBT OBLIGATIONS. The International Equity Fund invest
in "investment grade securities," which are securities rated in the four highest
rating categories of an NRSRO. It should be noted that debt obligations rated in
the lowest of the top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are
considered to have some speculative characteristics and are more sensitive to
economic change than higher rated securities.
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RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. As stated in the Prospectus,
the International Equity Fund may participate in rights offerings and may
purchase warrants, which are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time. Subscription
rights normally have a short life span to expiration. The purchase of rights or
warrants involves the risk that the Fund could lose the purchase value of a
right or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' and warrants' expiration. Also, the purchase of rights
and/or warrants involves the risk that the effective price paid for the right
and/or warrant added to the subscription price of the related security may
exceed the value of the subscribed security's market price such as when there is
no movement in the level of the underlying security. The Fund will not invest
more than 5% of its net assets, taken at market value, in warrants, or more than
2% of its net assets, taken at market value, in warrants not listed on the New
York or American Stock Exchanges. Warrants acquired by the Fund in units or
attached to other securities are not subject to this restriction.
VARIABLE AND FLOATING RATE NOTES. The North Carolina Fund may acquire
variable and floating rate notes, subject to the Fund's 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 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 Fund's
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, the Fund 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 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 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
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 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 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 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 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 is 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 .
TAX-EXEMPT OBLIGATIONS. 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"). 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."
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
are included within the term Tax-Exempt Obligations if the interest paid thereon
is both
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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 is 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 Fund's 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 levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest
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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, each Fund,
except the U.S. Treasury Fund, may purchase securities on a when-issued basis.
In addition, 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). The International Equity Fund may purchase and sell
securities on a forward commitment basis, including "TBA" (to be announced)
purchase commitments. 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 Fund, Balanced Fund, Small Company
Growth Fund and the Funds of 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 and Balanced Funds. This
premium income will serve to enhance each Fund's 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 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.
As described in the Prospectuses, the International Equity Fund will
write call options only if they are "covered" and may buy call options. In the
case of a call option on a security, the option is "covered" is the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Fund maintains with its custodian cash or cash equivalents equal
to the contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written where the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written provided the
difference is maintained by the Fund in cash or cash equivalents in a segregated
account with its custodian.
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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 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 or CastleInternational, with respect to the International
Equity 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 (or, with respect to the International
Equity Fund, the mean between the last bid and asked prices). 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
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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.
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 may acquire "puts" with respect to
Tax-Exempt Obligations held in its portfolio, the Small Company Growth Fund
and the Funds of Funds 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 Fund, the Small Company
Growth Fund, and the Funds of 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 Fund, the Small Company Growth Fund, and the Funds
of 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
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subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
The North Carolina Fund, the Small Company Growth Fund and the Funds
of 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.
See "Options and Futures" in the Prospectus regarding the International
Equity Fund's investment policy with respect to puts.
RISK FACTORS RELATING TO OPTIONS. 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
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,
the International Equity Fund, and the Funds of Funds 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 a 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, a Fund may be required
to make delivery of the instruments underlying
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futures contracts it holds. The inability to close options and futures positions
also could have an adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by the Funds is also subject to an
adviser's or sub-adviser's ability to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, a 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 a 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. A 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 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 a Fund involves the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom a 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.
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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).
None of the Funds of the Group (other than the International Equity
Fund) 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 and the Funds of Funds, which may purchase futures contracts) oil,
gas or mineral exploration or development programs, or real estate (although
investments by the Growth and Income Fund, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Small Company
Growth Fund, and the Funds of Funds in marketable securities of companies
engaged in such activities and in securities secured by real estate or
interests therein are not hereby precluded);
None of the Funds (except the Funds of Funds) may:
1. 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, North Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund,
Balanced Fund , Small Company Growth Fund, and the International Equity Fund
may purchase securities of a money market fund, including securities of the U.S.
Treasury Fund; (ii) the North Carolina Fund 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 the 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
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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 and the International Equity 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 (iii) is not
fundamental with respect to the Small Company Growth Fund and the International
Equity 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, Short-Intermediate Fund, and Intermediate Bond Fund may not
write or purchase call options. Each of the Funds may not write put options. The
U.S. Treasury Fund, Short-Intermediate Fund and Intermediate Bond Fund may
not purchase put options. The North Carolina Fund 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 International Equity Fund may not:
--------------------------------------
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof, or the disposition of securities, in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
3. Write or sell unsecured put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, securities indices, futures contracts and options on futures
contracts.
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Fund's transactions in futures contracts and related options or a
Fund's sale of securities short against the box, and (b) a Fund may obtain
short-term credit as may be necessary for the clearance or purchases and sales
of portfolio securities.
5. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may, to the
extent
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appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.
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, the International Equity Fund, and Funds of 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, 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
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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. 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.
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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 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
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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, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Small Company
Growth Fund, and the Funds of Funds
- ------------------------------------------------------------------------------
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.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds 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, PNC Bank, and
CastleInternational from time to time.
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Investments in debt securities with remaining maturities of 60 days or
less may be valued based upon the amortized cost method.
Valuation of the International Equity Fund
- ------------------------------------------
Valuation of securities of foreign issuers and those held by the
International Equity Fund is as follows: to the extent sale prices are
available, securities which are traded on a recognized stock exchange, whether
U.S. or foreign, are valued at the latest sale price on that exchange prior to
the time when assets are valued or prior to the close of regular trading hours
on the NYSE. In the event that there are no sales, the means between the last
available bid and asked prices will be used. If a security is traded on more
than one exchange, the latest sale price on the exchange where the stock is
primarily traded is used. An option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (EasternTime). In the event that application of these methods of valuation
results in a price for a security which is deemed not to be representative of
the market value of such security, the security will be valued by, under the
direction of or in accordance with a method specified by the Board of Trustees
as reflecting fair value. The amortized cost method of valuation will be used
with respect to debt obligations with sixty days or less remaining to maturity
unless the investment adviser and/or sub-adviser under the supervision of the
Board of Trustees determines such method does not represent fair value. All
other assets and securities held by the Fund (including restricted securities)
are valued at fair value as determined in good faith by the Board of Trustees or
by someone under its direction. Any assets which are denominated in a foreign
currency are translated into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
As discussed above, the International Equity Fund may use a pricing
service or market/dealer experienced in such matters to Value the Fund's
securities.
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
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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.
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, Intermediate Bond Fund, Balanced Fund, Small Company
Growth Fund, International Equity Fund and the Funds of Funds 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.
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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
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
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(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 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.
Investment by the Fund in "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax or other charge on the proceeds
from the sale of its investment in such a company; however, this tax can be
avoided by making an election to mark such investments to market annually or to
treat the passive foreign investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent of more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income
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equivalent to interest), royalties, rents, annuities, the excess of gains over
losses from certain property transactions and commodities transactions, and
foreign currency gains. Passive income for this purpose does not include rents
and royalties received by the foreign corporation from active business and
certain income received from related persons.
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 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 International Equity Fund
- -------------------------------------------------------------------
Special rules govern the Federal income tax treatment of the portfolio
transactions of the International Equity Fund that are denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, certain preferred stock); (ii) the
accruing of certain trade receivables and payables; (iii) the entering into or
acquisition of any forward contract or similar financial instruments; and (iv)
the entering into or acquisition of any futures contract, option or similar
financial instrument, if such instrument is not marked-to-market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer also is
treated as a transaction subject to the special currency rules. With respect to
such transactions, foreign currency gain or loss is calculated separately from
any gain or loss on the underlying transaction and is normally taxable as
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ordinary gain or loss. A taxpayer may elect to treat as capital gain or loss
foreign currency gain or loss arising from certain identified forward contracts
that are capital assets in the hands of the taxpayer and which are not part of a
straddle ("Capital Asset Election"). In accordance with Treasury regulations,
certain transactions with respect to which the taxpayer has not made the Capital
Asset Election and that are part of a "Section 988 hedging transaction" (as
defined in the Code and the Treasury regulations) are integrated and treated as
a single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" (as identified by such Treasury regulations)
are not subject to the market-to-market or loss deferral rules under the Code.
Some of the non-U.S. dollar-denominated investments that the International
Equity Fund may make (such as non-U.S. dollar-denominated debt securities and
obligations and preferred stock) and some of the foreign currency contracts the
International Equity Fund may enter into will be subject to the special currency
rules described above. Gain or loss attributable to the foreign currency
component of transactions engaged in by a Fund which is not subject to the
special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
In addition, certain forward foreign currency contracts held by the
International Equity Fund at the close of the Fund's taxable year will be
subject to "mark-to-market" treatment. If the Fund makes the Capital Asset
Election with respect to such contracts, the contract will be subject to the
40-60 rule described above. Otherwise, such gain or loss will be ordinary in
nature. To receive such Federal income tax treatment, a foreign currency
contract must meet the following conditions: (1) the contract must require
delivery of a foreign currency of a type in which regulated futures contracts
are traded or upon which the settlement value of the contract depends; (2) the
contract must be entered into at arm's length at a price determined by reference
to the price in the interbank market; and (3) the contract must be traded in the
interbank market. The Treasury Department has broad authority to issue
regulations under these provisions respecting foreign currency contracts. As of
the date of this Statement of Additional Information the Treasury has not issued
any such regulations. Forward foreign currency contracts entered into by the
International Equity Fund also may result in the creation of one or more
straddles for Federal income tax purposes, in which case certain loss deferral,
short sales, and wash sales rules and requirements to capitalize interest and
carrying charges may apply.
Additional Tax Information Concerning the North Carolina Fund
- -------------------------------------------------------------
As indicated in the Prospectuses, the North Carolina Fund is designed
to provide North Carolina Shareholders with current tax-exempt interest income.
The Fund is not intended to constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in
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<PAGE> 178
principal. Shares of the North Carolina Fund 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 being tax-exempt, and such dividends would be ultimately
taxable to the beneficiaries when distributed to them.
In addition, the North Carolina Fund may not be an appropriate
investment 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
is to pay each year as dividends substantially all the Fund's 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 designated as an exempt-interest dividend
in a written notice mailed to Shareholders within sixty days after the close of
the Fund's taxable year, but not to exceed in the aggregate the net Tax-Exempt
Obligations interest received by the Fund 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 Carolina Fund during such year, regardless
of the period for which the Shares were held.
While the North Carolina Fund does 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 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. Such
distributions will be designated as a capital gains dividend in a written notice
mailed by the North Carolina Fund to Shareholders within sixty days after the
close of the Fund's taxable year.
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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 does not expect to earn any significant
amount of investment company taxable income, taxable income earned by the North
Carolina Fund will be distributed to Shareholders. In general, the investment
company taxable income will be the taxable income of the North Carolina Fund
(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 Fund 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 is to limit the acquisition of puts to those under which the
Fund 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 the Fund. 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 could acquire under the 1940 Act. Therefore, although the North
Carolina Fund 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. If the North
Carolina Fund was 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 . No attempt has been made to present a detailed explanation of the
Federal or state income tax treatment of the North Carolina Fund or its
Shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of Shares of the North Carolina Fund
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.
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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 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 its 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.
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
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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 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.
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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.
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
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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 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
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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 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.
</TABLE>
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<PAGE> 185
<TABLE>
<S> <C> <C>
D'Ray M. Brewer President and From February 1990 to present,
Secretary employee of 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,
Assistant Secretary employee of 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.
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.
B-35
<PAGE> 186
<TABLE>
COMPENSATION TABLE 1
--------------------
<CAPTION>
Total
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
Sean M. Kelly None None None None
Trustee
<FN>
1 Figures are for the Funds' fiscal year ended September 30, 1995. The Group
includes eight separate series ("Funds"), as well as three additional
series (the "Funds of Funds").
</TABLE>
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, 1997 as to each of the Funds and from year to year
if such continuance is
B-36
<PAGE> 187
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 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 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 Funds of Funds and the
International Equity Fund 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
B-37
<PAGE> 188
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, 1997 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.
Investment Sub-Adviser
- ----------------------
Investment sub-advisory and management services are provided to the
International Equity Fund by CastleInternational Asset Management Limited
("CastleInternational"), a wholly-owned subsidiary of PNC Bank, pursuant to a
Sub- Advisory Agreement ("Sub-Advisory Agreement") dated as of ___________, 1996
between BB&T and PNC Bank.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until __________, 1998 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 CastleInternational, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.
B-38
<PAGE> 189
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.
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreement, BB&T (and PNC Bank, with respect to
the Small Company Growth Fund and CastleInternational, with respect to the
International Equity 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, North Carolina Fund, Short-Intermediate Fund,
Intermediate Bond Fund, Small Company Growth Fund, International Equity Fund
and the Funds of Funds 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 generally include (but not in the case of mutual fund
shares purchased by the Funds of Funds) 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 and CastleInternational with respect to the International Equity 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 and CastleInternational with respect to the International Equity
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 CastleInternational with respect to the International
B-39
<PAGE> 190
Equity Fund) and does not reduce the advisory fees payable to BB&T , PNC Bank
or CastleInternational. Such information may be useful to BB&T, PNC Bank or
CastleInternational 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, PNC Bank and
CastleInternational 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,
CastleInternational, BISYS Fund Services, or their affiliates, and will not give
preference to BB&T's or PNC Bank's 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 and CastleInternational. 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, PNC Bank or CastleInternational
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, PNC Bank or CastleInternational 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 Agreements, in making investment
recommendations for the Group, BB&T, PNC Bank or CastleInternational 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, or
CastleInternational, their parents, subsidiaries, or affiliates, and, in dealing
with their customers, BB&T, PNC Bank, CastleInternational, 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
B-40
<PAGE> 191
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.
BB&T , PNC Bank, and CastleInternational believe that they possess the
legal authority to perform the services for each Fund contemplated by the
Advisory Agreement and Sub-Advisory Agreements and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Advisory Agreement and Sub-Advisory Agreements. 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, PNC Bank, or CastleInternational 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, PNC Bank, or CastleInternational,
the Board of Trustees of the Group would review the Group's relationship with
BB&T, PNC Bank, or CastleInternational 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 CastleInternational 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
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<PAGE> 192
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 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
B-42
<PAGE> 193
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 Funds of Funds and the International Equity Fund 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 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, CastleInternational, 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, CastleInternational, 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
B-43
<PAGE> 194
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 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 Class A 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
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<PAGE> 195
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 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. Bank of New York
serves as the International Equity Fund'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.
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<PAGE> 196
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 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.
B-46
<PAGE> 197
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, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Small
Company Growth Fund, International Equity Fund, and the Funds of Funds 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)to the 6th power-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 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 Funds 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 each Fund.
The North Carolina Fund 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 Fund's 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 is
computed by dividing that portion of the effective yield of the North Carolina
Fund 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-
B-47
<PAGE> 198
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 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 Balanced Fund -- 3.72% (with no sales load). With respect to Trust
Shares, the tax-equivalent yield for the North Carolina Fund for the same
period was 5.81%. There is no yield information available for the Trust Shares
of the Funds of Funds, the International Equity Fund 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, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund , Small
Company Growth Fund, International Equity Fund, and Funds of Funds, 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 ,
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
B-48
<PAGE> 199
Carolina, 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 Funds of Funds and the International Equity
Fund had not commenced operations as of September 30, 1995.
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 Funds of
Funds and the International Equity Fund 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 of the Funds, the Trust Shares of the Funds of Funds or the
International Equity Fund, 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
B-49
<PAGE> 200
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 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 Morgan Stanley Capital International Europe, Australia and the Far
East Index ("EAFE") is an index composed of a sample of companies representative
of the
B-50
<PAGE> 201
market structure of twenty European and Pacif Basin countries. The Index
represents the evolution of an unmanaged portfolio consisting of all
domestically listed stocks.
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 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, 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, 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-51
<PAGE> 202
<TABLE>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ...... TAX-EXEMPT YIELDS ......
INCOME MARGINAL MARGINAL MARGINAL
(1995) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$12,750 TO
$23,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$23,350 TO
$56,350 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$56,350 TO
$60,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$60,000 TO
$117,950 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$117,950 TO
$256,500 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$256,500 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-52
<PAGE> 203
<TABLE>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MARRIED
FILING JOINTLY COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ..... TAX-EXEMPT YIELDS .....
INCOME MARGINAL MARGINAL MARGINAL
(1995) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$21,250 TO
$39,000 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$39,000 TO
$94,250 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$94,250 TO
$100,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$100,000 TO
$143,600 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$143,600 TO
$256,500 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$256,500 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-53
<PAGE> 204
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. 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 eight 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, Small Company Growth Fund, and International Equity Fund, respectively.
The Group also offers three additional series of Shares which represent
interests in the BB&T Capital Manager Conservative Growth Fund, the BB&T
Capital Manager Moderate Growth Fund, and the BB&T Capital Manager Growth Funds
(the "Funds of Funds"). These Funds of Funds offer Trust Shares only. 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
B-54
<PAGE> 205
on all matters except (i) when required by the 1940 Act, 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, 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-55
<PAGE> 206
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 October 15, 1996, the following persons owned of record or
beneficially 5% or more of the Class A, Class B, or Trust Shares of the listed
Funds:
<TABLE>
U.S. Treasury Money Market Fund - Class A Shares
------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 16,817,639.980 62.84%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Joseph Riddle III and 1,948,343.950 7.28%
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-56
<PAGE> 207
<TABLE>
U.S. Treasury Money Market Fund - Trust Shares
----------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 182,108,618.800 88.47%
P.O. Box 2887
Wilson, NC 27894- 2887
Benefit Service Corporation 11,247,972.150 5.46%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
U.S. Treasury Money Market Fund - Class B Shares
------------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Robert A. Robertson 90,880.540 6.86%
Rollover IRA
1001 Areheart St.
West Columbia, SC 29169
Short Intermediate U.S. Government Fund - Class A Shares
--------------------------------------------------------
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Henry Fibers, Inc. 71,906.103 10.97%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
Stephens, Inc. 102,310.554 15.61%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-57
<PAGE> 208
<TABLE>
Short Intermediate U.S. Government Fund - Trust Shares
------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Branch Banking & Trust Co. 339,492.484 5.26%
FSO Daily Recordkeeping Plans
Attn: Corp Employee Benefit Serv/
Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, NC 27601-1767
CAP Co. 509,238.707 7.84%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 2,069,139.772 31.85%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 3,174,606.949 48.87%
Attn: J. Michael Pollock
P.O. Box 1847
Wilson, NC 27894-1847
Intermediate U.S. Government Bond Fund - Class A Shares
-------------------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Stephens, Inc. 75,638.523 19.57%
For the Exclusive Benefit of
Our Customers
111 Center Street
Little Rock, AR 72201
Raymond H. Parks 19,763.486 5.11%
and Merril Parks
JTWROS
4818 Vickery Chapel Rd.
Greensboro, NC 27407
</TABLE>
B-58
<PAGE> 209
<TABLE>
<S> <C> <C>
Hardin Wholesale Florist, Inc. 20,624.244 5.34%
Employee Stock Ownership Plan
P.O. Box 1129
Liberty, NC 27298
Intermediate U.S. Government Bond Fund - Trust Shares
-----------------------------------------------------
Percentage Owned
----------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
CAP & Co/Cash 651,906.596 5.27%
Attn: J. Michael Pollock
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 2,651,789.067 21.44%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 7,529,017.370 60.86%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 634,372.622 5.3%
P.O. Box 2887
Wilson, NC 27894-2887
Intermediate U.S. Government Bond Fund - Class B Shares
-------------------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
NC Foundation Seed Producers 2,890.550 7.82%
8220 Riley Hill Rd.
Zebulon, NC 27597
Eleanor G. Major 3,684.930 9.98%
IRA Rollover
P.O. Box 225 105 S Academy
Varnville, SC 29944
L.J. Inc. 5,348.312 14.48%
Attn: Keith Coffer
220 Stoneridge Dr., Suite 405
Columbia, SC 29210
</TABLE>
B-59
<PAGE> 210
<TABLE>
<S> <C> <C>
William Ted Camp 2,586.215 7.00%
2105 W. Nash. St.
Wilson, NC 27893
Indiraben D. Patel 5,168.248 13.99%
P.O. Box 95
Siler City, NC 27344
Growth and Income Stock Fund - Class A Shares
---------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Stephens, Inc. 222,292.868 17.67%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Growth and Income Stock Fund - Trust Shares
-------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Wilbranch Co. 6,832,154.518 50.74%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 728,203.153 5.41%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 896,340.729 6.66%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
Wilbranch Co. 3,877,422,981 28.79%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-60
<PAGE> 211
<TABLE>
North Carolina Intermediate Tax-Free Fund - Class A Shares
----------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 200,467.666 21.77%
Reinvest
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Helen H. Hendricks 55,433.823 6.02%
277 Beechwood Dr.
Mocksville, NC 27028
North Carolina Intermediate Tax-Free Fund - Trust Shares
--------------------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Wilbranch 2,781,755.349 100%
P.O. Box 2887
Wilson, NC 27894- 2887
Balanced Fund - Class A Shares
------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Stephens, Inc. 371,762.891 35.60%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Balanced Fund - Trust Shares
----------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Wilbranch Co. 600,812.770 9.88%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-61
<PAGE> 212
<TABLE>
<S> <C> <C>
Branch Banking & Trust Co. 547,435.315 9.00%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit Serv/
Ops Manager
434 Fayetteville St., 4th Floor
Raleigh, NC 27601-1767
Wilbranch Co. 3,852,173.370 63.34%
P.O. Box 2887
Wilson, NC 27894-2887
Small Company Growth Fund - Class A Shares
------------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Stephens Inc. 49,453.166 13.62%
For The Exclusive Benefit
Of Our Customers
111 Center St.
Little Rock, AR 72201
Small Company Growth Fund - Trust Shares
----------------------------------------
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
Wilbranch Co. 792,033.811 44.28%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 207,011.413 11.57%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 357,208.465 19.97%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 175,266.814 9.78%
Agnt BB & T Savings &
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309-0000
</TABLE>
B-62
<PAGE> 213
As of October 15, 1996, 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 88.47%, 93.78%, 100%, 84.94%, 92.70%, 82.22% and 75.82%
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 October 15,
1996, the Funds of Funds and the International Equity Fund 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 68.84% and 35.60%
of the Class A Shares of the U.S. Treasury Money Market 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.
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-63
<PAGE> 214
FINANCIAL STATEMENTS
Independent Auditors Report
Audited Financial Statements as of September 30, 1995
B-64
<PAGE> 215
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-65
<PAGE> 216
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-66
<PAGE> 217
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-67
<PAGE> 218
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-68
<PAGE> 219
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-69
<PAGE> 220
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-70
<PAGE> 221
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-71
<PAGE> 222
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-72
<PAGE> 223
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-73
<PAGE> 224
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-74
<PAGE> 225
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-75
<PAGE> 226
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-76
<PAGE> 227
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-77
<PAGE> 228
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-78
<PAGE> 229
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-79
<PAGE> 230
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-80
<PAGE> 231
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-81
<PAGE> 232
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-82
<PAGE> 233
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-83
<PAGE> 234
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-84
<PAGE> 235
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-85
<PAGE> 236
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-86
<PAGE> 237
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-87
<PAGE> 238
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-88
<PAGE> 239
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-89
<PAGE> 240
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-90
<PAGE> 241
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-91
<PAGE> 242
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-92
<PAGE> 243
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-93
<PAGE> 244
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-94
<PAGE> 245
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-95
<PAGE> 246
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-96
<PAGE> 247
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-97
<PAGE> 248
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-98
<PAGE> 249
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-99
<PAGE> 250
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-100
<PAGE> 251
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-101
<PAGE> 252
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-102
<PAGE> 253
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-103
<PAGE> 254
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 circumstan ces 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-104
<PAGE> 255
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-105
<PAGE> 256
-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-106
<PAGE> 257
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-107
<PAGE> 258
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-108
<PAGE> 259
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-109
<PAGE> 260
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-110
<PAGE> 261
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> 262
(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 filed herewith.
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<PAGE> 263
(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).
(f) Form of Sub-Advisory Agreement between
Branch Banking and Trust Company and
CastleInternational Asset Management
Limited is filed herewith.
(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-D to the
Distribution Agreement between the
Registrant and BISYS Fund Services
(formerly known as The Winsbury Company)
is filed herewith.
(7) None.
(8) (a) Custody Agreement between the Registrant
and Star Bank, N.A. is incorporated by
reference to Exhibit 8(a) to Post-
Effective Amendment No. 1 to the
Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
C-3
<PAGE> 264
(b) Form of Custody Agreement between the
Registrant and Star Bank is filed
herewith.
(c) Form of Custody Agreement between the
Registrant and Bank of New York is filed
herewith.
(d) 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).
(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
Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
C-4
<PAGE> 265
(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 filed herewith.
(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 filed herewith.
(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.
(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).
C-5
<PAGE> 266
(14) None.
(15) (a) Re-executed Amended and Restated
Distribution and Shareholder Services
Plan between the Registrant and BISYS
Fund Services (formerly known as The
Winsbury Company) is filed herewith.
(b) 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).
(c) 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).
(d) Form of Revised Schedule A to the Amended
and Restated Distribution and Shareholder
Services Plan between the Registrant and
BISYS Fund Services (formerly known as
The Winsbury Company) is filed herewith.
(e) 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).
(f) Form of Revised Schedule A to the
Servicing Agreement with Branch Banking
and Trust Company and Bisys Fund Services
(formerly known as The Winsbury Company)
is filed herewith.
(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
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<PAGE> 267
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 Schedules
(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.
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<PAGE> 268
Item 26. Number of Holders of Securities
-------------------------------
As of September 30, 1996, 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 8
Intermediate Bond Fund 12
North Carolina Fund 1
Growth and Income Fund 11
Balanced Fund 12
Small Company Growth Fund 14
International Equity Fund 0
Capital Manager Conservative Growth Fund 0
Capital Manager Moderate Growth Fund 0
Capital Manager Growth Fund 0
</TABLE>
C-8
<PAGE> 269
As of September 30, 1996 , 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 429
Short-Intermediate Fund 209
Intermediate Bond Fund 163
North Carolina Fund 173
Growth and Income Fund 1,368
Balanced Fund 669
Small Company Growth Fund 1,133
International Equity Fund 0
</TABLE>
As of September 30, 1996, 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 105
Short-Intermediate Fund 0
Intermediate Bond Fund 32
North Carolina Fund 0
Growth and Income Fund 532
Balanced Fund 257
</TABLE>
C-9
<PAGE> 270
Small Company Growth Fund 574
International Equity Fund 0
Item 27. INDEMNIFICATION
---------------
Article VIII, Sections 1 and 2 of the Registrant's
Declaration of Trust provides as follows:
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<PAGE> 271
"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 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
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<PAGE> 272
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 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
C-12
<PAGE> 273
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.
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,
1996, SNC had assets in excess of $21.1 billion. Through
its subsidiaries, SNC operates over 425 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.
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<PAGE> 274
<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-14
<PAGE> 275
<TABLE>
<CAPTION>
<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-15
<PAGE> 276
<TABLE>
<CAPTION>
<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.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
</TABLE>
C-16
<PAGE> 277
<TABLE>
<CAPTION>
<S> <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,
Director N.C.
Robert L. Brady
Director
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Greensboro, N.C.
Charles F. Ailstock Attorney at Law
Director Charleston, S.C.
</TABLE>
C-17
<PAGE> 278
<TABLE>
<CAPTION>
<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.
Oren O. Jones Attorney at Law
Director Jones, Spitz, Moorehead & Baird
Anderson, S.C.
</TABLE>
C-18
<PAGE> 279
<TABLE>
<CAPTION>
<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.
Willard G. Wade President, WB&W, Inc.
Director Spartanburg, S.C.
</TABLE>
C-19
<PAGE> 280
<TABLE>
<CAPTION>
<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 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-20
<PAGE> 281
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
413 Woodland Road
Sewickley, PA 15143
</TABLE>
C-21
<PAGE> 282
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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-22
<PAGE> 283
<TABLE>
<CAPTION>
<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-23
<PAGE> 284
<TABLE>
<CAPTION>
PNC Bank, National Association
Executive Officers
<S> <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>
CastleInternational Asset Management Limited
("CastleInternational") is an indirect wholly-owned subsidiary of PNC Bank Corp.
The list required by this Item 28 of officers and directors of
CastleInternational, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by CastleInternational pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-51087).
C-24
<PAGE> 285
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-25
<PAGE> 286
(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)
C-26
<PAGE> 287
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
International Equity Fund, The BB&T Capital Manager
Conservative Growth Fund, The BB&T Capital Manager
Moderate Growth Fund, and The BB&T Capital Manager Growth
Fund 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 International Equity Fund, the Capital Manager
Conservative Growth Fund, the Capital Manager Moderate
Growth Fund and the Capital Manager Growth Fund.
C-27
<PAGE> 288
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-28
<PAGE> 289
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 9 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 18th day of October, 1996.
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 October 18, 1996
- ------------------
*J. David Huber
/S/ William E. Graham Trustee October 18, 1996
- ---------------------
*William E. Graham
/S/ Thomas W. Lambeth Trustee October 18, 1996
- ---------------------
*Thomas W. Lambeth
/S/ George Landreth Treasurer October 18, 1996
- -------------------
*George Landreth
/S/ W. Ray Long Trustee October 18, 1996
- ---------------
*W. Ray Long
/S/ Robert W. Stewart Trustee October 18, 1996
- ---------------------
*Robert W. Stewart
/S/ SEAN M. KELLEY TRUSTEE October 18, 1996
- ------------------
*SEAN M. KELLEY
*By: /S/ Alan G. Priest
-------------------
Alan G. Priest
Attorney-in-Fact
</TABLE>
C-29
<PAGE> 290
POWER OF ATTORNEY
-----------------
Sean M. Kelly, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Francoise M.
Haan, 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 Sean M. Kelly 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: 10/8/96
---------------------------
/s/ Sean M. Kelly
-------------------------------
Sean M. Kelly
C-30
<PAGE> 291
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
C-31
<PAGE> 292
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
C-32
<PAGE> 293
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
C-33
<PAGE> 294
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
-----------------------------
William E. Graham
C-34
<PAGE> 295
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
C-35
<PAGE> 296
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
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 George R. Landreth 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: March 23, 1993
-------------------------------
/s/ George R. Landreth
---------------------------
George R. Landreth
Treasurer
C-36
<PAGE> 297
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(5)(c) Form of Revised Schedule A to the
Investment Advisory Agreement between
the Registrant and Branch Banking and
Trust Company.
(5)(f) Form of Sub-Advisory Agreement between
Branch Banking and Trust Company and
CastleInternational Asset Management
Limited.
(6)(c) Form of Revised Schedules A-D to the
Distribution Agreement between the
Registrant and BISYS Fund Services.
(8)(b) Form of Custody Agreement between the
Registrant and Star Bank.
(8)(c) Form of Custody Agreement between
Registrant and Bank of New York.
(9)(f) Form of Revised Schedule A to the
Management and Administration
Agreement between the Registrant
and BISYS Fund Services.
(9)(h) Form of Revised Schedule A to the Fund
Accounting Agreement between the
Registrant and BISYS Fund Services
Ohio, Inc.
(11)(a) Consent of KPMG Peat Marwick LLP.
(11)(b) Consent of Ropes & Gray.
(15)(a) Re-executed Amended and Restated Distribution and
Shareholder Services Plan between the
Registrant and BISYS Fund Services.
</TABLE>
<PAGE> 298
<TABLE>
<CAPTION>
<S> <C>
(15)(d) Form of Revised Schedule A to the Amended
and Restated Distribution and Shareholder
Services Plan between the Registrant and
BISYS Fund Services.
(15)(f) Form of Revised Schedule A to the Servicing
Agreement with Branch Banking and Trust
Company and BISYS Fund Services.
(27) Financial Data Schedules
(a) U.S. Treasury Money Market Fund (Class A)
(b) U.S. Treasury Money Market Fund (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 Fund (Class A)
(j) Growth & Income Stock Fund (Trust Class)
(k) Balanced Fund (Class A)
(l) Balanced Fund (Trust Class)
(m) Small Company Growth Fund (Class A)
(n) Small Company Growth Fund (Trust Class)
</TABLE>
<PAGE> 1
EXHIBIT (5)(c)
Form of Revised Schedule A to the
Investment Advisory Agreement between
the Registrant and Branch Banking and
Trust Company
<PAGE> 2
Dated: __________, 1996
Schedule A
to the
Investment Advisory Agreement between BB&T Mutual Funds Group
and Branch Banking & Trust Company
dated October 1, 1992
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of forty one-hundredths of one
Funds percent (.40%) of the BB&T U.S. Treasury
Money Market Fund's average daily net
assets.
The BB&T Short-Intermediate U.S. Annual rate of sixty one-hundredths of one
Government Income Fund percent (.60%) of the BB&T Short-
Intermediate U.S. Government Income Fund's
average daily net assets.
The BB&T Intermediate U.S. Government Annual rate of sixty one-hundredths of one
Bond Fund percent (.60%) of the BB&T Intermediate
U.S. Government Bond Fund's average daily
assets.
The BB&T Growth and Income Stock Fund Annual rate of seventy-four one-hundredths of
one percent (.74%) of the BB&T Growth and
Income Stock Fund's average daily net assets.
The BB&T North Carolina Intermediate Annual rate of sixty one-hundredths of one
Tax-Free Fund percent (.60%) of the BB&T North Carolina
Intermediate Tax-Free Fund's average daily
net assets.
The BB&T Balanced Fund Annual rate of seventy-four one-hundredths of
one percent (.74%) of the BB&T Balanced
Fund's average daily net assets.
The BB&T Small Company Growth Fund Annual rate of one percent (1.00%) of the
BB&T Small Company Growth Fund's
average daily net assets.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
The BB&T International Equity Fund Annual rate of [ ] one-hundredths of one
percent (.[ ]%) of the BB&T International
Equity Fund's average daily assets.
The BB&T Capital Manager Conservative Annual rate of fifty one-hundredths of one
Growth Fund percent (.50%) of the BB&T Capital Manager
Conservative Growth Fund's average daily net assets.
The BB&T Capital Manager Moderate Annual rate of fifty one-hundredths of one
Growth Fund percent (.50%) of the BB&T Capital Manager
Moderate Growth Fund's average daily net
assets.
The BB&T Capital Manager Annual rate of fifty one-hundredths of one
Growth Fund percent (.50%) of the BB&T Capital Manager
Growth Fund's average daily net assets.
</TABLE>
A-2
<PAGE> 4
BB&T MUTUAL FUNDS GROUP
By:
--------------------------------
BRANCH BANKING AND
TRUST COMPANY
By:
--------------------------------
- ----------------
* All fees are computed daily and paid monthly.
A-3
<PAGE> 1
EXHIBIT (5)(F)
Form of Sub-Advisory Agreement between
Branch Banking and Trust Company and
CastleInternational Asset Management Limited.
<PAGE> 2
SUB-ADVISORY AGREEMENT
(International Equity Fund)
AGREEMENT made as of ________________, 1996 between BRANCH BANKING & TRUST
COMPANY, a state chartered bank with its principal office in Wilson, North
Carolina (the "Adviser"), and CASTLEINTERNATIONAL ASSET MANAGEMENT LIMITED, a
U.K. corporation registered under the U.S. Investment Advisers Act of 1940, as
amended, and a member of the Investment Management Regulatory Organization
("IMRO") and regulated by IMRO in the conduct of its affairs ("Sub-Adviser").
WHEREAS, BB&T Mutual Funds Group, a Massachusetts business trust (the
"Trust"), is registered as an open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to the Trust's
International Equity Fund (the "Fund");
WHEREAS, the Adviser desires to retain Sub-Adviser to assist it in the
provision of a continuous investment program for the Fund and Sub-Adviser is
willing to furnish such services upon the terms and conditions herein set forth;
and
WHEREAS, the Board of Directors of the Fund has approved this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. (a) The Adviser hereby appoints Sub-Adviser to act as
sub-adviser to the Fund as permitted by the Adviser's Advisory Agreement with
the Trust pertaining to the Fund. Intending to be legally bound, Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
(b) Adviser acknowledges that the services to be provided by
Sub-Adviser hereunder will be provided on the basis that the Fund is a
non-private customer as defined in the rules of IMRO.
2. SUB-ADVISORY SERVICES. Subject to the supervision of the Trust's Board
of Directors, Sub-Adviser will assist the Adviser in providing a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. Sub-Adviser
will provide services under this Agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
prospectuses and resolutions of the Trust's Board of Directors applicable to the
Fund. Adviser hereby undertakes to provide Sub-Adviser with copies of such
prospectuses and resolutions as the same became available from time to time.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will:
<PAGE> 3
(a) prepare, subject to the Adviser's approval, lists of foreign
countries for investment by the Fund and determine from time to time what
securities and other investments will be purchased, retained or sold for the
Fund, including, with the assistance of the Adviser, the Fund's investments in
futures and forward currency contracts; PROVIDED, HOWEVER, that Sub-Adviser
shall not be responsible for taking action with respect to any proxies, notices,
reports or other communications relating to any of the Fund's portfolio
securities;
(b) manage in consultation with the Adviser the Fund's temporary
investments in securities;
(c) place orders for the Fund either directly with the issuer or with
any broker or dealer;
(d) provide, at Sub-Adviser's expense, using one or more pricing
services believed by Sub-Adviser to be reliable, the value of the portfolio
securities and other assets of the Fund in accordance with the 1940 Act, the
Fund's current prospectuses and applicable resolutions of the Board of Directors
of the Trust on each day that the Fund's assets are required to be valued; such
information to be transmitted by telephone, telecopy or other transmission as
soon as possible and in any event within 24 hours of the time of valuation to
the Fund's accountant, or to such other person(s) as the Adviser may direct for
the benefit of the Fund;
(e) manage the Fund's overall cash position, and determine from time
to time what portion of the Fund's assets will be held in different currencies;
(f) provide the Adviser with foreign broker research, a quarterly
review of international economic and investment developments, and occasional
"White Papers" on international investment issues;
(g) attend regular business and investment-related meetings with the
Trust's Board of Directors and the Adviser if requested to do so by the Trust
and/or the Adviser; and
(h) maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and the Trust's Board of
Directors such periodic and special reports as they may request with respect to
the Fund, and provide in advance to the Adviser all reports to the Board of
Directors for examination and review within a reasonable time prior to the
Trust's Board meetings. Adviser hereby undertakes to provide Sub-Adviser with at
least fourteen days prior written notice of the date, time and location of all
of the Trust's Board meetings pertaining to the Fund.
3. SUBCONTRACTORS. It is understood that Sub-Adviser may from time to time
engage or associate itself with such person or persons as Sub-Adviser may
believe to be particularly fitted to assist Sub-Adviser in the performance of
certain ministerial or administrative services required by this Agreement;
PROVIDED, HOWEVER, that such person or persons shall have been approved by the
Board of Directors of the Trust, that the compensation of such person or persons
shall be paid by Sub-Adviser and that Sub-Adviser shall be as fully responsible
to the Adviser and the Trust for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
2
<PAGE> 4
4. COVENANTS BY SUB-ADVISER. Sub-Adviser agrees with respect to the
services provided to the Fund that it:
(a) will conform with all Rules and Regulations of the Securities and
Exchange Commission ("SEC") applicable to it and will also conform with all
Rules and Regulations of IMRO;
(b) will telecopy trade information to the Adviser on the first
business day following the day of the trade and cause broker confirmations to be
sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Fund and prior, present
or potential shareholders, and will not use such records and information for any
purpose other then performance of its responsibilities and duties hereunder
(except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld and will be
deemed granted where Sub-Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust).
5. SERVICES NOT EXCLUSIVE.
(a) The services furnished by Sub-Adviser hereunder are deemed not to
be exclusive, and nothing in this Agreement shall (i) prevent Sub-Adviser or any
affiliated person (as defined in the 1940 Act) of Sub-Adviser from acting as
investment adviser or manager for any other person or persons, including other
management investment companies with investment objectives and policies the same
as or similar to those of the Fund or (ii) limit or restrict Sub-Adviser or any
such affiliated person from buying selling or trading any securities or other
investments (including any securities or other investments which the Fund is
eligible to buy) for its or their own accounts or for the account of others for
whom it or they may be acting; PROVIDED, HOWEVER, that Sub-Adviser agrees that
it will not undertake any activities which, in its reasonable judgement, will
adversely affect the performance of its obligations to the Fund under this
Agreement.
(b) Nothing contained herein, however, shall prohibit Sub-Adviser from
advertising or soliciting the public generally with respect to products or
services, regardless of whether such advertisement or solicitation may include
prior, present or potential shareholders of the Trust.
6. PORTFOLIO TRANSACTIONS. Investment decisions for the Fund shall be made
by Sub-Adviser independently from those for any other investment companies and
accounts advised or managed by Sub-Adviser. The Fund and such investment
companies and accounts may, however, invest in the same securities. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and/or another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which Sub-Adviser believes to be equitable to the Fund and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund. To the extent permitted by
law, Sub-Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
3
<PAGE> 5
Sub-Adviser shall place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Fund's policies and restrictions regarding brokerage allocations.
Sub-Adviser shall place orders pursuant to its investment determination for the
Fund either directly with the issuer or with any broker or dealer selected by
Sub-Adviser. In executing portfolio transactions and selecting brokers or
dealers, Sub-Adviser shall use its reasonable best efforts to seek the most
favorable execution of orders, after taking into account all factors Sub-Adviser
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this obligation,
Sub-Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers and dealers who provide brokerage and research
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934) to or for the benefit of the Fund and/or other accounts over which
Sub-Adviser or any of its affiliates exercises investment discretion.
Sub-Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Sub-Adviser's overall responsibilities to the Fund and to the Trust. In no
instance will portfolio securities be purchased from or sold to Sub-Adviser, or
the Fund's principal underwriter, or any affiliated person thereof except as
permitted by the Securities and Exchange Commission.
7. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request;
PROVIDED, HOWEVER, that the Sub-Adviser may take and retain photocopies of such
records in order to comply with applicable regulatory requirements. Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the Act.
8. EXPENSES. During the term of this Agreement, Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund.
9. COMPENSATION. For the services provided and the expenses assumed with
respect to the Fund pursuant to this Agreement, Sub-Adviser will be entitled to
a fee, computed daily and payable quarterly, from the Adviser, calculated at the
annual rate of .50% of the Fund's first $50 million of average daily net assets;
.45% of the Fund's next $50 million of average daily net assets; and .40% of the
Fund's average daily net assets in excess of $100 million. If the fee payable to
the Sub-Adviser pursuant to this paragraph begins to accrue after the beginning
of any calendar quarter or if this Agreement terminates before the end of any
calendar quarter, the fee for the period from such date to the end of such
calendar quarter or from the beginning of such calendar quarter to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full calendar quarter in which such effectiveness
or termination occurs. For purposes of calculating fees, the value of a Fund's
net assets shall be computed in the manner
4
<PAGE> 6
specified in the Prospectus and the Trust's Declaration of Trust for the
computation of the value of the Fund's net assets in connection with the
determination of the new asset value of the Fund's shares. Payment of said
compensation shall be the sole responsibility of the Adviser and shall in no way
be an obligation of the Fund or of the Trust.
10. LIMITATION OF LIABILITY.
(a) The Sub-Adviser shall not be liable for any error of judgement or
mistake of law or for any loss suffered by the Adviser, the Trust or the Fund in
connection with the matters to which this Agreement relates, except that
Sub-Adviser shall be liable to the Adviser for a loss resulting from a breach of
fiduciary duty by Sub-Adviser under the 1940 Act 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 Sub-Adviser in the performance of its
duties or from reckless disregard by it of its obligations or duties under this
Agreement. In no case shall the Sub-Adviser be liable for actions taken or
non-actions with respect to the performance of services under this Agreement
based upon specific information, instructions or requests given or made to the
Sub-Adviser by the Adviser.
(b) The Adviser shall be responsible at all times for supervising the
Sub-Adviser, and this Agreement does not in any way limit the duties and
responsibilities that the Adviser has agreed to under the Advisory Agreement.
11. REFERENCE TO SUB-ADVISER. Neither the Adviser not any affiliate or
agent of it shall make reference to or use the name of Sub-Adviser or any of its
affiliates, or any of their clients, except references concerning the identity
of any services provided by Sub-Adviser to the Fund, which references shall not
differ in substance from those included in the current registration statement
pertaining to the Fund, this Agreement and the Advisory Agreement between the
Adviser and the Trust with respect to the Fund, in any advertising or
promotional materials without the prior approval of Sub-Adviser, which approval
shall not be reasonably withheld or delayed. The Adviser hereby agrees to make
all reasonable efforts to cause the Trust and any affiliate thereof to satisfy
the foregoing obligation.
12. DURATION AND TERMINATION. Unless sooner terminated, this Agreement
shall continue until ___________________, 1998 and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by the Trust's Board of Directors or
vote the lesser of (a) 67% of the shares of the Fund represented at a meeting if
holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Trust's Directors who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable at any
time without penalty, on 60 days' prior written notice, by Adviser, Sub-Adviser
or the Trust's Board of Directors or by vote of the lesser of (a) 67% of the
shares of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
5
<PAGE> 7
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to the Fund until approved by the vote of a majority of
the outstanding voting securities of the Fund.
14. NOTICE. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Sub-Adviser at:
------------------
125 S. Wacker Drive
Suite 300
Chicago, IL 60606
To the Adviser at:
------------------
-----------------------
-----------------------
To the Trust at:
----------------
-----------------------
-----------------------
15. MISCELLANEOUS; COMPLAINTS.
(a) The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Massachusetts law.
(c) The names "BB&T Mutual Funds Group" and "Trustees of BB&T Mutual
Funds Group" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated as of October 1, 1987 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "BB&T Mutual Funds Group" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any series of shares of
the Trust must look solely to the assets of the Trust belonging to such series
for the enforcement of any claims against the Trust.
6
<PAGE> 8
(d) All formal complaints should in the first instance be made in
writing to the Sub-Adviser's Compliance Officer at 7 Castle Street, Edinburgh,
EH2 3AM, United Kingdom, fax number 44(0) 131 6248151. In addition, Adviser has
the right to complain directly to IMRO.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
BRANCH BANKING & TRUST COMPANY
BY:
------------------------------------
CASTLEINTERNATIONAL ASSET
MANAGEMENT LIMITED
BY:
------------------------------------
7
<PAGE> 1
EXHIBIT (6)(C)
Form of Revised Schedules A-D to the
Distribution Agreement between the
Registrant and BISYS Fund Services
<PAGE> 2
Dated: ___________, 1996
Schedule A
to the
Distribution Agreement
between BB&T Mutual Funds Group and
The Winsbury Company Limited Partnership
Name of Fund
- -----------------------
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
The BB&T Small Company
Growth Fund
The BB&T International
Equity Fund
A-1
<PAGE> 3
BB&T MUTUAL FUNDS GROUP
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:
-----------------------------------
Names:
--------------------------------
Title:
--------------------------------
A-2
<PAGE> 4
Dated: __________, 1996
Schedule B
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services
<TABLE>
<CAPTION>
<S> <C>
Class A Shares of Class B Shares of
The BB&T U.S. Treasury The BB&T U.S. Treasury
Money Market Fund Money Market Fund
Class A Shares of Class B Shares of
The BB&T Short-Intermediate The BB&T Short-Intermediate
U.S. Government Income Fund U.S. Government Income Fund
Class A Shares of Class B Shares of
The BB&T Intermediate U.S. The BB&T Intermediate U.S.
Government Bond Fund Government Bond Fund
Class A Shares of Class B Shares of
The BB&T North Carolina The BB&T North Carolina
Intermediate Tax-Free Fund Intermediate Tax-Free Fund
Class A Shares of Class B Shares of
The BB&T Growth and The BB&T Growth and
Income Stock Fund Income Stock Fund
Class A Shares of Class B Shares of
The BB&T Balanced Fund The BB&T Balanced Fund
Class A Shares of Class B Shares of
The BB&T Small The BB&T Small
Company Growth Fund Company Growth Fund
Class A Shares of Class B Shares of
The BB&T International The BB&T International
Equity Fund Equity Fund
</TABLE>
B-1
<PAGE> 5
BB&T MUTUAL FUNDS GROUP
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:
----------------------------------
Names:
-------------------------------
Title:
-------------------------------
B-2
<PAGE> 6
Dated: _________, 1996
Schedule C
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services
Class A Shares of
The BB&T Short-Intermediate
U.S. Government Income Fund
Class A Shares of
The BB&T Intermediate U.S.
Government Bond Fund
Class A Shares of
The BB&T North Carolina
Intermediate Tax-Free Fund
Class A Shares of
The BB&T Growth and
Income Stock Fund
Class A Shares of
The BB&T Balanced Fund
Class A Shares of
The BB&T Small
Company Growth Fund
Class A Shares of
The BB&T International
Equity Fund
C-1
<PAGE> 7
BB&T MUTUAL FUNDS GROUP
By:
----------------------------
Name:
--------------------------
Title
--------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:
----------------------------
Names:
-------------------------
Title
--------------------------
C-2
<PAGE> 8
Dated: _______________, 1996
Schedule D
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services
Class B Shares of
The BB&T U.S. Treasury
Money Market Fund
Class B Shares of
The BB&T Short-Intermediate
U.S. Government Income Fund
Class B Shares of
The BB&T Intermediate U.S.
Government Bond Fund
Class B Shares of
The BB&T North Carolina
Intermediate Tax-Free Fund
Class B Shares of
The BB&T Growth and
Income Stock Fund
Class B Shares of
The BB&T Balanced Fund
Class B Shares of
The BB&T Small
Company Growth Fund
Class B Shares of
The BB&T International
Equity Fund
D-1
<PAGE> 9
BB&T MUTUAL FUNDS GROUP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
D-2
<PAGE> 1
EXHIBIT (8)(B)
Form of Custody Agreement between the
Registrant and Star Bank.
<PAGE> 2
CUSTODY AGREEMENT
-----------------
Agreement made as of the _____ day of October, 1992, between
BB&T MUTUAL FUNDS GROUP, (the "Trust"), a business trust organized under the
laws of Massachusetts and having its office at 1900 East Dublin-Granville Road,
Columbus, Ohio 43229 and Star Bank, N.A. (the "Custodian"), a national banking
association having its principal office and place of business at Star Bank
Center, 425 Walnut Street, Cincinnati, Ohio 45202, which Agreement provides for
the furnishing of custodian services to the Fund.
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth the
Trust and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
1. "Authorized Person" shall be deemed to include the Chairman,
President, Secretary, Treasurer, and the Vice Presidents, or any other person,
whether or not any such person is an officer or employee of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral Instructions and
Written Instructions for the accounts of the investment portfolios of the Trust
and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, subject in
each case to any limitations on the authority of such person as set forth in
Appendix A or any such Certificate.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees, provided the Custodian has received a
certified copy of a resolution of Board of Trustees of the Trust specifically
approving deposits in the Book-Entry System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is signed by an officer of the Trust and is actually
received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee
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<PAGE> 3
or nominees. The term "Depository" shall further mean and include any other
person or clearing agency authorized to act as a depository under the Investment
Company Act of 1940, its successor or successors and its nominee or nominees,
provided that the Custodian has received a certified copy of a resolution of the
Board of Trustees of the Trust specifically approving such other person or
clearing agency as a depository.
5. "Dividend and Transfer Agent" shall mean the dividend and transfer
agent active, from time to time, in such capacity pursuant to a written
agreement with the Trust, changes in which the Trust shall immediately report to
the Custodian in writing.
6. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
interest by the government of the United States or agencies or instrumentalities
thereof, commercial paper, obligations (including certificates of deposit,
bankers' acceptances, repurchase and reverse repurchase agreements with respect
to the same) and bank time deposits of domestic banks that are members of
Federal Deposit Insurance Corporation, and short-term corporate obligations
where the purchase and sale of such securities normally require settlement in
federal funds or their equivalent on the same day as such purchase or sale.
7. "Officers" shall be deemed to include the Chairman, the President,
the Secretary, the Treasurer, and Vice Presidents of the Trust listed in the
Certificate annexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time.
8. "Oral Instructions" shall mean oral instructions actually received
by the Custodian from an Authorized Person (or from a person which the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions from Authorized Persons in such manner so that such Written
Instructions are received by the Custodian on the next business day.
9. "Prospectus" shall mean the currently effective prospectuses for the
Trust and statement of additional information, as filed with and declared
effective by the Securities and Exchange Commission.
10. "Security or Securities" shall mean Money Market Securities, common
or preferred stocks, options, bonds, debentures, corporate debt securities,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe
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for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
11. "Written Instructions" shall mean communication actually received
by the Custodian from one Authorized Person or from one person which the
Custodian reasonably believes in good faith to be an Authorized Person in
writing or by telex or any other such system whereby the receiver of such
communication is able to verify by codes or otherwise with a reasonable degree
of certainty the authenticity of the senders of such communication.
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<PAGE> 5
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
1. The Trust hereby constitutes and appoints the Custodian as custodian
of all the Securities and monies of each investment portfolio of the Trust
identified on Appendix B hereto (a "Fund"); such securities and monies at any
time owned by a Fund during the period of this Agreement are defined as "Fund
Assets".
2. The Custodian hereby accepts appointment as such Custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
--------------------------------------
The Trust hereby agrees to furnish to the Custodian the following
documents:
1. A copy of its Agreement and Declaration of Trust (the
"Declaration of Trust") and any amendments thereto, certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. A copy of the resolution of its Board of Trustees
appointing the Custodian certified by its Secretary.
4. A copy of the most recent Prospectus of the Trust.
5. A Certificate of the President and Secretary setting forth
the names and signatures of the present officers of the Trust.
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<PAGE> 6
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
------------------------------
1. The Trust will deliver or cause to be delivered to the
Custodian all Fund Asset, including cash received for the issuance of its
shares, at any time during the period of this Agreement. The Custodian will not
be responsible for such Fund Assets until actually received by it. Upon such
receipt, the Custodian shall hold in safekeeping and physically segregate at all
times from the property of any other persons, firms or corporations all Fund
Assets received by it from or for the account of a Fund. The Custodian will be
entitled to reverse any credits made on a Fund's behalf where such credits have
been previously made and monies are not finally collected within 90 days of the
making of such credits. The Custodian is hereby authorized by the Trust to
actually deposit any Fund Assets in the Book-Entry System or in a Depository,
provided, however, that the Custodian shall always be accountable to the Trust
for the Fund Assets so deposited. Fund Assets deposited in the BookEntry System
or the Depository will be represented in accounts which include only assets held
by the Custodian for customers, including but not limited to accounts in which
the Custodian acts in a fiduciary or representative capacity.
2. The Custodian shall credit to a separate account or accounts in the
name of a Fund all monies received by it for the account of a Fund, and shall
disburse the same only:
(a) In payment for Securities purchased for the account
of a Fund, as provided in Article V;
(b) In payment of dividends or distributions, as
provided in Article VI hereof;
(c) In payment of original issue or other taxes, as
provided in Article VII hereof;
(d) In payment for shares of a Fund redeemed by it, as
provided in Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting
forth the name and address of the person to whom the payment is to be made, the
amount of such payment and the purpose for which payment is to be made (the
Custodian not being required to question such direction) or (ii) if reserve
requirements are established for the Trust by law or by valid regulation,
directing the Custodian to deposit a specified amount of collected funds in the
form of U.S. dollars at a specified Federal Reserve Bank and stating the purpose
of such deposit;
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<PAGE> 7
(f) In reimbursement of the expenses and liabilities of
the Custodian, as provided in paragraph 10 of Article IX hereof; or
(g) For transfer to a demand or time deposit account
of a Fund in any bank, whether domestic or foreign, or in any savings and loan
association.
3. Promptly after the close of business on each day the Trust is open
and valuing its portfolios, the Custodian shall furnish the Trust with a
detailed statement of monies held for the Trust under this Agreement and with
confirmations and a summary of all transfers to or from the account of the Funds
during said day. Where Securities are transferred to the account of the Funds
without physical delivery, the Custodian shall also identify as belonging to a
Fund a quantity of Securities in a fungible bulk of Securities registered in the
name of the Custodian (or its nominee) or shown on the Custodian's account on
the books of the Book-Entry System or the Depository. At least monthly and from
time to time, the Custodian shall furnish the Trust with a detailed statement of
the Securities held for the Funds under this Agreement.
4. All Securities held for a Fund, which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Custodian in that form; all other Securities held for a Fund may
be registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the Depository or their
successor or successors, or their nominee or nominees. The Trust agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of a Fund and which may from
time to time be registered in the name of the Funds. The Custodian shall hold
all such Securities which are not held in the Book-Entry System by the
Depository or a Sub-Custodian in a separate account or accounts in the name of
each Fund segregated at all times from those of any other Fund maintained and
operated by the Trust and from those of any other person or persons. The
Custodian shall have no power or authority to assign, hypothecate, pledge or
otherwise dispose of any Securities held for the Trust, except pursuant to Oral
or Written Instructions or a Certificate, or as otherwise
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<PAGE> 8
provided herein and only for the account of a Fund as provided herein.
5. Unless otherwise instructed to the contrary by a Certificate, the
Custodian shall with respect to all Securities held for a Fund in accordance
with this Agreement:
(a) Collect all income due or payable to the Fund with
respect to the Fund Assets;
(b) Present for payment and collect the amount payable
upon all Securities which may mature or be called, redeemed, or retired, or
otherwise become payable;
(c) Surrender Securities in temporary form for
definitive Securities;
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of the
Fund all rights and similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian
directly or through the use of the Book-Entry System or the Depository shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of a Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for a Fund in exchange for
other Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any Securities held for the account of a Fund to
any protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery; and
(d) Make such transfers or exchanges of the assets of a Fund
and take such other steps as shall be stated in said Certificate to be for the
purpose of effectuating any duly
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<PAGE> 9
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of a Fund.
7. The Custodian shall promptly deliver to the Trust all notices, proxy
material and executed but unvoted proxies pertaining to shareholder meetings of
Securities held by a Fund. The Custodian shall not vote or authorize the voting
of any Securities or give any consent, waiver or approval with respect thereto
unless so directed by a Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Trust all material
received by the Custodian and pertaining to Securities held by a Fund with
respect to tender or exchange offers, calls for redemption or purchase,
expiration of rights, name changes, stock splits and stock dividends, or any
other activity involving ownership rights in such Securities.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
---------------------------------------------
1. Promptly after each purchase of Securities by a Fund,
the Trust shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate or Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Written Instructions, a Certificate or Oral Instructions, specifying with
respect to each such purchase: (a) the name of the issuer and the title of the
Securities, (b) the principal amount purchased and accrued interest, if any, (c)
the date of purchase and settlement, (d) the purchase price per unit, (e) the
total amount payable upon such purchase and (f) the name of the person from whom
or the broker through whom the purchase was made. The Custodian shall upon
receipt of Securities purchased by or for a Fund, pay out of the monies held for
the account of such Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Written Instructions
or Oral Instructions.
2. Promptly after each sale of Securities by the Trust for the account
of a Fund, the Trust shall deliver to the Custodian (i) with respect to each
sale of Securities which are not Money Market Securities, a Certificate or
Written Instructions, and (ii) with respect to each sale of Money Market
Securities, Written Instructions, a Certificate or Oral Instructions, specifying
with respect to each such sale: (a) the name of the issuer and the title of the
Security, (b) the principal amount
Page -8
<PAGE> 10
sold, and accrued interest, if any, (c) the date of sale, (d) the sale price per
unit, (e) the total amount payable to such Fund upon such sale and (f) the name
of the broker through whom or the person to whom the sale was made. The
Custodian shall deliver the Securities upon receipt of the total amount payable
to such Fund upon such sale, provided that the same conforms to the total amount
payable as set forth in such Certificate, Written Instructions or Oral
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
3. Promptly after the time as of which a Fund, either -
(a) writes an option on Securities or writes a covered
put option in respect of a Security, or
(b) notifies the Custodian that its obligations in respect of
any put or call option, as described in the Prospectus, require that the Fund
deposit Securities or additional Securities with the Custodian, specifying the
type and value of Securities required to be so deposited, or
(c) notifies the Custodian that its obligations in respect of
any other Security, as described in the Prospectus, require that the Fund
deposit Securities or additional Securities with the Custodian, specifying the
type and value of Securities required to be so deposited, the Custodian will
cause to be segregated or identified as deposited, pursuant to the Fund's
obligations as set forth in the Prospectus, Securities of such kinds and having
such aggregate values as are required to meet the Fund's obligations in respect
thereof.
The Trust will provide to the Custodian, as of the end of each
trading day, the market value of each Fund's option liability and the market
value of its portfolio of common stocks.
4. Subject to the above provisions of Article V, on contractual
settlement date, the account of the Fund will be charged for all purchases
settling on that day, regardless of whether or not delivery is made. On
contractual settlement date, sale proceeds will likewise be credited to the
account of the Fund irrespective of delivery.
In the case of "sale fails", the Custodian may request the
assistance of the Fund in making delivery of the failed Security.
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<PAGE> 11
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
-------------------------------------
1. The Trust shall furnish to the Custodian a copy of the
resolution of the Board of Trustees, certified by the Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution in
respect of shares of a Fund, the date of payment thereof, the record date as of
which Fund shareholders entitled to payment shall be determined, the amount
payable per share to Fund shareholders of record as of that date and the total
amount to be paid by the Dividend and Transfer Agent of the Fund on the payment
date, or (ii) authorizing the declaration of dividends and distributions in
respect of shares of a Fund on a daily basis and authorizing the Custodian to
rely on Written Instructions or a Certificate setting forth the date of the
declaration of any such dividend or distribution, the date of payment thereof,
the record date as of which Fund shareholders entitled to payment shall be
determined, the amount payable per share to Fund shareholders of record as of
that date and the total amount to be paid by the Dividend and Transfer Agent on
the payment date.
2. Upon the payment date specified in such resolution, Written
Instructions or Certificate, as the case may be, the Custodian shall arrange for
such payments to be made by the Dividend and Transfer Agent out of monies held
for the account of a Fund.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUNDS
------------------------------------------
1. The Custodian shall receive and credit to the account
of a Fund such payments for shares of the Fund issued or sold from time to time
as are received from the distributor for the Fund's shares, from the Dividend
and Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, the Custodian shall arrange
for payment of redemption proceeds to be made by the Dividend and Transfer Agent
out of the monies held for the account of a Fund in the total amount specified
in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption of any
shares of a Fund, whenever shares of a Fund which is marked by an asterisk on
Appendix B, are redeemed pursuant to any check redemption privilege which may
from time to time be offered by the Fund, the Custodian, unless otherwise
subsequently instructed by Written Instructions shall, upon
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<PAGE> 12
receipt of any Written Instructions setting forth that the redemption is in good
form for redemption in accordance with the check redemption procedure, honor the
check presented as part of such check redemption privilege out of the money held
in the account of such Fund for such purposes.
ARTICLE VIII
INDEBTEDNESS
------------
In connection with any borrowings, the Trust will cause to be
delivered to the Custodian by a bank or broker (including the Custodian, if the
borrowing is from the Custodian), requiring Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank or broker setting forth the amount which such bank or broker will loan to a
Fund against delivery of a stated amount of collateral. The Trust shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
borrowing: (a) the name of the bank or broker, (b) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Trust, acting on behalf of the Fund, or
other loan agreement, (c) the date and time, if known, on which the loan is to
be entered into, (d) the date on which the loan becomes due and payable, (e) the
total amount payable to a Fund on the borrowing date, (f) the market value of
Securities collateralizing the loan, including the name of the issuer, the title
and the number of shares or the principal amount of any particular Securities
and (g) a statement that such loan conforms with the Investment Company Act of
1940 and the then current Prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank or broker
of the total amount of the loan payable provided that the same conforms to the
total amount payable as set forth in the Certificate. The Custodian may, at the
option of the lending bank or broker, keep such collateral in its possession,
but such collateral shall be subject to all rights therein given the lending
bank or broker, by virtue of any promissory note or loan agreement. The
Custodian shall deliver in the manner directed by the Trust from time to time
such Securities as additional collateral as may be specified in a Certificate to
collateralize further any transaction described in this paragraph. The Trust
shall cause all Securities released from collateral status to be returned
directly to the Custodian and the Custodian shall receive from time to time such
return of
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<PAGE> 13
collateral as may be tendered to it. In the event that the Trust fails to
specify in a Certificate or Written Instructions the name of the issuer, the
title and number of shares or the principal amount of any particular Securities
to be delivered as collateral by the Custodian, the Custodian shall not be under
any obligation to deliver any Securities. The Custodian may require such
reasonable conditions with respect to such collateral and its dealings with
third-party lenders as it may deem appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
------------------------
1. Except as otherwise provided herein, the Custodian
shall not be liable for any loss or damage, including counsel fees, resulting
from its action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence, bad faith or willful misconduct. The
Trust, on behalf of a Fund and only from Fund Assets (or insurance purchased by
the Trust with respect to its liabilities on behalf of a Fund hereunder), shall
defend, indemnify and hold harmless the Custodian and its directors, officers,
employees and agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Trust's duties with respect to a Fund hereunder or any other
action or inaction of the Trust or its Directors, officers, employees or agents,
except such as may arise from the negligent action, omission or willful
misconduct of the Custodian, its directors, officers, employees or agents. The
Custodian shall defend, indemnify and hold harmless the Trust and its Trustees,
officers, employees or agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Custodian's duties with respect to a Fund hereunder or any other
action or inaction of the Custodian or its directors, officers, employees,
agents, nominees or Sub-Custodians, except such as may arise from the negligent
action, omission or willful misconduct of the Trust, its Trustees, officers,
employees or agents. The Custodian may, with respect to questions of law apply
for and obtain the advice and opinion of counsel to the Trust at the expense of
a Fund, or of its own counsel at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
the advice or opinion of counsel to the Trust, and shall be similarly protected
with respect to anything done or omitted by it in good faith in conformity with
advice or opinion of its counsel, unless counsel
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<PAGE> 14
to the Trust shall, within a reasonable time after being notified of legal
advice received by the Custodian, have a differing interpretation of such
question of law. The Custodian shall be liable to the Trust for any proximate
loss or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or misconduct on the part of
the Custodian or any of its employees, agents, nominees or Sub-Custodians but
not for any special, incidental, consequential, or punitive damages; provided,
however, that nothing contained herein shall preclude recovery by the Trust of
principal and of interest to the date of recovery on, Securities incorrectly
omitted from a Fund's account or penalties imposed on the Trust for any failures
to deliver Securities.
In any case in which one party hereto may be asked to
indemnify the other or hold the other harmless, the party from whom
indemnification is sought (the "Indemnifying Party") shall be advised of all
pertinent facts concerning the situation in question, and the party claiming a
right to indemnification (the "Indemnified Party") will use reasonable care to
identify and notify the Indemnifying Party promptly concerning any situation
which presents or appears to present a claim for indemnification against the
Indemnifying Party. The Indemnifying Party shall have the option to defend the
Indemnified Party against any claim which may be the subject of the
indemnification, and in the event the Indemnifying Party so elects, such defense
shall be conducted by counsel chosen by the Indemnifying Party and satisfactory
to the Indemnified Party and the Indemnifying Party will so notify the
Indemnified Party and thereupon such Indemnifying Party shall take over the
complete defense of the claim and the Indemnifying Party shall sustain no
further legal or other expenses in such situation for which indemnification has
been sought under this paragraph, except the expenses of any additional counsel
retained by the Indemnified Party. In no case shall any party claiming the right
to indemnification confess any claim or make any compromise in any case in which
the other party has been asked to indemnify such party (unless such confession
or compromise is made with such other party's prior written consent).
The obligations of the parties hereto under this paragraph
shall survive the termination of this Agreement.
2. Without limiting the generality of the foregoing, the Custodian,
acting in the capacity of Custodian hereunder, shall be under no obligation to
inquire into, and shall not be liable for:
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<PAGE> 15
(a) The validity of the issue of any Securities
purchased by or for the account of a Fund, the legality of the purchase
thereof, or the propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by or
for the account of a Fund, or the propriety of the amount for which the same
are sold;
(c) The legality of the issue or sale of any shares of
a Fund, or the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of a
Fund, or the propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any
dividend by the Trust in respect of shares of a Fund;
(f) The legality of any borrowing by the Trust, on
behalf of a Fund, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a
Certificate described in clause (ii) of paragraph 2(e) of Article IV hereof,
3. The Custodian shall not be liable for any money or collected funds
in U.S. dollars deposited in a Federal Reserve Bank in accordance with a
Certificate described in clause (ii) of paragraph 2(e) of Article IV hereof, nor
be liable for or considered to be the Custodian of any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by it on behalf of a Fund until the Custodian actually receives and
collects such money directly or by the final crediting of the account
representing a Fund's interest at the Book-Entry System or Depository.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to a Fund from the Dividend and
Transfer Agent nor to take any action to effect payment or distribution by the
Dividend and Transfer Agent of any amount paid by the Custodian to the Dividend
and Transfer Agent in accordance with this Agreement.
5. Income due or payable to a Fund with respect to Fund
Assets will be credited to the account of the Fund as follows:
(a) Dividends will be credited on the first business
day following payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities
issued or guaranteed as to principal and/or interest by the government of the
United States or agencies or instrumentalities thereof (excluding securities
issued by the Government National Mortgage Association) will be credited on
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<PAGE> 16
payable date irrespective of collection.
(c) Interest on fixed rate corporate debt securities will be
credited on the first business day following payable date irrespective of
collection.
(d) Interest on variable and floating rate debt securities and
debt securities issued by the Government National Mortgage Association will be
credited upon the Custodian's receipt of funds.
(e) Proceeds from options will be credited upon the
Custodian's receipt of funds.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian shall
not be under any duty or obligation to take action on behalf of any Fund of the
Trust to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) the Fund, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it. The Custodian will, however, promptly notify the Trust in
writing of such default and refusal to pay.
7. The Custodian may appoint one or more financial or banking
institutions, as Depository or Depositories or as Sub-Custodian or
Sub-Custodians, provided, however, that any such Depository or Sub-Custodian be
eligible to act as such under the Investment Company Act of 1940, including, but
not limited to, banking institutions located in foreign countries, of Securities
and monies at any time owned by a Fund, upon terms and conditions approved in a
Certificate. Current Depository(s) and Sub-Custodian(s) are noted in Appendix
C. The Custodian shall not be relieved of any obligation or liability under this
Agreement in connection with the appointment or activities of such Depositories
or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
a Fund are such as properly may be held by the Fund under the provisions of the
Declaration of Trust and the Trust's By-Laws.
9. The Custodian shall treat all records and other information relating
to the Trust, the Funds and the Fund Assets as confidential and shall not
disclose any such records or information to any other person unless (a) the
Trust shall have consented thereto in writing or (b) such disclosure is
compelled
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<PAGE> 17
by law.
10. The Custodian shall be entitled to receive and the Trust agrees to
pay to the Custodian, for a Fund's account from Fund Assets only, such
compensation as shall be determined pursuant to Appendix D attached hereto, or
as shall be determined pursuant to amendments to such Appendix approved by the
Custodian and the Trust. The Custodian shall be entitled to charge against any
money held by it for the account of a Fund the amount of any loss, damage,
liability or expense, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement as determined by agreement
of the Custodian and the Trust or by the final order of any court or arbitrator
having jurisdiction and as to which all rights of appeal shall have expired. The
expenses which the Custodian may charge against the account of a Fund include,
but are not limited to, the expenses of Sub-Custodians incurred in settling
transactions involving the purchase and sale of Securities of the Fund.
11. The Custodian shall be entitled to rely upon any Certificate. The
Custodian shall be entitled to rely upon any Oral Instructions and any Written
Instructions actually received by the Custodian pursuant to Article IV or V
hereof. The Trust agrees to forward to the Custodian Written Instructions from
Authorized Persons confirming Oral Instructions in such manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, on the first business day following the day on which such
Oral Instructions are given to the Custodian. The Trust agrees that the fact
that such confirming instructions are not received by the Custodian shall in no
way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Trust. The Trust agrees that the Custodian
shall incur no liability to the Trust in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
12. The Custodian will (a) set up and maintain proper books of account
and complete records of all transactions in the accounts maintained by the
Custodian hereunder in such manner as will meet the obligations of the Trust
under the Investment Company Act of 1940, with particular attention to Section
31 thereof and Rules 31 a-1 and 31 a-2 thereunder, and (b) preserve for the
periods prescribed by applicable Federal statute or regulation all records
required to be so preserved. All books and records shall be the property of the
Trust and shall be open to inspection and audit at reasonable times and with
prior notice
Page -16
<PAGE> 18
by Officers and auditors employed by the Trust.
13. The Custodian and its Sub-Custodians shall promptly send to the
Trust, for the account of the Funds, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and with
such reports on their own systems of internal accounting control as the Trust
may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of the
Securities from time to time owned by the Funds. The Custodian is not a selling
agent for shares of the Funds and performance of its duties as a custodial agent
shall not be deemed to be a recommendation to the Custodian's depositors or
others of shares of a Fund as an investment.
ARTICLE X
TERMINATION
-----------
1. Either of the parties hereto may terminate this Agreement for any
reason by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after the date
of giving of such notice. If such notice is given by the Trust, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits and which shall be eligible to act as a
Custodian under the Investment Company Act of 1940. In the event such notice is
given by the Custodian, the Trust shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of its Board of Trustees,
certified by the Secretary, designating a successor custodian or custodians. In
the absence of such designation by the Trust, the Custodian may designate a
successor custodian which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus, and undivided profits and which shall be
eligible to act as a Custodian under the Investment Company Act of 1940. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian, provided that it has received a notice of acceptance by the successor
custodian, shall deliver, on that date, directly to the successor custodian all
Securities and monies then owned by a Fund and held by it as Custodian. Upon
termination of this Agreement, the Trust shall pay to the
Page -17
<PAGE> 19
Custodian such compensation as may be due as of the date of such termination.
The Trust agrees that the Custodian shall be reimbursed for its reasonable costs
in connection with the termination of this Agreement.
2. If a successor custodian is not designated by the Trust or by the
Custodian in accordance with the preceding paragraph, or the designated
successor cannot or will not serve, the Trust shall upon the delivery by the
Custodian to the Trust of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Trust) and monies then owned
by a Fund, other than monies deposited with a Federal Reserve Bank pursuant to a
Certificate described in clause (ii) of paragraph 2(e) of Article IV, be deemed
to be the custodian for a Fund, and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which cannot be
delivered to the Trust to hold such Securities hereunder in accordance with this
Agreement.
Page -18
<PAGE> 20
ARTICLE XI
MISCELLANEOUS
-------------
1. Appendix A sets forth the names and the signatures of all Authorized
Persons. The Trust agrees to furnish to the Custodian, a new Appendix A in form
similar to the attached Appendix A, if any present Authorized Person ceases to
be an Authorized Person or if any other or additional Authorized Persons are
elected or appointed. Until such new Appendix A shall be received, the Custodian
shall be fully protected in acting under the provisions of this Agreement upon
Oral Instructions or signatures of the present Authorized Persons as set forth
in the last delivered Appendix A.
2. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer,
Director, past, present or future as such, of the Trust or of any predecessor or
successor, either directly or through the Trust or any such predecessor or
successor, whether by virtue of any constitution, statute or rule of law or
equity, or be the enforcement of any assessment or penalty or otherwise; it
being expressly agreed and understood that this Agreement and the obligations
thereunder are enforceable solely against Fund Assets, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, Officers, Trustees of the Trust or of any predecessor
or successor, or any of them as such, because of the obligations contained in
this Agreement or implied therefrom and that any and all such liability is
hereby expressly waived and released by the Custodian as a condition of, and as
a consideration for, the execution of this Agreement.
3. The names "BB&T Mutual Funds Group" and "The Trustees of BB&T Mutual
Funds Group" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated as of October 1, 1987, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto filed or hereafter filed. The obligations of "BB&T Mutual
Funds Group" entered into in the name or on behalf of thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind
Page -19
<PAGE> 21
only the assets of the Trust, and all persons dealing with any series of shares
of the Trust must look solely to the assets of the Trust belonging to such
series for the enforcement of any claims against the Trust.
4. Such provisions of the Prospectus of the Fund and any other
documents (including advertising material) specifically mentioning the Custodian
(other than merely by name and address) shall be reviewed with the Custodian by
the Trust.
5. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at Star
Bank Center, 425 Walnut Street, M. L. 6118, Cincinnati, Ohio 45202, attention
Trust Custody Services Department, or at such other place as the Custodian may
from time to time designate in writing.
6. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust shall be sufficiently given when
delivered to the Trust or on the second business day following the time such
notice is deposited in the U.S. mail postage prepaid and addressed to the Trust
at its office at 1900 East Dublin-Granville Road, Columbus, Ohio 43229, or at
such other place as the Trust may from time to time designate in writing.
7. This Agreement with the exception of Appendices A, B and C may not
be amended or modified in any manner except by a written agreement executed by
both parties with the same formality as this Agreement, and authorized and
approved by a resolution of the Board of Trustees of the Trust.
8. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust or by the Custodian, and no
attempted assignment by the Trust or the Custodian shall be effective without
the written consent of the other party hereto.
9. This Agreement shall be construed in accordance with the laws
of the State of Ohio.
10. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto duly authorized
as of the day and year first above written.
Page -20
<PAGE> 22
ATTEST: BB&T Mutual Funds Group
- -------------------------------
By:
----------------------
ATTEST: Star Bank, N.A.
- -------------------------------
By:
----------------------
By:
-----------------
Page -21
<PAGE> 23
APPENDIX A
Board of Trustees
-----------------
Authorized Persons Specimen Signatures
------------------ -------------------
President:
----------------------- -------------------------
Secretary:
----------------------- -------------------------
Treasurer:
----------------------- -------------------------
Vice President:
----------------------- -------------------------
Adviser Employees: *
----------------------- -------------------------
*
----------------------- -------------------------
*
----------------------- -------------------------
*Authority restricted; does not include: (i) authority to sign checks on Fund
accounts or make other withdrawals or distributions of Fund monies or (ii) such
other authority as may be withheld or limited by a Certificate or Written
Instructions signed by two Officers of the Trust and delivered to the Custodian.
Page -22
<PAGE> 24
APPENDIX B
NAME OF FUND
*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 Capital Manager Growth Fund
The BB&T Capital Manager Moderate Growth Fund
The BB&T Capital Manager Conservative Growth Fund
Page -23
<PAGE> 25
APPENDIX C
The following Depository(s) and Sub-Custodian(s) are employed
currently by Star Bank, N.A. for securities processing and control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
APPENDIX D
CUSTODY COMPENSATION SCHEDULE
Star Bank, N.A. as Custodian, will receive monthly compensation
for services according to the terms of the following schedule:
I. PORTFOLIO TRANSACTION FEES:
-------------------------------
(a) For each repurchase agreement transaction $7.00
(b) For each portfolio transaction processed through
DTC or Federal Reserve $10.00
(c) For each portfolio transaction processed through
Page -24
<PAGE> 26
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $40.00
(f) For each GNMA Prin/Int Paydown, GNMA Sales $ 8.00
(g) For each option/future contract written,
exercised or expired $25.00
(h) For each disbursement (Fund expenses only) $5.00
(i) Wires:
<TABLE>
<CAPTION>
(PC-customer (Telephone
initiated) initiated) ECDA
- ---------- ----------- ----
<S> <C> <C>
Incoming (with notification) $8.00 $5.50
Outgoing (Repetitive) $8.00 $6.75
Outgoing (Non-repetitive) $8.00 Not yet available
</TABLE>
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange.
II. MONTHLY BASE FEE PER ACCOUNT $400.00
III. OUT-OF-POCKET EXPENSES
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
IV. IRA DOCUMENTS
Per Shareholder/year to hold each IRA Document $8.00
V. EARNINGS CREDITS
Page -25
<PAGE> 27
On a monthly basis any earnings credits generated from uninvested
custody balances will be first applied against any cash management service
fees and then to custody transaction fees (as referenced in item #1 above).
Earnings credits are based on the average yield on the 91 day U.S. Treasury
Bill for the preceding thirteen weeks less the 10% reserve.
All compensation is payable monthly.
Page-26
<PAGE> 1
EXHIBIT (8)(C)
Form of Custody Agreement between the Registrant
and Bank of New York
<PAGE> 2
CUSTODY AGREEMENT
Agreement made as of this day of , 1996, between BB&T MUTUAL FUNDS
GROUP, a Massachusetts business trust organized and existing under the laws of
the Commonwealth of Massachusetts, having its principal office and place of
business at 3435 Stelzer Road, Columbus, Ohio 43219 (hereinafter called the
"Fund"), and THE BANK OF NEW YORK, a New York corporation authorized to do a
banking business, having its principal office and place of business at 48 Wall
Street, New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise
<PAGE> 3
price, as specified therein, to purchase from the writer thereof the specified
underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
Instructions.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of the O.C.C. and a member of a national
securities exchange qualified to act as a custodian for an investment company,
or any broker-dealer reasonably believed by the Custodian to be such a clearing
member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Composite Currency Unit" shall mean the European Currency Unit or
any other composite unit consisting of the aggregate of specified amounts of
specified Currencies as such unit may be constituted from time to time.
8. "Currency" shall mean money denominated in a lawful currency of any
country or the European Currency Unit.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securi-
-2-
<PAGE> 4
ties and Exchange Commission, its successor or successors and its nominee or
nominees. The term "Depository" shall further mean and include any other person
authorized to act as a depository under the Investment Company Act of 1940, its
successor or successors and its nominee or nominees, specifically identified in
a certified copy of a resolution of the Fund's Board of Trustees specifically
approving deposits therein by the Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
13. "FX Transaction" shall mean any transaction for the purchase by one
party of an agreed amount in one Currency against the sale by it to the other
party of an agreed amount in another Currency.
14. "Instructions" shall mean instructions communications transmitted
by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an Officer or unsigned) and tested telex.
13. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be
-3-
<PAGE> 5
deposited and withdrawn from time to time in connection with such transactions
as the Fund may from time to time determine. Securities held in the Book-Entry
System or the Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effecting an appropriate
entry in its books and records.
14. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
15. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
16. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Trustees of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
17. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.
18. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
-4-
<PAGE> 6
19. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
20. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
21. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
22. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
23. "Series" shall mean the various portfolios, if any, of the Fund as
listed on Appendix B hereto as amended from time to time.
-5-
<PAGE> 7
24. "Shares" shall mean the shares of beneficial interest of the Fund,
each of which is, in the case of a Fund having Series, allocated to a
particular Series.
25. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
26. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by the Fund and allocated to a
Series during the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically
-6-
<PAGE> 8
allocated. The Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be responsible for any
Securities and moneys not actually received by it. The Custodian will be
entitled to reverse any credits made on the Fund's behalf where such credits
have been previously made and moneys are not finally collected. The Fund shall
deliver to the Custodian a certified resolution of the Board of Trustees of the
Fund, substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in the Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund, substantially in
the form of Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to the contrary by
a Certificate actually received by the Custodian to deposit in the Depository
all Securities specifically allocated to such Series eligible for deposit
therein, and to utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral.
Securities and moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only assets held by the
Custodian for customers, including, but not limited to, accounts in which the
Custodian acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate account for the
applicable Series. Prior to the Custodian's accepting, utilizing and acting with
respect to Clearing Member confirmations for Options and transactions in Options
for a Series as provided in this Agreement, the
-7-
<PAGE> 9
Custodian shall have received a certified resolution of the Fund's Board of
Trustees, substantially in the form of Exhibit C hereto, approving, authorizing
and instructing the Custodian on a continuous and on-going basis, until
instructed to the contrary by a Certificate actually received by the Custodian,
to accept, utilize and act in accordance with such confirmations as provided in
this Agreement with respect to such Series. All Securities are to be held or
disposed of by the Custodian for, and subject at all times to the instructions
of, the Fund pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be subject only
to drafts, orders, or charges of the Custodian pursuant to this Agreement and
shall be disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
-8-
<PAGE> 10
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income, dividends and distributions
due or payable;
-9-
<PAGE> 11
(b) Promptly give notice to the Fund and promptly present for
payment and collect the amount payable upon such Securities which are called,
but only if either (i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publications listed in
Appendix C annexed hereto, which may be amended at any time by the Custodian
without the prior notification or consent of the Fund;
(c) Promptly present for payment and collect the amount
payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations
or certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered owner (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
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<PAGE> 12
(a) Promptly execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held by
the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Promptly deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any right, warrant or conversion privilege and
receive and hold hereunder specifically allocated to such Series any cash or
other Securities received in exchange;
(c) Promptly deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold hereunder specifically allocated
to such Series such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Promptly make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Promptly present for payment and collect the amount
payable upon Securities not described in preceding paragraph 5(b) of this
Article which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain posses-
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<PAGE> 13
sion of any instrument or certificate representing any Futures Contract, any
Option, or any Futures Contract Option until after it shall have determined, or
shall have received a Certificate from the Fund stating, that any such
instruments or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to such availability,
the Custodian shall comply with Section 17(f) of the Investment Company Act of
1940, as amended, in connection with the purchase, sale, settlement, closing out
or writing of Futures Contracts, Options, or Futures Contract Options by making
payments or deliveries specified in Certificates received by the Custodian in
connection with any such purchase, sale, writing, settlement or closing out upon
its receipt from a broker, dealer, or futures commission merchant of a statement
or confirmation reasonably believed by the Custodian to be in the form
customarily used by brokers, dealers, or future commission merchants with
respect to such Futures Contracts, Options, or Futures Contract Options, as the
case may be, confirming that such Security is held by such broker, dealer or
futures commission merchant, in book- entry form or otherwise, in the name of
the Custodian (or any nominee of the Custodian) as custodian for the Fund,
provided, however, that notwithstanding the foregoing, payments to or deliveries
from the Margin Account and payments with respect to Securities to which a
Margin Account relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such instruments or
certificates are available, the Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any Futures Contract,
Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
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<PAGE> 14
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price
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<PAGE> 15
per unit; (f) the total amount payable to the Fund upon such sale; (g) the name
of the broker through whom or the person to whom the sale was made, and the name
of the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount payable as set forth
in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
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<PAGE> 16
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate
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<PAGE> 17
specifying with respect to such Put Option: (a) the Series to which such Put
Option was specifically allocated; (b) the name of the issuer and the title and
number of shares subject to the Put Option; (c) the expiration date; (d) the
date of exercise and settlement; (e) the exercise price per share; (f) the total
amount to be paid to the Fund upon such exercise; and (g) the name of the
Clearing Member through whom such Put Option was exercised. The Custodian shall,
upon receipt of the amount payable upon the exercise of the Put Option, deliver
or direct the Depository to deliver the Securities specifically allocated to
such Series, provided the same conforms to the amount payable to the Fund as set
forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Op-
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<PAGE> 18
tions and shall impose, or direct the Depository to impose, upon the underlying
Securities specified in the Certificate specifically allocated to such Series
such restrictions as may be required by such receipts. Notwithstanding the
foregoing, the Custodian has the right, upon prior written notification to the
Fund, at any time to refuse to issue any receipts for Securities in the
possession of the Custodian and not deposited with the Depository underlying a
Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series
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<PAGE> 19
to be deposited into the Collateral Account for such Series. The Custodian
shall, after making the deposits into the Collateral Account specified in the
Certificate, issue a Put Option guarantee letter substantially in the form
utilized by the Custodian on the date hereof, and deliver the same to the
Clearing Member specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing, the Custodian
shall be under no obligation to issue any Put Option guarantee letter or similar
document if it is unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise
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<PAGE> 20
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Stock Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock
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<PAGE> 21
Index Option was specifically allocated to the Clearing Member specified in the
Certificate the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
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<PAGE> 22
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the moneys specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be
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<PAGE> 23
received and dealt with by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
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<PAGE> 24
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Op tion purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Future Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate
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<PAGE> 25
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option (put or call)
being exercised; (c) the type of Futures Contract underlying the Futures
Contract Option; (d) the date of exercise; (e) the name of the broker or futures
commission merchant through whom the Futures Contract Option is exercised; (f)
the net total amount, if any, payable by the Fund; (g) the amount, if any, to be
received by the Fund; and (h) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall make, out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly
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<PAGE> 26
deliver to the Custodian a Certificate specifying: (a) the Series to which such
Futures Contract Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any, specified in such Certificate make
the payments, if any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
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7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased
by the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
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SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing- out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom
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the Fund is effecting such closing-out. The Custodian shall, upon receipt of the
net total amount payable to the Fund upon such closing-out, and the return
and/or cancellation of the receipts, if any, issued by the Custodian with
respect to the short sale being closed-out, pay out of the moneys held for the
account of the Fund to the broker the net total amount payable to the broker,
and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security,
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a Certificate or Oral Instructions to the Custodian specifying: (a) the Reverse
Repurchase Agreement being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with such termination;
(c) the amount and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such termination; (d)
the date of termination; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of
cash and/or the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a
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certified or bank cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds and may deliver Securities in
accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities
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to be deposited by the Custodian into, or withdrawn from, a Senior Securities
Account, the Custodian shall be under no obligation to make any such deposit or
withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall to the extent permitted by the Fund's
Declaration of Trust, investment restrictions and the Investment Company Act of
1940 have a continuing lien and security interest in and to any property at any
time held by the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its lien and realize on
any such property whenever the Custodian has made payment or delivery pursuant
to any Put Option guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should realize on any
such property net proceeds which are less than the Custodian's obligations under
any Put Option guarantee letter or similar document or any receipt, such
deficiency shall be a debt owed the Custodian by the Fund within the scope of
Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
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6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
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ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
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(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of
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an advice from the Fund or its agent setting forth that the redemption is in
good form for redemption in accordance with the check redemption procedure,
honor the check presented as part of such check redemption privilege out of the
moneys held in the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted to the Custodian
with respect to a Series, including any indebtedness to The Bank of New York
under the Fund's Cash Management and Related Services Agreement, (except a
borrowing for investment or for temporary or emergency purposes using Securities
as collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting
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in the Custodian's behalf, provided that such lien shall be enforceable only to
the amount of the overdraft or indebtedness and interest thereon. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance
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with the Investment Company Act of 1940 and the Fund's prospectus. The Custodian
shall deliver on the borrowing date specified in a Certificate the specified
collateral and the executed promissory note, if any, against delivery by the
lending bank of the total amount of the loan payable, provided that the same
conforms to the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given the
lending bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in this
paragraph. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the event
that the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any particular
Securities to be delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in
order for the Fund to transmit Instructions to the Custodian (the "Software"),
the Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund agrees not to sell, reproduce, lease or otherwise provide,
directly or indirectly, the Software or any portion thereof to any third party
without the prior written consent of the Custodian.
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2. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including but not limited to communications services,
necessary for it to utilize the Software and transmit Instructions to the
Custodian. The Custodian shall not be responsible for the reliability,
compatibility with the Software or availability of any such equipment or
services or the performance or nonperformance by any nonparty to this Agreement.
3. The Fund acknowledges that the Software, all data bases made
available to the Fund by utilizing the Software (other than data bases relating
solely to the assets of the Fund and transactions with respect thereto), and any
proprietary data, processes, information and documentation (other than which are
or become part of the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses with
respect to its own confidential property and trade secrets and shall neither
make nor permit any disclosure without the prior written consent of the
Custodian. Upon termination of this Agreement or the Software license granted
hereunder for any reason, the Fund shall return to the Custodian all copies of
the Information which are in its possession or under its control or which the
Fund distributed to third parties.
4. The Custodian reserves the right to modify the Software from time to
time upon reasonable prior notice and the Fund shall install new releases of the
Software as the Custodian may direct. The Fund agrees not to modify or attempt
to modify the Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the Fund or the
Custodian and whether with or without the Custodian's consent, shall become the
property of the Custodian.
5. THE CUSTODIAN MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY KIND
WITH REGARD TO THE SOFTWARE OR THE METHOD(S) BY WHICH THE FUND MAY TRANSMIT
INSTRUCTIONS TO THE CUSTODIAN, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
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TO ANY IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
6. Where the method for transmitting Instructions by the Fund involves
an automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
7. (a) The Fund agrees that where it delivers to the Custodian
Instructions hereunder, it shall be the Fund's sole responsibility to ensure
that only persons duly authorized by the Fund transmit such Instructions to the
Custodian. The Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable use and authorization codes, passwords and
authentication keys with extreme care, and irrevocably authorizes the Custodian
to act in accordance with and rely upon Instructions received by it pursuant
hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is
fully informed of the protections and risks associated with the various methods
of transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
8. The Fund hereby presents, warrants and covenants to the Custodian
that this Agreement has been duly approved by a resolution of its Board of
Trustees, and that its transmission of Instructions pursuant hereto shall at all
times comply with the Investment Company Act of 1940, as amended.
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9. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24 hours after
the earliest of (i) discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care and (iii) in the
case of any error, the date of actual receipt of the earliest notice which
reflects such error, it being agreed that discovery and receipt of notice may
only occur on a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for maintaining custody of the Fund's
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assets and such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund or
any Series if and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign Sub-
Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed
upon, information concerning the Foreign Sub-Custodians employed by the
Custodian. Such information
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<PAGE> 43
shall be similar in kind and scope to that furnished to the Fund in connection
with the Fund's initial approval of such Foreign Sub-Custodians and, in any
event, shall include information pertaining to (i) the Foreign Custodians'
financial strength, general reputation and standing in the countries in which
they are located and their ability to provide the custodial services required,
and (ii) whether the Foreign Sub-Custodians would provide a level of safeguards
for safekeeping and custody of securities not materially different form those
prevailing in the United States. The Custodian shall monitor the general
operating performance of each Foreign Sub-Custodian. The Custodian agrees that
it will use reasonable care in monitoring compliance by each Foreign
Sub-Custodian with the terms of the relevant Foreign Sub-Custodian Agreement and
that if it learns of any breach of such Foreign Sub-Custodian Agreement believed
by the Custodian to have a material adverse effect on the Fund or any Series it
will promptly notify the Fund of such breach. The Custodian also agrees to use
reasonable and diligent efforts to enforce its rights under the relevant Foreign
Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
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9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall be limited to amounts so recovered from the Foreign
Sub-Custodian.
ARTICLE XVII
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall
promptly deliver to the Custodian a Certificate or Oral Instructions specifying
with respect to such FX Transaction: (a) the Series to which such FX Transaction
is specifically allocated; (b) the type and amount of Currency to be purchased
by the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the Currency to be purchased is to be delivered; (e) the date on
which the Currency to be sold is to be delivered; and (f) the name of the person
from whom or through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian shall
deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to
be sold on the date on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive,
the Currency to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as
the Currency to be purchased, as specified in the Certificate or Oral
Instructions, the Custodian or a Foreign Sub-Custodian may arrange for such
deliveries and receipts to be made in accordance with the customs prevailing
from time to time among brokers or dealers in Currencies, and such receipt and
delivery may not be completed simultaneously. The Fund assumes all
responsibility and
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<PAGE> 45
liability for all credit risks involved in connection with such receipts and
deliveries, which responsibility and liability shall continue until the Currency
to be received by the Fund has been received in full.
3. Any foreign exchange transaction effected by the Custodian in
connection with this Agreement may be entered with the Custodian, any office,
branch or subsidiary of The Bank of New York Company, Inc., or any Foreign
Sub-Custodian acting as principal or otherwise through customary banking
channels. The Fund may issue a standing Certificate with respect to foreign
exchange transactions but the Custodian may establish rules or limitations
concerning any foreign exchange facility made available to the Fund. The Fund
shall bear all risks of investing in Securities or holding Currency. Without
limiting the foregoing, the Fund shall bear the risks that rules or procedures
imposed by a Foreign Sub-Custodian or foreign depositories, exchange controls,
asset freezes or other laws, rules, regulations or orders shall prohibit or
impose burdens or costs on the transfer to, by or for the account of the Fund of
Securities or any cash held outside the Fund's jurisdiction or denominated in
Currency other than its home jurisdiction or the conversion of cash from one
Currency into another currency. The Custodian shall not be obligated to
substitute another Currency for a Currency (including a Currency that is a
component of a Composite Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation, rule or procedure.
Neither the Custodian nor any Foreign Sub-Custodian shall be liable to the Fund
for any loss resulting from any of the foregoing events.
ARTICLE XVIII
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its
duties hereunder, and, except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including reasonable
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<PAGE> 46
counsel fees, resulting from its action or omission to act or otherwise, either
hereunder or under any Margin Account Agreement, except for any such loss or
damage arising out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party for special,
indirect or consequential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action. The Custodian
may, with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of counsel to the
Fund, at the Fund's expense, or of its own counsel, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend
by the Fund;
(d) The legality of any borrowing by the Fund using Securities
as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation
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<PAGE> 47
to see to it that any cash collateral delivered to it by a broker, dealer, or
financial institution or held by it at any time as a result of such loan of
portfolio Securities of the Fund is adequate collateral for the Fund against any
loss it might sustain as a result of such loan. The Custodian specifically, but
not by way of limitation, shall not be under any duty or obligation periodically
to check or notify the Fund that the amount of such cash collateral held by it
for the Fund is sufficient collateral for the Fund, but such duty or obligation
shall be the sole responsibility of the Fund. In addition, the Custodian shall
be under no duty or obligation to see that any broker, dealer or financial
institution to which portfolio Securities of the Fund are lent pursuant to
Article X of this Agreement makes payment to it of any dividends or interest
which are payable to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however, that the Custodian
shall promptly notify the Fund in the event that such dividends or interest are
not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account
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representing the Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its reasonable opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expense and liability
be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
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<PAGE> 49
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all reasonable out-of-pocket expenses and such compensation
as may be agreed upon in writing from time to time between the Custodian and the
Fund. The Custodian may charge such compensation and any expenses with respect
to a Series incurred by the Custodian in the performance of its duties pursuant
to such agreement against any money specifically allocated to such Series.
Unless and until the Fund instructs the Custodian by a Certificate to apportion
any loss, damage, liability or expense among the Series in a specified manner,
the Custodian shall also be entitled to charge against any money held by it for
the account of a Series such Series' pro rata share (based on such Series net
asset value at the time of the charge to the aggregate net asset value of all
Series at that time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses for which the Custodian shall be
entitled to reimbursement hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of
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<PAGE> 50
the Custodian incurred in settling outside of New York City transactions
involving the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian (including any sub-custodian records in Custodian's
possession) shall be the property of the Fund. Such books and records shall be
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prepared and maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives including the Fund's independent
public accountants, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by the Custodian to the
Fund or the Fund's authorized representative, and the Fund shall reimburse the
Custodian its expenses of providing such copies. Upon reasonable request of the
Fund, the Custodian shall provide in hard copy or on micro-film, whichever the
Custodian elects, any records included in any such delivery which are maintained
by the Custodian on a computer disc, or are similarly maintained, and the Fund
shall reimburse the Custodian for its expenses of providing such hard copy or
micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including reasonable attorney's fees, howsoever arising or incurred because of
or in connection with this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any such liability,
claim, loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Articles XVI and XVII the Custodian may
deliver and receive Securities, and receipts with respect to such Securities,
and arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time
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<PAGE> 52
among brokers or dealers in such Securities. When the Custodian is instructed to
deliver Securities against payment, delivery of such Securities and receipt of
payment therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to instructions of the Fund,
which responsibility and liability shall continue until final payment in full
has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
17. Whenever the Custodian has the authority to deduct monies from the
account for a Series without a Certificate, it shall notify the Fund within one
business day of such deduction and the reason for it. Whenever the Custodian has
the authority to sell Securities or any other property of the Fund on behalf of
any Series without a Certificate, the Custodian will notify the Fund of its
intention to do so and afford the Fund the reasonable opportunity to select
which Securities or other property it wishes to sell on behalf of such Series.
If the Fund does not promptly sell sufficient Securities or other property on
behalf of the Series, then, after notice, the Custodian may proceed with the
intended sale.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, or any
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Assistant Secretary electing to terminate this Agreement and designating a
successor custodian or custodians, each of which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits. In the event such notice is given by the Custodian, the Fund shall, on
or before the termination date, deliver to the Custodian a copy of a resolution
of the Board of Trustees of the Fund, certified by the Secretary, or any
Assistant Secretary designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
Notwithstanding the foregoing, the Fund may terminate this
Agreement upon the date specified in a written notice in the event of the
bankruptcy of the Custodian, or any other event that the Fund reasonably
believes materially adversely affects the continued financial viability of the
Custodian.
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ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such present Officer
ceases to be an Officer or in the event that other or additional Officers are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or signatures of the present Officers as set
forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the
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Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
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<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
BB&T MUTUAL FUNDS GROUP
TRUST
[SEAL]
By:_______________________
Name:
Title:
Attest:
- -----------------------
THE BANK OF NEW YORK
[SEAL]
By:_______________________
Name:
Title:
Attest:
- -----------------------
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APPENDIX A
I, _____________________, President and I,
, of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Trustees of the
Fund to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
- -------------------- ------------------- -----------------
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<PAGE> 58
APPENDIX B
SERIES
BB&T International Equity Fund
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<PAGE> 59
APPENDIX C
I, , a Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
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EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1996, at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of , 1996, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis to deposit in the
Book-Entry System, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
----------------------------
[SEAL]
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EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of BB&T MUTUAL FUNDS GROUP, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1996, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of , 1996, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated, and to utilize
the Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
------------------------------
[SEAL]
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EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of BB&T MUTUAL FUNDS
GROUP, a Massachusetts business trust (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1996, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and
is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of , 1996, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Participants Trust Company as Depository, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent
possible in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
------------------------------
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<PAGE> 63
[SEAL]
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<PAGE> 64
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting of BB&T MUTUAL FUNDS
GROUP, a Massachusetts business trust (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1996, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and is
in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1996, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of the
Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
------------------------------
[SEAL]
-63-
<PAGE> 65
EXHIBIT D
The undersigned, , hereby certifies that he
or she is the duly elected and acting of BB&T MUTUAL
FUNDS GROUP, a Massachusetts business trust (the "Fund"), further certifies that
the following resolutions were adopted by the Board of Trustees of the Fund at
a meeting duly held on , 1996, at which a quorum was at all times present and
that such resolutions have not been modified or rescinded and are in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as of
, 1996 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance with, and to
rely on Certificates (as defined in the Custody Agreement) given by the Fund to
the Custodian by a Terminal Link (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant us of
such access codes only to Officers of the fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes, shall limit
its use of the Terminal Link to those purposes permitted by the Custody
Agreement, shall require at least two such Officers to utilize their respective
access codes in connection with each such Certificate, and shall use the
Terminal Link only in a manner that does not contravene the Investment Company
Act of 1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the establishment
of such access codes and such internal safekeeping procedures, advise the
Custodian that the same have been established by delivering a Certificate, as
defined in the Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
-64-
<PAGE> 66
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
[SEAL]
-65-
<PAGE> 67
EXHIBIT E
The undersigned, , hereby certifies that he
or she is the duly elected and acting of BB&T MUTUAL
FUNDS GROUP, a Massachusetts business trust (the "Fund"), further certifies
that the following resolutions were adopted by the Board of Trustees of the
Fund at a meeting duly held on , 1996, at which a quorum
was at all times present and that such resolutions have not been modified or
rescinded and are in full force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each country
listed in Schedule I hereto be, and hereby is, approved by the Board of Trustees
as consistent with the best interests of the Fund and its shareholders; and
further
RESOLVED, that the maintenance of the Fund's assets with the foreign
branches of The Bank of New York (the "Bank") listed in Schedule I located in
the countries specified therein, and with the foreign sub-custodians and
depositories listed in Schedule I located in the countries specified therein be,
and hereby is, approved by the Board of Trustees as consistent with the best
interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-custodian Agreements presented to this meeting
between the Bank and each of the foreign sub-custodians and depositories listed
in Schedule I providing for the maintenance of the Fund's assets with the
applicable entity, be and hereby are, approved by the Board of Trustees as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign branches
and foreign sub-custodians and depositories as hereinabove provided; and further
-66-
<PAGE> 68
RESOLVED, that the appropriate officers of the Fund, or any of them,
are authorized to do any and all other acts, in the name of the Fund and on its
behalf, as they, or any of them, may determine to be necessary or desirable and
proper in connection with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the day of , 1996.
[SEAL]
-67-
<PAGE> 1
EXHIBIT (9)(F)
Form of Revised Schedule A to the
Management and Administration
Agreement between the Registrant
and BISYS Fund Services
<PAGE> 2
Dated: As of ____________, 1996
Schedule A
to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services
(formerly The Winsbury Company Limited Partnership)
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ---------------------------- -------------------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual Rate of twenty one-
Fund hundredths of one percent (.20%) of
each such Fund's average daily
assets
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 Balanced Fund
The BB&T Small Company Growth Fund
The BB&T International Equity Fund
The BB&T Capital Manager Conservative
Growth Fund
The BB&T Capital Manager Moderate
Growth Fund
The BB&T Capital Manager Growth Fund
</TABLE>
A-1
<PAGE> 3
BB&T MUTUAL FUNDS GROUP
By:
----------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
(formerly The Winsbury Corporation)
General Partner
By:
----------------------------------
- -------------------
*All fees are computed daily and paid periodically.
A-2
<PAGE> 1
EXHIBIT (9)(H)
Form of Revised Schedule A to the Fund
Accounting Agreement between the
Registrant and BISYS Fund Services
Ohio, Inc.
<PAGE> 2
Dated: _____________ , 1996
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
NAME OF FUND
- -------------------
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 Growth and Income Stock Fund
The BB&T North Carolina Intermediate Tax-Free Fund
The BB&T Balanced Fund
The BB&T Small Company Growth Fund
The BB&T International Equity Fund
The BB&T Capital Manager Conservative Growth Fund
The BB&T Capital Manager Moderate Growth Fund
The BB&T Capital Manager Growth Fund
BB&T MUTUAL FUNDS GROUP
By:
--------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service
Corporation)
By:
--------------------------
A-1
<PAGE> 1
EXHIBIT (11) (A)
Consent of KPMG Peat Marwick LLP
<PAGE> 2
[LOGO] KPMG PEAT MARWICK LLP
TWO NATIONWIDE PLAZA TELEPHONE 614 249 2300 TELEX 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
October 18, 1996
<PAGE> 1
EXHIBIT (11)(B)
Consent of Ropes & Gray
<PAGE> 2
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 a part of Post-Effective
Amendment No. 9 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.
October 18, 1996
<PAGE> 1
EXHIBIT (15)(A)
Re-executed Amended and Restated Distribution and
Shareholder Services Plan between the
Registrant and BISYS Fund Services
<PAGE> 2
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
October 1, 1992
As Amended and Restated September 21, 1995
As Re-Executed April 23, 1996
This Plan (the "Plan") constitutes the DISTRIBUTION AND SHAREHOLDER
SERVICES PLAN of BB&T Mutual Funds Group, a Massachusetts business trust (the
"Group"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Part A of the Plan relates to each series (each a
"Fund") and class of the units of participation ("Shares") of the Group. Part B
of the Plan relates to the Shares of the Class A ("A Shares") and/or Class B
("B Shares") of particular Funds identified on Schedule A hereto, as such may
be amended from time to time.
PART A
1. The Group has entered into a Distribution Agreement (the
"Agreement") with BISYS Fund Services (the "Distributor"), under which the
Distributor uses all reasonable efforts, consistent with its other business, to
secure purchasers for the Group's Shares. Under the Agreement, the Distributor
pays the expenses of printing and distributing any prospectuses, reports and
other literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of the Group's Shares for sale to
the public. BISYS Fund Services also serves as the Group's Administrator, under
a Management and Administration Agreement with the Fund. It is understood that
the Distributor may pay for these expenses from any source available to it,
including management and administration fees paid to it by the Group.
2. The Distributor may, subject to the oversight of the Board of
Trustees, make payments to securities dealers and other third parties who
engage in the sale of Shares or who render shareholder support services,
including but not limited to providing office space, equipment and telephone
facilities, answering routine inquiries regarding the Group, processing
shareholder transactions and providing such other shareholder services as the
Group may reasonably request.
3. The Group will not make separate payments as a result of this
Part A of the Plan to the Distributor or any other party, it being recognized
that the Group presently pays, and will continue to pay, a management and
administration fee to the Distributor. To the extent that any payments made by
the Fund to the Distributor, including payment of management and administration
fees, should be deemed to be indirect financing of any activity primarily
intended to result in the sale of the Shares issued by the Group within the
context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to
be authorized by this Part A of the Plan.
<PAGE> 3
4. During the existence of this Part A of the Plan, the Group shall
require the Distributor to provide the Group, for review by the Group's Board
of Trustees, and the Board of Trustees shall review, at least quarterly, a
written report of the amounts expended (other than amounts expended pursuant to
Part B of the Plan) in connection with financing any activity primarily
intended to result in the sale of Shares issued by the Group (making estimates
of such costs where necessary or desirable) and the purposes for which such
expenditures were made.
PART B
WHEREAS, it is desirable to enable the Group to have flexibility in
meeting the investment and Shareholder servicing needs of its future
investors; and
WHEREAS, the Board of Trustees, mindful of the requirements imposed by
Rule 12b-1 under the 1940 Act, has determined to effect the Plan for the
provision of distribution assistance with respect to the A Shares and B Shares
of each Fund listed on Schedule A hereto and for the provision of Shareholder
services with respect to the holders of such Shares of each Fund;
NOW THEREFORE, the Group and BISYS Fund Services (the "Distributor")
hereby agree as follows:
Section 1. Each Fund, the A Shares of which are listed on Schedule A
hereto, shall pay out of its assets attributable to its A Shares a distribution
and shareholder services fee (the "A Share Fee") to the Distributor equal to
the lesser of (i) the fee at the applicable annual rate set forth in Schedule A
hereto or (ii) such fee as may from time to time be agreed upon in writing by
the Group and the Distributor. The Distributor may apply the A Share Fee toward
the following: (i) compensation for its services in connection with
distribution assistance with respect to such Fund's A Shares or for its
services in connection with the rendering of Shareholder services to the
holders of such Fund's A Shares; (ii) payments to financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks and savings and loan associations), broker-dealers, and the
Distributor's affiliates and subsidiaries as compensation for services and/or
reimbursement of expenses incurred in connection with distribution assistance
or Shareholder services with respect to such Fund's A Shares; or (iii) payments
to banks and savings and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's affiliates and
subsidiaries as compensation for services and/or reimbursement of expenses
incurred in connection with the provision of Shareholder services to the
holders of such Fund's A Shares.
Section 2. Each Fund, the B Shares of which are listed on Schedule A
hereto, shall pay out of its assets attributable to its B Shares a distribution
and shareholder services fee (the "B Share Fee") to the Distributor equal to the
lesser of (i) the fee at the applicable annual rate set forth in Schedule A
hereto, or (ii) such fee as may be agreed upon in writing by the Group
-2-
<PAGE> 4
and the Distributor. The Distributor may apply the B Share Fee toward the
following: (i) compensation for its services or expenses in connection with
distribution assistance with respect to such Fund's B Shares; (ii) payments to
financial institutions and intermediaries (such as banks, savings and loan
associations, insurance companies, and investment counselors) as brokerage
commissions in connection with the sale of such Fund's B Shares; and (iii)
payments to financial institutions and intermediaries (such as banks, savings
and loan associations, insurance companies, and investment counselors),
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with distribution or shareholder services with respect to such Fund's
B Shares. The maximum amount of the B Share Fee that may be payable by the
Fund's B Shares for the aforementioned services and expenses other than services
and/or reimbursement of expenses incurred in connection with shareholder
services with respect to such Fund's B Shares is .75% of the average daily net
assets of such Fund's B Shares. The remaining portion of the B Share Fee is
payable by the Fund's B Shares only as compensation for services and/or
reimbursement of expenses incurred in connection with shareholder services with
respect to such Fund's B Shares. As provided in the Distribution Agreement, the
Distributor may assign its right to receive the B Share Fee to any entity in
connection with the sale of a Fund's B Shares.
Section 3. The A Share and B Share Fees shall be accrued daily and payable
monthly, and shall be paid by each Fund to the Distributor irrespective of
whether such fee exceeds the amounts paid (or payable) by the Distributor
pursuant to Sections 1 and 2 of this Part B.
Section 4. The Plan shall not take effect with respect to the A Shares or B
Shares of a Fund until it has been approved by a vote of at least a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund's A
Shares or B Shares, respectively, subject to the Plan.
Section 5. The Plan shall not take effect with respect to the A Shares or B
Shares of a Fund until it has been approved, together with any related
agreements, by a vote of a majority (or whatever greater percentage may, from
time to time, be required by Section 12(b) of the 1940 Act or the rules and
regulations thereunder) of the Trustees who are not "interested persons" of the
Group (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements related to this Plan
(the "Independent Trustees"), cast in person at a meeting called for the purpose
of voting on the Plan or such agreement.
Section 6. The Plan shall continue in effect with respect to a class of a
Fund for a period of more than one year after it takes effect, provided that
such continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Section 5.
-3-
<PAGE> 5
Section 7. Any person authorized to direct the disposition of monies
paid or payable by a Fund pursuant to the Plan or any related agreement shall
provide to the Trustees of the Group, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
Section 8. The Plan may be terminated with respect to the A Shares or B
Shares of a Fund at any time by vote of a majority of the Independent Trustees,
or by vote of a majority of the outstanding A Shares or B Shares, respectively,
of that Fund.
Section 9. All agreements with any person relating to the
implementation of the Plan shall be in writing and any agreement related to the
Plan shall provide:
A. That such agreement, may be terminated with respect to the A Shares
or B Shares of a Fund at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees, or by vote of a
majority of the outstanding A Shares or B Shares, respectively, of
that Fund, on not more than 60 days' written notice; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 10. The Plan may not be amended to increase materially the
amount of the A Share or B Share Fee with respect to a Fund without approval by
Shareholders and Trustees in the manner provided in Sections 4 and 5 hereof,
and all material amendments to the Plan with respect to a Fund shall be
approved in the manner provided for approval of the Plan in Section 5.
Section 11. As used herein, the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Section 12. The names "BB&T Mutual Funds Group" and "Trustees of BB&T
Mutual Funds Group" refer respectively to the Group created and the Trustees,
as trustees but not individually or personally, acting from time to time under
an Agreement and Declaration of Trust dated October 1, 1987 to which reference
is hereby made and a copy of which is on file at the office of the Secretary of
State of the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of BB&T Mutual Funds Group entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders or representatives of the Group personally, but bind
only the assets of the Group, and all persons dealing with any series
-4-
<PAGE> 6
and/or class of Shares of the Group must look solely to the assets of the Group
belonging to such series and/or class for the enforcement of any claims against
the Group.
[SEAL] By: BB&T MUTUAL FUNDS GROUP
By: /s/
-----------------------------------
BISYS FUND SERVICES
By: /s/
----------------------------------
Dated: April 23, 1996
-5-
<PAGE> 7
Schedule A to the
Distribution and Shareholder Services Plan
October 1, 1992
As Amended and Restated September 21, 1995
As Re-Executed April 23, 1996
Name of Funds Compensation*
The BB&T U.S. Treasury Money Market Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T U.S. Treasury
Money Market Fund
The BB&T Short-Intermediate U.S. Annual rate of fifty one-hundredths of
Government Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Short-Intermediate
U.S. Government Fund
The BB&T Intermediate U.S. Annual rate of fifty one-hundredths of
Government Bond Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Intermediate U.S.
Government Bond Fund
The BB&T Growth and Income Stock Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Growth and Income
Stock Fund
The BB&T North Carolina Intermediate Annual rate of fifty one-hundredths of
Tax-Free Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T North Carolina
Tax-Free Fund
The BB&T Balanced Fund -- A Shares Annual rate of fifty one-hundredths of
one percent (.50%) of the average daily
net assets of the BB&T Balanced Fund
A-1
<PAGE> 8
The BB&T Small Company Growth Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Small Company
Growth Fund
The BB&T U.S. Treasury Money Annual rate of one percent (1.00%) of
Market Fund -- B Shares the average daily net assets of the
BB&T U.S. Treasury Money Market
Fund
The BB&T Short-Intermediate U.S. Annual rate of one percent (1.00%) of
Government Fund -- B Shares the average daily net assets of the
BB&T Short-Intermediate U.S.
Government Fund
The BB&T Intermediate U.S. Annual rate of one percent (1.00%) of
Government Bond Fund -- B Shares the average daily net assets of the
BB&T Intermediate U.S. Government
Bond Fund
The BB&T Growth and Income Annual rate of one percent (1.00%) of
Stock Fund -- B Shares the average daily net assets of the
BB&T Growth and Income Stock Fund
The BB&T North Carolina Annual rate of one percent (1.00%) of
Intermediate Tax-Free the average daily net assets of the
Fund -- B Shares BB&T North Carolina Tax-Free Fund
The BB&T Balanced Fund -- B Shares Annual rate of one percent (1.00%) of
the average daily net assets of the
BB&T Balanced Fund
The BB&T Small Company Growth Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T Small Company Growth Fund
A-2
<PAGE> 9
[SEAL] BB&T MUTUAL FUNDS GROUP
By: /s/
-----------------------------------
BISYS FUND SERVICES
By: /s/
----------------------------------
- ----------
* All fees are computed and paid monthly,
A-3
<PAGE> 1
EXHIBIT (15)(D)
Form of Revised Schedule A to the Amended
and Restated Distribution and Shareholder
Services Plan between the Registrant and
BISYS Fund Services
<PAGE> 2
Dated: ________, 1996
Schedule A to the
Distribution and Shareholder Services Plan
dated October 1, 1992
As Amended and Restated September 21, 1995
As Re-Executed April 23, 1996
<TABLE>
<CAPTION>
Name of Funds Compensation*
- ------------- -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T U.S. Treasury Money Market
Fund.
The BB&T Short-Intermediate U.S. Annual rate of fifty one-hundredths of one
Government Income Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Short-Intermediate U.S.
Government Income Fund.
The BB&T Intermediate U.S. Government Annual rate of fifty one-hundredths of one
Bond Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Intermediate U.S. Government
Bond Fund.
The BB&T Growth and Income Stock Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Growth and Income Stock Fund.
The BB&T North Carolina Intermediate Annual rate of fifty one-hundredths of one
Tax-Free Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T North Carolina Intermediate
Tax-Free Fund.
The BB&T Balanced Fund -- A Shares Annual rate of fifty one-hundredths of one
percent (.50%) of the average daily net assets
of the BB&T Balanced Fund.
The BB&T Small Company Growth Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Small Company Growth Fund.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
The BB&T International Equity Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T International Equity Fund.
The BB&T U.S. Treasury Money Market Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T U.S.
Treasury Money Market Fund.
The BB&T Short-Intermediate U.S. Annual rate of one percent (1.00%) of the
Government Fund -- B Shares average daily net assets of the BB&T Short-
Intermediate U.S. Government Fund.
The BB&T Intermediate U.S. Government Annual rate of one percent (1.00%) of the
Bond Fund -- B Shares average daily net assets of the BB&T
Intermediate U.S. Government Bond Fund.
The BB&T Growth and Income Stock Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T Growth
and Income Stock Fund.
The BB&T North Carolina Intermediate Annual rate of one percent (1.00%) of the
Tax-Free Fund -- B Shares average daily net assets of the BB&T North
Carolina Tax-Free Fund.
The BB&T Balanced Fund -- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the BB&T
Balanced Fund.
The BB&T Small Company Growth Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T Small
Company Growth Fund.
The BB&T International Annual rate of one percent (1.00%) of the
Equity Fund -- B Shares average daily net assets of the BB&T
International Equity Fund.
</TABLE>
A-2
<PAGE> 4
[SEAL] BB&T MUTUAL FUNDS GROUP
By:
-----------------------
BISYS FUND SERVICES
By:
-----------------------
- ----------------
* All fees are computed and paid monthly.
<PAGE> 1
EXHIBIT (15)(F)
Form of Revised Schedule A to the Servicing
Agreement with Branch Banking and Trust
Company and BISYS Fund Services
<PAGE> 2
Dated: ________, 1996
Schedule A
to the
Servicing Agreement With Respect To
Distribution Assistance and Shareholder Services
between The Winsbury Company Limited Partnership
and Branch Banking and Trust Company
<TABLE>
<CAPTION>
Name of the Fund Compensation*
- ---------------- -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of twenty-five one-hundredths of
Fund one percent (.25%) of the average daily net
asset value of the BB&T U.S. Treasury
Money Market Fund's Class A Shares held of
record by the Participating Organization from
time to time on behalf of Customers.
The BB&T Short-Intermediate U.S. Annual rate of twenty-five one-hundredths of
Government Income Fund one percent (.25%) of the average daily net
asset value of the BB&T Short-Intermediate
U.S. Government Income Fund's Class A
Shares held of record by the Participating
Organization from time to time on behalf of
Customers.
The BB&T Intermediate U.S. Government Annual rate of twenty-five one-hundredths of
Bond Fund one percent (.25%) of the average daily net
asset value of the BB&T Intermediate U.S.
Government Bond Fund's Class A Shares held
of record by the Participating Organization
from time to time on behalf of Customers.
The BB&T Growth and Income Stock Fund Annual rate of twenty-five one-hundredths of
one percent (.25%) of the average daily net
asset value of the BB&T Growth and Income
Stock Fund's Class A Shares held of record
by the Participating Organization from time to
time on behalf of Customers.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
The BB&T North Carolina Intermediate Annual rate of twenty-five one-hundredths of
Tax-Free Fund one percent (.25%) of the average daily net
asset value of the BB&T North Carolina
Intermediate Tax-Free Fund's Class A Shares
held of record by the Participating
Organization from time to time on behalf of
Customers.
The BB&T Balanced Fund Annual rate of twenty-five one-hundredths of
one percent (.25%) of the average daily net
asset value of the BB&T Balanced Fund's
Class A Shares held of record by the
Participating Organization from time to time
on behalf of the Customers.
The BB&T Small Company Growth Fund Annual rate of twenty-five one-hundredths of
one percent(.25%) of the average daily net
asset value of the BB&T Small Company
Growth Fund's Class A Shares held of record
by the Participating Organization from time to
time on behalf of Customers.
The BB&T International Annual rate of twenty-five one-hundredths of
Equity Fund one percent (.25%) of the average daily net
asset value of the BB&T International Equity
Fund's Class A Shares held of record by the
Participating Organization from time to time
on behalf of customers.
</TABLE>
A-2
<PAGE> 4
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
By: BISYS FUND SERVICES
(formerly The Winsbury Corporation) BRANCH BANKING AND TRUST
GENERAL PARTNER COMPANY
By: By:
--------------------- -----------------------------
- ----------------------
* All fees are computed daily and paid monthly.
A-3
<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
<SENIOR-LONG-TERM-DEBT> 0
<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
<OTHER-INCOME> 0
<EXPENSES-NET> 756
<NET-INVESTMENT-INCOME> 5,086
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,086
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<ACCUMULATED-GAINS-PRIOR> 0
<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
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<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
<OTHER-INCOME> 0
<EXPENSES-NET> 756
<NET-INVESTMENT-INCOME> 5,086
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,086
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<ACCUMULATED-GAINS-PRIOR> 0
<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>
<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
<SENIOR-LONG-TERM-DEBT> 0
<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
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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
<INVESTMENTS-AT-VALUE> 51,455
<RECEIVABLES> 944
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,405
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<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> 9.61
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.28
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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
<INVESTMENTS-AT-COST> 81,824
<INVESTMENTS-AT-VALUE> 83,047
<RECEIVABLES> 1,197
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,246
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 494
<TOTAL-LIABILITIES> 494
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,740
<SHARES-COMMON-STOCK> 8,468
<SHARES-COMMON-PRIOR> 8,055
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,217
<ACCUM-APPREC-OR-DEPREC> 1,223
<NET-ASSETS> 83,752
<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
<DISTRIBUTIONS-OF-INCOME> 5,025
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<GROSS-ADVISORY-FEES> 470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 811
<AVERAGE-NET-ASSETS> 78,323
<PER-SHARE-NAV-BEGIN> 9.33
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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
<INVESTMENTS-AT-COST> 81,824
<INVESTMENTS-AT-VALUE> 83,047
<RECEIVABLES> 1,197
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,246
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 494
<TOTAL-LIABILITIES> 494
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,740
<SHARES-COMMON-STOCK> 8,468
<SHARES-COMMON-PRIOR> 8,055
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,217
<ACCUM-APPREC-OR-DEPREC> 1,223
<NET-ASSETS> 83,752
<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
<DISTRIBUTIONS-OF-INCOME> 5,025
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<GROSS-ADVISORY-FEES> 470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 811
<AVERAGE-NET-ASSETS> 78,323
<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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
<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> 277
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 473
<AVERAGE-NET-ASSETS> 37,852
<PER-SHARE-NAV-BEGIN> 9.78
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<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
<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
<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
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> GROWTH & INCOME STOCK
<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> 134,007
<INVESTMENTS-AT-VALUE> 157,031
<RECEIVABLES> 338
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 157,381
<PAYABLE-FOR-SECURITIES> 597
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 339
<TOTAL-LIABILITIES> 936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,510
<SHARES-COMMON-STOCK> 12,046
<SHARES-COMMON-PRIOR> 8,630
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 911
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,024
<NET-ASSETS> 156,445
<DIVIDEND-INCOME> 3,405
<INTEREST-INCOME> 324
<OTHER-INCOME> 0
<EXPENSES-NET> 972
<NET-INVESTMENT-INCOME> 2,757
<REALIZED-GAINS-CURRENT> 1,085
<APPREC-INCREASE-CURRENT> 18,940
<NET-CHANGE-FROM-OPS> 22,782
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,757
<DISTRIBUTIONS-OF-GAINS> 2,346
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,774
<NUMBER-OF-SHARES-REDEEMED> 1,634
<SHARES-REINVESTED> 276
<NET-CHANGE-IN-ASSETS> 59,117
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,172
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 858
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,322
<AVERAGE-NET-ASSETS> 115,987
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0.27
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.97
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
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<TABLE> <S> <C>
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<NUMBER> 052
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> BALANCED
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<S> <C>
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<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> SMALL COMPANY GROWTH
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> OCT-01-1994
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> SMALL COMPANY GROWTH
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
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</TABLE>
