<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 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. 10 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12
------------------
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
------------
Richard B. Ille, President and Secretary
BB&T Mutual Funds Group
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Name and Address of Agent for Service)
Copies of communications to:
Martin E. Lybecker, Esquire
Ropes & Gray
One Franklin Square, 1301 K Street, N.W., Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on January 2, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i) on (date)
___ on (date) pursuant to paragraph (a)(i)
___ 75 days after filing pursuant to paragraph (a)(ii)
___ on (date) pursuant to paragraph (a)(ii) of Rule
485
If appropriate check the following box:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section (a)(1) of Rule
24f-2. Rule 24f-2 Notice for the Registrant's fiscal year ending September 30,
1996 was filed on or about November 26, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
CLASS A AND CLASS B SHARES
Part A Item Prospectus Caption
- ----------- ------------------
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
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
The Group............................................................................ 4
Fee Table............................................................................ 4
Financial Highlights................................................................. 7
Investment Objectives and Policies................................................... 15
Investment Restrictions.............................................................. 27
Valuation of Shares.................................................................. 29
How to Purchase and Redeem Shares.................................................... 30
Dividends and Taxes.................................................................. 39
Management of BB&T Mutual Funds Group................................................ 42
General Information.................................................................. 47
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 4
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public 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.
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 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 2, 1997.
<PAGE> 5
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group, (the "Group") a Massachusetts
business trust, is an open-end management investment company
which currently consists of 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 profes-
sionally-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.
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.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
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
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.
</TABLE>
3
<PAGE> 7
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.
FEE TABLE
The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Class A and Class B Shares of the Funds will bear, either
directly or indirectly.
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE INTERMEDIATE BOND
U.S. TREASURY FUND FUND FUND
-------------------- ------------ --------------------
CLASS A CLASS B CLASS A CLASS A CLASS B
------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)........................ 0% 0% 2.00% 4.50% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price)...................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable).......................................... 0% 5.00% 0% 0% 5.00%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(2)....................................... 0% 0% 0% 0% 0%
Exchange Fee........................................... $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee reductions)....... .40% .40% .50%(3) .50%(3) .50%(3)
12b-1 Fees (after voluntary fee reductions)............ .25%(4) 1.00% .25%(4) .25%(4) 1.00%
Other Expenses......................................... .34% .35% .44% .38% .35%
------- ------- ------ ------- -------
Total Fund Operating Expenses (after voluntary fee
reductions).......................................... .99% 1.75% 1.19%(7) 1.13%(7) 1.85%(7)
======= ======= =========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
NORTH
CAROLINA GROWTH AND INCOME SMALL COMPANY INTERNATIONAL
FUND FUND BALANCED FUND GROWTH FUND EQUITY FUND
-------- ----------------- ----------------- ----------------- -----------------
CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................. 2.00% 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)... 0% 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable).................. 0% 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(2).................. 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
fee reductions)................. .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)..................... .15%(4) .25%(4) 1.00% .25%(4) 1.00% .25%(4) 1.00% .25%(4) 1.00%
Other Expenses (after voluntary
fee reductions)................. .46%(5) .36% .35% .45% .45% .76% .72% .87%(6) .87%(6)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Fund Operating Expenses
(after voluntary fee
reductions)..................... 1.11%(7) 1.11%(7) 1.85%(7) 1.20%(7) 1.95%(7) 2.01%(7) 2.72% 2.12%(7) 2.87%
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
4
<PAGE> 8
- ---------------
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, 1997. 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 of the North Carolina Fund would be .51%.
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 1.25% for the U.S. Treasury Fund, 1.54% for
the Short-Intermediate Fund, 1.48% for the Intermediate Bond Fund, 1.61% for
the North Carolina Fund, 1.60% for the Growth and Income Fund, 1.69% for the
Balanced Fund, 2.26% 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 1.95% for the Intermediate
Bond Fund, 2.09% for the Growth and Income Fund, and 2.18% for the Balanced
Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Class A
Shares of the Funds, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund...................... $ 10 $ 32 $ 55 $121
Short-Intermediate Fund................. $ 32 $ 57 $ 84 $161
Intermediate Bond Fund.................. $ 56 $ 79 $ 104 $176
North Carolina Fund..................... $ 31 $ 55 $ 80 $152
Growth and Income Fund.................. $ 56 $ 79 $ 103 $174
Balanced Fund........................... $ 57 $ 81 $ 108 $184
Small Company Growth Fund............... $ 64 $ 105 $ 148 $268
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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund
Assuming a complete redemption at end
of period........................... $ 68 $ 85 $ 115 $206
Assuming no redemption................ $ 18 $ 55 $ 95 $206
Intermediate Bond Fund
Assuming a complete redemption at end
of period........................... $ 69 $ 88 $ 120 $217
Assuming no redemption................ $ 19 $ 58 $ 100 $217
Growth and Income Fund
Assuming a complete redemption at end
of period........................... $ 69 $ 88 $ 120 $217
Assuming no redemption................ $ 14 $ 58 $ 100 $217
Balanced Fund
Assuming a complete redemption at end
of period........................... $ 70 $ 91 $ 125 $227
Assuming no redemption................ $ 20 $ 61 $ 105 $227
Small Company Growth Fund
Assuming a complete redemption at end
of period........................... $ 78 $ 114 $ 164 $305
Assuming no redemption................ $ 28 $ 84 $ 144 $305
International Equity Fund
Assuming a complete redemption at end
of period........................... $ 79 $ 119
Assuming no redemption................ $ 29 $ 89
</TABLE>
5
<PAGE> 9
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.
The information set forth in the foregoing tables and examples relates only to
Class A and Class B Shares. The Group also offers Trust Shares of each Fund
which are subject to the same expenses except that there are no sales charges
nor distribution costs charged to Trust Shares. (See "MANAGEMENT OF BB&T MUTUAL
FUNDS"--"Investment Adviser" and "Administrator and Distributor.")
6
<PAGE> 10
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 thereon, insofar as it relates to each of the years or periods
indicated herein 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 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.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.................... 0.044 0.047 0.027 0.026
------- ------- ------- -------
Total from Investment Activities....... 0.044 0.047 0.027 0.026
------- ------- ------- -------
DISTRIBUTIONS
Net investment income.................... (0.044) (0.047) (0.027) (0.026)
------- ------- ------- -------
Total Distributions.................... (0.044) (0.047) (0.027) (0.026)
NET ASSET VALUE, END OF PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return............................... 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $ 27,931 $ 13,948 $ 1,486 $ 279
Ratio of expenses to average net
assets................................. 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net investment income to average
net assets............................. 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to average net
assets*................................ 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net investment income to average
net assets*.............................. 4.11% 4.55% 2.51% 1.77%(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.
7
<PAGE> 11
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-------------------------------
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996(a)
-------------------------------
CLASS B SHARES
-------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................. $ 1.00
-------
INVESTMENT ACTIVITIES
Net investment income............................................................... 0.025
-------
Total from Investment Activities.................................................. 0.025
-------
DISTRIBUTIONS
Net investment income............................................................... (0.025)
-------
Total Distributions............................................................... (0.025)
-------
NET ASSET VALUE, END OF PERIOD........................................................ $ 1.00
=======
Total Return (excludes redemption charge)............................................. 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................................................... $ 1,305
Ratio of expenses to average net assets............................................. 1.75%(c)
Ratio of net investment income to average net assets................................ 3.55%(c)
</TABLE>
- ---------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
8
<PAGE> 12
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.88 $ 9.60 $ 10.29 $ 10.00
------- ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income............... 0.55 0.53 0.50 0.47
Net realized and unrealized gains
(losses) on investments........... (0.15) 0.29 (0.68) 0.30
------- ------ ------- -------
Total from Investment
Activities.................... 0.40 0.82 (0.18) 0.77
------- ------ ------- -------
DISTRIBUTIONS
Net investment income............... (0.55) (0.54) (0.50) (0.48)
Net realized gains.................. -- -- (0.01) --
------- ------ ------- -------
Total Distributions............. (0.55) (0.54) (0.51) (0.48)
------- ------ ------- -------
NET ASSET VALUE, END OF PERIOD........ $ 9.73 $ 9.88 $ 9.60 $ 10.29
======= ====== ======= =======
Total Return (excludes sales
charge)............................. 4.09% 8.74% (1.86)% 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..... $6,356 $7,102 $ 10,345 $14,915
Ratio of expenses to average
net assets........................ 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income to
average net assets................ 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average
net assets*....................... 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income to
average net assets*............... 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover (d)................ 54.82% 106.81% 7.06% 14.06%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.88 $ 9.33 $ 10.39 $ 10.00
------- ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income............... 0.56 0.59 0.59 0.63
Net realized and unrealized gains
(losses) on investments........... (0.25) 0.55 (1.04) 0.39
------- ------ ------- -------
Total from Investment
Activities.................... 0.31 1.14 (0.45) 1.02
------- ------ ------- -------
DISTRIBUTIONS
Net investment income............... (0.56) (0.59) (0.59) (0.63)
Net realized gains.................. -- -- (0.02) --
------- ------ ------- -------
Total Distributions............. (0.56) (0.59) (0.61) (0.63)
------- ------ ------- -------
NET ASSET VALUE, END OF PERIOD........ $ 9.63 $ 9.88 $ 9.33 $ 10.39
======= ====== ======= =======
Total Return (excludes sales
charge)............................. 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..... $3,659 $5,173 $ 6,772 $ 5,238
Ratio of expenses to average net
assets............................ 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income to
average net assets................ 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net
assets*........................... 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income to
average net assets*............... 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover (d)................ 76.29% 68.91% 0.38% 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.
9
<PAGE> 13
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
--------------------------------------
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996(a)
--------------------------------------
CLASS B
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................... $10.17
------
INVESTMENT ACTIVITIES
Net investment income...................................................... 0.31
Net realized and unrealized loss on investments............................ (0.57)
------
Total from Investment Activities....................................... (0.26)
------
DISTRIBUTIONS
Net investment income...................................................... (0.31)
Total Distributions.................................................... (0.31)
------
NET ASSET VALUE, END OF PERIOD............................................... $ 9.60
======
Total Return (excludes redemption charge).................................... (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................................ $ 353
Ratio of expenses to average net assets.................................... 1.85%(c)
Ratio of net investment income to average net assets....................... 5.01%(c)
Ratio of expenses to average net assets*................................... 1.95%(c)
Ratio of net investment income to average net assets*...................... 4.91%(c)
Portfolio turnover (d)..................................................... 76.29%
</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.
10
<PAGE> 14
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $10.15 $ 9.78 $ 10.29 $ 10.00
------ ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income.................... 0.36 0.36 0.36 0.36
Net realized and unrealized losses on
investments............................ (0.10) 0.37 (0.50) 0.29
------ ------ ------- -------
Total from Investment Activities....... 0.26 0.73 (0.14) 0.65
------ ------ ------- -------
DISTRIBUTIONS
Net investment income.................... (0.36) (0.36) (0.36) (0.36)
Net realized gains....................... -- -- (0.01) --
------ ------ ------- -------
Total Distributions.................... (0.36) (0.36) (0.37) (0.36)
------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD............. $10.05 $10.15 $ 9.78 $ 10.29
====== ====== ======= =======
Total Return (excludes sales charge)....... 2.61% 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $9,261 $8,717 $ 11,083 $13,695
Ratio of expenses to average net
assets................................. 1.11% 1.05% 0.75% 0.43%(c)
Ratio of net investment income to average
net assets............................. 3.58% 3.63% 3.63% 3.80%(c)
Ratio of expenses to average net
assets*................................ 1.61% 1.63% 1.66% 1.77%(c)
Ratio of net investment income to average
net assets*............................ 3.08% 3.05% 2.72% 2.45%(c)
Portfolio turnover (d)..................... 20.90% 9.38% 0.56% 5.92%
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 12.97 $ 11.26 $11.26 $ 10.00
------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment income.................... 0.26 0.25 0.25 0.28
Net realized and unrealized gains on
investments............................ 2.43 1.98 0.12 1.27
------- ------- ------ ------
Total from Investment Activities....... 2.69 2.23 0.37 1.55
------- ------- ------ ------
DISTRIBUTIONS
Net investment income.................... (0.26) (0.25) (0.26) (0.29)
Net realized gains....................... (0.09) (0.12) (0.11) --
In excess of net realized gains.......... -- (0.15) -- --
------- ------- ------ ------
Total Distributions.................... (0.35) (0.52) (0.37) (0.29)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD............. $ 15.31 $ 12.97 $11.26 $ 11.26
======= ======= ====== ======
Total Return (excludes sales charge)....... 20.97% 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $ 18,949 $ 10,842 $7,973 $ 6,009
Ratio of expenses to average net
assets................................. 1.11% 1.07% 0.92% 0.63%(c)
Ratio of net investment income to average
net assets............................. 1.82% 2.15% 2.26% 2.85%(c)
Ratio of expenses to average net
assets*................................ 1.60% 1.60% 1.65% 1.68%(c)
Ratio of net investment income to average
net assets*............................ 1.33% 1.62% 1.52% 1.81%(c)
Portfolio turnover (d)..................... 19.82% 8.73% 21.30% 27.17%
Average commission rate (e)................ $ 0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
11
<PAGE> 15
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996(a)
----------------------------
CLASS B
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................... $ 13.78
-------
INVESTMENT ACTIVITIES
Net investment income................................................................ 0.13
Net realized and unrealized gains on investments..................................... 1.52
-------
Total from Investment Activities................................................... 1.65
-------
DISTRIBUTIONS
Net investment income................................................................ (0.14)
-------
Total Distributions................................................................ (0.14)
-------
NET ASSET VALUE, END OF PERIOD......................................................... $ 15.29
=======
Total Return (excludes redemption charge).............................................. 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................................................... $ 3,880
Ratio of expenses to average net assets.............................................. 1.85%(c)
Ratio of net investment income to average net assets................................. 1.13%(c)
Ratio of expenses to average net assets*............................................. 2.09%(c)
Ratio of net investment income to average net assets*................................ 0.89%(c)
Portfolio turnover (d)................................................................. 19.82%
Average commission (e)................................................................. $ 0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 11.04 $ 9.76 $10.20 $ 10.00
------- ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income............. 0.43 0.44 0.38 0.08
Net realized and unrealized gains
(losses) on investments......... 0.92 1.27 (0.44) 0.21
------- ------ ------ ------
Total from Investment
Activities.................. 1.35 1.71 (0.06) 0.29
------- ------ ------ ------
DISTRIBUTIONS
Net investment income............. (0.43) (0.43) (0.38) (0.09)
------- ------ ------ ------
Total Distributions........... (0.43) (0.43) (0.38) (0.09)
------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD...... $ 11.96 $11.04 $ 9.76 $ 10.20
======= ====== ====== ======
Total Return (excludes sales
charge)........................... 12.43% 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)... $ 12,456 $9,257 $8,560 $ 2,569
Ratio of expenses to average net
assets.......................... 1.20% 1.17% 0.98% 0.50%(c)
Ratio of net investment income to
average net assets.............. 3.78% 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net
assets*......................... 1.69% 1.71% 1.75% 2.00%
Ratio of net investment income to
average net assets*............. 3.29% 3.73% 3.25% 2.89%(c)
Portfolio turnover(d)............. 19.87% 23.68% 12.91% 8.32%(c)
Average commission rate(e)........ $ 0.0749
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
BALANCED FUND
---------------------
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996(a)
---------------------
CLASS B
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................................... $ 11.54
-------
INVESTMENT ACTIVITIES
Net investment income...................................................................... 0.27
Net realized and unrealized gains on investments........................................... 0.37
-------
Total from Investment Activities....................................................... 0.64
-------
DISTRIBUTIONS
Net investment income...................................................................... (0.27)
-------
Total Distributions.................................................................... (0.27)
-------
NET ASSET VALUE, END OF PERIOD............................................................... $ 11.91
=======
Total Return (excludes redemption charge).................................................... 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................................................ $ 2,339
Ratio of expenses to average net assets.................................................... 1.95%(c)
Ratio of net investment income to average net assets....................................... 3.13%(c)
Ratio of expenses to average net assets*................................................... 2.18%(c)
Ratio of net investment income to average net assets*...................................... 2.90%(c)
Portfolio turnover(d)...................................................................... 19.87%
Average commission rate(e)................................................................. $0.0749
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
--------------------------------------------
FOR THE YEAR ENDED DECEMBER 7, 1994 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995(a)
------------------ ---------------------
CLASS A CLASS A
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 14.53 $ 10.00
------- ------
INVESTMENT ACTIVITIES
Net investment loss................................................... (0.20) (0.08)
Net realized and unrealized gains on investments...................... 6.73 4.61
------- ------
Total from Investment Activities.................................. 6.53 4.53
------- ------
NET ASSET VALUE, END OF PERIOD.......................................... $ 21.06 $ 14.53
======= ======
Total Return (excludes sales charge).............................. 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....................................... $ 7,413 $ 1,096
Ratio of expenses to average net assets............................... 2.01% 2.50%(c)
Ratio of net investment loss to average net assets.................... (1.26)% (1.56)%(c)
Ratio of expenses to average net assets*.............................. 2.26% 2.84%(c)
Ratio of net investment income to average net assets*................. (1.51)% (1.90)%(c)
Portfolio turnover(d)................................................. 71.62% 46.97%
Average commission rate(e)............................................ $ 0.0562
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH
FUND
---------------------
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996(a)
---------------------
CLASS B
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................................... $ 15.24
-------
INVESTMENT ACTIVITIES
Net investment loss........................................................................ (0.21)
Net realized and unrealized gains on investments........................................... 5.89
-------
Total from Investment Activities....................................................... 5.68
-------
NET ASSET VALUE, END OF PERIOD............................................................... $ 20.92
=======
Total Return (excludes redemption charge).............................................. 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................................................ $ 3,200
Ratio of expenses to average net assets.................................................... 2.72%(c)
Ratio of net investment loss to average net assets......................................... (2.01)%(c)
Ratio of expenses to average net assets*................................................... 2.72%(c)
Ratio of net investment loss to average net assets*........................................ (2.01)%(c)
Portfolio turnover(d)...................................................................... 71.62%
Average commission rate(e)................................................................. $0.0562
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
14
<PAGE> 18
INVESTMENT OBJECTIVES AND POLICIES
U.S. TREASURY FUND
The investment objective of the U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term United States dollar-denominated obligations issued or guaranteed by
the U.S. Treasury, some of which may be subject to repurchase agreements.
All instruments in which the U.S. Treasury Fund invests are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940. All instruments in which the Fund invests will
have remaining maturities of 397 days or less, although instruments subject to
repurchase agreements and certain variable or floating rate obligations may bear
longer maturities. The average dollar weighted maturity of the securities in the
U.S. Treasury Fund will not exceed 90 days. Obligations purchased by the U.S.
Treasury Fund are limited to U.S. dollar-denominated obligations which the Board
of Trustees has determined present minimal credit risks. See "VALUATION OF
SHARES" and the Statement of Additional Information for further explanation of
the amortized cost valuation method.
THE FIXED INCOME FUNDS
The investment objective of both the Short-Intermediate Fund and the
Intermediate Bond Fund (collectively the "Fixed Income Funds") is to seek
current income consistent with the preservation of capital. The
Short-Intermediate Fund will invest primarily in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase agreements, or in high
grade collateralized mortgage obligations ("CMOs"). At least 65% of the
Short-Intermediate Fund's assets will be invested in U.S. Government Securities.
The dollar-weighted average portfolio maturity of the Short-Intermediate Fund
will be from two to five years. The Intermediate Bond Fund will also invest
primarily in U.S. Government Securities, and at least 65% of its total assets
will be invested in bonds. Bonds for this purpose will include both bonds
(maturities of ten years or more) and notes (maturities of one to ten years) of
the U.S. Government. The dollar-weighted average portfolio maturity of the
Intermediate Bond Fund will be from five to ten years. CMOs will be considered
bonds for this purpose if their expected average life is comparable to the
maturity of other bonds eligible for purchase by the Fixed Income Funds. The
Fixed Income Funds may also invest in short-term obligations, commercial bonds
and the shares of other investment companies.
Bonds, notes and debentures in which the Fixed Income Funds may invest may
differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether invest-
15
<PAGE> 19
ment in the North Carolina Fund would be suitable for them.
THE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to seek capital growth,
current income or both, primarily through investment in stocks. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Growth and Income Fund's investments, the net asset value
per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.
The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.
The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
16
<PAGE> 20
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 primarily within countries included in the Morgan
Stanley Capital International Europe, Australia and the Far East Index ("EAFE").
The Fund may also invest its assets in countries with emerging economies or
securities markets. 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 price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative 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.
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 institu-
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tions 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 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 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 Small Company Growth
Fund's and the International Equity Fund's when-issued purchases and forward
commitments are not expected to exceed 25% of the value of their respective
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, the Small Company Growth Fund and the International Equity
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, or CastleInternational, with respect to the
International Equity 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.
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Pending investment or to meet anticipated redemption requests, the International
Equity Fund may also invest without limitation short-term obligations. For
temporary defensive purposes, as determined by BB&T (or, in the case of the
Small Company Growth Fund, PNC Bank or, in the case of the International Equity
Fund, CastleInternational), these investments may constitute 100% of such Funds'
portfolio and, in such circumstances, will constitute a temporary suspension of
such Funds' attempts to achieve their investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of the
Short-Intermediate and Intermediate Bond Funds. The Growth and Income Fund, the
Balanced Fund, 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
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
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
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<PAGE> 23
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by a Fund would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
Certain debt securities such as, but not limited to, mortgage backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not fully developed. Stripped mortgage securities issued or
guaranteed by the U.S. Government and held by a Fund may be considered liquid
securities pursuant to guidelines established by the Group's Board of Trustees.
The Funds will not purchase a stripped mortgage security that is illiquid if, as
a result thereof, more than 15% of the value of the 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.
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OPTIONS AND FUTURES CONTRACTS
The Growth and Income Fund and the Balanced Fund may engage in writing call
options from time to time as BB&T deems to be appropriate. Options are written
solely as covered call options (options on securities owned by a 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.
To the extent consistent with its investment objective, the Small Company
Growth Fund and 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,
with respect to the International Equity Fund, 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. A Fund will not purchase put and call options
when 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.
Cross-hedging is the use of options or forward contracts in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency based on a belief that there is a pattern of correlation between the
two currencies.
To the extent consistent with its investment objective, the Small Company
Growth Fund and 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 a Fund contracts may equal or exceed 100% of the Fund's total assets,
although a 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 Small Company Growth Fund and 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. A 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. A 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, a
Fund may utilize futures contracts in anticipation of changes in the composition
of its holdings or in currency exchange rates.
The Small Company Growth Fund and the International Equity Fund may purchase
and sell call and put options on futures contracts traded on an exchange or
board of trade. When a 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 a 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 a Fund's position in a
futures contract or related option, a Fund will create a segregated account of
liquid 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
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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 a 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. However, the Balanced Fund and the Growth and Income Fund 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 such Fund would exceed 25% of the
value of the total assets of the 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 and may invest in
equity securities of issuers located in emerging markets. 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.
From time to time the International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in Japan. Investments of
25% or more of the Fund's total assets in this or any other country will make
the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. For example, in the past
events in the Japanese economy as well as social developments and natural
disasters have affected Japanese securities and currency markets, and have
periodically disrupted the relationship of the Japanese yen with other
currencies and with the U.S. dollar.
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
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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 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, Indonesia, 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 countries with emerging economies
or securities markets to 20% of its total assets.
The International Equity Fund may (but is not required to) 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
imposi-
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tion 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 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.
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
24
<PAGE> 28
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.
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.
PUTS
The North Carolina Fund may acquire "puts" with respect to securities held in
its portfolio. Under
25
<PAGE> 29
a put, the 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. The North Carolina 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, the 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 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
Because the North Carolina Fund will invest at least 90% of the value of its
total assets in North Carolina Tax-Exempt Obligations and because it seeks to
maximize income derived from North Carolina Tax-Exempt Obligations, it is more
susceptible to factors adversely affecting issuers of North Carolina Tax-Exempt
Obligations than is a comparable municipal bond mutual fund that is not
concentrated in these issuers to this degree. Growth of North Carolina tax
revenues slowed considerably during fiscal years 1990-92, requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in timing of certain collections and payments, and
other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993-1996,
however, ended with a positive General Fund balance each year. By law, a portion
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 unreserved credit balance was reserved in the General Fund as
part of a "Reserve For Repair and Renovation of State Facilities" and certain
other required reserves, 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> 30
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 rate for the Short-Intermediate Fund is 54.82%, for the
Intermediate Bond Fund is 76.29%, for the North Carolina Fund is 20.9%, for the
Growth and Income Fund is 19.82%, for the Small Company Growth Fund is 71.62%,
and 15.01% for the equity portion and 4.86% for the fixed income portion of the
Balanced Fund. 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 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.
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 re-
27
<PAGE> 31
lated 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 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 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 (onethird 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 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
agen-
28
<PAGE> 32
cies 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 non-governmental 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, and any
other day (other than a day during which no Shares are tendered for redemption
and no orders to purchase Shares are received) during which there is sufficient
trading in a Fund's portfolio instruments that the Fund's net asset value per
share might be materially affected. Currently, the NYSE is closed on the
customary national business holidays of New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor 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.
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.
29
<PAGE> 33
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF CLASS A AND CLASS B SHARES
Class A and Class B Shares may be purchased through procedures established by
the Distributor in connection with the requirements of qualified accounts
maintained by or on behalf of certain persons ("Customers") by Participating
Organizations under the Group's Distribution and Shareholder Services Plan (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Distribution Plan").
As of the date of this Prospectus, however, Class B Shares were not yet being
offered in the Short-Intermediate Fund or the North Carolina Fund. Investors
purchasing Shares of the U.S. Treasury Fund are generally required to purchase
Class A or Trust Shares, since such Shares are not subject to any initial sales
charge or contingent deferred sales charge. Class B Shares of the U.S. Treasury
Fund will be issued 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, P.O. Box
182533, Columbus, OH 43218-2533. Investors may obtain an Account Registration
Form and additional information regarding the Group by contacting their local
BB&T office. Subsequent purchases of Class A and Class B Shares of a Fund may be
made at any time by mailing a check (or other negotiable bank draft or money
order) to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the Group at (800)
228-1872. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by sending funds electronically to the Group's custodian. To
make payments electronically, investors must call the Group at (800) 228-1872 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Class A or Class B Shares of the Variable NAV Funds are sold at the net asset
value per Share next determined after receipt by the Distributor of an order in
good form to purchase Shares, plus a sales charge at the time of purchase in the
case of Class A Shares (see "VALUATION OF SHARES"). In the case of orders for
the purchase of Shares placed through a broker-dealer, the public offering price
will be the net asset value as so determined plus any applicable sales charge,
but only if the broker-dealer receives the order prior to the Valuation Time for
that day and transmits to the Group by the Valuation Time. The broker-dealer is
responsible for transmitting such orders promptly. If the broker-dealer fails to
do so, the investor's right to that day's closing price must be settled between
the investor and the broker-dealer. If the broker-dealer receives the order
after the Valuation Time for that day, the price will be based on the net asset
value determined as of the Valuation Time for the next Business Day.
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<PAGE> 34
The minimum investment is $1,000 for the initial purchase of Class A and Class
B Shares of a Fund. There is no minimum investment for subsequent purchases. The
minimum initial investment amount may be waived if purchases are made in
connection with qualified retirement plans, systematic investment plans or
payroll deduction plans.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Class A Shares that may be purchased.
Every Shareholder will be mailed a confirmation of each new transaction in the
Shareholder's account. In the case of Class A and Class B Shares held of record
by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A and Class B
Shares by a Participating Organization will be sent to the Customer by the
Participating Organization. Certificates representing Shares will not be issued.
SALES CHARGE--CLASS A
The public offering price of a Class A Share of each of the North Carolina and
Short-Intermediate Funds equals its net asset value plus a sales charge in
accordance with the table below.
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000............... 2.04% 2.00% 1.80%
$100,000 but less than
$250,000........................ 1.52% 1.50% 1.35%
$250,000 but less than
$500,000........................ 1.01% 1.00% 0.90%
$500,000 but less than
$1,000,000...................... 0.50% 0.50% 0.45%
$1,000,000 or more............... 0.00% 0.00% 0.00%
</TABLE>
The public offering of a Class A Share of each of the Intermediate Bond,
Growth and Income, Balanced and Small Company Growth, 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 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
31
<PAGE> 35
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;
(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
pur-
32
<PAGE> 36
chased, the escrow will be released. To the extent that an investor purchases
more than the dollar amount indicated on the Letter of Intent and qualifies for
a further reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales
charges will be used to purchase additional Class A Shares subject to the rate
of sales charge applicable to the actual amount of the aggregate purchases at
the net asset value next calculated.
For further information, interested investors should contact the Distributor.
Letter of Intent privileges may be amended or terminated without notice at any
time by the Distributor.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser (as defined under "HOW TO PURCHASE AND REDEEM SHARES--Sales
Charge--Class A") may qualify for a reduced sales charge by combining concurrent
purchases of Class A Shares of one or more of the Variable NAV Funds or by
combining a current purchase of Class A Shares of a Variable NAV Fund with prior
purchases of Shares of any Variable NAV Fund. The applicable sales charge is
based on the sum of (i) the Purchaser's current purchase of Class A Shares of
any Variable NAV Fund sold with a sales charge plus (ii) the then current net
asset value of all Class A Shares held by the Purchaser in any Variable NAV
Fund. To receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must at the time of purchase provide the Transfer
Agent or the 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. However, the Distributor may, in its sole discretion, pay
certain dealers all or part of the portion of the sales charge it receives.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.
33
<PAGE> 37
<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 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
34
<PAGE> 38
deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $50 per Fund; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the Account Registration Form or a
supplemental sign-up form that can be acquired by calling the Distributor. For a
Shareholder to change the Auto Invest instructions or to discontinue the
feature, the request must be made in writing to the BB&T Mutual Funds Group,
P.O. Box 182533, Columbus, OH 43218-2533. 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 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.
35
<PAGE> 39
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.
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
36
<PAGE> 40
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be exercised only in those
states where the class of Shares of such other Fund may legally be sold. The
Group reserves the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days' written notice.
The Group's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
AUTO EXCHANGE
BB&T Mutual Funds Group Auto Exchange enables Shareholders to make regular,
automatic withdrawals from 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, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Exchange
may be amended or terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Class A Shares without charge, and their Class B
Shares subject to the applicable Contingent Deferred Sales Charge, on any day
that net asset value is calculated (see "VALUATION OF SHARES") and Shares may
ordinarily be redeemed by mail or by telephone. However, all or part of a
Customer's Shares may be required to be redeemed in accordance with instructions
and limitations pertaining to his or her account held by a Participating
Organization or Bank. For example, if a Customer has agreed to maintain a
minimum balance in his or her account, and the balance in that account falls
below that minimum, the Customer may be obliged to redeem, or the Participating
Organization or Bank may redeem for and on behalf of the Customer, all or part
of the Customer's Shares to the extent necessary to maintain the required
minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of
37
<PAGE> 41
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.
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,
P.O. Box 182533, Columbus, OH 43218-2533. 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
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<PAGE> 42
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 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.
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,
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<PAGE> 43
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, P.O. Box 182533, Columbus, OH
43218-2533, 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 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
longterm 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
40
<PAGE> 44
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.
The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
The portions of dividends paid for each year that are exempt from federal and
North Carolina income tax, respectively, will be designated within 60 days after
the end of that year and will be based upon the ratio of net tax-exempt income
to total net income earned by the North Carolina Fund during the entire year.
That ratio may be substantially different from the ratio of net tax-exempt
income to total net income earned during any portion of the year. Thus, a
Shareholder who holds Shares for only a part of the year may be allocated more
or less tax-exempt dividends than would be the case if the allocation were based
on the ratio of net tax-exempt income to total net income actually earned by the
North Carolina Fund while he or she was a Shareholder.
Distributions will not be subject to North Carolina income tax if made to
individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina income tax to the extent such distributions are either
(i) exempt from federal income tax and attributable to interest on obligations
of North Carolina or its political subdivisions, or Guam, Puerto Rico, or the
United States Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, or (ii) attributable to interest on
direct obligations of the United States.
Distributions designated by the Fund as "exempt-interest dividends" are not
generally subject to federal income tax. However, if the Shareholder receives
Social Security or railroad retirement benefits, the Shareholder should consult
his or her tax adviser to determine what effect, if any, an investment in the
Fund may have on the taxation of such benefits.
Dividends derived from interest income from certain types of securities in
which the North Carolina Fund may invest may subject individual and corporate
investors to liability under the federal alternative minimum tax. As a matter of
policy, under normal market conditions, not more than 10% of the North Carolina
Fund's total assets will be invested in securities the interest on which is
treated as a preference item for purposes of the federal alternative minimum tax
for individuals. To the extent the North Carolina Fund invests in securities the
interest on which is subject to federal alternative minimum tax, Shareholders,
depending on their tax status, may be subject to alternative minimum tax on that
part of the Fund's distributions derived from those securities. Interest income
on all Tax-Exempt Obligations is included in "adjusted current earnings" for
purposes of computing the alternative minimum tax applicable to corporate
Shareholders of the North Carolina Fund.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina and
federal income tax purposes to the extent of the amount of such exempt-interest
dividend, even though, in the case of North Carolina, some portion of such
dividend actually may have been subject to North Carolina income tax. Although
the Treasury Department is authorized to issue regulations reducing such period
to as short as 31 days for regulated investment 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,
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<PAGE> 45
regardless of how long the Shareholder has held Shares in the North Carolina
Fund, except that distributions which are directly attributable to gains from
certain obligations of the State of North Carolina and its political
subdivisions that were issued before July 1, 1995 are exempt from North Carolina
State income tax. Distributions will be taxable as described above even if the
net asset value of a Share in the North Carolina Fund is reduced below the
Shareholder's cost of that Share by the distribution of income or gain realized
on the sale of securities and the distribution is, as an economic matter, a
return of capital. If a shareholder purchases mutual fund shares, receives a
capital gain dividend and then sells the shares at a loss within 6 months after
purchasing the shares, the loss is treated as a long-term capital loss to the
extent of the capital gain dividend (or undistributed capital gain).
Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.
Interest on indebtedness incurred by a Shareholder to purchase or carry Shares
is not deductible for federal and North Carolina income tax purposes to the
extent the North Carolina Fund distributes exempt-interest dividends during the
Shareholder's taxable year. It is anticipated that none of the distributions
from the North Carolina Fund will be eligible for the dividends received
deduction for corporations.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional Tax Information
Concerning the North Carolina Fund." However, the foregoing and the material in
the Statement of Additional Information are only brief summaries of some of the
important tax considerations generally affecting the North Carolina Fund and its
Shareholders. Accordingly, potential investors in the North Carolina Fund are
urged to consult their tax advisers with specific reference to their own tax
situation and in particular regard to state and local tax consequences of
investment in the North Carolina Fund.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently 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, employee
3435 Stelzer Road of BISYS Fund Services
Columbus, OH 43219
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
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. Petersburg, FL 33701 Vice President of 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 . 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
Fund's and Balanced Fund's average daily net assets; (1.00%) of the Small
Company Growth Fund's and 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, 1996, the Funds paid the following
investment advisory fees: the U.S. Treasury Fund paid .40% of its average
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<PAGE> 47
daily net assets; each of the Short-Intermediate, Intermediate Bond, North
Carolina, Growth and Income, and Balanced Funds, after voluntary fee reductions,
paid .50% of its average daily net assets; and the Small Company Growth 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 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. He has been Vice President and
Small Cap Growth Equity Fund portfolio manager for PNC Bank since 1992. He has
been a portfolio manager at PNC Bank and its predecessor, Provident National
Bank, since 1986. Mr. Wykle has also been an investment manager with PNC Equity
Advisors Company since 1995 and has been the portfolio manager of the Compass
Capital Funds(SM) Small Cap Growth Equity Portfolio since its inception.
PNC Bank, with offices located at 1600 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, 1996. 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 consumer banking, corporate banking, real
estate banking, mortgage banking and asset management. With $104.5 billion in
discretionary assets under management and $310.9 billion of assets under
administration at September 30, 1996, 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, 1996, PNC Bank had $94
billion in discretionary assets under management and $132.1 billion in assets
under administration. In addition to
44
<PAGE> 48
asset management and trust services, PNC Bank also provides a wide range of
domestic and international commercial banking and consumer banking services. PNC
Bank's origins, and in particular its trust administration services, date back
to the mid-to-late 1800s.
For its services and expenses incurred under the Sub-Advisory Agreement, PNC
Bank is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the Small Company
Growth Fund's average daily net assets), which vary according to the level of
Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ---------------------------------- ----------
<S> <C>
Up to $50 million................. .50%
Next $50 million.................. .45%
Over $100 million................. .40%
</TABLE>
CastleInternational Asset Management Limited ("CastleInternational") 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.
CastleInternational, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect wholly-owned subsidiary of
PNC Bank Corp. As of September 30, 1996, CastleInternational had approximately
$1.6 billion in discretionary assets under management, including three mutual
fund portfolios, one bank common trust fund and a tax exempt institutional
portfolio.
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 and
Investment Director 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 Fund'(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 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 fiscal year ended September 30,
1996, 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 Fund; the
Short-Intermediate, the Intermediate Bond, the Growth and Income Fund, the
Balanced Fund and the Small Company Growth Fund and .15% for the North Carolina
Fund.
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 (in-
45
<PAGE> 49
cluding 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, 1996, 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: .99%; Short-Intermediate Fund: 1.19%; Intermediate Bond Fund:
1.13%; North Carolina Fund: 1.11%; Growth and Income Fund: 1.11%; Balanced Fund:
1.20%; and Small Company Growth Fund: 2.01%. Absent fee waivers by the Adviser
and Administrator, these operating expenses would have been: U.S. Treasury Fund:
1.25%; Short-Intermediate Fund: 1.54%; Intermediate Bond Fund: 1.48%; North
Carolina Fund: 1.61%; Growth and Income Fund: 1.60%; Balanced Fund: 1.69%; and
Small Company Growth Fund: 2.26%.
For the periods ended September 30, 1996, each Fund's total operating expenses
for Class B Shares were as follows (as a percentage of average daily net assets
of each Fund): U.S. Treasury Fund: 1.75%; Intermediate Bond Fund: 1.85%; Growth
and Income Fund: 1.85%; Balanced Fund: 1.95% and Small Company Growth Fund:
2.72%. Absent fee waivers by the Adviser, these operating expenses would have
been: Intermediate Bond Fund: 1.95%; Growth and Income Fund: 2.09%; and Balanced
Fund: 2.18%.
The organizational expenses of the Small Company Growth Fund and 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 net assets of Class A
Shares of
46
<PAGE> 50
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 non-bank affiliates, or
the subsidiaries or affiliates of those banks. A Servicing Agreement entered
into with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Group will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Group to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on October 1, 1987
and commenced active operation on September 24, 1992. The Group has an unlimited
number of authorized Shares of beneficial interest which may, without
Shareholder
47
<PAGE> 51
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. 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.
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 the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such classes.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of December 9, 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: 63.61% and 34.34%
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 December 9, 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.
48
<PAGE> 52
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
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
49
<PAGE> 53
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 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, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.
50
<PAGE> 54
BB&T MUTUAL FUNDS LOGO
Return completed form to:
BB&T Mutual Funds Group
P.O. Box 182533
Columbus, Ohio 43218-2533 ACCOUNT
For assistance call: 1-800-228-1872 APPLICATION
1 ACCOUNT REGISTRATION AND INFORMATION (Do not use this form for an IRA or to
establish a retirement plan.)
Type of Registration (check one)
<TABLE>
<S> <C> <C> <C>
[ ] INDIVIDUAL [ ] TENANTS IN COMMON [ ] CORPORATION* [ ] CUSTODIAN FOR MINOR (UGMA)
[ ] JOINT TENANTS WITH RIGHT OF [ ] PARTNERSHIP* [ ] TRUST* [ ] OTHER (SPECIFY)*
SURVIVORSHIP
</TABLE>
* Please attach a copy of the appropriate bylaws, resolutions or trust documents
establishing authority to open this account. If such agreements or resolutions
are not in existence, please contact the Fund at 1-800-228-1872 to request the
appropriate form.
<TABLE>
<S> <C>
______________________________________________________________ ______________________________________________________________
INDIVIDUAL-(First Name/Initial/Last Name) Name of Custodian (only one)
______________________________________________________________ _________________________________________ ______________
JOINT OWNER-If any (First Name/Initial/Last Name) as Custodian for Minor's State
_________________________________________ ______________ Name of Minor (only one) of Residence
Social Security or Taxpayer ID Number Date of Birth _________________________________ _____________________
(Required by law) Minor's Social Security Number Minor's Date of Birth
_________________________________________ ______________ ______________________________________________________________
Social Security Number of Joint Owner Date of Birth Name of Organization
______________________________________________________________
Name of Trustee
____________________________ ____________________
Tax ID Number Date of Trust
Number and Street ______________________________ Apt. # ____ City _______________________________ State _______ Zip __________
Daytime Telephone Number (____) ______________________________ Evening Phone Number (____) ___________________________________
CITIZENSHIP [ ] U.S. Citizen [ ] Non-Resident Alien (Attach a W-8 form. Dividends are subject to tax
withholding.) [ ] Resident Alien
EMPLOYMENT (REQUIRED BY NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.) [ ] Yes, I am an associated person of a NASD member.
Employer's Name (account owner) ___________________________________________ Occupation ________________________________________
Employer's Address ______________________________________________ City _____________________ State _____________ Zip __________
Employer's Name (joint owner) _____________________________________________ Occupation ________________________________________
Employer's Address ______________________________________________ City _____________________ State _____________ Zip __________
=============================================================================================================================== 2
FUND SELECTION Indicate the Fund(s) and the Class of Shares in which you are investing $1000 minimum initial investment per Fund;
see prospectus for exceptions. If no Class is selected you will automatically be invested in the Class A Shares.
<CAPTION>
CLASS A CLASS B
SHARES SHARES
- --------- ---------
<C> <C> <S> <C> <C>
[ ] [ ] U.S. Treasury Money Market Fund* SELECT ONE OF THE FOLLOWING PAYMENT
[ ] N/A North Carolina Intermediate Tax-Free Fund METHODS:
[ ] N/A Short Intermediate U.S. Government Income Fund $ _____________ [ ]BY CHECK: Make check payable to
[ ] [ ] Intermediate U.S. Government Bond Fund $ _____________ BB&T Mutual Funds Group
[ ] [ ] Growth and Income Stock Fund $ _____________ [ ]BY WIRE: Complete this form and
[ ] [ ] Balanced Fund $ _____________ call 1-800-228-1872 for wire
[ ] [ ] Small Company Growth Fund $ _____________ instructions and to place an
[ ] [ ] International Equity Fund $ _____________ order.
[ ] [ ] Other $ _____________ Check box if establishing a letter
TOTAL INVESTMENT $ _____________ of intent [ ] and complete Section
$ _____________ 11.
$ _____________ *If purchasing Class B Shares of
the U.S. Treasury Money Market
Fund, please complete Section 7 as
described in the prospectus under
"How to Purchase and Redeem
Shares.'
===============================================================================================================================
</TABLE>
<PAGE> 55
<TABLE>
<S> <C> <C>
3 TELEPHONE REDEMPTION AND EXCHANGE (If left blank, you will automatically receive telephone privileges.)
I elect the telephone privileges as described in the prospectus [ ] Yes [ ] No
=============================================================================================================================
4 DISTRIBUTION SELECTION (Your dividends and capital gains will be automatically reinvested into your account unless you
indicate otherwise.)
DIVIDENDS CAPITAL GAINS
[ ] reinvested [ ] reinvested
[ ] sent to me by check to the address [ ] sent to me by check to the address
indicated in Section 1. indicated in Section 1.
[ ] automatically deposited to my bank [ ] automatically deposited to my bank
account as indicated in Section 8. account as indicated in Section 8.
===================================================================================================================================
5 AUTO INVEST PLAN (From your checking account. Attach a voided check along with your initial purchase.)
The minimum initial purchase is reduced to $50 per fund when you use this service. Subsequent minimum purchase is $50 for each fund.
FUND NAME ACCOUNT NUMBER (OR NEW ACCOUNT) AMOUNT ($50 MIN./$100,000 MAX.)
- --------- ------------------------------- -------------------------------
_________________________________________ ________________________________________ $ ______________________________________
_________________________________________ ________________________________________ $ ______________________________________
_________________________________________ ________________________________________ $ ______________________________________
_________________________________________ ________________________________________ $ ______________________________________
Please select how often you would like to have the amount(s) shown above withdrawn from your Bank Account.
[ ] Once each month on the 5th
[ ] Once each month on the 20th
[ ] Twice each month on the 5th and the 20th
[ ] Once each quarter on the 20th beginning in __________. (Jan/Apr/Jul/Oct).
(VOIDED CHECK MUST BE ATTACHED.)
** PLEASE COMPLETE SECTION 8
BY MAKING THE ABOVE SELECTION, I AUTHORIZE THE BB&T MUTUAL FUNDS' TRANSFER AGENT AND BISYS FUND SERVICES, TO CHARGE THE
AFOREMENTIONED ACCOUNT AND INVEST THE MONIES INTO THE BB&T MUTUAL FUNDS LISTED ON THE ABOVE STATED DATE(S). I will be responsible
for assuring the monies are available in the bank account I choose to have charged for these transactions. Please allow fifteen
business days after receipt to add, change or discontinue the Auto Invest Plan feature. To add or change bank account information in
Section 8, the request must be in writing and accompanied by a signature guarantee.
===================================================================================================================================
6 AUTO WITHDRAWAL PLAN (From your BB&T Fund Class A Shares only. Attach a voided check along with your initial purchase.)
Please indicate the BB&T Fund(s) for the Auto Withdrawal.
FUND NAME ACCOUNT NUMBER (OR NEW ACCOUNT) AMOUNT ($50 MIN./$100,000 MAX.)
- --------- ------------------------------- -------------------------------
_________________________________________ ________________________________________ $ ______________________________________
_________________________________________ ________________________________________ $ ______________________________________
_________________________________________ ________________________________________ $ ______________________________________
Please select how often you would like to have the amount(s) shown above withdrawn from your BB&T Fund(s).
[ ] Once each month on the 5th
[ ] Once each month on the 20th
[ ] Twice each month on the 5th and the 20th
[ ] Once each quarter on the 20th beginning in __________. (Jan/Apr/Jul/Oct).
[ ] Check if proceeds should be mailed by check to the address of record in Section 1.
[ ] Check if proceeds should be deposited to the bank account listed in Section 8 on the Account Application.
(VOIDED CHECK MUST BE ATTACHED.)
BY MAKING THE ABOVE SELECTION, I AUTHORIZE THE BB&T FUNDS' TRANSFER AGENT AND BISYS FUND SERVICES TO REDEEM SHARES FROM MY BB&T
FUND(S) ACCOUNT ON THE STATED DATE(S). A $1000 BALANCE IN THE SPECIFIED FUND MUST BE MAINTAINED FOR THE FEATURE TO BE AVAILABLE. I
ALSO UNDERSTAND THAT BY REDEEMING SHARES WITH A FLUCTUATING VALUE, I MAY BE CREATING A TAXABLE EVENT. To change Auto Withdrawal
amounts, dates, or to discontinue the feature the request must be made in writing to BISYS Fund Services. To add or change bank
account information in Section 8, the request must be in writing and accompanied by a signature guarantee. Please allow 15 business
days after receipt to add, change or discontinue this feature.
===================================================================================================================================
</TABLE>
<PAGE> 56
<TABLE>
<S> <C> <C>
7 AUTO EXCHANGE (From one BB&T Fund to another BB&T Fund.)
You may make regular, automatic withdrawals from a BB&T Fund to benefit from dollar-cost-averaging by automatically making purchases
into another BB&T Mutual Fund. You must have a minimum initial purchase of $10,000 or a minimum of $10,000 available in your
existing BB&T Fund. The Auto Exchange feature is only available within the same Class of Shares.
Please select how often you would like to have the amount(s) shown below withdrawn from your BB&T Fund and invested into the
selected Fund(s).
[ ] Once each month on the 20th
[ ] Once each quarter on the 20th beginning in __________. (Jan/Apr/Jul/Oct).
FROM: Fund Name ________________ Account Number (or New) ______________ Amount ($50.00 min.) ________________
TO: Fund Name ________________ Account Number (or New) ______________ Amount ($50.00 min.) ________________
TO: Fund Name ________________ Account Number (or New) ______________ Amount ($50.00 min.) ________________
Shareholders investing in the U.S. Treasury Money Market Fund Class B Shares are requested to participate in the Auto Exchange
feature so that the amount invested will be moved from the U.S. Treasury Money Market Fund to the other selected Class B Share Funds
over a two year period. Please enter the calculated amounts above.
BY MAKING THE ABOVE SELECTION, I AUTHORIZE THE BB&T MUTUAL FUNDS' TRANSFER AGENT AND BISYS FUND SERVICES, TO REDEEM FROM THE
AFOREMENTIONED BB&T FUND AND PURCHASE THE MONIES INTO THE BB&T MUTUAL FUNDS CHOSEN ON THE ABOVE STATED DATE(S). Please allow fifteen
business days after written receipt of the request to add, change or discontinue the Auto Exchange feature. Please complete an
appropriate Letter of Intent (if applicable).
====================================================================================================================================
8 BANK ADDRESS AND ELECTRONIC FUNDS TRANSFER INFORMATION
ATTACH A VOIDED CHECK FOR VERIFICATION. (Check as many boxes, as apply) YOUR ACCOUNT IS A:
[ ] Check if telephone and written redemption proceeds are to be sent electronically as [ ]Checking Account
indicated below unless otherwise specified at the time of the request. [ ]Savings Account
[ ] Check if cash dividends are to be sent electronically (complete Section 4).
[ ] Check if instructions apply to the Auto Invest Plan (complete Section 5).
[ ] Check if instructions apply to the Auto Withdrawal Plan (complete Section 6).
___________________________________________________________________________________________________________________________________
Name(s) on Bank Account
___________________________________________________________________________________________________________________________________
Bank Name Branch Office (if applicable) Bank Telephone Number
___________________________________________________________________________________________________________________________________
Bank ABA (Routing) Number (if unknown, call your bank) Bank Account Number
___________________________________________________________________________________________________________________________________
Bank Street Address (DO NOT use, P.O. Box) City State Zip
To add or change bank account information, the request must be in writing and accompanied by a signature guarantee.
====================================================================================================================================
9 CHECKWRITING (Class A Shares only.)
Please be sure to fill out a Signature Card.
[ ] Yes, I want to be able to write checks from my BB&T Fund account (minimum check redemption amount of $100).
====================================================================================================================================
10 SALES CHARGE WAIVERS (See current prospectus under "Sales Charge Waivers" for qualified purchaser types.)
Qualified Purchaser Category and Explanation ______________________________________________________________________________________
====================================================================================================================================
11 LETTER OF INTENT (Class A Shares only.)
I understand that through accumulated investments I can reduce my sales charges as outlined in the prospectus. I plan to invest over
a 13-month period in shares of one or more of the funds in the BB&T Mutual Funds Group (except the U.S. Treasury Money Market Fund)
an aggregate amount of at least:
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
If the amount indicated is not invested within 13 months, reduced sales charges do not apply.
====================================================================================================================================
</TABLE>
<PAGE> 57
<TABLE>
<S> <C> <C>
12 RIGHT OF ACCUMULATION (Class A Shares only. See the prospectus for qualifications.)
[ ] I own shares of more than one fund in the BB&T Mutual Funds Group, which may entitle me to a reduced sales charge. My
shareholder account numbers are:
Fund Name ________________________________ Fund name ________________________________ Fund Name ____________________________
Account # ________________________________ Account # ________________________________ Account # ____________________________
==============================================================================================================================
13 YOUR SIGNATURE (All registered shareholders must sign.)
I HAVE RECEIVED AND READ THE CURRENT PROSPECTUS OF THE FUND(S) SELECTED ON THIS ACCOUNT APPLICATION FORM AND AGREE TO BE BOUND BY
THEIR TERMS. I UNDERSTAND THAT MUTUAL FUNDS SHARES ARE NOT OBLIGATIONS OF OR GUARANTEED BY BB&T OR ANY OF ITS SUBSIDIARIES OR ANY
OTHER BANK, NOR ANY OTHER BANK, NOR ARE THEY INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. I ALSO AUTHORIZE THE INSTRUCTIONS
IN THIS APPLICATION.
I CERTIFY, UNDER PENALTIES OF PERJURY:
________________
(a) THAT THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBERS SHOWN IN SECTION 1 IS CORRECT AND NOT FDIC INSURED
(b) UNLESS I HAVE CHECKED THE BOX BELOW, THAT (1) THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO
BACKUP WITHHOLDING OR (2) HAS NOTIFIED ME THAT I AM N LONGER SUBJECT TO SUCH BACKUP WITHHOLDING.
[ ] THE IRS HAS NOTIFIED ME THAT I AM SUBJECT TO BACKUP WITHHOLDING.
NON-RESIDENT ALIENS MAY BE SUBJECT TO A SEPARATE IRS WITHHOLDING OF 30%.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED
TO AVOID BACKUP WITHHOLDING.
THE SIGNATURE(S) BELOW CERTIFIES THAT I (WE) HAVE READ THE CUSTOMER AGREEMENT.
X X
________________________________________________ ________________________________________________________
Signature of Account Owner Date Signature of Joint Owner (if any) Date
X
________________________________________________
Capacity of Signator
==============================================================================================================================
Attach Voided Check Here.
[SAMPLE OF VOIDED CHECK]
=============================================================================================================================
BANK USE ONLY FOR BROKER/DEALER USE ONLY
__________________________________________________________ __________________________________________________________
Branch Employee Name Dealer
__________________________________________________________ __________________________________________________________
Social Security Number Office
__________________________________________________________ __________________________________________________________
5 Digit Profit Center Number Representative
=============================================================================================================================
</TABLE>
<PAGE> 58
14 CUSTOMER AGREEMENT -- ACCOUNT APPLICATION
I (we) have full right, power, authority and legal capacity, and am (are) of
legal age in my (our) state of residence to purchase shares of the Fund(s). I
(we) affirm that I (we) have received and read the current prospectus of the
Fund(s) selected and agree to be bound by its terms.
A. REPRESENTATIONS. I understand that you provide no investments, tax or legal
advice and I have relied on my independent judgment with respect to the
suitability or potential value of any security or order.
B. FORCE MAJEURE. You shall not be liable for loss or delay caused directly or
indirectly by war, natural disaster, government restrictions, exchange or
market rulings or other conditions beyond the control of BISYS Fund Services
and BISYS Fund Services Ohio, Inc.
C. RECORDING CONVERSATIONS. I understand and agree that, for our mutual
protection, telephone conversations may be recorded without further notice.
D. APPLICABLE LAWS AND REGULATIONS. All transactions shall be subject to rules,
regulations, customs and usages of the exchange, market, or clearing house
where executed, all applicable federal and state Laws, and regulations, and
the policies and procedures as determined by the BB&T Funds set forth in
their then current prospectus.
E. GOVERNING LAWS. The Agreement shall be governed by the laws of the State of
Ohio as applicable.
F. RELIANCE ON REPRESENTATIONS. I understand that BISYS Fund Services and BISYS
Fund Services Ohio, Inc. shall rely on the information which I have set forth
in this Agreement, I agree that all changes to this information shall be
promptly provided to BISYS Fund Services and BISYS Fund Services Ohio, Inc.
are entitled to rely on this information until I change it by subsequent
written notice. Any changes made to Sections 1 & 8 must be made in writing to
The BISYS Fund Services and accompanied by a Signature guarantee from an
eligible guarantor institution as outlined in the Funds prospectus.
G. DELIVERY AND RECEIPT. Any orders for transactions in the BB&T Funds under
this Agreement will NOT be effective until received and approved by BISYS
Fund Services or BISYS Fund Services Ohio, Inc. at their offices in Columbus,
Ohio. BISYS Fund Services or BISYS Fund Services Ohio, Inc. shall not be
responsible for any losses, or lost profit opportunity I may experience due
to any delays in the execution of purchase and redemption orders as a result
of delayed receipt of such orders.
H. INSTRUCTIONS. Neither BISYS Fund Services nor the Fund will be liable for any
loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Fund's telephone redemption procedures, upon
instructions reasonably believed to be genuine. The Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone genuine; if these procedures are not followed, the Fund or its
service contractors 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, verification of account name and account number or tax
identification number, and sending redemption proceeds only to the address of
record or to a previously authorized bank account.
I. ARBITRATION. It is agreed that any controversy between me and all or any of
the Funds and its service providers, arising out of this Agreement or my
business with you, shall be settled by arbitration conducted in accordance
with the rules of the National Association of Securities Dealers, Inc. or the
American Arbitration Association, as I may elect. Failure to notify you of
such election in writing within five (5) days after receipt from you of a
request for arbitration shall be deemed to be authorization to make such
election on my behalf. Judgment upon the award of the arbitrators may be
entered by any court having jurisdiction. No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a
putative class action; or who is a member of a putative class who has not
opted out of the class with respect to any claims encompassed by the putative
class action until: (i) the class certification is denied; (ii) the class is
decertified; or (iii) the person against whom the arbitration agreement would
be enforced is excluded from the class by the court. Such forebearance to
enforce an agreement to arbitrate shall not continue a waiver of any rights
under this agreement except to the extent stated herein.
J. INDEMNIFICATION. As additional consideration for the services of BISYS Fund
Services, BISYS Fund Services Ohio, Inc. and Branch Banking & Trust Company,
with regard to this Account, I agree to indemnify and hold BISYS Fund
Services, BISYS Fund Services Ohio, Inc. and Branch Banking & Trust Company,
its officers, directors, employees and agents harmless from and against any
and all losses, liabilities, demand, claims, actions, expenses, and
attorney's fees arising out of or in connection with this Agreement, which
are not caused by the negligence or willful misconduct of BISYS Fund
Services, BISYS Fund Services Ohio, Inc. or Branch Banking & Trust Company.
The provisions of this Section shall survive termination of this Agreement;
the provisions of this Section shall be binding on my successors and assigns.
K.I understand that, if disbursements out of this account are to anyone other
than applicant or applicant's joint tenant, a signature will be required.
L. With respect to Sections 5.6 and 7 I understand that if the 5th or 20th
should fall on a non-business-day the transaction will be effective on the
next business day.
M. I UNDERSTAND THAT MUTUAL FUND SHARES ARE NOT DEPOSITS OF BRANCH BANKING &
TRUST COMPANY OR ANY OTHER BANK, ARE NOT INSURED BY THE FDIC, ARE NOT
OBLIGATIONS OF ANY BANK OR THE U.S. GOVERNMENT AND ARE NOT ENDORSED OR
GUARANTEED IN ANY WAY BY ANY BANK.
- --------------------------------------------------------------------------------
CHECKWRITING SIGNATURE CARD FOR OFFICE USE ONLY
ACCT. NO.
SPECIAL REDEMPTION ACCOUNT FOR SHAREHOLDERS OF THE BB&T U.S. TREASURY MONEY
MARKET FUND CLASS A SHARE.
_______________________________________________________________________________
NUMBER OF REGISTERED OWNERS OF SHARES (PLEASE PRINT OR TYPE)
_____________________________________________/_________________________________
ADDRESS CITY STATE ZIP
All registered owner(s) of shares owned above should sign below. By signing this
card the signatory(s) agree(s) to all of the terms and conditions set forth
herein, including the terms and conditions on the reverse.
SIGNATURES
- ---------------------------------------
- --------------------------------------- Only one signature is required to
- --------------------------------------- sign checks.
<PAGE> 59
---------------------
CHECKWRITING SIGNATURE CARD OFFICE USE ONLY
ACCT. NO.
--------------------
SPECIAL REDEMPTION ACCOUNT FOR SHAREHOLDERS OF THE BB&T U.S.
TREASURY MONEY MARKET FUND CLASS A SHARE.
______________________________________________________________________
NUMBER OF REGISTERED OWNERS OF SHARES (PLEASE PRINT OR TYPE)
__________________________/___________________________________________
ADDRESS CITY STATE ZIP
All registered owner(s) of shares owned above should sign
below. By signing this card the signatory(s) agree(s) to all
of the terms and conditions set forth herein, including the
terms and conditions on the reverse.
SIGNATURES
_______________________________ Only one signature is required
_______________________________ to sign checks.
_______________________________
<PAGE> 60
TERMS AND CONDITIONS
The registered owner(s) whose signature(s) appear(s) on the
reverse side (the "Signatory", whether one or more), intending
to be legally bound, hereby agrees with the other registered
owners and with the Fund and The Huntington National Bank,
Columbus, Ohio (the "Bank") as follows:
1.REDEMPTION AUTHORIZATION: The Bank is appointed agent for
the Signatory to request redemption of shares of the BB&T
U.S. Treasury Money Market Fund (the "Fund") registered in
the name of the Signatory upon receipt of, and in the amount
of, items drawn in accordance with these Terms and
Conditions by the Signatory upon the Signatory's Fund
account. The Bank is expressly authorized to process terms
so redemption instructions hereunder without requiring
signature guarantees and shall not be liable to the Fund,
the Signatory or any third party for any loss, liability or
expense resulting from the absence of any such guarantee.
The Bank shall also not be liable to the Fund, the Signatory
or any third party for, and the Signatory indemnifies and
holds the Bank harmless from, any loss, liability or expense
arising from or related to any act of the Fund in redeeming
or not redeeming any shares or following or not following
any instruction contained in an item.
2.ITEM PROCESSING: Signatory agrees that the Bank's duties
upon receipt of items from the Signatory are only those of a
collecting agent to present the items to the Fund for
payment through redemption of shares owned by the Signatory.
In addition, the Signatory agrees that:
(a) No item shall be issued or honored, or any redemption
effected, in an amount less than $100.
(b) No item shall be issued or honored, or any redemption
effected, for any amount not represented by fully paid
shares or represented by shares for which payment has
not been made in full and any checks or other
instruments given in payment have not been finally paid
and collected through normal banking channels.
(c) Items shall be subject to any further limitations set
forth in the Prospectus issued by the Fund including
without limitation any additions, amendments and
supplements thereto, and set forth in any additions,
amendments and supplements to these Terms and Conditions
from time to time in effect.
3.DUAL OWNERSHIP: If more than one person is indicated as a
registered owner of the shares of the Fund, as by joint
ownership, ownership in common or tenants by the entities,
then (a) each registered owner must sign this signature
card, (b) only one registered owner need sign each item
issued hereunder.
4.FORM OF ITEMS: The items shall be in a form provided or
approved in advance by the Fund or the Bank.
5.TERMINATION: Either the Bank or the Fund may at any time
terminate the special redemption privileges, related share
redemption services and the Bank's agency for the Signatory
without prior notice by the Bank or the Fund to the
Signatory.
6.HEIRS AND ASSIGNS: The Signatory may not assign its rights
and duties pursuant to these Terms and Conditions without
the prior consent of the Fund and Bank. These Terms and
Conditions shall bind the respective heirs, executors,
administrators and permitted assigns of the Signatory.
<PAGE> 61
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.
1600 Market Street, 29th Floor
Philadelphia, PA 19103
INVESTMENT SUB-ADVISER
(International Equity Fund only)
CastleInternational Asset Management Limited
7 Castle Street
Edinburgh, Scotland EH2 3AH
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 62
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
TRUST SHARES
Part A Item Prospectus Caption
- ----------- ------------------
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
<PAGE> 63
LOGO
U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
Growth and Income Stock Fund
Balanced Fund
Small Company Growth Fund
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 2, 1997
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Group............................................................................... 4
Fee Table............................................................................... 4
Financial Highlights.................................................................... 8
Investment Objectives and Policies...................................................... 13
Investment Restrictions................................................................. 27
Valuation of Shares..................................................................... 29
How to Purchase and Redeem Shares....................................................... 30
Dividends and Taxes..................................................................... 33
Management of BB&T Mutual Funds Group................................................... 36
General Information..................................................................... 40
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 65
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public 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.
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 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 2, 1997.
<PAGE> 66
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group (the "Group"), a Massachusetts
business trust, is an open-end management investment company
which currently consists of 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, Class B Shares were not yet
being offered in the Short-Intermediate and North Carolina
Funds. This prospectus relates to only the Trust Class
Shares.
Investment Objective and THE U.S. TREASURY FUND seeks current income with liquidity
Policies.................... and stability of principal through investing exclusively in
short-term obligations issued or guaranteed by the U.S.
Treasury, some of which may be subject to repurchase
agreements.
THE SHORT-INTERMEDIATE FUND seeks current income consistent
with the preservation of capital through investment in
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and high grade
collateralized mortgage obligations, some of which may be
subject to repurchase agreements.
THE INTERMEDIATE BOND FUND seeks current income consistent
with the preservation of capital through investment of at
least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or its instrumentalities,
some of which may be subject to repurchase agreements.
THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and North Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North
Carolina and its political subdivisions.
THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.
THE BALANCED FUND seeks to obtain long-term capital growth
and to produce current income through investment in a
broadly diversified portfolio of securities, including
common stocks, preferred stocks and bonds.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.
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.
</TABLE>
2
<PAGE> 67
<TABLE>
<S> <C>
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.
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.
</TABLE>
3
<PAGE> 68
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. However, as of the date
of this prospectus, Class B Shares were not yet being offered in the
Short-Intermediate and North Carolina Funds.
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 EXPENSES(1)
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 redeemed, 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.......................................................... .35% .43% .37%
---- ---- ----
Total Fund Operating Expenses (after voluntary fee reductions).......... .75% .93%(6) .87%(6)
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
NORTH GROWTH SMALL INTERNATIONAL
CAROLINA AND INCOME BALANCED COMPANY EQUITY
FUND FUND FUND GROWTH FUND FUND
----------- ----------- ----------- ----------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).............. 0% 0% 0% 0% 0%
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% 0% 0% 0%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Redemption Fees (as a percentage of amount
redeemed, 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) 1.00% 1.00%
12b-1 Fees................................... 0% 0% 0% 0% 0%
Other Expenses (after voluntary fee
reductions)................................ .46%(4) .36% .45% .79% .87%(5)
--- --- --- ---- ----
Total Fund Operating Expenses (after
voluntary fee reductions).................. .96%(6) .86%(6) .95%(6) 1.79% 1.87%
=== === === ==== ====
</TABLE>
- ---------------
1 A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with
4
<PAGE> 69
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, 1997. 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 .51% for the North Carolina 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 1.03%
for the Short-Intermediate Fund, .97% for the Intermediate Bond Fund, 1.11%
for the North Carolina Fund, 1.10% for the Growth and Income Fund, and 1.19%
for the Balanced Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares
of the Funds, assuming (1) 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund...................... $ 8 $24 $42 $ 93
Short-Intermediate Fund................. $ 9 $30 $51 $114
Intermediate Bond Fund.................. $ 9 $28 $48 $107
North Carolina Fund..................... $ 10 $31 $53 $118
Growth and Income Fund.................. $ 9 $27 $48 $106
Balanced Fund........................... $ 10 $30 $53 $117
Small Company Growth Fund............... $ 18 $56 $97 $211
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.
5
<PAGE> 70
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
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
--------------- --------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS
--------------- --------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
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 redeemed, 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>
- ---------------
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.................................................. .75%
Short-Intermediate Fund............................................. .93%
Intermediate Bond Fund.............................................. .87%
Growth and Income Fund.............................................. .86%
Balanced Fund....................................................... .95%
Small Company Growth Fund........................................... 1.79%
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 1.90%, for
the Capital Manager Moderate Growth Fund is 1.99% and for the Capital Manager
Growth Fund is 2.05%.
6
<PAGE> 71
The chart below provides the expense ratios for each of the Underlying Funds,
absent any voluntary reductions in fees.
<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
-------------------------------------------------------------------- -------------
<S> <C>
U.S. Treasury Fund.................................................. .75%
Short-Intermediate Fund............................................. 1.03%
Intermediate Bond Fund.............................................. .97%
Growth and Income Fund.............................................. 1.10%
Balanced Fund....................................................... 1.19%
Small Company Growth Fund........................................... 1.79%
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 2.01%, for
the Capital Manager Moderate Growth Fund is 2.11%, and for the Capital Manager
Growth Fund is 2.17%.
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.......................... $ 19 $60
Capital Manager Moderate Growth Fund.............................. $ 20 $62
Capital Manager Growth Fund....................................... $ 21 $64
</TABLE>
Absent voluntary fee reductions, the dollar amounts in the above example would
be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund.......................... $ 20 $63
Capital Manager Moderate Growth Fund.............................. $ 21 $66
Capital Manager Growth Fund....................................... $ 22 $68
</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.
7
<PAGE> 72
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 thereon, insofar as it relates to each of the years or periods
indicated herein 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.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
----------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.046 0.050 0.030 0.027
-------- -------- ------- -------
Total from Investment
Activities................... 0.046 0.050 0.030 0.027
-------- -------- ------- -------
DISTRIBUTIONS
Net investment income.............. (0.046) (0.050) (0.030) (0.027)
-------- -------- ------- -------
Total Distributions............ (0.046) (0.050) (0.030) (0.027)
NET ASSET VALUE, END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =======
Total Return......................... 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $205,974 $120,083 $ 77,464 $ 74,962
Ratio of expenses to average
net assets....................... 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment income
average net assets............... 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average
net assets*...................... 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment income to
average net assets*.............. 4.63% 4.95% 2.82% 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.
8
<PAGE> 73
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 11, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -------------------- ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 9.89 $ 9.61 $ 10.30 $ 10.00
-------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.57 0.56 0.52 0.49
Net realized and unrealized gains
(losses) on investments.......... (0.15) 0.28 (0.68) 0.30
-------- ------- ------- -------
Total from Investment
Activities................... 0.42 0.84 (0.16) 0.79
-------- ------- ------- -------
DISTRIBUTIONS
Net investment income.............. (0.57) (0.56) (0.52) (0.49)
-------- ------- ------- -------
Net realized gains................. -- -- (0.01) --
-------- ------- ------- -------
Total Distributions............ (0.57) (0.56) (0.53) (0.49)
-------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 9.74 $ 9.89 $ 9.61 $ 10.30
======== ======= ======= =======
Total Return......................... 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $ 62,621 $ 45,005 $ 38,208 $34,646
Ratio of expenses to average
net assets....................... 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net investment income
average net assets............... 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to average
net assets*...................... 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net investment income to
average net assets*.............. 5.71% 5.64% 4.83% 4.94%(c)
Portfolio turnover(d).............. 54.82% 106.81% 7.06% 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.
9
<PAGE> 74
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
-------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
-------------------- -------------------- -------------------- ----------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 9.89 $ 9.34 $ 10.40 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income......... 0.58 0.61 0.62 0.64
Net realized and unrealized
gains (losses) on
investments................. (0.25) 0.55 (1.04) 0.40
------- ------- ------- -------
Total from Investment
Activities.............. 0.33 1.16 (0.42) 1.04
------- ------- ------- -------
DISTRIBUTIONS
Net investment income......... (0.58) (0.61) (0.62) (0.64)
------- ------- ------- -------
Net realized gains............ (0.02)
------- ------- ------- -------
Total Distributions....... (0.58) (0.61) (0.64) (0.64)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD........................ $ 9.64 $ 9.89 $ 9.34 $ 10.40
======= ======= ======= =======
Total Return.................... 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000)................ $119,633 $ 78,578 $ 68,451 $ 59,816
Ratio of expenses to average
net assets.................. 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income
to average net assets....... 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average
net assets*................. 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income
to average net assets*...... 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d)........... 76.29% 68.91% 0.38% 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.
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
----------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 10.15 $ 9.78 $ 10.29 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.38 0.37 0.38 0.36
Net realized and unrealized gains
(losses) on investments.......... (0.10) 0.37 (0.50) 0.29
------- ------- ------- -------
Total from Investment
Activities................... 0.28 0.74 (0.12) 0.65
------- ------- ------- -------
DISTRIBUTIONS
Net investment income.............. (0.38) (0.37) (0.38) (0.36)
Net realized gains................. (0.01)
------- ------- ------- -------
Total Distributions............ (0.38) (0.37) (0.39) (0.36)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 10.05 $ 10.15 $ 9.78 $ 10.29
======= ======= ======= =======
Total Return......................... 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $ 28,443 $ 28,091 $ 27,770 $ 20,128
Ratio of expenses to average
net assets....................... 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment income to
average net assets............... 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average
net assets*...................... 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment income to
average net assets*.............. 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover (d)............... 20.90% 9.38% 0.56% 5.92%
</TABLE>
10
<PAGE> 75
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 12.99 $ 11.28 $ 11.28 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.29 0.28 0.28 0.30
Net realized and unrealized gains
on investments................... 2.44 1.98 0.11 1.28
------- ------- ------- -------
Total from Investment
Activities................... 2.73 2.26 0.39 1.58
------- ------- ------- -------
DISTRIBUTIONS
Net investment income.............. (0.29) (0.28) (0.28) (0.30)
Net realized gains................. (0.09) (0.12) (0.11) --
In excess of net realized gains.... -- (0.15) -- --
------- ------- ------- -------
Total Distributions............ (0.38) (0.55) (0.39) (0.30)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 15.34 $ 12.99 $ 11.28 $ 11.28
======= ======= ======= =======
Total Return......................... 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $206,659 $145,603 $ 89,355 $ 82,358
Ratio of expenses to average
net assets....................... 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income to
average net assets............... 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average
net assets*...................... 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income to
average net assets*.............. 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d)................ 19.82% 8.73% 21.30% 27.17%
Average commission rate(e)........... $ 0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
11
<PAGE> 76
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 1, 1993 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.......................... $ 11.01 $ 9.74 $ 10.18 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.46 0.46 0.40 0.09
Net realized and unrealized gains
(losses) on investments.......... 0.92 1.27 (0.44) 0.18
------- ------- ------- -------
Total from Investment
Activities................... 1.38 1.73 (0.04) 0.27
------- ------- ------- -------
DISTRIBUTIONS
Net investment income................ (0.46) (0.46) (0.40) (0.09)
------- ------- ------- -------
Total Distributions............ (0.46) (0.46) (0.40) (0.09)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 11.93 $ 11.01 $ 9.74 $ 10.18
======= ======= ======= =======
Total Return......................... 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $ 69,374 $ 49,794 $ 39,715 $20,374
Ratio of expenses to average
net assets....................... 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income to
average net assets............... 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average
net assets*...................... 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income to
average net assets*.............. 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d)................ 19.87% 23.68% 12.91% 8.32%
Average commission rate(e)........... $ 0.0749
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
--------------------------------------------
FOR THE YEAR ENDED DECEMBER 7, 1994 TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995(A)
------------------ ---------------------
TRUST CLASS TRUST CLASS
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 14.57 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment loss................................................... (0.17) (0.07)
Net realized and unrealized gains on investments...................... 6.78 4.64
------- -------
Total from Investment Activities.................................. 6.61 4.57
------- -------
NET ASSET VALUE, END OF PERIOD.......................................... $ 21.18 $ 14.57
======= =======
Total Return............................................................ 45.37% 45.70% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....................................... $ 36,373 $16,962
Ratio of expenses to average net assets............................... 1.79% 2.33% (c)
Ratio of net investment loss to average net assets.................... (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*.............................. 1.79% 2.42% (c)
Ratio of net investment loss to average net assets*................... (1.00)% (1.43)%(c)
Portfolio Turnover(d)................................................... 71.62% 46.97%
Average commission rate(e).............................................. $ 0.0562
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
12
<PAGE> 77
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.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether invest-
13
<PAGE> 78
ment in the North Carolina Fund would be suitable for them.
THE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to seek capital growth,
current income or both, primarily through investment in stocks. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Growth and Income Fund's investments, the net asset value
per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.
The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.
The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
14
<PAGE> 79
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.
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)
- --------------------------- ------------------------
<S> <C>
Equity Funds
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.
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
- --------------------------- ------------------------
<S> <C>
Equity Funds
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.
15
<PAGE> 80
CAPITAL MANAGER GROWTH FUND
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
- --------------------------- ------------------------
<S> <C>
Equity Funds
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 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 primarily in countries included in the Morgan
Stanley Capital International Europe, Australia and the Far East Index ("EAFE").
The Fund may also invest its assets in countries with emerging economies or
securities markets. 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 price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative economic
growth among certain
16
<PAGE> 81
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 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 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
17
<PAGE> 82
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 Small Company Growth Fund's and the
International Equity Fund's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of their respective 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 , the Small Company Growth Fund, and the International Equity
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 or, CastleInternational, with respect to the
International Equity 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. Pending investments or to meet
anticipated redemption requests, the International Equity Fund may also invest
in short-term obligations. For temporary defensive purposes, as determined by
BB&T (or, in the case of the Small Company Growth Fund, PNC Bank or, in the case
of the International Equity Fund, CastleInternational), these investments may
constitute 100% of such Funds' portfolio and, in such circumstances, will
constitute a temporary suspension of such Funds' attempts to achieve their
investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of the
Short-Intermediate and Intermediate Bond Funds. The Growth and Income Fund, the
Balanced Fund, 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.
18
<PAGE> 83
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities.
The Short-Intermediate, Intermediate Bond, 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
pools of mortgage pass-through certificates or mortgage loans. CMOs are issued
with a number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial
19
<PAGE> 84
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 and the Balanced Fund may engage in writing call
options from time to time as BB&T deems to be appropriate. Options are written
solely as covered call options (options on securities owned by a 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.
To the extent consistent with its investment objective, the Small Company
Growth Fund and 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,
with respect to the International Equity Fund, 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. A Fund will not purchase put and call options
when 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 op-
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tions 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. Cross hedging is the use of options or forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency based on a belief that there is a
pattern of correlation between the two currencies.
To the extent consistent with its investment objective, the Small Company
Growth Fund and 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
a Fund's contracts may equal or exceed 100% of the Fund's total assets, although
a 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 Small Company Growth Fund and 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. A 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. A 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, a
Fund may utilize futures contracts in anticipation of changes in the composition
of its holdings or in currency exchange rates.
The Small Company Growth Fund and the International Equity Fund may purchase
and sell call and put options on futures contracts traded on an exchange or
board of trade. When a 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 a 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 a Fund's position in a
futures contract or related option, a Fund will create a segregated account of
liquid 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
subadviser'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 a 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. However, the Balanced Fund and the Growth and Income Fund 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 such Fund would exceed 25% of the
value of the total assets of the Fund. A Fund may also invest in securities
issued by foreign branches of U.S. banks
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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 and may invest in
equity securities of issuers located in emerging markets. 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.
From time to time the International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in Japan. Investments of
25% or more of the Fund's total assets in this or any other country will make
the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. For example, in the past
events in the Japanese economy as well as social developments and natural
disasters have affected Japanese securities and currency markets, and have
periodically disrupted the relationship of the Japanese yen with other
currencies and with the U.S. dollar.
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 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.
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The International Equity Fund may 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, Indonesia, 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 countries with emerging economies
or securities markets to 20% of its total assets.
The International Equity Fund may (but is not required to) 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 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
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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.
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.
PUTS
The North Carolina Fund may acquire "puts" with respect to securities held in
its portfolio. Under a put, the 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. The North
Carolina 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, the 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 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.
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 1993-1996,
however, ended with a positive General Fund balance each year. By law, a portion
of such
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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 unreserved credit balance was reserved in the General Fund as part of a
"Reserve For Repair and Renovation of State Facilities" and certain other
required reserves, 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.
PORTFOLIO TURNOVER
The Portfolio turnover rate for Short-Intermediate Fund is 54.82%, for the
Intermediate Bond Fund is 76.29%, for the Growth and Income Fund is 19.82%, for
the North Carolina Fund is 20.90%, for the Small Company Growth Fund is 71.62%,
and 15.01% for the equity portion and 4.86% for the fixed income portion of the
Balanced Fund. 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.
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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 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 instrumental-
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ities, 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 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 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
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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 and any other
day (other than a day during which no Shares are tendered for redemption and no
orders to purchase Shares are received) during which there is sufficient trading
in a Fund's portfolio instruments that the Fund's net asset value per share
might be materially affected. Currently, the NYSE is closed on the customary
national business holidays of New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor 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.
The Funds of Funds value investments in mutual fund securities at their
redemption price, which is net asset value.
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
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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 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
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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 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 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
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<PAGE> 96
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 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
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<PAGE> 97
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.
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, P.O. Box 182533, Columbus, OH
43218-2533, 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.
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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 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.
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
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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.
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.
35
<PAGE> 100
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
NAME AND ADDRESS WITH THE GROUP PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
*J. David Huber Chairman of the Board From December 1987 to present, employee
3435 Stelzer Road of BISYS Fund Services
Columbus, OH 43219
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
*Sean M. Kelly Trustee From 1993 to present, Senior Vice
Suite 1170 President of Client Services of BISYS
150 2nd Avenue, North Fund Services; prior to 1993, Senior
St. Petersburg, FL 33701 Vice President of 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. 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
36
<PAGE> 101
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;
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 and International Equity Fund's average daily net assets;
and twenty-five one-hundredths of one percent (.25%) of each Funds of the Funds'
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, 1996, the Funds paid the following
investment advisory fees: the U.S. Treasury Fund paid .40% of its average daily
net assets; each of the Short-Intermediate, Intermediate Bond, North Carolina,
Growth and Income, and Balanced Funds, after voluntary fee reductions, paid .50%
of its average daily net assets; and 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
37
<PAGE> 102
Funds 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 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 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.
</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. He has been Vice President and
Small Cap Growth Equity Fund portfolio manager for PNC Bank since 1992. He has
been a portfolio manager at PNC Bank and its predecessor, Provident National
Bank, since 1986. Mr. Wykle has also been an investment manager with PNC Equity
Advisors Company since 1995 and has been the portfolio manager of the Compass
Capital Funds(SM) Small Cap Growth Equity Portfolio since its inception.
PNC Bank, with offices located at 1600 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, 1996. 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 consumer banking, corporate banking, real
estate banking, mortgage banking and asset management. With $104.5 billion in
discretionary assets under management and $310.9 billion of assets under
administration at September 30, 1996, 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, 1996, PNC Bank had $94
billion in discretionary assets under management and $132.1 billion in assets
under administration. In addition to asset management and trust services, PNC
Bank also provides a wide range of domestic and international commercial banking
and consumer banking services. PNC Bank's origins, and in particular its trust
administration services, date back to the mid-to-late 1800s.
38
<PAGE> 103
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 ("CastleInternational") 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.
CastleInternational, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect wholly-owned subsidiary of
PNC Bank Corp. As of September 30, 1996, CastleInternational had approximately
$1.6 billion in discretionary assets under management, including three mutual
fund portfolios, one bank common trust fund and a tax exempt institutional
portfolio.
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 and
Investment Director 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 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 fiscal year ended September 30, 1996, 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, the Balanced and the Small Company Growth 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.
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 (in-
39
<PAGE> 104
cluding 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, 1996, 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: .75% Short-Intermediate Fund: .93%;
Intermediate Bond Fund: .87%; North Carolina Fund: .96%; Growth and Income Fund:
.86%; Balanced Fund: .95%; and 1.79%; for the Small Company Growth Fund. Absent
fee waivers by the Adviser and Administrator, these operating expenses would
have been: Short-Intermediate Fund: 1.03%; Intermediate Bond Fund: .97%; North
Carolina Fund: 1.11%; Growth and Income Fund: 1.10%; and Balanced Fund: 1.19%.
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.
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
40
<PAGE> 105
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. Currently, the Short-Intermediate and the North Carolina Funds are not
offering Class B Shares. Each Share represents an equal proportionate interest
in a Fund with other Shares of the same series and class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to that Fund as are declared at the discretion of the Trustees (see
"Miscellaneous" below).
Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment Company Act of 1940, Shares shall be
voted by individual series, and (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of December 9, 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
98.5%, 99.6%, 99.8%, 99.2%, 98.8%, 99.4% and 99.3% of the Trust Shares of the
U.S. Treasury , Short-Intermediate , North Carolina, Growth and Income Stock,
Intermediate 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
December 9, 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.
41
<PAGE> 106
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 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 invest-
42
<PAGE> 107
ment 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, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.
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<PAGE> 108
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.
1600 Market Street, 29th Floor
Philadelphia, PA 19103
INVESTMENT SUB-ADVISER
(International Equity Fund only)
CastleInternational Asset Management Limited
7 Castle Street
Edinburgh, Scotland EH2 3AH
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 109
CROSS REFERENCE SHEET
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
Part B Item Information Caption
- ----------- -----------------------
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
<PAGE> 110
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
-2-
<PAGE> 111
----------------
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 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 BB&T Capital Manager Moderate
Growth Fund, and the BB&T 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.
-3-
<PAGE> 112
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-13
Investment Restrictions.................................................................................. B-15
Portfolio Turnover....................................................................................... B-18
VALUATION.................................................................................................... B-19
Valuation of the U.S. Treasury Fund...................................................................... B-19
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.......................................................................... B-20
Valuation of the International Equity Fund............................................................... B-21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................................................... B-21
Purchase of Class A and Class B Shares................................................................... B-22
Matters Affecting Redemption............................................................................. B-23
ADDITIONAL TAX INFORMATION................................................................................... B-23
Additional Tax Information Concerning the International Equity Fund...................................... B-25
Additional Tax Information Concerning the North Carolina Fund............................................ B-26
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP........................................................................ B-34
Officers ................................................................................................ B-34
Investment Adviser....................................................................................... B-36
Investment Sub-Advisers.................................................................................. B-37
Portfolio Transactions................................................................................... B-38
Glass-Steagall Act....................................................................................... B-40
Manager and Administrator................................................................................ B-41
Expenses ................................................................................................ B-42
Distributor.............................................................................................. B-43
Custodian................................................................................................ B-45
Independent Accountants.................................................................................. B-45
Legal Counsel............................................................................................ B-45
PERFORMANCE INFORMATION...................................................................................... B-45
Yields of the U.S. Treasury Fund......................................................................... B-45
Yields of the Other Funds of the Group................................................................... B-
Calculation of Total Return.............................................................................. B-48
Performance Comparisons.................................................................................. B-49
</TABLE>
-i-
<PAGE> 113
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL INFORMATION....................................................................................... B-54
Organization and Description of Shares................................................................... B-54
Shareholder and Trustee Liability........................................................................ B-55
Miscellaneous............................................................................................ B-55
FINANCIAL STATEMENTS......................................................................................... B-64
Independent Auditors Report.............................................................................. B-64
Audited Financial Statements as of September 30, 1996.................................................... B-64
APPENDIX..................................................................................................... B-65
</TABLE>
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<PAGE> 114
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 , 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 common control with
the issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
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<PAGE> 115
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 purchasable 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
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.
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<PAGE> 116
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
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
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<PAGE> 117
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 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 liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the
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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").
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
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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 Small Company Growth Fund
and 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 Small Company Growth Fund and
the International Equity Fund may 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.
Rights Offerings and Warrants to Purchase. The Small Company Growth
Fund and 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
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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. A 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 a 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 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.
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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 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.
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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 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
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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 and the International Equity Fund may
purchase and sell securities on a forward commitment basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield), 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.
Calls. The Growth and Income Fund, Balanced 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 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.
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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 Small Company Growth Fund and 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" if 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.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund does not have any control over the
point at which it may be required to sell the underlying securities, because it
may be assigned an exercise notice at any time prior to the expiration of its
obligation as a writer. If a call option which a Fund has written expires, a
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is
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exercised, a Fund will realize a gain or loss from the sale of the underlying
security. The security covering the call will be maintained in a segregated
account of a Fund's custodian. A Fund does not consider a security covered by a
call to be "pledged" as that term is used in its policy which limits the
pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, BB&T (or PNC Bank, with respect to the Small
Company Growth Fund 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 be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, a Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
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A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
Puts. The North Carolina Fund may acquire "puts" with respect to
Tax-Exempt Obligations held in its portfolio 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 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 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 subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
The North Carolina Fund and the Funds of Funds intend to enter into
puts only with dealers, banks, and broker-dealers which, in BB&T's opinion,
present minimal credit risks.
See "Options and Futures" in the Prospectus regarding the Small Company
Growth Fund's and 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
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insufficient trading interest in certain options, restrictions may be imposed by
an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
In addition, the success of a hedging strategy based on options transactions may
depend on the ability of the Fund's investment adviser or investment sub-adviser
to predict movements in the prices of individual securities, fluctuations in
markets and movements in interest rates.
Futures Contracts and Related Options. The Small Company Growth Fund,
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 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
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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.
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;
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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 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:
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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 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.
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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 fiscal years ended September 30, 1996, and
September 30, 1995, the portfolio turnover rates for each of the Funds other
than the U.S. Treasury Fund were as follows: Short-Intermediate Fund: 54.82% and
106.81%, respectively; Intermediate Bond Fund: 76.29% and 68.91%, respectively;
Growth and Income Fund: 19.82% and 8.73%, respectively; North Carolina Fund:
20.90% and 9.38%, respectively; and Balanced Fund: [_____]% with respect to the
common stock portion of its portfolio and [___%] with respect to the fixed
income portion of its portfolio and 23.68%; respectively. For the fiscal year
ended September 30, 1996 and the period from commencement of operations,
December 7, 1994, to September 30, 1995, the portfolio turnover rate for the
Small Company Growth Fund was 71.62% and 46.97%, respectively. 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 fiscal years ended September 30, 1996 and
September 30, 1995, and is expected to remain zero percent for regulatory
purposes.
VALUATION
The net asset value of each of the Funds, other than the U.S. Treasury
Fund, is determined and its Shares are priced as of the close of regular trading
of the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on each
Business Day ("Valuation Time"). The net asset value of the U.S. Treasury Fund
is determined and it Shares are priced as of 12:00
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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 and any other day (other than a day
on which no Shares are tendered for redemption and no orders to purchase Shares
are received) during which there is sufficient trading in a Fund's portfolio
securities that a Fund's net asset value per Share might be materially
affected. 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 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
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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. The Funds of Funds will
value their investments in mutual funds securities at the redemption price,
which is net asset value.
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.
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
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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. (Eastern Time). 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 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.
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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, and the International Equity Fund is their net asset value next
computed after an order is received, plus a sales charge which varies based
upon the quantity purchased. The public offering price of such Class A Shares
of the Group is calculated by dividing net asset value by the difference
(expressed as a decimal) between 100% and the sales charge percentage of
offering price applicable to the purchase (see "How to Purchase and Redeem
Shares" in the Class A and Class B Prospectus). The offering price is rounded
to two decimal places each time a computation is made. The sales charge scale
set forth in the Class A and Class B Prospectus applies to purchases of Class A
Shares of such a Fund by a Purchaser.
As stated in the Class A and Class B Prospectus, shares of The U.S.
Treasury Fund and Class B Shares of each Fund are sold at their net asset value
per share, as next computed after an order is received. However, as discussed in
the Class A and Class B Prospectus, the Class B Shares are subject to a
Contingent Deferred Sales Charge if they are redeemed prior to the sixth
anniversary of purchase. Class B Shares of the U.S. Treasury Fund will be issued
only in exchange for Class B Shares of any of the other Funds. 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.
Certain sales of Class A Shares are made without a sales charge, as
described in the Class A and Class B Prospectus under the caption "Sales Charge
Waivers," to promote goodwill with employees and others with whom BISYS, BB&T
and/or the Group have business relationships, and because the sales effort, if
any, involved in making such sales is negligible.
As the Group's principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the Group to dealers. BISYS re-allows the
applicable sales charge as dealer discounts and brokerage commissions. Dealer
allowances expressed as a percentage of offering price for all offering prices
are set forth in the Class A and Class B Prospectus (see "How to Purchase and
Redeem Shares"). From time to time, BISYS will make expense reimbursements for
special training of a dealer's registered representatives in group meetings or
to help pay the expenses of sales contests. Neither BISYS nor dealers are
permitted to delay the placement of orders to benefit themselves by a price
change.
Matters Affecting Redemption
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission,
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(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 (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)
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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 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.
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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
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
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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 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
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"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.
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.
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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.
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
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sources that are generally available to investors. The Group has not
independently verified this information.
The State of North Carolina has three major operating funds: the
General Fund , the Highway Fund, and the Highway Trust Fund . 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 (currently being phased out). 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 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
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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 $292.6 million after
certain other reservations. Fiscal year 1996 ended with a positive General Fund
balance of approximately $573.4 million. An additional $153.1 million was
available from a reserved fund balance. Of this aggregate amount, $77.3 million
was reserved in the Savings Reserve (bringing the total reserve to $500.9
million) and $130.0 million was reserved in the Reserve for Repair and
Renovation of State Facilities (bringing the total reserve to $151.3 million
after prior withdrawals). An additional $47.1 million was transferred to a
newly-created Clean Water Management Trust Fund, $39.5 was reserved in a Capital
Improvement Reserve, and $26.2 was transferred to newly-created Federal Retiree
Refund and Administration Accounts, leaving an unrestricted General Fund balance
at June 30, 1996 of approximately $406.1 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 , 1994, and 1995 was $681.5 million,
$900.6 million, and $1,024.6 million, respectively. The foregoing results for
fiscal year 1996 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.
In the 1996 Special Session, the General Assembly reviewed and adjusted
the fiscal 1997 budget to take into account a General Fund surplus of over $700
million for the 1996 fiscal year. The General Assembly agreed to spend
approximately $415.4 million on new or expanded programs, apply approximately
$143 million to tax cuts and refunds, and reserve approximately $100 million in
various savings and other reserve accounts. Funding for education and salaries
for teachers and other state employees was increased.
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The tax cuts included a reduction in North Carolina's corporate income tax,
sales tax on food, and inheritance tax, among other tax cuts. Legislators also
significantly expanded North Carolina's industrial development policies,
including the adoption of four new tax credits designed to make North Carolina
more competitive in industrial recruitment. Overall, changes were made, or new
credits added, in the following areas: investment tax credit, business tax
credit, worker training tax credit, jobs creation tax credit, and research and
development tax credit. The tax cuts will reduce North Carolina revenues by
approximately $68.4 million for fiscal 1997 and by approximately $337 million
when all cuts are phased in by 2001. The General Assembly also created a Clean
Water Management Trust Fund, which will be used to finance projects to clean up
or prevent surface water pollution. The Fund will receive 6.5% of the General
Fund's unspent credit balance each year. The initial allocation to this Fund
from the fiscal 1996 credit balance was $47.1 million.
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject to
change which may be material and affect the budget. The Congress of the United
States is considering a number of matters affecting the Federal government's
relationship with state governments that, if enacted into law, could affect
fiscal and economic policies of the states, including North Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina Employment
Security Commission (the "Commission"), in June 1996, North Carolina ranked
eleventh among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in August 1996 to be 4.1% of the labor force, as
compared with an unemployment rate of 5.1% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds - Federal
Retirees. In Davis v. Michigan (1989), the United States Supreme Court ruled
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
North Carolina law contained similar exemptions in favor of state and local
retirees. Those exemptions were repealed prospectively, beginning with the 1989
tax year. All public pension and retirement benefits are now entitled to a
$4,000 annual exclusion.
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Following Davis, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In 1991,
the North Carolina Supreme Court ruled in favor of the State in the state court
action, concluding that Davis could only be applied prospectively and that the
taxes collected from the federal retirees were thus not improperly collected. In
1993, the United States Supreme Court vacated that decision and remanded the
case back to the North Carolina Supreme Court. The North Carolina Supreme Court
then ruled in favor of the State on the grounds that the federal retirees had
failed to comply with state procedures for challenging unconstitutional taxes.
The United States District Court ruled in favor of the defendants in the
companion federal case, and a petition for reconsideration was denied.
Plaintiffs appealed to the United States Court of Appeals, which concurred with
the lower court's ruling. The United States Supreme Court rejected an appeal,
ruling that the lawsuit was a state matter, leaving the North Carolina Supreme
Court's ruling in force. Despite these victories in court, the General Assembly
in its 1996 Special Session adopted legislation allowing for a refund of taxes
for federal retirees. Effective for tax years beginning on or after January 1,
1996, federal retirees are entitled to a North Carolina income tax credit for
taxes paid on their pension benefits during tax years 1985 through 1988. In the
alternative, a partial refund may be claimed in lieu of a credit for eligible
taxpayers.
An additional lawsuit was filed in 1995 in State court by Federal
pensioners to recover State income taxes paid on Federal retirement benefits.
This case grew out of a claim by Federal pensioners in the original Federal
court case in Swanson. In the new lawsuit, the plaintiffs allege that when the
State granted an increase in retirement benefits to State retirees in the same
legislation that equalized tax treatment between state and Federal retirees, the
increased benefits to State retirees constituted an indirect violation of Davis.
The lawsuit seeks a refund of taxes paid by Federal retirees on Federal
retirement benefits received in the years 1989 through 1993 and refunds or
monetary relief sufficient to equalize the alleged on-going discriminatory
treatment for those years. Potential refunds exceed $300 million. This case has
been suspended pending final judgment in Bailey (discussed below), and no court
date has been set. The North Carolina Attorney General 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
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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 has appealed 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 was challenged by the plaintiff on grounds
that it violated 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 was a North Carolina
corporation that did all or part of its business outside the State. The
plaintiff sought 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 was 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
WAS valid and constitutional. The United States Supreme Court reversed, ruled in
the plaintiff's favor that the tax was discriminatory, and ordered the case back
to the State Court for a ruling on the appropriate remedy. It is anticipated
that the State Court will order the State of North Carolina to pay refunds
aggregating between $130 million and $140 million, including interest, although
other alternative remedies are possible. 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.
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
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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 during January, 1997.
In its 1996 Short Session, the North Carolina General Assembly approved
additional North Carolina general obligation bonds in the amount of $950 million
for highways and $1.8 billion for schools. These bonds were approved by the
voters of the State in November, 1996.
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 1987 to present,
employee of BISYS Fund 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 President and From July 1990 to present, employee of
Secretary BISYS Fund Services; from May 1989 to
July 1990, employee of BISYS Fund
Services Ohio, Inc.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee,
BISYS Fund Services; from May 1989 -
June 1995, Supervisor, Mutual Fund Legal
Department, Alliance Capital Management.
</TABLE>
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<PAGE> 148
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During the Past 5 Years
- ---------------- -------------- -----------------------
<S> <C> <C>
Steven G. Mintos Vice President From January, 1987 to present, employee
and Limited Partner of BISYS Fund
Services; from 1988 to present, Vice
President of BISYS Fund Services Ohio,
Inc., in 1986, Vice President of BISYS
Fund Services Ohio, Inc.
D'Ray Moore Assistant Secretary From February, 1990 to present,
employee of BISYS Fund Services.
Carl Juckett Vice President From July, 1994 to present, employee
of BISYS Fund Services; from January,
1989-July, 1994, manager, Broker/
Dealer and Investment Accounting
Systems, Huntington Bank.
Dana Gentile Vice President From 1987 to present, employee of
BISYS Fund Services
</TABLE>
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services (formerly
known as The Winsbury Company) receives fees from the Group for acting as
Administrator and BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury
Service Corporation) receives fees from the Group for acting as Transfer Agent
and for providing fund accounting services to the Group.
COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Compensation Retirement Benefits Annual Compensation
Name of Person, from the Accrued As Part Benefits Upon from the Group
Position Group of Fund Expenses Retirement Paid to 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 $7,500 None None $7,500
Trustee
Thomas W. Lambeth $7,500 None None $7,500
Trustee
Robert W. Stewart $7,500 None None $7,500
Trustee
Sean M. Kelly None None None None
Trustee
</TABLE>
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<PAGE> 149
(1) Figures are for the Funds' fiscal year ended September 30, 1996. The
Group includes eleven separate series.
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 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 fiscal year ended September 30, 1996, the Funds paid the
following investment advisory fees to BB&T: U.S. Treasury Fund: $731,113;
Short-Intermediate U.S. Government Fund: $288,263 (which is $57,944 less than
the maximum amount of advisory fees, if charged); Intermediate U.S. Government
Fund: $531,655 (which is $106,977 less than the maximum amount of advisory fees,
if charged); Growth and Income Stock Fund $1,005,731 (which is $484,272 less
than the maximum amount of advisory fees, if charged); North Carolina Tax-Free
Fund: $179,367 (which is $35,889 less than the maximum amount of advisory fees,
if charged); Balanced Fund: $371,267 (which is $178,695 less than the maximum
amount of advisory fees, if charged) and Small Company Growth Fund: $307,915
(which is $796 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, 1996.
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 Fund: $228,774 (which
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<PAGE> 150
is $74,712 less than the maximum amount of advisory fees, if charged);
Intermediate Bond Fund: $353,884 (which is $116,052 less than the maximum amount
of advisory fees, if charged); Growth and Income Fund $530,197 (which is
$328,103 less than the maximum amount of advisory fees, if charged); North
Carolina 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.
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 (which
is $118,916 less than the maximum amount of advisory fees, if charged);
Short-Intermediate Fund: $130,609 (which is $180,250 less than the maximum
amount of advisory fees, if charged); Intermediate Bond Fund: $173,548 (which is
$237,363 less than the maximum amount of advisory fees, if charged); Growth and
Income Fund: $242,139 (which is $465,855 less than the maximum amount of
advisory fees, if charged); North Carolina Fund: $94,776 (which is $128,836 less
than the maximum amount of advisory fees, if charged); and Balanced Fund:
$96,932 (which is $173,034 less than the maximum amount of advisory fees, if
charged). The Small Company Growth Fund had not commenced operations as of
September 30, 1996.
Investment Sub-Advisers
Investment sub-advisory and management services are provided to the
Small Company Growth Fund by PNC Bank, National Association ("PNC Bank")
pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of
November 9, 1994 between BB&T and PNC Bank.
The Sub-Advisory Agreement provides that PNC Bank shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Group in connection with the performance of such Sub-Advisory Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of PNC Bank in the performance of its
duties, or from reckless disregard by PNC Bank of its duties and obligations
thereunder.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 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
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<PAGE> 151
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.
For the fiscal year ended September 30, 1996 and for the period from
commencement of operations, December 7, 1994, to September 30, 1995, the Small
Company Growth Fund paid $154,356 and $34,132, respectively, 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-advisory and management services are provided to the
International Equity Fund by CastleInternational Asset Management Limited
("CastleInternational"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of
January 2, 1997 between BB&T and CastleInternational.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until December 31, 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, on 60 days' written notice
by the Trustees, by vote of the holders of a majority of the outstanding Shares
of the Fund, by CastleInternational, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.
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.
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<PAGE> 152
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.
During the fiscal year ended September 30, 1996, the Growth and Income
Fund paid aggregate brokerage commissions in the amount of $173,852. During the
fiscal year ended September 30, 1996, BB&T directed brokerage transactions for
the Growth and Income Fund to brokers because of research services provided in
the following amounts: aggregate transactions --$77,196,850; aggregate
commissions: $145,882.
During the fiscal year ended September 30, 1996, the Balanced Fund
paid aggregate brokerage commissions in the amount of $39,945. During the
fiscal year ended September 30, 1996, BB&T directed brokerage transactions for
the Balanced Fund to brokers because of research services provided in the
following amounts: aggregate transactions -- $20,263,088; aggregate commissions:
$6,614.
During the fiscal year ended September 30, 1996, the Small Company
Growth Fund paid aggregate brokerage commissions in the amount of $18,046.
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
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<PAGE> 153
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 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 , PNC Bank, or
CastleInternational 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 and PNC Bank will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by the Group is a
customer of BB&T, PNC Bank, or their parents, subsidiaries, or affiliates, and,
in dealing with their customers, BB&T, PNC Bank and their parents, subsidiaries,
and affiliates will not inquire or take into consideration whether securities of
such customers are held by the Group.
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<PAGE> 154
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a bank complied with
the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a bank performing investment
advisory services for an investment company would not violate the Glass-Steagall
Act.
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.
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Manager and Administrator
BISYS serves as administrator (the "Administrator") to each Fund
pursuant to the Management and Administration Agreement dated as of October 1,
1992, as amended (the "Administration Agreement"). The Administrator assists in
supervising all operations of each Fund (other than those performed by BB&T ,
PNC Bank and CastleInternational under the Advisory Agreement and Sub-Advisory
Agreements, those performed by Star Bank, N.A. and Bank of New York under
their custodial services agreements 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. and Bank of New York under its
custodial services agreements 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 fiscal years ended September 30, 1994 , September 30, 1995, and
September 30, 1996 each of the Funds paid the following administration fees to
the Administrator: U.S. Treasury Fund: $161,741, $204,919, and 365,557
respectively; Short-Intermediate Fund: $103,554, $101,143, and $115,305
respectively; Intermediate Bond Fund: $136,908, $156,602, and $212,620
respectively; Growth and Income Fund: $191,291, $231,669 (which is $282 less
than the maximum amount of administration fees, if charged), and $402,293
respectively; North Carolina Fund:
B-42
<PAGE> 156
$22,474, $56,787 (which is $18,917 less than the maximum amount of
administration fees, if charged), and $53,810 (which is $17,942 less than the
maximum amount of administration fees, if charged) respectively; and Balanced
Fund: $71,791, $99,630, and $148,506, respectively. For the period from
commencement of operations to September 30, 1995 and for the fiscal year ended
September 30, 1996, 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) and $61,583, respectively. As of September 30,
1996, 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), will 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.
B-43
<PAGE> 157
Distributor
BISYS serves as distributor to each Fund of the Group pursuant to a
Distribution Agreement dated October 1, 1993, (the "Distribution Agreement").
The Distribution Agreement provides that, unless sooner terminated it will
continue in effect for continuous one-year periods if such continuance is
approved at least annually (i) by the Group's Board of Trustees or by the vote
of a majority of the outstanding Shares of the Funds or Fund subject to such
Distribution Agreement, and (ii) by the vote of a majority of the Trustees of
the Group who are not parties to such Distribution Agreement or interested
persons (as defined in the 1940 Act) of any party to such Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
The fee of .50% of average daily net assets of Class A Shares of each
Fund (which has been voluntarily reduced to .25%) and the fee of 1.00% of
average daily net assets of Class B Shares of each Fund payable under the Fund's
Distribution Plan, to which Class A and Class B Shares of each Fund of the Group
are subject, is described in the Class A and Class B Prospectus.
For the fiscal years ended September 30, 1994 , September 30, 1995, and
September 30, 1996, 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: $2,502, $14,832 (which is $14,832 less than the maximum amount of
fees under the Distribution Plan, if charged), and $52,079 (which is $56,370
less than the maximum amount of fees under the Distribution Plan, respectively;
Short-Intermediate Fund: $27,203, $19,162 (which is $19,117 less than the
maximum amount of fees under the Distribution Plan, if charged), and $16,736
(which is $16,727 less than the maximum amount of fees under the Distribution
Plan, respectively; Intermediate Bond Fund: $17,090, $15,210 (which is $15,187
less than the maximum amount of fees under the distribution plan, if charged),
and $10,896 (which is $10,876 less than the maximum amount of fees under the
Distribution Plan, respectively; Growth and Income Stock Fund: $18,374, $21,918
(which is $21,955 less than the maximum amount of fees under the Distribution
Plan, if charged), and $36,560 (which is $36,674 less than the maximum amount of
fees under the Distribution Plan, respectively; North Carolina Fund: $20,507,
$13,671 (which is $31,865 less than the maximum amount of fees under the
Distribution Plan, if charged), and $13,524 (which is $31,563 less than the
maximum amount of fees under the Distribution Plan, respectively; and Balanced
Fund: $16,172, $20,985 (which is $20,993 less than the maximum amount of fees
under the Distribution Plan, if charged), and $28,015 (which is $28,058 less
than the maximum amount of fees under the Distribution Plan, respectively. For
the fiscal year ended September 30, 1996 and 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
B-44
<PAGE> 158
charged) and $9,343 (which is $9,430 less than the maximum amount of fees under
the Distribution Plan.
For the period from January 1, 1996 to September 30, 1996, each of the
Funds paid the following fees under the Distribution Plan for Class B Share:
U.S. Treasury Fund: $5,530; Intermediate U.S. Government Fund: $1,386; Growth
and Income Stock Fund: $14,031; Balanced Fund: $11,185; and Small Company
Growth Fund: $10,500 which is $0 less than the maximum amount of fees under the
Distribution Plan.
The Distribution Plan was initially approved on August 18, 1992 by the
Fund's Board of Trustees, including a majority of the trustees who are not
interested persons of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan (the "Independent
Trustees"). An Amended and Restated Distribution Plan reflecting the creation of
Class B Shares was approved on September 21, 1995. The Distribution Plan
provides for fees only upon the Class A and Class B Shares of each Fund.
On October 1, 1993, The Winsbury Company (now known as BISYS Fund
Services) and its affiliated companies, including The Winsbury Service
Corporation (now known as BISYS Fund Services Ohio, Inc.), were acquired by the
BISYS Group, Inc., a publicly held company which is a provider of information
processing, loan servicing and 401(k) administration and record-keeping services
to and through banking and other financial organizations.
The Distribution Agreement is the successor to the previous
distribution agreement, which terminated automatically by its terms upon
consummation of the acquisition of Winsbury by The BISYS Group, Inc. The
Distribution Agreement was unanimously approved by the Board of Trustees of the
Group, and is materially identical to the terminated distribution agreement.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plan may be amended by vote of the
Fund's Board of Trustees, including a majority of the Independent Trustees, cast
in person at a meeting called for such purpose, except that any change in the
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of the holders of that Fund's Class A
and 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.
B-45
<PAGE> 159
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.
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.
B-46
<PAGE> 160
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, 1996, the yield and effective yield
of the U.S. Treasury Fund calculated as described above was 4.41% and 4.51%,
respectively. With respect to Trust Shares, for the seven-day period ended
September 30, 1996, the yield and effective yield of the U.S. Treasury Fund
calculated as described above was 4.61% and 4.71%, respectively. With respect to
the Class B Shares, for the seven-day period ended September 30, 1996, the yield
and effective yield of the U.S. Treasury Fund calculated as described above was
3.61% and 3.68%.
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)(6)-1]
cd
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of shares of a particular class outstanding
during the 30-day base period that were entitled to receive 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
B-47
<PAGE> 161
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, 1996, the yields of the Funds were as
follows: Short- Intermediate Fund -- 5.17% (with maximum sales load) and 5.28%
(with no sales load); Intermediate Bond -- 5.44% (with maximum sales load) and
5.70% (with no sales load); North Carolina Tax-Free Fund -- 3.46% (with maximum
sales load) and 3.53% (with no sales load); and Balanced Fund -- 3.49% (with
maximum sales load) and 3.65% (with no sales load). With respect to Class A
Shares, the tax-equivalent yield for the North Carolina Fund for the same period
was 5.73% (with maximum sales load) and 5.85% (with no sales load).
With respect to Class B Shares for the 30-day period ended September
30, 1996, the yields of the Funds were as follows: Intermediate Bond -- 4.95%
and Balanced Fund --2.91%.
With respect to Trust Shares, for the 30-day period ended September 30,
1996, the yields of each of the Funds (with no sales load) were as follows:
Short-Intermediate Fund -- 5.93%; Intermediate Bond Fund -- 5.95%; North
Carolina Tax-Free Fund -- 3.68%; and Balanced Fund -- 3.90%. With respect to
Trust Shares, the tax-equivalent yield for the North Carolina Fund for the same
period was 6.10%.
There is no yield information available for the Funds of Funds and the
International Equity 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.
B-48
<PAGE> 162
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 one-year period ended September 30, 1996, average annual total returns
(with maximum sales load) for the Short-Intermediate, Intermediate Bond, Growth
and Income, North Carolina Tax-Free, Balanced, and Small Company Growth Funds
were 2.03%, -1.52%, 15.54%, .53%, 7.37% and 38.46%, 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 , Balanced, and Small Company Growth Funds were 4.09%,
3.17%, 20.97%, 2.61%, 4.49%, 12.43% and 44.94%, respectively.
With respect to Trust Shares, for the one-year period ended September
30, 1996, average annual total return for the Short-Intermediate, Intermediate
Bond, Growth and Income, North Carolina, U.S. Treasury, Balanced and Small
Company Growth Funds were 4.36%, 3.43%, 21.31%, 2.77%, 4.74%, 12.74% and 45.37%,
respectively. The Funds of Funds and the International Equity Fund had not
commenced operations as of September 30, 1996.
With respect to Class B Shares, for the period from January 1, 1996
through September 30, 1996, average annual total returns (with maximum sales
load) for the Intermediate Bond, Growth and Income, Balanced and Small Company
Growth Funds were -7.20%, 7.01%, .67% and 32.27%, respectively. For the same
period, average annual total returns (without sales load) for the Intermediate
Bond, Growth and Income, North Carolina, U.S. Treasury, Balanced and Small
Company Growth Funds were - 2.48%, 12.01%, 2.53%, 5.67% and 37.27%,
respectively.
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<PAGE> 163
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, 1996, average annual total returns (with maximum sales load) for
the Short-Intermediate, Intermediate Bond, Growth and Income, North Carolina,
Balanced and Small Company Growth Funds were 4.27%, 4.06%, 13.69%, 3.33%, 8.27%
and 46.84%, respectively. For the same period, average annual total returns
(without sales load) for the Short-Intermediate, Intermediate Bond, Growth and
Income, North Carolina, U.S. Treasury, Balanced and Small Company Growth Funds
were 4.81%, 5.27%, 15.00%, 3.85%, 3.67%, 9.81% and 50.59%, respectively.
With respect to Trust Shares, for the period since commencement of
operations of each of the Funds through September 30, 1996, average annual total
return for the Short-Intermediate, Intermediate Bond, Growth and Income, North
Carolina, U.S. Treasury, Balanced and Small Company Growth Funds were 5.05%,
5.52%, 15.30%, 3.97%, 3.88%, 10.00% and 51.06%, respectively. The Funds of Funds
and the International Equity Fund had not commenced operations as of September
30, 1996.
With respect to Class B Shares, for the period since commencement of
operations of each of the Funds through September 30, 1996, average annual total
returns (with maximum sales load) for the Intermediate Bond, Growth and Income,
Balanced and Small Company Growth Funds were -7.20%, 7.01%, .67%, 32.27%,
respectively. For the same period, average annual total returns (without sales
load) for the Intermediate Bond, Growth and Income, North Carolina, U.S.
Treasury, Balanced and Small Company Growth Funds were -2.48%, 12.01%, 2.53%,
5.67% and 37.27%, respectively.
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 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 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.
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<PAGE> 164
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 market structure of twenty European and Pacific Basin countries. The
Index represents the evolution of an unmanaged portfolio consisting of all
domestically listed stocks.
B-51
<PAGE> 165
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-52
<PAGE> 166
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
- -------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. .......... TAX-EXEMPT YIELDS ..........
INCOME MARGINAL MARGINAL MARGINAL
(1997) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -------------------------------------------------------------------------------------------------------------------------------
FROM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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
$12,751 TO
$24,650 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
$24,651 TO
$59,750 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
$59,751 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
$60,001 TO
$124,650 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
$124,651 TO
$271,050 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
$271,050 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> 167
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARRIED
FILING JOINTLY COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ...... TAX-EXEMPT YIELDS ......
INCOME MARGINAL MARGINAL MARGINAL
(1997) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
FROM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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
$21,251 TO
$41,200 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
$41,201 TO
$99,600 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
$99,601 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
$100,001 TO
$151,750 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
$151,751 TO
$271,050 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
$271,050 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-54
<PAGE> 168
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-55
<PAGE> 169
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-56
<PAGE> 170
views of the Investment Adviser and/or Group officers regarding expected trends
and strategies.
The organizational expenses of the Group have been allocated to each
Fund and are being amortized over a period of two years from the commencement of
the public offering of Shares of the Group. In the event any of the initial
Shares of the Group are redeemed during the amortization period by any holder
thereof, the redemption proceeds will be reduced by a pro rata portion of any
unamortized organization expenses in the same proportion as the number of
initial Shares being redeemed bears to the total number of initial Shares
outstanding at the time of redemption. Investors purchasing Shares of the Group
subsequent to the date of the Prospectus and this Statement of Additional
Information bear such expenses only as they are amortized against a Fund's
investment income.
The Group is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Securities and Exchange Commission of the management or policies of the
Group.
As of December 9, 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:
U.S. Treasury Money Market Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 18,927,743.580 63.61%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Joseph Riddle III and 1,962,593.150 6.60%
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-57
<PAGE> 171
U.S. Treasury Money Market Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Branch Banking & Trust Co. 11,444,894.540 5.61%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
Wilbranch 176,279,114.700 86.44%
Cash
Attn: J. Michael Pollock
P.O. Box 2887
Wilson, NC 27894- 1847
Benefit Service Corporation 11,539,811.230 5.66%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
</TABLE>
U.S. Treasury Money Market Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Robert A. Robertson 91,423.700 5.72%
Rollover IRA
1001 Areheart St.
West Columbia, SC 29169
</TABLE>
Short Intermediate U.S. Government Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Henry Fibers, Inc. 72,577.124 11.17%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
</TABLE>
B-58
<PAGE> 172
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 101,427.739 15.61%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
Short Intermediate U.S. Government Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
CAP CO. 586,906.700 8.75%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 2,088,402.331 31.14%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 3,249,193.218 48.45%
P.O. Box 2887
Wilson, NC 27894- 2887
</TABLE>
Intermediate U.S. Government Bond Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 76,069.638 17.04%
For the Exclusive Benefit of
Our Customers
111 Center Street
Little Rock, AR 72201
Federated Bank Trust Agent 55,278.566 12.39%
Agnt For BB&T Trustee
FBO World Acceptance Corp.
Attn: Trust OPS
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
B-59
<PAGE> 173
Intermediate U.S. Government Bond Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
CAP Co. 737,366.838 5.83%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 2,752,228.562 21.75%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 7,486,237.088 59.16%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 661,224.682 5.23%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
Intermediate U.S. Government Bond Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
NC Foundation Seed Producers 2,913.780 7.08%
8220 Riley Hill Rd.
Zebulon, NC 27597
Eleanor G. Major 3,904.866 9.49%
IRA Rollover
P.O. Box 125, 105 S Academy
Varnville, SC 29944
L.J. Inc. 5,391.295 13.10%
Attn: Keith Coffer
220 Stoneridge Dr., Suite 405
Columbia, SC 29210
William Ted Camp 2,606.999 6.34%
2105 W. Nash. St.
Wilson, NC 27893
</TABLE>
B-60
<PAGE> 174
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Indiraben D. Patel 5,209.784 12.66%
P.O. Box 95
Siler City, NC 27344
Nancy K. Harmon 2,120.725 5.15%
Trst Gilbert Community Club
Scholarship Trust
P.O. Box 62
Gilbert, SC 29054-0062
</TABLE>
Growth and Income Stock Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 232,299.734 15.88%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Federated Bank Trust Agent 94,091.088 6.43%
Agnt For BB&T Trustee
FBO World Acceptance Corp
Attn: Trust Ops.
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
B-61
<PAGE> 175
Growth and Income Stock Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch Co. 6,997,380.576 50.06%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 750,049.688 5.37%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 950,672.511 6.80%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
Wilbranch Co. 3,987,802.566 28.53%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
North Carolina Intermediate Tax-Free Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 200,694.445 22.44%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Helen H. Hendricks 55,769.562 6.23%
277 Beechwood Dr.
Mocksville, NC 27028
</TABLE>
B-62
<PAGE> 176
North Carolina Intermediate Tax-Free Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch 2,833,802.010 100%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
Balanced Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens, Inc. 382,476.269 34.34%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
Balanced Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch Co. 733,015.111 11.87%
P.O. Box 2887
Wilson, NC 27894-2887
Branch Banking & Trust Co. 635,904.626 10.31%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit Serv/
Ops Manager
434 Fayetteville St., 4th Floor
Raleigh, NC 27601-1767
Wilbranch Co. 3,657,265.849 59.30%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-63
<PAGE> 177
Small Company Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Stephens Inc. 53,008.306 12.53%
For The Exclusive Benefit
Of Our Customers
111 Center St.
Little Rock, AR 72201
</TABLE>
Small Company Growth Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C>
Wilbranch Co. 794,828.777 40.98%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 215,796.111 11.13%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 412,011.748 21.24%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 196,707.372 10.14%
Agnt BB & T Savings &
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309-0000
Branch Banking & Trust Co. 127,343.092 6.57%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
</TABLE>
As of December 9 , 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
B-64
<PAGE> 178
98.5%, 99.6%, 99.8%, 99.2%, 98.8%, 99.4%, and 99.3% of the Trust Shares of
the U.S. Treasury , Short-Intermediate , North Carolina , Growth and Income ,
Intermediate 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 December 9, 1996, Stephens Inc., For the Exclusive Benefit of Our
Customers, 111 Center Street, Little Rock, AR 72201: record owner with respect
to 63.61% and 34.34% 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 Class A 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-65
<PAGE> 179
FINANCIAL STATEMENTS
Independent Auditors Report
Audited Financial Statements as of September 30, 1996
B-66
<PAGE> 180
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 four 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-67
<PAGE> 181
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 five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
BB Debt rated BB is regarded, on balance, as predominantly
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
AA- 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-68
<PAGE> 182
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 "F-1+."
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 debt
obligations. Prime-1
B-69
<PAGE> 183
repayment capacity will often be evidenced by many of the
following characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structure 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 ability 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 possess
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."
B-70
<PAGE> 184
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.
Duff's description of its five 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
issues as to investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is
expected.
Fitch's description of its four 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-
B-71
<PAGE> 185
term adverse changes could cause these securities to be rated
below investment grade.
IBCA's description of its three highest short-term debt ratings:
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
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 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic
changes over the term of the notes.
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.
B-72
<PAGE> 186
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 likelihood
that principal and interest will be paid on a timely
basis.
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
B-73
<PAGE> 187
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
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-74
<PAGE> 188
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, 1996, 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 audits 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, 1996, 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, 1996, the results of their operations, the changes in their nets 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 8, 1996
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<PAGE> 189
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
U.S. Treasury Short-Intermediate Intermediate
Money Market U.S. Government U.S. Government
Fund Income Fund Bond Fund
-------------- ------------------ -----------------
ASSETS:
<S> <C> <C> <C>
Investments, at value (Amortized cost $118,757,258;
cost $68,917,857; and $124,082,549, respectively)...... $ 118,757,258 $ 68,372,719 $ 122,548,269
Repurchase agreements, at cost......................... 117,372,191 -- --
------------- ----------- -------------
Total Investments...................................... 236,129,449 68,372,719 122,548,269
Interest receivable.................................... 111,458 999,247 1,819,677
Prepaid expenses and other............................. 6,811 2,354 3,455
------------- ----------- ------------
Total Assets................................. 236,247,718 69,374,320 124,371,401
------------- ----------- ------------
LIABILITIES:
Dividends payable...................................... 865,628 331,984 615,773
Accrued expenses and other payables:
Investment advisory fees........................... 76,392 28,174 50,912
Administration fees................................ 38,196 11,270 20,365
Distribution fees.................................. 5,361 1,298 1,016
Accounting and transfer agent fees................. 20,150 12,198 16,970
Other.............................................. 31,396 11,910 21,254
------------- ----------- ------------
Total Liabilities............................ 1,037,123 396,834 726,290
------------- ----------- ------------
NET ASSETS:
Capital................................................ 235,210,595 71,003,107 127,115,765
Undistributed net investment income.................... -- -- 5,718
Net unrealized depreciation on investments............. -- (545,138) (1,534,280)
Accumulated undistributed net realized losses on
investment transactions................................ -- (1,480,483) (1,942,092)
------------- ----------- ------------
Net Assets $ 235,210,595 $ 68,977,486 $ 123,645,111
============= =========== ============
</TABLE>
Continued
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<PAGE> 190
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
SEPTEMBER 30, 1996
<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>
Net Assets
Class A....................................... $ 27,931,354 $ 6,356,000 $ 3,659,147
Class B....................................... 1,304,785 -- 353,334
Trust Class................................... 205,974,456 62,621,486 119,632,630
------------- ------------ -------------
Total..................................... $ 235,210,595 $ 68,977,486 $ 123,645,111
============= ============ =============
Outstanding units of beneficial interest (shares)
Class A....................................... 27,931,354 653,039 380,071
Class B....................................... 1,304,785 -- 36,791
Trust Class................................... 205,974,456 6,430,579 12,411,224
------------ ----------- ------------
Total..................................... 235,210,595 7,083,618 12,828,086
============ =========== ============
Net asset value
Class A--redemption price per share........... $ 1.00 $ 9.73 $ 9.63
Class B--offering price per share*............ 1.00 -- 9.60
Trust Class--offering and redemption price per
share............................. 1.00 9.74 9.64
============ =========== ============
Maximum Sales Charge (Class A)......................... 2.00% 4.50%
=========== ============
Maximum Offering Price (100%/ (100%-Maximum Sales
Charge) of net asset value adjusted to nearest cent)
per share--Class A..................................... $ 1.00(a) $ 9.93 $ 10.08
============ =========== ============
</TABLE>
- ----------
* Redemption price per share (Class B) varies by length of time shares are
held.
(a) Offering price and redemption price are the same for the U.S. Treasury Money
Market Fund.
See notes to financial statements
-20-
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<PAGE> 191
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
North Carolina Growth and Small Company
Intermediate Stock Income Balanced Growth
Tax-Free Fund Fund Fund Fund
-------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (Cost $38,239,071;
$182,180,043; $75,172,426; and $31,600,228,
respectively)..................................... $ 38,344,894 $ 229,746,482 $ 83,721,546 $ 47,530,175
Cash.............................................. -- -- -- 603
Interest and dividends receivable................. 505,044 480,905 802,367 1,346
Receivable for capital shares issued.............. -- 11,672 -- 8,172
Receivable from brokers for investments sold...... -- -- -- 155,737
Unamortized organization costs.................... -- -- -- 2,099
Prepaid expense and other......................... 3,840 6,854 2,255 21,262
----------- ------------ ----------- ----------
Total Assets............................. 38,853,778 230,245,913 84,526,168 47,719,394
----------- ------------ ----------- ----------
LIABILITIES:
Dividends payable................................. 113,896 254,872 270,535 --
Payable for capital shares redeemed............... -- -- 665 --
Payable to brokers for investments purchased...... 994,750 301,705 -- 655,782
Accrued expenses and other payables:
Investment advisory fees................. 15,331 93,590 34,068 36,192
Administration fees...................... 4,599 37,436 13,627 7,238
Distribution fees........................ 1,139 6,721 4,349 3,744
Accounting and transfer agent fees....... 10,604 27,468 20,882 20,517
Other.................................... 9,205 36,132 13,447 10,521
----------- ------------ ----------- ----------
Total Liabilities........................ 1,149,524 757,924 357,573 733,994
----------- ------------ ----------- ----------
NET ASSETS:
Capital........................................... 37,723,453 172,703,921 73,805,105 31,650,081
Undistributed net investment loss................. -- -- -- (421,082)
Net unrealized appreciation on investments........ 105,823 47,566,439 8,549,120 15,929,947
Accumulated undistributed net realized gains
(losses) on investment transactions............... (125,022) 9,217,629 1,814,370 (173,546)
----------- ------------ ----------- ----------
Net Assets............................... $37,704,254 $229,487,989 $84,168,595 $46,985,400
=========== ============ =========== ==========
</TABLE>
Continued
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<PAGE> 192
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
North Carolina Growth and Small Company
Intermediate Income Stock Balanced Growth
Tax-Free Fund Fund Fund Fund
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net Assets
Class A .............................................. $ 9,261,340 $ 18,948,734 $12,455,697 $ 7,412,707
Class B .............................................. -- 3,879,945 2,338,795 3,199,557
Trust Class .......................................... 28,442,914 206,659,310 69,374,103 36,373,136
----------- ------------ ----------- -----------
Total ............................................ $37,704,254 $229,487,989 $84,168,595 $46,985,400
=========== ============ =========== ===========
Outstanding units of beneficial interest (shares)
Class A .............................................. 921,898 1,237,278 1,041,648 351,971
Class B .............................................. -- 253,687 196,298 152,963
Trust Class .......................................... 2,830,793 13,468,959 5,812,814 1,717,398
----------- ------------ ----------- -----------
Total ............................................ 3,752,691 14,959,924 7,050,760 2,222,332
=========== ============ =========== ===========
Net asset value
Class A--redemption price per share .................. $ 10.05 $ 15.31 $ 11.96 $ 21.06
Class B--offering price per share* ................... -- 15.29 11.91 20.92
Trust Class--offering and redemption price per share.. 10.05 15.34 11.93 21.18
=========== ============ =========== ===========
Maximum Sales Charge (Class A) ................................ 2.00% 4.50% 4.50% 4.50%
=========== ============ =========== ===========
Maximum Offering Price (100%/(100%-Maximum Sales
Charge) of net asset value adjusted to nearest cent) per
share--Class A $ 10.26 $ 16.03 $ 12.52 $ 22.05
=========== ============ =========== ===========
</TABLE>
- ----------
* Redemption price per share (Class B) varies by length of time shares are
held.
See notes to financial statements
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<PAGE> 193
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<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................................................. $ 9,828,598 $ 3,889,555 $ 7,251,688
----------- ----------- -----------
Total Income.................................. 9,828,598 3,889,555 7,251,688
----------- ----------- -----------
EXPENSES:
Investment advisory fees........................................ 731,113 346,207 638,632
Administration fees............................................. 365,557 115,305 212,620
Distribution fees--Class A...................................... 108,449 33,463 21,772
Distribution fees--Class B...................................... 5,530 -- 1,386
Custodian and accounting fees................................... 89,880 50,611 62,412
Legal and audit fees............................................ 55,738 19,458 33,048
Organization costs.............................................. 9 216 90
Trustees' fees and expenses..................................... 8,220 2,706 5,262
Transfer agent fees............................................. 66,210 46,788 59,736
Registration and filing fees.................................... 16,331 4,554 3,744
Printing costs.................................................. 39,552 7,447 13,566
Other........................................................... 4,218 2,208 3,349
----------- ----------- -----------
Gross Expenses................................ 1,490,807 628,963 1,055,617
Expenses voluntarily reduced.................................... (56,370) (74,671) (117,853)
----------- ----------- -----------
Total Expenses................................ 1,434,437 554,292 937,764
----------- ----------- -----------
Net Investment Income........................................... 8,394,161 3,335,263 6,313,924
----------- ----------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investment transactions.................. -- (162,759) (725,469)
Change in unrealized depreciation on investments................ -- (686,269) (2,757,133)
----------- ----------- -----------
Net realized/unrealized losses on investments................... -- (849,028) (3,482,602)
----------- ----------- -----------
Change in net assets resulting from operations.................. $ 8,394,161 $ 2,486,235 $ 2,831,322
=========== =========== ===========
</TABLE>
See notes to financial statements
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<PAGE> 194
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
North
Carolina Growth and Small Company
Intermediate Income Stock Balanced Growth
Tax-Free Fund Fund Fund Fund
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................................................. $ 1,681,672 $ 451,511 $ 2,702,304 $ 233,058
Dividend income.................................................. -- 5,439,921 996,840 9,282
----------- ------------ ----------- ------------
Total Income............................................ 1,681,672 5,891,432 3,699,144 242,340
----------- ------------ ----------- ------------
EXPENSES:
Investment advisory fees......................................... 215,256 1,490,003 549,962 308,711
Administration fees.............................................. 71,752 402,293 148,506 61,583
Distribution fees--Class A....................................... 45,087 73,234 56,073 18,773
Distribution fees--Class B....................................... -- 14,031 11,185 10,500
Custodian and accounting fees.................................... 36,073 95,174 62,173 76,747
Legal and audit fees............................................. 19,806 63,054 24,576 8,040
Organization costs............................................... 37 73 -- 11,130
Trustees' fees and expenses...................................... 1,974 9,552 3,450 1,170
Transfer agent fees.............................................. 43,518 98,334 74,592 75,282
Registration and filing fees..................................... 3,936 20,754 8,166 5,832
Printing costs................................................... 5,549 22,290 8,310 3,095
Other............................................................ 1,524 5,436 2,136 522
----------- ------------ ----------- ------------
Gross expenses.......................................... 444,512 2,294,228 949,129 581,385
Expenses voluntarily reduced..................................... (85,394) (520,946) (206,753) (10,226)
----------- ------------ ----------- ------------
Total expenses.......................................... 359,118 1,773,282 742,376 571,159
----------- ------------ ----------- ------------
Net Investment Income (Loss)..................................... 1,322,554 4,118,150 2,956,768 (328,819)
----------- ------------ ----------- ------------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions........... (47,072) 9,428,482 2,206,261 90,971
Change in unrealized appreciation (depreciation) on investments.. (302,527) 24,542,390 3,503,931 12,148,737
---------- ------------ ----------- -----------
Net realized/unrealized gains (losses) on investments............ (349,599) 33,970,872 5,710,192 12,239,708
---------- ------------ ----------- -----------
Change in net assets resulting from operations................... $ 972,955 $ 38,089,022 $ 8,666,960 $11,910,889
========== ============ =========== ===========
</TABLE>
See notes to financial statements
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<PAGE> 195
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. Treasury Short-Intermediate
Money Market U.S. Government
Fund Income Fund
---------------------------- ---------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................... $ 8,394,161 $ 5,085,963 $ 3,335,263 $ 2,904,229
Net realized losses on investment transactions.......... -- -- (162,759) (1,125,416)
Net change in unrealized appreciation...................
(depreciation) on investments.......................... -- -- (686,269) 2,643,412
------------- ------------- ------------ ------------
Change in net assets resulting from operations............ 8,394,161 5,085,963 2,486,235 4,422,225
------------- ------------- ------------ ------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.............................. (948,869) (285,363) (371,250) (421,136
DISTRIBUTIONS TO CLASS B SHAREHOLDERS(a):
From net investment income.............................. (19,543) -- -- --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income.............................. (7,425,749) (4,800,600) (2,964,013) (2,483,093)
------------- ------------- ------------ ------------
Change in net assets from shareholder distributions....... (8,394,161) (5,085,963) (3,335,263) (2,904,229)
------------- ------------- ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 449,946,776 413,983,846 32,001,311 16,642,791
Dividends reinvested.................................... 1,721,604 507,038 1,448,084 778,260
Cost of shares redeemed................................. (350,488,723) (359,409,516) (15,729,346) (15,385,757)
------------- ------------- ------------ ------------
Change in net assets from share transactions.............. 101,179,657 55,081,368 17,720,049 2,035,294
------------- ------------- ------------ ------------
Change in net assets...................................... 101,179,657 55,081,368 16,871,021 3,553,290
NET ASSETS:
Beginning of period..................................... 134,030,938 78,949,570 52,106,465 48,553,175
------------- ------------- ------------ ------------
End of period........................................... $ 235,210,595 $ 134,030,938 $ 68,977,486 $ 52,106,465
============= ============= ============ ============
SHARE TRANSACTIONS:
Issued.................................................. 449,946,776 413,983,846 3,264,121 1,718,480
Reinvested.............................................. 1,721,604 507,038 146,965 80,130
Redeemed................................................ (350,488,723) (359,409,516) (1,597,468) (1,581,451)
------------- ------------- ------------ ------------
Change in shares.......................................... 101,179,657 55,081,368 1,813,618 217,159
============= ============= ============ ============
</TABLE>
- ----------
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
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<PAGE> 196
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Intermediate U.S. North Carolina
Government Bond Intermediate Tax-Free
Fund Fund
------------------------------- ------------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
-------------- --------------- --------------- --------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income................................ $ 6,313,924 $ 5,024,624 $ 1,322,554 $ 1,416,162
Net realized losses on investment transactions....... (725,469) (1,194,343) (47,072) (77,950)
Net change in unrealized appreciation (depreciation)
on investments...................................... (2,757,133) 5,832,579 (302,527) 1,483,907
------------ ------------ ------------ ------------
Change in net assets resulting from operations......... 2,831,322 9,662,860 972,955 2,822,119
------------ ------------ ------------ ------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income........................... (247,352) (377,937) (322,468) (330,842)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS(a):
From net investment income........................... (6,966) -- -- --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income........................... (6,059,606) (4,646,687) (1,000,086) (1,085,320)
------------ ------------ ------------ ------------
Change in net assets from shareholder distributions.... (6,313,924) (5,024,624) (1,322,554) (1,416,162)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......................... 66,845,451 23,171,044 11,820,669 10,916,979
Dividends reinvested................................. 4,689,472 3,929,840 268,478 278,161
Cost of shares redeemed.............................. (28,159,031) (23,210,413) (10,843,225) (14,646,808)
------------ ------------ ------------ ------------
Change in net assets from share transactions........... 43,375,892 3,890,471 1,245,922 (3,451,668)
------------ ------------ ------------ ------------
Change in net assets................................... 39,893,290 8,528,707 896,323 (2,045,711)
NET ASSETS:
Beginning of period.................................. 83,751,821 75,223,114 36,807,931 38,853,642
------------ ------------ ------------ ------------
End of period........................................ $123,645,111 $ 83,751,821 $ 37,704,254 $ 36,807,931
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................................... 6,757,431 2,419,901 1,171,335 1,107,634
Reinvested........................................... 478,491 414,007 26,506 28,266
Redeemed............................................. (2,876,321) (2,420,431) (1,071,579) (1,480,683)
------------ ------------ ------------ ------------
Change in shares....................................... 4,359,601 413,477 126,262 (344,783)
============ ============ ============ ============
</TABLE>
______________
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
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<PAGE> 197
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Growth and Income Stock Balanced
Fund Fund
-------------------------------- ---------------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................... $ 4,118,150 $ 2,757,443 $ 2,956,768 $ 2,228,732
Net realized gains (losses) on investment transactions.. 9,428,482 1,084,821 2,206,261 (361,045)
Net change in unrealized appreciation on investments.... 24,542,390 18,939,826 3,503,931 6,451,498
------------ ------------ ------------ ------------
Change in net assets resulting from operations........... 38,089,022 22,782,090 8,666,960 8,319,185
------------ ------------ ------------ ------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income.............................. (270,458) (187,792) (421,901) (355,479)
From net realized gains from investment transactions.... (76,748) (83,203) -- --
In excess of net realized gains from investment
transactions........................................... -- (108,268) -- --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS (a):
From net investment income.............................. (19,098) -- (39,026) --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income.............................. (3,828,594) (2,569,651) (2,495,841) (1,873,253)
From net realized gains from investment transactions.... (1,044,981) (1,001,618) -- --
In excess of net realized gains from investment
transactions........................................... -- (1,152,654) -- --
------------ ------------ ------------ ------------
Change in net assets from shareholder distributions...... (5,239,879) (5,103,186) (2,956,768) (2,228,732)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................. 78,886,812 57,688,354 30,350,061 18,039,983
Dividends reinvested.................................... 3,546,244 3,097,037 2,471,085 1,590,880
Cost of shares redeemed................................. (42,239,195) (19,347,795) (13,413,504) (14,945,721)
------------ ------------ ------------ ------------
Change in net assets from share transactions............. 40,193,861 41,437,596 19,407,642 4,685,142
------------ ------------ ------------ ------------
Change in net assets..................................... 73,043,004 59,116,500 25,117,834 10,775,595
NET ASSETS:
Beginning of period..................................... 156,444,985 97,328,485 59,050,761 48,275,166
------------ ------------ ------------ ------------
End of period........................................... $229,487,989 $156,444,985 $ 84,168,595 $ 59,050,761
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued.................................................. 5,587,933 4,774,121 2,636,434 1,719,005
Reinvested.............................................. 252,319 275,871 214,800 156,859
Redeemed................................................ (2,926,808) (1,633,604) (1,159,914) (1,469,697)
------------ ------------ ------------ ------------
Change in shares......................................... 2,913,444 3,416,388 1,691,320 406,167
============ ============ ============ ============
</TABLE>
- ----------
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
-27-
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<PAGE> 198
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Small Company
Growth Fund
------------------------------
For the For the period
year December 7, 1994
ended to
September 30, September 30,
1996 (a)5
------------- ----------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss........................................................... $ (328,819) $ (92,263)
Net realized gains (losses) on investment transactions........................ 90,971 (264,517)
Net change in unrealized appreciation on investments.......................... 12,148,737 3,781,210
----------- -----------
Change in net assets resulting from operations.................................. 11,910,889 3,424,430
----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued................................................... 22,938,972 15,189,335
Cost of shares redeemed....................................................... (5,922,093) (556,133)
----------- -----------
Change in net assets from share transactions.................................... 17,016,879 14,633,202
----------- -----------
Change in net assets............................................................ 28,927,768 18,057,632
NET ASSETS:
Beginning of period........................................................... 18,057,632 -
----------- -----------
End of period................................................................. $46,985,400 $ 18,057,632
=========== ===========
SHARE TRANSACTIONS:
Issued........................................................................ 1,298,090 1,280,823
Redeemed...................................................................... (315,568) (41,013)
----------- -----------
Change in shares................................................................ 982,522 1,239,810
=========== ===========
</TABLE>
- -------------
(a) Period from commencement of operations.
See notes to financial statements
-28-
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<PAGE> 199
U.S. TREASURY MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Principal Security Amortized
Amount Description Cost
- ----------- ---------------------------- ------------
<S> <C> <C>
U.S. TREASURY BILLS (47.9%):
$12,000,000 10/17/96 ................. $11,972,922
6,000,000 11/7/96 .................. 5,968,581
12,000,000 11/14/96 ................. 11,925,200
6,000,000 11/21/96 ................. 5,956,055
12,000,000 12/5/96 .................. 11,887,550
8,000,000 12/12/96 ................. 7,916,780
6,000,000 12/19/96 ................. 5,930,941
6,000,000 12/26/96 ................. 5,925,897
6,000,000 1/2/97 ................... 5,918,315
8,000,000 1/9/97 ................... 7,883,472
8,000,000 1/16/97 .................. 7,878,971
8,000,000 1/23/97 .................. 7,871,053
8,000,000 1/30/97 .................. 7,860,850
8,000,000 2/6/97 ................... 7,852,231
------------
Total U.S. Treasury Bills 112,748,818
------------
U.S. TREASURY NOTES (2.6%):
6,000,000 6.13%, 12/31/96......... 6,008,440
------------
Total U.S. Treasury Notes 6,008,440
------------
Total Investments 118,757,258
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Security Amortized
Amount Description Cost
----------- ---------------------------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (49.9%):
$40,000,000 H.S.B.C. Securities,5.70%,
10/1/96 (Collateralized by
41,250,000 U.S. Treasury
Notes, 6.13%, 9/30/00, market
value-$40,831,550)...................... $ 40,000,000
25,000,000 Lehman Brothers, 5.70%, 10/1/96
(Collateralized by 19,055,000
U.S. Treasury Notes, 11.86%,
11/15/03, market value--
$25,501,143)............................ 25,000,000
52,372,191 NationsBank, 5.70%, 10/1/96
(Collateralized by 53,600,000
U.S.Treasury Notes, 6.38%,
9/30/01, market value--
$53,408,387)............................ 52,372,191
------------
Total Repurchase Agreements 117,372,191
------------
Total (Amortized Cost--$236,129,449)(a) $ 236,129,449
============
</TABLE>
- ----------
Percentages indicated are based on net assets of $235,210,595.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements
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<PAGE> 200
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ------------------------------ -----------
<S> <C> <C>
CORPORATE BONDS (2.8%):
Automotive (2.8%):
$2,000,000 Ford Motor Credit, 6.38%, 10/6/00.. $ 1,962,500
-----------
Total Corporate Bonds 1,962,500
-----------
PASS-THROUGH MORTGAGE SECURITIES (3.1%):
Federal National Mortgage Assoc.:
2,172,875 7.00%, 6/1/08, Pool # 50751........ 2,155,883
-----------
Total Pass-through Mortgage Securities 2,155,883
-----------
U.S. GOVERNMENT AGENCIES (5.8%):
Federal Home Loan Bank:
3,000,000 6.17%, 3/8/01....................... 2,948,280
1,000,000 7.28%, 7/25/01...................... 1,025,410
-----------
Total U.S. Government Agencies 3,973,690
-----------
U.S. TREASURY NOTES (85.2%):
4,250,000 6.88%, 3/31/97...................... 4,280,473
4,250,000 8.88%, 11/15/97..................... 4,385,277
</TABLE>
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ----------------------------- -----------
<S> <C> <C>
U.S. TREASURY NOTES , CONTINUED:
$4,500,000 5.63%, 1/31/98 ...............$ 4,480,515
6,500,000 7.25%, 2/15/98 ............... 6,603,935
7,000,000 8.25%, 7/15/98 ............... 7,251,510
4,500,000 5.88%, 3/31/99 ............... 4,466,520
6,500,000 6.50%, 4/30/99 ............... 6,542,315
6,000,000 8.00%, 8/15/99 ............... 6,263,400
8,000,000 6.75%, 4/30/00 ............... 8,090,160
6,000,000 6.38%, 8/15/02 ............... 5,956,680
500,000 5.88%, 11/15/05 .............. 472,140
-----------
Total U.S. Treasury Notes 58,792,925
-----------
INVESTMENT COMPANIES (2.2%):
1,487,721 Federated Cash Reserves U.S.
Treasury Fund............. 1,487,721
-----------
Total Investment Companies 1,487,721
-----------
Total (Cost-$68,917,857)(a) $68,372,719
===========
</TABLE>
- ----------
Percentages indicated are based on net assets of $68,977,486.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........... $ 297,466
Unrealized depreciation........... (842,604)
----------
Net unrealized depreciation....... $(545,138)
==========
</TABLE>
See notes to financial statements
-30-
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<PAGE> 201
INTERMEDIATE U.S. GOVERNMENT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ----------- ---------------------------- ------------
<S> <C> <C>
CORPORATE BONDS (3.2%):
Automotive (3.2%):
$4,000,000 Ford Motor Credit, 6.38%,
10/6/00............................ $ 3,925,000
------------
Total Corporate Bonds 3,925,000
------------
PASS-THROUGH MORTGAGE SECURITIES (15.9%):
Federal Home Loan Mortgage Corp.:
2,722,664 7.50%, 7/1/07, Pool #E00108.......... 2,749,890
Federal National Mortgage Assoc.:
5,295,084 6.00%, 6/1/08, Pool #124885.......... 5,078,303
4,035,340 7.00%, 6/1/08, Pool # 50751.......... 4,003,784
Government National Mortgage Assoc.:
3,701,128 7.50%, 3/15/23, Pool # 342553........ 3,676,811
4,286,375 7.00%, 8/15/23, Pool # 354627........ 4,151,054
------------
Total Pass-through Mortgage Securities 19,659,842
------------
U.S. GOVERNMENT AGENCIES (4.2%):
Federal Home Loan Bank:
2,000,000 8.38%, 10/25/99...................... 2,108,080
3,000,000 7.36%, 7/1/04........................ 3,086,520
------------
Total U.S. Government Agencies 5,194,600
------------
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ----------- ---------------------------- ------------
<S> <C> <C>
U.S. TREASURY BONDS (14.2%):
$ 3,000,000 12.00%, 5/15/05...................... $ 4,026,270
6,000,000 9.38%, 2/15/06...................... 7,108,440
1,500,000 9.13%, 5/15/09...................... 1,705,530
4,500,000 7.50%, 11/15/16..................... 4,712,535
------------
Total U.S. Treasury Bonds 17,552,775
------------
U.S. TREASURY NOTES (60.6%):
5,000,000 6.13%, 3/31/98...................... 5,008,750
11,500,000 7.00%, 4/15/99...................... 11,707,230
8,000,000 6.88%, 7/31/99...................... 8,116,640
10,500,000 7.88%, 8/15/01...................... 11,104,905
11,000,000 6.38%, 8/15/02...................... 10,920,580
8,000,000 6.25%, 2/15/03...................... 7,866,720
9,500,000 7.25%, 8/15/04...................... 9,838,010
11,000,000 5.88%, 11/15/05..................... 10,387,080
------------
Total U.S. Treasury Notes 74,949,915
------------
INVESTMENT COMPANIES (1.0%):
1,266,137 Federated Cash Reserves
U.S. Treasury Fund................ 1,266,137
------------
Total Investment Companies 1,266,137
------------
Total (Cost-$124,082,549)(a) $ 122,548,269
============
</TABLE>
- ----------
Percentages indicated are based on net assets of $123,645,111.
(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 $35,586.
Cost for federal income tax purposes differs from value by net unrealized
depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 726,410
Unrealized depreciation (2,296,276)
-----------
Net unrealized depreciation $(1,569,866)
===========
</TABLE>
See notes to financial statements
-31-
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<PAGE> 202
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
MUNICIPAL BONDS (95.2%):
General Obligation Bonds (87.0%):
$ 500,000 Asheville, 4.80%, 6/1/06 ...................................................... $ 481,875
470,000 Buncombe County, 5.00%, 3/1/00 ................................................ 478,225
500,000 Buncombe County, 5.00%, 3/1/03 ................................................ 506,250
1,000,000 Buncombe County, 5.10%, 3/1/07 ................................................ 991,250
1,000,000 Cary, 5.50%, 2/1/01 ........................................................... 1,033,750
545,000 Charlotte, 6.80%, 10/1/97 ..................................................... 561,072
395,000 Charlotte, 5.20%, 7/1/01 ...................................................... 406,850
1,000,000 Charlotte, 5.30%, 4/1/10, Callable 4/1/05 @ 102 ............................... 986,250
500,000 Chatham County, 5.40%, 4/1/11, Callable 4/1/06 @ 102*, (b) .................... 490,625
1,000,000 City of Durham, 4.90%, 2/1/04 ................................................. 997,500
500,000 City of Durham, 5.00%, 2/1/05 ................................................. 498,750
275,000 Cleveland County, 7.10%, 6/1/99 ............................................... 293,906
600,000 Cleveland County, 5.10%, 6/1/03 ............................................... 604,500
500,000 Craven County, 5.50%, 6/1/09, Callable 6/1/06 @ 102* .......................... 503,750
500,000 Durham & Wake Counties, 5.75%, 4/1/02 ......................................... 528,125
400,000 Durham County, 5.20%, 3/1/01 .................................................. 409,500
340,000 Durham County, 5.20%, 3/1/05, Callable 3/1/02 @ 101.50 ........................ 346,800
1,000,000 Fayetteville, 4.80%, 5/1/05, Callable 5/1/03 @ 101* ........................... 975,000
265,000 Forsyth County, 5.40%, 6/1/04, Callable 6/1/02 @ 101 .......................... 273,613
500,000 Gaston County, 5.00%, 3/1/08, Callable 3/1/06 @ 101* .......................... 481,250
450,000 Goldsboro, 4.90%, 6/1/99 ...................................................... 454,500
550,000 Greensboro, 6.00%, 3/1/98 ..................................................... 564,438
1,000,000 Guilford County, 4.80%, 4/1/99 ................................................ 1,013,750
300,000 Hickory, 6.50%, 5/1/99 ........................................................ 314,625
680,000 High Point, 4.40%, 4/1/02 ..................................................... 662,150
500,000 Lee County, 5.50%, 2/1/00 ..................................................... 514,375
1,000,000 Lincoln County, 4.70%, 6/1/01 ................................................. 1,005,000
1,000,000 Lincoln County, 4.80%, 6/1/04 ................................................. 992,500
700,000 Mecklenburg County, 5.75%, 3/1/03, Callable 3/1/02 @ 100.50.................... 735,875
1,000,000 Mecklenburg County, 5.00%, 4/1/08 ............................................. 982,500
500,000 Moore County, 4.75%, 6/1/03 ................................................... 495,000
500,000 New Hanover County, 4.30%, 1/1/02 ............................................. 489,375
1,000,000 New Hanover County, 4.50%, 9/1/03 ............................................. 975,000
1,500,000 North Carolina State, 5.75%, 3/1/98 ........................................... 1,533,750
500,000 North Carolina State, 4.70%, 2/1/01 ........................................... 501,875
1,000,000 North Carolina State, 4.70%, 2/1/06, Callable 2/1/04 @ 101..................... 970,000
670,000 Orange County, 5.10%, 6/1/00 .................................................. 684,238
500,000 Orange County, 5.10%, 6/1/06, Callable 6/1/03 @ 101.5 ......................... 498,125
500,000 Orange County, 5.10%, 6/1/07, Callable 6/1/03 @ 102 ........................... 496,250
1,000,000 Pitt County, 4.80%, 2/1/00 .................................................... 1,007,500
500,000 Raleigh, 5.00%, 2/1/08, Callable 2/1/00 @ 102 ................................. 490,625
400,000 Rocky Mount, 5.50%, 5/1/97 .................................................... 403,980
700,000 Rowan County, 5.50%, 4/1/05 ................................................... 727,125
</TABLE>
Continued
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<PAGE> 203
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------------------------------------------ -----------
MUNICIPAL BONDS, CONTINUED:
General Obligation Bonds, continued:
<S> <C> <C>
$ 225,000 Rowan County, 5.50%, 2/1/07, Callable 2/1/06 @ 100.5 ................................ $ 231,188
200,000 Union County, 5.80%, 3/1/05, Callable 3/1/02 @ 101.5 ................................ 208,250
1,000,000 Wake County, 4.50%, 4/1/03 .......................................................... 985,000
1,000,000 Wayne County, 4.80%, 4/1/03 ......................................................... 992,500
500,000 Wilkes County, 5.00%, 6/1/01 ........................................................ 502,500
1,000,000 Wilmington, 4.60%, 3/1/02 ........................................................... 990,000
505,000 Winston Salem, 6.50%, 6/1/99 ........................................................ 532,775
-----------
32,803,610
-----------
Health Care Bonds (5.9%):
650,000 Charlotte Mecklenburg Hospital Revenue, 5.70%, 1/1/01.................................. 678,437
500,000 Charlotte Mecklenburg Hospital Revenue, 5.90%, 1/1/02.................................. 526,250
400,000 Medical Care Commission, Presbyterian Hospital Services, 5.70%, 10/1/04, Callable
10/01/02 @ 102......................................................................... 416,000
600,000 Medical Care Commission, Rex Hospital, 4.70%, 6/1/98................................... 603,000
-----------
2,223,687
-----------
Housing Bonds (1.0%):
365,000 Housing Finance Authority Revenue, 3.85%**, 9/1/16..................................... 365,000
-----------
Utility Bonds (1.3%):
500,000 Asheville Revenue, 5.30%, 8/1/09, Callable 8/1/06 @ 102*,(b)........................... 495,000
-----------
Total Municipal Bonds 35,887,297
-----------
INVESTMENT COMPANIES (6.5%):
1,408,264 Compass Capital Funds North Carolina Municipal Money Market Portfolio(c)............... 1,408,264
1,049,333 North Carolina Municipal Cash Trust(c)................................................. 1,049,333
-----------
Total Investment Companies 2,457,597
-----------
Total (Cost-$38,239,071)(a) $38,344,894
===========
</TABLE>
- ----------
Percentages indicated are based on net assets of $37,704,254.
(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............ $ 332,873
Unrealized depreciation............ (227,050)
---------
Net unrealized appreciation........ $ 105,823
=========
</TABLE>
(b) When-Issued security
(c) 499,900 Shares of the Compass Capital Funds North Carolina Municipal Money
Market and 497,069 shares of the North Carolina Municipal Cash Trust were
segregated due to the "When-Issued" securities purchased.
* Additional put and demand features exist allowing the Fund to require the
purchase of the instrument within variable time periods including daily,
weekly, monthly, or semiannually.
** Variable rate investments. The rate reflected on the Schedule of Investments
is the rate in effect at September 30, 1996.
See notes to financial statements
-33-
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<PAGE> 204
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Security Market
Shares Description Value
- ---------- ---------------------------- ------------
<S> <C> <C>
COMMON STOCKS (96.6%):
Apparel (1.0%):
38,500 V.F. Corp............................. $ 2,314,812
------------
Banks (6.0%):
83,800 Barnett Banks, Inc.................... 2,828,250
58,400 Boatmens Bancshares, Inc.............. 3,263,100
39,500 J. P. Morgan & Co..................... 3,510,562
82,400 Wachovia Corp......................... 4,078,800
------------
13,680,712
------------
Beverages (2.4%):
145,200 Anheuser-Busch Co..................... 5,463,150
------------
Business Equipment & Services (3.8%):
95,400 John H. Harland Co.................... 2,862,000
113,100 Pitney Bowes,Inc...................... 5,951,887
------------
8,813,887
------------
Chemicals (3.7%):
79,300 Air Products & Chemicals, Inc......... 4,619,225
18,500 Monsanto Corp......................... 675,250
53,800 Vulcan Materials Co................... 3,228,000
------------
8,522,475
------------
Communications Equipment (2.4%):
85,600 Harris Corp........................... 5,574,700
------------
Computers (4.7%):
40,900 Apple Computer, Inc................... 907,469
79,600 Hewlett Packard Co.................... 3,880,500
77,000 Honeywell, Inc........................ 4,860,625
9,600 IBM Corp.............................. 1,195,200
------------
10,843,794
------------
Construction Materials (0.9%):
34,400 PPG Industries........................ 1,870,500
------------
Containers (1.6%):
120,100 Ball Corp............................. 2,942,450
30,000 Sonoco Products Co.................... 825,000
------------
3,767,450
------------
Defense (2.2%):
56,600 Lockheed Martin Corp.................. 5,101,075
------------
Electrical Equipment (1.8%):
45,200 Emerson Electric...................... 4,073,650
------------
Electronic Components (1.4%):
64,400 Avnet, Inc............................ 3,123,400
------------
Electronic Instruments (0.2%):
10,500 Tektronix, Inc........................ 429,187
------------
Food & Related (3.4%):
121,400 Dean Foods Co......................... $ 3,429,550
161,400 SUPERVALU, Inc........................ 4,438,500
------------
7,868,050
------------
Forest & Paper Products (1.9%):
95,900 Weyerhaeuser Co....................... 4,423,388
------------
Health Care (3.7%):
60,000 Abbott Laboratories................... 2,955,000
50,100 Glaxo Holdings ADR.................... 1,559,363
79,000 Johnson & Johnson..................... 4,048,750
------------
8,563,113
------------
Household--Major Appliances (1.0%):
43,700 Whirlpool Corp........................ 2,212,313
------------
Household Products (1.6%):
22,650 Unilever NV, New York Shares.......... 3,570,206
------------
Insurance (6.4%):
93,000 Aon Corp.............................. 5,045,250
83,300 Lincoln National Corp................. 3,654,788
170,400 SAFECO Corp........................... 5,963,999
------------
14,664,037
------------
Leisure Time Industry (1.2%):
75,400 Hasbro, Inc........................... 2,799,225
------------
Manufacturing (0.5%):
25,000 Parker Hannifin Corp.................. 1,050,000
------------
Metal Fabrication (1.4%):
98,200 Trinity Industries.................... 3,277,425
------------
Metals (0.8%):
28,600 Phelps Dodge Corp..................... 1,833,975
------------
Motor Vehicles (1.2%):
91,200 Ford Motor Co......................... 2,850,000
------------
Multiple Industry (1.4%):
81,900 Corning Glass......................... 3,194,100
------------
Petroleum (8.8%):
62,000 Ashland, Inc.......................... 2,464,500
68,200 Chevron Corp.,Inc..................... 4,271,025
27,600 Mobil Corp............................ 3,194,700
124,200 Phillips Petroleum Co................. 5,309,549
31,600 Royal Dutch Petroleum Co.............. 4,933,550
------------
20,173,324
------------
Pharmaceuticals (6.6%):
54,300 Bristol Myers Squibb Co............... 5,233,163
67,700 Rhone-Poulenc Rorer................... 4,984,413
</TABLE>
Continued
-34-
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<PAGE> 205
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Security Market
Shares Description Value
- ----------- ---------------------------- ------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals, continued:
78,100 Schering Plough Corp............... $ 4,803,150
-------------
15,020,726
-------------
Photographic Equipment (0.6%):
16,900 Eastman Kodak Co................... 1,326,650
-------------
Publishing (2.8%):
38,000 American Greetings................. 1,087,750
48,800 Houghton Mifflin Co................ 2,299,700
103,400 Lee Enterprises.................... 2,365,275
17,400 Media General, Inc................. 548,100
-------------
6,300,825
-------------
Railroad (0.6%):
26,000 CSX Corp........................... 1,313,000
-------------
Restaurants (0.6%):
110,000 Bob Evans Farms.................... 1,471,250
-------------
Retail (4.5%):
111,100 American Stores Co................. 4,444,000
91,569 Limited, Inc....................... 1,751,257
85,500 May Department Stores Co........... 4,157,438
-------------
10,352,695
-------------
Securities Brokers & Dealers (1.5%):
120,925 AG Edwards......................... 3,521,941
-------------
Tobacco (0.8%):
20,700 Philip Morris Cos., Inc............ 1,857,825
-------------
Trucking & Shipping (0.8%):
75,000 Alexander & Baldwin................ $ 1,837,500
-------------
Utilities--Electric (4.3%):
65,900 FPL Group, Inc..................... 2,850,175
68,000 Public Service Co. Of Colorado..... 2,414,000
160,200 Western Resources, Inc............. 4,665,825
-------------
9,930,000
-------------
Utilities--Gas (3.5%):
61,400 Consolidated Natural Gas Co........ 3,292,575
141,000 NICOR, Inc......................... 4,758,750
-------------
8,051,325
-------------
Utilities--Telephone (4.6%):
25,400 AT&T Corp.......................... 1,327,150
92,200 SBC Communications Inc............. 4,437,125
123,000 Sprint Corp........................ 4,781,625
-------------
10,545,900
-------------
Total Common Stocks............................ 221,587,585
-------------
INVESTMENT COMPANIES (3.6%):
8,158,897 Federated Cash Reserves U.S.
Treasury Fund...................... 8,158,897
-------------
Total Investment Companies 8,158,897
-------------
Total (Cost--$182,180,043)(a) $ 229,746,482
=============
</TABLE>
- ----------
Percentages indicated are based on net assets of $229,487,989.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation $ 50,699,151
Unrealized depreciation (3,132,712)
----------
Net unrealized appreciation $ 47,566,439
==========
ADR - American Depository Receipt
See notes to financial statements
-35-
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<PAGE> 206
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ------------------------------ -----------
<S> <C> <C>
COMMON STOCKS (43.5%):
Apparel (0.7%):
10,000 V.F. Corp..................... $ 601,250
-----------
Banks (2.5%):
11,000 Banc One Corp................. 451,000
10,000 Boatmens Bancshares, Inc...... 558,750
5,000 J. P. Morgan & Co............. 444,375
14,000 Wachovia Corp................. 693,000
-----------
2,147,125
-----------
Beverages (0.9%):
20,000 Anheuser-Busch Co............. 752,500
-----------
Business Equipment & Services (1.2%):
10,000 John H. Harland Co............ 300,000
13,000 Pitney Bowes, Inc............. 684,125
-----------
984,125
-----------
Chemicals (2.3%):
8,000 Air Products & Chemicals, Inc. 466,000
7,500 E. I. Dupont de Nemours Co.... 661,875
23,000 Monsanto Corp................. 839,500
-----------
1,967,375
-----------
Communications Equipment (0.7%):
9,000 Harris Corp................... 586,125
-----------
Computers (2.4%):
15,000 Hewlett Packard Co............ 731,250
11,500 Honeywell, Inc................ 725,938
10,500 Xerox Corp.................... 563,063
-----------
2,020,251
-----------
Construction-Engineering (0.6%):
10,000 Ingersol-Rand Co.............. 475,000
-----------
Construction Materials (0.8%):
12,000 PPG Industries................ 652,500
-----------
Containers (0.5%):
12,300 Ball Corp..................... 301,350
3,000 Sonoco Products Co............ 82,500
-----------
383,850
-----------
Defense (0.8%):
4,000 Lockheed Martin Corp.......... 360,500
6,000 Raytheon Co................... 333,750
-----------
694,250
-----------
Electrical Equipment (0.5%):
4,500 Emerson Electric.............. 405,563
-----------
Electronic Components (0.8%):
14,200 Avnet, Inc.................... 688,700
-----------
Food & Related (2.6%):
20,000 Dean Foods Co................. 565,000
14,500 H. J. Heinz Co................ 489,375
22,500 Sara Lee Corp................. 804,375
13,000 SUPERVALU, Inc................ 357,500
-----------
2,216,250
-----------
Forest & Paper Products (0.7%):
13,000 Weyerhaeuser Co............... 599,625
-----------
Health Care (2.1%):
17,500 Abbott Laboratories........... 861,875
7,400 Glaxo Holdings ADR............ 230,325
13,000 Johnson & Johnson............. 666,250
-----------
1,758,450
-----------
Household-Major Appliances (0.5%):
9,000 Whirlpool Corp................ 455,625
-----------
Household Products (0.5%):
2,500 Unilever New York Shares...... 394,062
-----------
Insurance (3.0%):
14,000 American General Corp......... 528,500
18,500 Lincoln National Corp......... 811,687
28,000 SAFECO Corp................... 980,000
7,500 USLIFE Corp................... 225,000
-----------
2,545,187
-----------
Leisure Time Industry (0.3%):
7,500 Hasbro, Inc................... 278,437
-----------
Metal Fabrication (0.6%):
15,000 Trinity Industries............ 500,625
-----------
Motor Vehicles (0.4%):
11,000 Ford Motor Co................. 343,750
-----------
Multiple Industry (0.7%):
12,500 Corning Glass................. 487,500
7,000 Hanson Trust ADR.............. 86,625
-----------
574,125
-----------
Petroleum (4.2%):
6,000 Ashland, Inc.................. 238,500
4,400 Atlantic Richfield Co......... 561,000
8,000 Chevron Corp.................. 501,000
5,500 Mobil Corp.................... 636,625
28,000 Phillips Petroleum Co......... 1,197,000
2,500 Royal Dutch Petroleum Co...... 390,313
-----------
3,524,438
-----------
Pharmaceuticals (2.5%):
12,000 Bristol Myers Squibb Co....... 1,156,500
15,000 Schering Plough Corp.......... 922,500
-----------
2,079,000
-----------
Publishing (1.1%):
4,000 Gannett Co., Inc.............. 281,500
</TABLE>
Continued
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<PAGE> 207
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ----------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Publishing, continued:
8,000 Tribune Co......................... $ 624,000
-----------
905,500
-----------
Railroad (0.6%):
5,500 Norfolk Southern Corp.............. 502,563
-----------
Retail (2.5%):
15,000 Dayton Hudson Corp................. 495,000
7,500 J.C. Penney, Inc................... 405,937
7,000 May Department Stores Co........... 340,375
11,000 Melville Corp...................... 485,375
11,300 Rite-Aid........................... 409,625
-----------
2,136,312
-----------
Securities Brokers & Dealers (0.4%):
11,000 AG Edwards......................... 320,375
-----------
Tobacco (0.7%):
7,000 Philip Morris Cos., Inc............ 628,250
-----------
Trucking & Shipping (0.2%):
5,500 Alexander & Baldwin................ 134,750
-----------
Utilities-Electric (1.5%):
6,000 American Electric Power, Inc....... 243,750
2,500 Duke Power Co...................... 116,562
11,000 FPL Group, Inc..................... 475,750
16,000 Scana Corp......................... 420,000
-----------
1,256,062
-----------
Utilities-Gas (2.0%):
25,000 NICOR, Inc......................... 843,750
16,000 Williams Cos., Inc................. 816,000
-----------
1,659,750
-----------
Utilities-Telephone (1.7%):
6,600 Ameritech Corp..................... 347,325
4,000 AT&T Corp.......................... 209,000
22,000 Sprint Corp........................ 855,250
-----------
1,411,575
-----------
Total Common Stocks 36,583,325
-----------
PASS-THROUGH MORTGAGE SECURITIES (4.6%):
Federal Home Loan Mortgage Corp.:
$ 960,527 7.50%, 7/1/07, Pool # E00108.... $ 970,133
Federal National Mortgage Assoc.:
1,423,123 6.50%, 1/1/09, Pool # 50974..... 1,386,648
1,510,469 7.00%, 5/1/09, Pool # 250055.... 1,498,657
-----------
Total Pass-through Mortgage Securities..... 3,855,438
-----------
U.S. TREASURY BONDS (6.4%):
1,500,000 11.13%, 8/15/03.................. 1,868,040
3,000,000 9.38%, 2/15/06.................. 3,554,220
-----------
Total U.S. Treasury Bonds 5,422,260
-----------
U.S. TREASURY NOTES (39.5%)
2,000,000 7.13%, 10/15/98.................. 2,039,040
4,000,000 8.00%, 8/15/99.................. 4,175,600
4,000,000 8.50%, 11/15/00.................. 4,295,600
3,500,000 7.75%, 2/15/01.................. 3,671,080
2,500,000 7.50%, 11/15/01.................. 2,607,825
2,500,000 7.50%, 5/15/02.................. 2,616,675
2,500,000 6.38%, 8/15/02.................. 2,481,950
2,500,000 6.25%, 2/15/03.................. 2,458,350
2,500,000 7.25%, 5/15/04.................. 2,588,250
3,000,000 7.88%, 11/15/04.................. 3,223,560
2,000,000 7.50%, 2/15/05.................. 2,103,660
1,000,000 6.50%, 8/15/05.................. 986,690
-----------
Total U.S. Treasury Notes 33,248,280
-----------
INVESTMENT COMPANIES (5.5%):
2,171,201 Federated Cash Reserves U.S.
Treasury Fund................... 2,171,201
2,441,042 Federated Short-Term U.S.
Government Trust................ 2,441,042
-----------
Total Investment Companies................ 4,612,243
-----------
Total (Cost-$75,172,426)(a)............... $ 83,721,546
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $84,168,595.
(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.......... $ 9,450,507
Unrealized depreciation.......... (901,387)
----------
Net unrealized appreciation...... $ 8,549,120
==========
</TABLE>
ADR - American Depository Receipt
See notes to financial statements
-37-
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<PAGE> 208
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ------------------------------ -----------
<S> <C> <C>
COMMON STOCKS (93.4%):
Advertising (0.2%):
7,400 Leap Group Inc.(b)..................... $ 75,850
-----------
Beverages (0.8%):
20,000 Boston Beer Co., Inc.(b)............... 387,500
-----------
Business Services (9.3%):
36,000 Accustaff, Inc.(b)..................... 931,500
14,000 Acxiom Corp.(b)........................ 575,750
19,400 APAC Teleservices, Inc.(b)............. 994,250
16,600 Norrell Corp........................... 522,900
13,000 Robert Half International, Inc. (b).... 479,375
19,600 Sitel Corp.(b)......................... 872,200
-----------
4,375,975
-----------
Commercial Goods & Services (3.9%):
9,000 Access Health, Inc.(b)................. 506,250
11,450 Apollo Group, Inc.(b).................. 306,287
23,100 Cambridge Technology Partners,
Inc.(b)............................... 698,775
13,800 Wackenhut Corrections Corp.(b)......... 307,050
-----------
1,818,362
-----------
Commercial Services (2.2%):
2,000 Abacus Direct Corp.(b)................. 39,000
14,800 May & Speh, Inc.(b).................... 296,000
17,600 Precision Response Corp.(b)............ 677,600
400 Vincam Group, Inc.(b).................. 15,300
-----------
1,027,900
-----------
Computer Hardware (0.6%):
10,100 Network Appliance, Inc.(b)............. 303,000
-----------
Computer Software (17.5%):
13,400 Aspen Technologies, Inc.(b)............ 907,850
3,000 Baan Co. NV(b)......................... 100,125
10,200 Bisys Group, Inc.(b)................... 418,200
17,900 CBT Group PLC ADR(b)................... 841,300
3,500 Citrix Systems, Inc.(b)................ 174,563
6,000 Electronics for Imaging, Inc.(b)....... 430,500
3,700 HCIA, Inc.(b).......................... 222,000
17,600 Legato Systems, Inc.(b)................ 836,000
13,900 Manugistics Group, Inc.(b)............. 559,475
12,500 National Techteam Inc.(b).............. 339,063
12,400 Pegasystems Inc.(b).................... 322,400
16,600 Rational Software Corp.(b)............. 566,475
20,000 Saville Systems ADR(b)................. 705,000
12,700 Transaction Systems Architects,
Inc.(b)............................... 536,575
5,400 Vantive Corp.(b)....................... 349,650
12,000 Veritas Software Corp.(b).............. 849,000
4,200 Xionics Document Technologies,
Inc.(b)............................... 59,850
-----------
8,218,026
-----------
Computers (2.9%):
17,900 Converse Technology, Inc.(b)........... 695,862
18,500 Technology Solutions Co.(b)............ 645,188
-----------
1,341,050
-----------
Construction Materials (1.7%):
23,700 Systemsoft Corp.(b).................... 811,725
-----------
Consumer Goods & Services (1.0%):
5,600 Gemstar International Group
Limited(b)............................ 165,200
7,500 USA Detergents, Inc.(b)................ 298,125
-----------
463,325
-----------
Distribution Services (0.5%):
20,000 Keystone Automotive Industries,
Inc.(b)............................... 245,000
-----------
Electronics (3.2%):
9,300 Dynatech Corp.(b)...................... 425,475
8,300 Sawtek, Inc.(b)........................ 215,800
10,400 Ultrak, Inc.(b)........................ 286,000
14,600 Vitesse Semiconductor Corp.(b)......... 563,925
-----------
1,491,200
-----------
Entertainment (1.2%):
16,725 Regal Cinemas, Inc.(b)................. 418,125
6,000 Speedway Motorsports, Inc.(b).......... 157,500
-----------
575,625
-----------
Environmental Services (2.9%):
16,666 Continental Waste Industries,
Inc.(b).............................. 372,902
16,800 United Waste Systems, Inc.(b).......... 583,800
13,090 USA Waste Services, Inc.(b)............ 412,335
-----------
1,369,037
-----------
Financial Services (5.4%):
15,000 Aames Financial Corp................... 755,625
</TABLE>
Continued
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<PAGE> 209
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- --------- --------------------------- ----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
18,500 Amresco, Inc.................. $ 423,188
10,300 Cityscape Financial Corp.(b).. 272,950
7,000 Envoy Corp.(b)................ 271,250
10,500 IMC Mortgage Co.(b)........... 336,000
9,250 The Money Store, Inc.......... 245,125
11,000 Oxford Resources Corp.,
Class A(b).................. 235,125
----------
2,539,263
----------
Health Care--General (0.2%):
2,000 CRA Managed Care, Inc.(b)..... 108,000
----------
Homebuilders--Mobile Homes (1.6%):
14,000 Oakwood Homes................. 385,000
22,500 Southern Energy Homes, Inc.(b) 360,000
----------
745,000
----------
Hospital Supply & Management (0.2%):
3,500 FPA Medical Management, Inc.(b) 92,313
----------
Hotel Management & Related Services (0.3%):
7,350 Studio Plus Hotels, Inc.(b)... 121,275
----------
Hotels & Gaming (0.8%):
10,000 Doubletre Corp.(b)............ 398,750
----------
Insurance (1.5%):
15,000 HCC Insurance Holdings, Inc... 433,125
7,600 United Dental Care, Inc.(b)... 274,550
----------
707,675
----------
Leisure Time Industry (0.8%):
14,200 The North Face, Inc.(b)....... 401,150
----------
Manufactured Housing (0.9%):
18,000 Champion Enterprises, Inc.(b). 407,250
----------
Medical (2.7%):
10,800 Clintrial Research(b)......... 440,100
6,400 Quintiles Transnational Corp.(b) 468,800
10,000 Serologicals Corp.(b)......... 347,500
----------
1,256,400
----------
Medical--Hospital Management & Services (5.5%):
16,000 NCS Healthcare, Inc., Class A(b) 502,000
11,300 Occusystems, Inc.(b).......... 339,000
5,200 Omnicare, Inc................. 158,600
14,000 Orthodontic Centers of
America, Inc.(b)............ 285,250
12,700 Pediatrix Medical Group, Inc.(b) 630,237
8,025 Phycor, Inc................... 305,452
11,600 Renal Treatment Centers, Inc.(b) 385,700
----------
2,606,239
----------
Medical Equipment & Supplies (0.6%):
6,600 MiniMed Inc.(b)............... 165,825
6,000 Techne Corp.(b)............... 140,250
----------
306,075
----------
Oil & Gas (1.1%):
7,200 Marine Drilling Co., Inc.(b).. 69,300
5,000 Reading & Bates Corp.(b)...... 135,625
6,000 Seacor Holdings(b)............ 304,500
----------
509,425
----------
Pharmaceuticals (6.6%):
26,000 Dura Pharmaceuticals, Inc.(b). 958,750
23,250 Jones Medical Industries, Inc. 1,127,625
9,250 Medicis Pharmaceutical Corp.(b) 446,312
3,000 Noven Pharmaceuticals(b)...... 37,875
8,300 Parexel International Corp.(b) 522,900
----------
3,093,462
----------
Publishing (0.5%):
7,000 Gartner Group, Inc.(b)........ 238,000
----------
Restaurants (4.7%):
5,400 CKE Restaurants, Inc.......... 166,050
14,000 Einstein/Noah Bagel Corp.(b).. 430,500
17,000 Landry's Seafood Restaurants(b) 425,000
16,050 Logan Roadhouse, Inc.(b)...... 323,006
9,150 Papa John's International,Inc.(b) 480,375
13,000 Quality Dining, Inc.(b)....... 370,500
----------
2,195,431
----------
Retail (5.9%):
600 Cost Plus, Inc.(b)............ 13,875
5,400 Gadzooks, Inc.(b)............. 187,650
4,400 Gargoyles, Inc.(b)............ 90,475
3,000 Global Directmail Corp.(b).... 143,250
7,400 Inacom Corp.(b)............... 253,450
5,100 Just For Feet, Inc.(b)........ 255,638
2,000 Oakley, Inc.(b)............... 85,000
7,000 Pacific Sunwear of California. 230,125
9,000 Petco Animal Supplies, Inc.(b) 245,250
16,400 Rexall Sundown, Inc.(b)....... 598,600
6,000 The Finish Line, Inc.(b)...... 285,000
</TABLE>
Continued
-39-
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<PAGE> 210
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Shares
or
Principal Security Market
Amount Description Value
- ---------- ----------------------------------------- -----------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
11,000 West Marie Inc.(b).................. $ 363,000
-----------
2,751,313
-----------
Telecommunications (3.3%):
3,300 Boston Communications Group(b)...... 53,625
8,400 DSP Communications, Inc.(b)......... 469,350
9,000 Natural Microsystems Corp.(b)....... 433,125
8,500 P-COM, Inc.(b)...................... 210,375
13,700 Tel-Save Holdings, Inc.(b).......... 393,875
-----------
1,560,350
-----------
Textile (1.6%):
3,400 Donna Karan Intl, Inc.(b)........... 77,775
9,000 Nautica Enterprises, Inc.(b)........ 290,250
7,600 St. John Knits, Inc................. 380,950
-----------
748,975
-----------
Transportation (1.3%):
4,800 American Medical Response, Inc.(b).. 172,800
12,000 Rural/Metro Corp.(b)................ 438,000
-----------
610,800
-----------
Total Common Stocks 43,900,721
-----------
U.S. GOVERNMENT AGENCIES (7.7%):
Federal Home Loan Mortgage Corp.:
$3,630,000 10/1/96................................... $ 3,629,454
-----------
Total U.S. Government Agencies 3,629,454
-----------
Total (Cost-$31,600,228)(a) $47,530,175
===========
</TABLE>
- ----------
Percentages indicated are based on net assets of $46,985,400.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation $16,418,979
Unrealized depreciation (489,032)
-----------
Net unrealized appreciation $15,929,947
===========
(b)Represents non-income producing securities.
See notes to financial statements
-40-
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<PAGE> 211
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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.
The Group is authorized to issue an unlimited number of shares without par
value. The 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 as the "Funds").
The Group offers three classes of shares: Class A Shares, Class B Shares,
and Trust Shares. Class A Shares are offered 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"). Class B Shares are
offered subject to a contingent deferred sales charge which varies based on
the length of time Class B Shares are held in accordance with the Prospec-
tus Prospectus. Each class of shares has identical rights and privileges
except with respect to the distribution fees borne by the Class A Shares and
Class B 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.
The U.S. Treasury Money Market Fund (the "money market fund") seeks current
income with liquidity and stability of principle. The Short-Intermediate
U.S. Government Income Fund and the Intermediate U.S. Government Bond Fund
seek current income consistent with preservation of capital. The North
Carolina Intermediate Tax-Free Fund seeks to produce a high level of current
interest income that is exempt from both federal income tax and North
Carolina personal income tax. The Growth and Income Stock Fund seeks capital
growth, current income or both. The Balanced Fund seeks long-term capital
growth and current income. The Small Company Growth Fund seeks long-term
capital appreciation.
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. The preparation
of financial statements requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Investments of the 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
Continued
-41-
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<PAGE> 212
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
U.S. Treasury Money Market Fund may not (a) purchase any instrument with a
remaining maturity greater than 397 days 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 securi-
ties of the variable net asset 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 differences between cost and market values of 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 from sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
WHEN-ISSUED AND FORWARD COMMITMENTS:
The Funds may purchase securities on a "when-issued" basis and may also
purchase or sell securities on a forward commitment. The Funds record
when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make payment for the
securities purchased. The value of the securities underlying when-issued or
forward commitments to purchase securities, and any subsequent fluctuation
in their value, is taken into account when determining the net asset value
of the Funds commencing with the date the funds agree to purchase the
securities. The Funds do not accrue interest or dividends on when-issued
securities until the underlying securities are received.
REPURCHASE AGREEMENTS:
Each Fund may enter into repurchase agreements with member banks of the
Federal Deposit Insurance Corporation and with registered broker/dealers
that 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.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly 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
Continued
-42-
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<PAGE> 213
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
monthly for the Growth and Income Stock Fund and the Balanced Fund.
Dividends from net investment income are declared and paid quarterly for the
Small Company Growth Fund. Distributable net realized capital gains, if any,
are declared and distributed at least annually.
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. Permanent book and tax basis differences have been
reclassified among the components of net assets.
FEDERAL INCOME TAXES:
It is the policy of each Fund of the Group to 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 in connection with
the Small Company Growth Fund's organization and registration under the 1940
Act and the Securities Act of 1933 were paid by the Fund. 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, 1996 are as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Short-Intermediate U.S. Government Income Fund................ $ 47,303,841 $30,588,880
Intermediate U.S. Government Bond Fund........................ $122,080,365 $79,358,988
North Carolina Intermediate Tax-Free Fund..................... $ 8,627,355 $ 7,219,005
Growth and Income Stock Fund.................................. $ 76,878,732 $38,074,744
Balanced Fund................................................. $ 31,689,074 $13,676,157
Small Company Growth Fund..................................... $ 35,554,010 $19,820,616
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Group by BB&T. 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.
Pursuant to a Sub-Advisory Agreement with BB&T, PNC Bank manages the Small
Company Growth Fund subject to the general supervision of the Group's Board
of Trustees and BB&T. For its services, PNC Bank is entitled to a fee,
payable by BB&T, at the following annual rates as a percentage of the
average daily net
Continued
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<PAGE> 214
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
assets: (1) 0.50% of net assets up to $50 million, (2) 0.45% of net assets
in excess of $50 million and less than or equal to $100 million, and (3)
0.40% of net assets in excess of $100 million.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of the BISYS Group, Inc. BISYS, whom certain
officers of the Funds are affiliated, serves the Funds as administrator.
Such officers and trustees are paid no fees directly by the Funds for
serving as officers of the Funds. Fees payable to BISYS for administration
services are established under terms of the administration contract at the
annual rate of 0.20% as a percentage of the average daily net assets of each
Fund. BISYS Ohio, serves the Funds as transfer agent and mutual fund
accountant.
The Funds have adopted a Distribution and Shareholder Services Plan in
accordance with Rule 12b-1 under the 1940 Act, pursuant to which the Funds
are authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.50% and 1.00% of the average
daily net assets of the Class A Shares and Class B Shares, respectively. The
fees may be used by BISYS to pay banks, including the adviser, broker
dealers and other institutions. As distributor, BISYS is entitled to receive
commissions on sales of shares of the variable net asset funds. For the year
ended September 30, 1996, BISYS received $730,054 from commissions earned on
sales of shares of the Funds' variable net asset value funds, of which
$693,683 was allowed to affiliated broker/dealers of the Funds.
BB&T and BISYS may voluntarily reduce or reimburse fees to assist the Funds
in maintaining competitive expense ratios.
Information regarding these transactions is as follows for the year ended
September 30, 1996.
<TABLE>
<CAPTION>
Administration Distribution
Investment Advisory Fees Fees Fees
------------------------------- --------------- -------------
(As a Transfer Agent
Percentage Voluntary Voluntary Voluntary and
of Average Fee Fee Fee Mutual Fund
Net Assets) Reductions Reductions Reductions Accounting Fees
-------------- --------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Money Market Fund 0.40% $56,370 $138,570
Short-Intermediate U.S. Government
Income Fund 0.60% $ 57,944 $16,727 $ 88,537
Intermediate U.S. Government
Bond Fund 0.60% $106,977 $10,876 $112,686
North Carolina Intermediate Tax-
Free Fund 0.60% $ 35,889 $17,942 $31,563 $ 71,503
Growth and Income Stock Fund 0.74% $484,272 $36,674 $178,406
Balanced Fund 0.74% $178,695 $28,058 $126,691
Small Company Growth
Fund..................................... 1.00% $ 796 $ 9,430 $126,517
</TABLE>
Continued
-44-
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<PAGE> 215
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
5. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Group were as follows:
<TABLE>
<CAPTION>
U.S. Treasury Short Intermediate U.S.
Money Market Fund Government Income Fund
------------------------------- ---------------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued........................... $ 61,519,685 $ 39,015,125 $ 780,331 $ 238,092
Dividends reinvested.................................. 893,083 235,433 292,456 335,908
Cost of shares redeemed............................... (48,429,306) (26,788,169) (1,717,615) (4,008,351)
--------------- -------------- --------------- ---------------
Change in net assets from Class A share transactions.. $ 13,983,462 $ 12,462,389 $ (644,828) $ (3,434,35)
=============== ============== =============== ===============
CLASS B SHARES (a):
Proceeds from shares issued........................... $ 1,957,034 --
Dividends reinvested.................................. 16,070 --
Cost of shares redeemed............................... (668,319) --
--------------- --------------
Change in net assets from Class B share transactions.. $ 1,304,785 --
=============== ==============
TRUST SHARES:
Proceeds from shares issued........................... $ 386,470,057 $ 374,968,721 $ 31,220,980 $ 16,404,699
Dividends reinvested.................................. 812,451 271,605 1,155,628 442,352
Cost of shares redeemed............................... (301,391,098) (332,621,347) (14,011,731) (11,377,406)
--------------- -------------- --------------- ---------------
Change in net assets from Trust share transactions.... $ 85,891,410 $ 42,618,979 $ 18,364,877 $ 5,469,645
=============== ============== =============== ===============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued................................................ 61,519,685 39,015,125 79,521 24,465
Reinvested............................................ 893,083 235,433 29,675 34,730
Redeemed.............................................. (48,429,306) (26,788,169) (174,736) (417,677)
--------------- -------------- --------------- ---------------
Change in Class A Shares.............................. 13,983,462 12,462,389 (65,540) (358,482)
=============== ============== =============== ===============
CLASS B SHARES (a):
Issued................................................ 1,957,034 --
Reinvested............................................ 16,070 --
Redeemed.............................................. (668,319) --
--------------- --------------
Change in Class B Shares.............................. 1,304,785 --
=============== ==============
TRUST SHARES:
Issued................................................ 386,470,057 374,968,721 3,184,600 1,694,015
Reinvested............................................ 812,451 271,605 117,290 45,400
Redeemed.............................................. (301,391,098) (332,621,347) (1,422,732) (1,163,774)
--------------- -------------- --------------- ---------------
Change in Trust Shares................................ 85,891,410 42,618,979 1,879,158 575,641
=============== ============== =============== ===============
</TABLE>
(a) The Fund commenced offering Class B Shares January 1, 1996.
Continued
-45-
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<PAGE> 216
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Intermediate U.S. North Carolina
Government Bond Fund Intermediate Tax-Free Fund
--------------------------- ---------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued.......................................... $ 923,832 $ 322,927 $ 1,510,448 $ 560,783
Dividends reinvested................................................. 207,800 320,094 268,478 278,140
Cost of shares redeemed.............................................. (2,521,905) (2,597,921) (1,143,115) (3,505,541)
------------ ------------ ----------- ------------
Change in net assets from Class A share transactions................. $ (1,390,273) $ (1,954,900) $ 635,811 $ (2,666,618)
============ ============ =========== ============
CLASS B SHARES(a):
Proceeds from shares issued.......................................... $ 359,519 --
Dividends reinvested................................................. 5,665 --
Cost of shares redeemed.............................................. (8,010) --
------------ ------------
Change in net assets from Class B share transactions................. $ 357,174 --
============ ============
TRUST SHARES:
Proceeds from shares issued.......................................... $ 65,562,100 $ 22,848,117 $10,310,221 $ 10,356,196
Dividends reinvested................................................. 4,476,007 3,609,746 -- 21
Cost of shares redeemed.............................................. (25,629,116) (20,612,492) (9,700,110) (11,141,267)
------------ ------------ ----------- ------------
Change in net assets from Trust share transactions................... $ 44,408,991 $ 5,845,371 $ 610,111 $ (785,050)
============ ============ =========== ============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued............................................................... 93,847 34,521 149,219 56,493
Reinvested........................................................... 21,069 33,838 26,506 28,264
Redeemed............................................................. (258,458) (270,549) (112,758) (358,791)
------------ ------------ ----------- ------------
Change in Class A Shares............................................. (143,542) (202,190) 62,967 (274,034)
============ ============ =========== ============
CLASS B SHARES(a):
Issued............................................................... 37,041 --
Reinvested........................................................... 591 --
Redeemed............................................................. (841) --
------------ ------------
Change in Class B Shares............................................. 36,791 --
============ ============
TRUST SHARES:
Issued............................................................... 6,626,544 2,385,380 1,022,116 1,051,141
Reinvested........................................................... 456,830 380,169 -- 2
Redeemed............................................................. (2,617,022) (2,149,882) (958,821) (1,121,892)
------------ ------------ ----------- ------------
Change in Trust Shares............................................... 4,466,352 615,667 63,295 (70,749)
============ ============ =========== ============
</TABLE>
(a) The Fund commenced offering Class B Shares January 1, 1996.
Continued
-46-
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<PAGE> 217
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Growth and Income
Stock Fund Balanced Fund
-------------------------------- ----------------------------
For the For the For the For the
year year year year
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued............................ $ 6,811,567 $ 2,464,804 $ 3,871,025 $ 1,398,339
Dividends reinvested................................... 338,523 378,623 402,738 350,315
Cost of shares redeemed................................ (1,427,065) (1,270,600) (1,928,670) (2,079,598)
------------ ------------ ------------- ------------
Change in net assets from Class A share transactions... $ 5,723,025 $ 1,572,827 $ 2,345,093 $ (330,944)
============ ============ ============= ============
CLASS B SHARES(a):
Proceeds from shares issued............................ $ 3,738,136 -- $ 2,332,596 --
Dividends reinvested................................... 17,476 -- 33,079 --
Cost of shares redeemed................................ (82,260) -- (77,715) --
------------ ------------ ------------- ------------
Change in net assets from Class B share transactions... $ 3,673,352 -- $ 2,287,960 --
============ ============ ============= ============
TRUST SHARES:
Proceeds from shares issued............................ $ 68,337,109 $ 55,223,550 $ 24,146,440 $ 16,641,644
Dividends reinvested................................... 3,190,245 2,718,414 2,035,268 1,240,565
Cost of shares redeemed................................ (40,729,870) (18,077,195) (11,407,119) (12,868,123)
------------ ------------ ------------- -------------
Change in net assets from Trust share transactions..... $ 30,797,484 $ 39,864,769 $ 14,774,589 $ 5,014,086
============ =========== ============= =============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued................................................. 477,889 205,305 334,248 133,311
Reinvested............................................. 24,085 33,975 34,933 34,562
Redeemed............................................... (100,847) (111,033) (166,329) (206,078)
------------ ------------ ------------- -------------
Change in Class A Shares............................... 401,127 128,247 202,852 (38,205)
============ ============ ============= =============
CLASS B SHARES(a):
Issued................................................. 258,055 -- 200,160 --
Reinvested............................................. 1,200 -- 2,850 --
Redeemed............................................... (5,567) -- (6,712) --
------------ ------------ ------------- -------------
Change in Class B Shares............................... 253,688 -- 196,298 --
============ ============ ============= =============
TRUST SHARES:
Issued................................................. 4,851,989 4,568,816 2,102,026 1,585,694
Reinvested............................................. 227,034 241,896 177,017 122,297
Redeemed............................................... (2,820,394) (1,522,571) (986,873) (1,263,619)
------------ ------------ ------------- -------------
Change in Trust Shares................................. 2,258,629 3,288,141 1,292,170 444,372
============ ============ ============= =============
</TABLE>
(a) The Fund commenced offering Class B Shares January 1, 1996.
Continued
-47-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 218
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Small Company Growth Fund
------------------------------
For the For the period
year December 7,1994
ended to
September 30, September 30,
1996 1995(a)
------------- ----------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued................................................... $ 5,198,893 $ 938,909
Dividends reinvested.......................................................... - -
Cost of shares redeemed....................................................... (321,183) (30,211)
----------- ----------
Change in net assets from Class A share transactions.......................... $ 4,877,710 $ 908,698
=========== ===========
CLASS B SHARES(b):
Proceeds from shares issued................................................... $ 2,870,037 -
Dividends reinvested.......................................................... - -
Cost of shares redeemed....................................................... (41,375) -
----------- -----------
Change in net assets from Class B share transactions.......................... $ 2,828,662 -
=========== ===========
TRUST SHARES:
Proceeds from shares issued................................................... $14,870,042 $14,250,426
Dividends reinvested.......................................................... - -
Cost of shares redeemed....................................................... (5,559,535) (525,922)
----------- -----------
Change in net assets from Trust share transactions............................$ 9,310,507 $ 13,724,504
=========== ===========
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued........................................................................ 294,124 77,577
Reinvested.................................................................... - -
Redeemed...................................................................... (17,579) (2,151)
---------- -----------
Change in Class A Shares...................................................... 276,545 75,426
=========== ===========
CLASS B SHARES(b):
Issued........................................................................ 155,105 -
Reinvested.................................................................... - -
Redeemed...................................................................... (2,142) -
---------- -----------
Change in Class B Shares...................................................... 152,963 -
=========== ===========
TRUST SHARES:
Issued........................................................................ 848,861 1,203,246
Reinvested.................................................................... - -
Redeemed...................................................................... (295,847) (38,862)
---------- -----------
Change in Trust Shares........................................................ 553,014 1,164,384
=========== ===========
</TABLE>
(a) Period from commencement of operations.
(b) The Fund commenced offering Class B Shares January 1, 1996.
Continued
-48-
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<PAGE> 219
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
6. FEDERAL INCOME TAXES:
The Growth & Income Stock Fund declared $1,121,729 in capital gain dividend
distributions from long-term capital gains for the year ended September 30,
1996.
At September 30, 1996, the following Funds have capital loss carryforwards
which are available to offset future capital gains, if any:
<TABLE>
<CAPTION>
SHORT INTERMEDIATE NORTH CAROLINA SMALL INTERMEDIATE
U.S. GOVERNMENT INTERMEDIATE COMPANY U.S. GOVERNMENT
INCOME FUND TAX-FREE FUND GROWTH FUND BOND FUND
----------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
Expires in 2004.............. $ 77,950 $172,143 $1,274,796
Expires in 2003.............. $312,074 $ 16,562
Expires in 2002.............. $990,728
</TABLE>
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the fiscal year ended
September 30, 1997. The following Funds had such losses:
<TABLE>
<CAPTION>
SHORT INTERMEDIATE NORTH CAROLINA INTERMEDIATE
U.S. GOVERNMENT INTERMEDIATE U.S. GOVERNMENT
INCOME FUND TAX-FREE FUND BOND FUND
------------------- ----------------- -------------------
<S> <C> <C> <C>
Post October Loss Deferred... $156,556 $47,072 $631,270
</TABLE>
7. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
For the taxable year ended September 30, 1996, 100.00% and 33.71% of the
income dividends paid by the Growth and Income Stock Fund and the Balanced
Fund, respectively, qualify for the dividends received deduction available
to corporations.
8. 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, 1996:
<TABLE>
<S> <C>
Exempt-Interest Dividends........................... $1,681,672
Exempt-Interest Dividends Per Share - Class A....... $ 0.362
Exempt-Interest Dividends Per Share - Trust......... $ 0.377
</TABLE>
100% of the exempt interest income for the North Carolina Intermediate Tax-
Free Fund's taxable year ended September 30, 1996 was from North Carolina
securities.
Continued
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<PAGE> 220
U.S. TREASURY MONEY MARKET FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------- OCTOBER 5, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
---------------- -------------- ------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------
INVESTMENT ACTIVITIES
Net investment income..................... 0.044 0.047 0.027 0.026
------- ------- -------- -------
Total from Investment Activities........ 0.044 0.047 0.027 0.026
------- ------- -------- -------
DISTRIBUTIONS
Net investment income..................... (0.044) (0.047) (0.027) (0.026)
------- ------- -------- -------
Total Distributions..................... (0.044) (0.047) (0.027) (0.026)
------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== =======
Total Return................................ 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........... $27,931 $13,948 $ 1,486 $ 279
Ratio of expenses to average net assets... 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net investment income to
average net assets....................... 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to average net assets*.. 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net investment income to
average net asset*....................... 4.11% 4.55% 2.51% 1.77%(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
-50-
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<PAGE> 221
U.S. TREASURY MONEY MARKET FUND
Class B Shares
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
JANUARY 1, 1996 to
SEPTEMBER 30, 1996 (a)
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................................................ $ 1.00
----------
INVESTMENT ACTIVITIES
Net investment income ..................................................................... 0.025
----------
Total from Investment Activities ...................................................... 0.025
----------
DISTRIBUTIONS
Net investment income ..................................................................... (0.025)
----------
Total Distributions ................................................................... (0.025)
----------
NET ASSET VALUE, END OF PERIOD .............................................................. $ 1.00
==========
Total Return (excludes redemption charge) ................................................... 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........................................................... $ 1,305
Ratio of expenses to average net assets ................................................... 1.75%(c)
Ratio of net investment income to average net assets ...................................... 3.55%(c)
</TABLE>
- ----------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
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<PAGE> 222
U.S. TREASURY MONEY MARKET FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------- OCTOBER 5, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income ............................. 0.046 0.050 0.030 0.027
-------- -------- -------- --------
Total from Investment Activities .............. 0.046 0.050 0.030 0.027
-------- -------- -------- --------
DISTRIBUTIONS
Net investment income ............................. (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- --------
Total Distributions ........................... (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return ........................................ 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $205,974 $120,083 $77,464 $74,962
Ratio of expenses to average net assets ........... 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment income to average
net assets ....................................... 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average net assets* .......... 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment income to average
net assets* ...................................... 4.63% 4.95% 2.82% 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
-52-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 223
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------- NOVEMBER 30, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
----------- ----------- ------------ ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 9.88 $ 9.60 $ 10.29 $ 10.00
------ ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income......................... 0.55 0.53 0.50 0.47
Net realized and unrealized losses on
investments.................................. (0.15) 0.29 (0.68) 0.30
------ ------- ------- -------
Total from Investment Activities........... 0.40 0.82 (0.18) 0.77
------ ------- ------- -------
DISTRIBUTIONS
Net investment income......................... (0.55) (0.54) (0.50) (0.48)
Net realized gains............................ - - (0.01) -
------ ------- ------- -------
Total Distributions........................ (0.55) (0.54) (0.51) (0.48)
------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 9.73 $ 9.88 $ 9.60 $ 10.29
====== ======= ======= =======
Total Return (excludes sales charge)............ 4.09% 8.74% (1.86)% 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).............. $6,356 $ 7,102 $10,345 $14,915
Ratio of expenses to average net
assets..................................... 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income to
average net assets......................... 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average net assets*..... 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income to
average net assets*........................ 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover(d)........................ 54.82% 106.81% 7.06% 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
-53-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 224
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------- NOVEMBER 30, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
---------------- -------------- ------------- -----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 9.89 $ 9.61 $ 10.30 $ 10.00
------- -------- ------- -------
INVESTMENT ACTIVITIES
Net Investment Income......................... 0.57 0.56 0.52 0.49
Net realized and unrealized losses on
investments................................. (0.15) 0.28 (0.68) 0.30
------- -------- ------- -------
Total from Investment Activities.......... 0.42 0.84 (0.16) 0.79
------- -------- ------- -------
DISTRIBUTIONS
Net investment income......................... (0.57) (0.56) (0.52) (0.49)
Net realized gains............................ - - (0.01) -
------- -------- ------- -------
Total Distributions....................... (0.57) (0.56) (0.53) (0.49)
------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 9.74 $ 9.89 $ 9.61 $ 10.30
======= ======== ======= =======
Total Return.................................... 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............... $62,621 $ 45,005 $38,208 $34,646
Ratio of expenses to average net assets....... 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net investment income to average
net assets.................................. 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to average net assets*...... 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net investment income to average
net assets*................................. 5.71% 5.64% 4.83% 4.94%(c)
Portfolio turnover(d)......................... 54.82% 106.81% 7.06% 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
-54-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 225
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------- OCTOBER 9, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
-------------- --------------- -------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.88 $ 9.33 $ 10.39 $ 10.00
------- ------- -------- --------
INVESTMENT ACTIVITIES
Net investment income...................... 0.56 0.59 0.59 0.63
Net realized and unrealized gains
(losses) on investments.................. (0.25) 0.55 (1.04) 0.39
------- ------- -------- --------
Total from Investment Activities......... 0.31 1.14 (0.45) 1.02
------- ------- -------- --------
DISTRIBUTIONS
Net investment income...................... (0.56) (0.59) (0.59) (0.63)
Net realized gains......................... -- -- (0.02) --
------- ------- -------- --------
Total Distributions...................... (0.56) (0.59) (0.61) (0.63)
------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD............... $ 9.63 $ 9.88 $ 9.33 $ 10.39
======= ======= ======== ========
Total Return (excludes sales charge)......... 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............ $ 3,659 $ 5,173 $ 6,772 $ 5,238
Ratio of expenses to
average net assets....................... 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income
to average net assets.................... 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to
average net assets*...................... 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income
to average net assets*................... 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover(d)...................... 76.29% 68.91% 0.38% 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
-55-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 226
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 1, 1996 to
September 30, 1996 (a)
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $10.17
------
INVESTMENT ACTIVITIES
Net investment income.............................. 0.31
Net realized and unrealized losses on investments.. (0.57)
------
Total from Investment Activities................. (0.26)
------
DISTRIBUTIONS
Net investment income.............................. (0.31)
------
Total Distributions.............................. (0.31)
------
NET ASSET VALUE, END OF PERIOD........................ $ 9.60
======
Total Return (excludes redemption charge)............. (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....................... $ 353
Ratio of expenses to average net assets............... 1.85%(c)
Ratio of net investment income to average net assets.. 5.01%(c)
Ratio of expenses to average net assets*.............. 1.95%(c)
Ratio of net investment income to average net assets*. 4.91%(c)
Portfolio turnover(d)................................. 76.29%
</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
-56-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 227
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Trust Shares
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------- OCTOBER 9, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------- ------------ ------------ -----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 9.89 $ 9.34 $ 10.40 $ 10.00
------- ------- ------- --------
INVESTMENT ACTIVITIES
Net investment income................................... 0.58 0.61 0.62 0.64
Net realized and unrealized gains (losses)
on investments........................................ (0.25) 0.55 (1.04) 0.40
------- ------- ------- --------
Total from Investment Activities.................... 0.33 1.16 (0.42) 1.04
------- ------- ------- --------
DISTRIBUTIONS
Net investment income................................... (0.58) (0.61) (0.62) (0.64)
Net realized gains...................................... -- -- (0.02) --
------- ------- ------- --------
Total Distributions................................. (0.58) (0.61) (0.64) (0.64)
------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD............................. $ 9.64 $ 9.89 $ 9.34 $ 10.40
======= ======= ======= ========
Total Return............................................... 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $119,633 $78,578 $68,451 $ 59,816
Ratio of expenses to average net assets................. 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income to average net assets.... 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net assets*................ 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income to average net assets*... 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d)................................... 76.29% 68.91% 0.38% 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
-57-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 228
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------- OCTOBER 16, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
--------------------------------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $10.15 $ 9.78 $ 10.29 $ 10.00
------ ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income.................................. 0.36 0.36 0.36 0.36
Net realized and unrealized losses on investments...... (0.10) 0.37 (0.50) 0.29
------ ------ ------- -------
Total from Investment Activities..................... 0.26 0.73 (0.14) 0.65
------ ------ ------- -------
DISTRIBUTIONS
Net investment income.................................. (0.36) (0.36) (0.36) (0.36)
Net realized gains..................................... -- -- (0.01) --
------ ------ ------- -------
Total Distributions.................................. (0.36) (0.36) (0.37) (0.36)
------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD........................... $10.05 $10.15 $ 9.78 $ 10.29
====== ====== ======= =======
Total Return (excludes sales charge)..................... 2.61% 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................ $9,261 $8,717 $11,083 $13,695
Ratio of expenses to average net assets................ 1.11% 1.05% 0.75% 0.43%(c)
Ratio of net investment income to average net assets... 3.58% 3.63% 3.63% 3.80%(c)
Ratio of expenses to average net assets*............... 1.61% 1.63% 1.66% 1.77%(c)
Ratio of net investment income to average net assets... 3.08% 3.05% 2.72% 2.45%(c)
Portfolio turnover(d).................................. 20.90% 9.38% 0.56% 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
-58-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 229
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------ OCTOBER 16, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------ ------------ ------------ ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 10.15 $ 9.78 $ 10.29 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........................ 0.38 0.37 0.38 0.36
Net realized and unrealized losses on
investments................................ (0.10) 0.37 (0.50) 0.29
------- ------- ------- -------
Total from Investment Activities......... 0.28 0.74 (0.12) 0.65
------- ------- ------- -------
DISTRIBUTIONS
Net investment income........................ (0.38) (0.37) (0.38) (0.36)
Net realized gains........................... -- -- (0.01) --
------- ------- ------- -------
Total Distributions...................... (0.38) (0.37) (0.39) (0.36)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 10.05 $ 10.15 $ 9.78 $ 10.29
======= ======= ======= =======
Total Return................................... 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).............. $28,443 $28,091 $27,770 $20,128
Ratio of expenses to average net assets...... 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment income to average
net assets................................. 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average net assets*..... 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment income to average
net assets*................................ 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover(d)........................ 20.90% 9.38% 0.56% 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
-59-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 230
GROWTH AND INCOME STOCK FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------- OCTOBER 9, 1992 TO
1996 1995 1994 SEPTEMBER 30, 1993 (a)
--------------- --------------- --------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .... $ 12.97 $ 11.26 $11.26 $10.00
INVESTMENT ACTIVITIES ------- ------- ------ ------
Net investment income ................. 0.26 0.25 0.25 0.28
Net realized and unrealized gains on
investments .......................... 2.43 1.98 0.12 1.27
------- ------- ------ ------
Total from Investment Activities ... 2.69 2.23 0.37 1.55
------- ------- ------ -----
DISTRIBUTIONS
Net investment income ................ (0.26) (0.25) (0.26) (0.29)
Net realized gains .................... (0.09) (0.12) (0.11) --
In excess of net realized gains ....... -- (0.15) -- --
------- ------- -------
Total Distributions................. (0.35) (0.52) (0.37) (0.29)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........... $ 15.31 $ 12.97 $11.26 $11.26
======= ======= ======= =======
Total Return (excludes sales charge)..... 20.97% 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $ 18,949 $10,842 $7,973 $6,009
Ratio of expenses to average
net assets............................ 1.11% 1.07% 0.92% 0.63%(c)
Ratio of net investment income to
average net assets.................... 1.82% 2.15% 2.26% 2.85%(c)
Ratio of expenses to average
net assets* .......................... 1.60% 1.60% 1.65% 1.68%(c)
Ratio of net investment income to
average net assets*................... 1.33% 1.62% 1.52% 1.81%(c)
Portfolio turnover(d).................... 19.82% 8.73% 21.30% 27.17%
Average commission rate(e)............... $0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-60-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 231
GROWTH AND INCOME STOCK FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 1, 1996 TO
SEPTEMBER 30, 1996 (a)
------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 13.78
-------
INVESTMENT ACTIVITIES
Net investment income................................ 0.13
Net realized and unrealized gains on investments..... 1.52
-------
Total from Investment Activities................... 1.65
-------
DISTRIBUTIONS
Net investment income................................ (0.14)
-------
Total Distributions................................ (0.14)
-------
NET ASSET VALUE, END OF PERIOD.......................... $ 15.29
=======
Total Return (excludes redemption charge)............... 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................... $ 3,880
Ratio of expenses to average net assets.............. 1.85%(c)
Ratio of net investment income to average
net assets......................................... 1.13%(c)
Ratio of expenses to average net assets*............. 2.09%(c)
Ratio of net investment income to average
net assets*........................................ 0.89%(c)
Portfolio turnover(d)................................ 19.82%
Average commission rate(e)........................... $0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-61-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 232
GROWTH AND INCOME STOCK FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year ended September 30,
----------------------------------- October 9, 1992 to
1996 1995 1994 September 30, 1993 (a)
----------- --------- ------------ ------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 12.99 $ 11.28 $ 11.28 $ 10.00
-------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income............................... 0.29 0.28 0.28 0.30
Net realized and unrealized gains on investments.... 2.44 1.98 0.11 1.28
-------- -------- ------- -------
Total from Investment Activities................. 2.73 2.26 0.39 1.58
-------- -------- ------- -------
DISTRIBUTIONS
Net investment income............................... (0.29) (0.28) (0.28) (0.30)
Net realized gains.................................. (0.09) (0.12) (0.11) --
In excess of net realized gains..................... -- (0.15) -- --
-------- -------- ------- -------
Total Distributions.............................. (0.38) (0.55) (0.39) (0.30)
-------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD........................ $ 15.34 $ 12.99 $ 11.28 $ 11.28
======== ======== ======= =======
Total Return.......................................... 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................... $206,659 $145,603 $89,355 $82,358
Ratio of expenses to average net assets............. 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income to average
net assets....................................... 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average net assets*............ 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income to average net
assets*........................................... 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d)............................... 19.82% 8.73% 21.30% 27.17%
Average commission rate(e).......................... $0.0721
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-62-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 233
BALANCED FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year ended September 30,
------------------------------------- July 1, 1993 to
1996 1995 1994 September 30, 1993 (a)
------------- -------- ---------- -------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 11.04 $ 9.76 $ 10.20 $10.00
------- ------ ------- ------
INVESTMENT ACTIVITIES..................................
Net investment income................................ 0.43 0.44 0.38 0.08
Net realized and unrealized gains on investments..... 0.92 1.27 (0.44) 0.21
------- ------ -------- ------
Total from Investment Activities.................. 1.35 1.71 (0.06) 0.29
------- ------ -------- ------
DISTRIBUTIONS
Net investment income................................ (0.43) (0.43) (0.38) (0.09)
------- ------ -------- ------
Total Distributions............................... (0.43) (0.43) (0.38) (0.09)
------- ------ -------- ------
NET ASSET VALUE, END OF PERIOD......................... $ 11.96 $11.04 $ 9.76 $10.20
======= ====== ======= ======
Total Return (excludes sales charge)................... 12.43% 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................... $12,456 $9,257 $ 8,560 $2,569
Ratio of expenses to average net assets.............. 1.20% 1.17% 0.98% 0.50%(c)
Ratio of net investment income to average
net assets........................................ 3.78% 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net assets*............. 1.69% 1.71% 1.75% 2.00%(c)
Ratio of net investment income to average net assets* 3.29% 3.73% 3.25% 2.89%(c)
Portfolio turnover(d)................................ 19.87% 23.68% 12.91% 8.32%
Average commission rate(e)........................... $0.0749
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-63-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 234
BALANCED FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 1, 1996 to
September 30, 1996 (a)
------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 11.54
-------
INVESTMENT ACTIVITIES
Net investment income............................... 0.27
Net realized and unrealized gains on investments.... 0.37
-------
Total from Investment Activities.................. 0.64
-------
DISTRIBUTIONS
Net investment income............................... (0.27)
-------
Total Distributions............................... (0.27)
=======
NET ASSET VALUE, END OF PERIOD........................ $ 11.91
=======
Total Return (excludes redemption charge)............. 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................... $ 2,339
Ratio of expenses to average net assets............. 1.95%(c)
Ratio of net investment income to average
net assets....................................... 3.13%(c)
Ratio of expenses to average net assets*............ 2.18%(c)
Ratio of net investment income to average
net assets*...................................... 2.90%(c)
Portfolio turnover(d)............................... 19.87%
Average commission rate(e).......................... $0.0749
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-64-
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<PAGE> 235
BALANCED FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year ended September 30,
--------------------------------- July 1, 1993 to
1996 1995 1994 September 30, 1993 (a)
--------- --------- ---------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 11.01 $ 9.74 $ 10.18 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.................................. 0.46 0.46 0.40 0.09
Net realized and unrealized gains on investments....... 0.92 1.27 (0.44) 0.18
------- ------- ------- -------
Total from Investment Activities.................... 1.38 1.73 (0.04) 0.27
------- ------- ------- -------
DISTRIBUTIONS
Net investment income.................................. (0.46) (0.46) (0.40) (0.09)
------- ------- ------- -------
Total Distributions................................. (0.46) (0.46) (0.40) (0.09)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 11.93 $ 11.01 $ 9.74 $ 10.18
======= ======= ======= =======
Total Return............................................. 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................ $69,374 $49,794 $39,715 $20,374
Ratio of expenses to average net assets................ 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income to average net assets... 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average net assets*............... 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income to average net assets*.. 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d).................................. 19.87% 23.68% 12.91% 8.32%
Average commission rate(e)............................. $0.0749
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-65-
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<PAGE> 236
SMALL COMPANY GROWTH FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year
ended
September 30, December 7, 1994 to
1996 September 30, 1995 (a)
------------------- -----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 14.53 $10.00
------- ------
INVESTMENT ACTIVITIES
Net investment loss.................................................... (0.20) (0.08)
Net realized and unrealized gains on investments....................... 6.73 4.61
------- ------
Total from Investment Activities................................... 6.53 4.53
------- ------
NET ASSET VALUE, END OF PERIOD........................................... $ 21.06 $14.53
======= ======
Total Return (excludes sales charge)..................................... 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................................ $ 7,413 $1,096
Ratio of expenses to average net assets................................ 2.01% 2.50%(c)
Ratio of net investment loss to average net assets..................... (1.26)% (1.56)%(c)
Ratio of expenses to average net assets*............................... 2.26% 2.84%(c)
Ratio of net investment loss to average net assets*.................... (1.51)% (1.90)%(c)
Portfolio turnover(d).................................................. 71.62% 46.97%
Average commission rate(e)............................................. $0.0562
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-66-
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<PAGE> 237
SMALL COMPANY GROWTH FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 1, 1996 to
September 30, 1996 (a)
------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 15.24
-------
INVESTMENT ACTIVITIES
Net investment loss..................................................... (0.21)
Net realized and unrealized gains on investments........................ 5.89
-------
Total from Investment Activities..................................... 5.68
-------
NET ASSET VALUE, END OF PERIOD............................................ $ 20.92
=======
Total Return (excludes redemption charge)................................. 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................................... $ 3,200
Ratio of expenses to average net assets................................. 2.72%(c)
Ratio of net investment loss to average net assets...................... (2.01)%(c)
Ratio of expenses to average net assets*................................ 2.72%(c)
Ratio of net investment loss to average net assets*..................... (2.01)%(c)
Portfolio turnover(d)................................................... 71.62%
Average commission rate(e).............................................. $0.0562
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-67-
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<PAGE> 238
SMALL COMPANY GROWTH FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year
ended
September 30, December 7, 1994 to
1996 September 30, 1995 (a)
------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 14.57 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment loss................................. (0.17) (0.07)
Net realized and unrealized gains on investments.... 6.78 4.64
------- -------
Total from Investment Activities................. 6.61 4.57
------- -------
NET ASSET VALUE, END OF PERIOD........................ $ 21.18 $ 14.57
======= =======
Total Return.......................................... 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................... $36,373 $16,962
Ratio of expenses to average net assets............. 1.79% 2.33%(c)
Ratio of net investment loss to average net assets.. (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*............ 1.79% 2.42%(c)
Ratio of net investment loss to average
net assets*..................................... (1.00)% (1.43)%(c)
Portfolio turnover(d)............................... 71.62% 46.97%
Average commission rate(e).......................... $0.0562
</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.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements
-68-
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<PAGE> 239
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 8, 1996.
- Statements of Assets and Liabilities as of September 30, 1996
(audited).
- Statements of Operations for the year ended September 30, 1996
(audited).
- Statements of Changes in Net Assets for the
years or period ended September 30, 1996 and
September 30, 1995 (audited).
- Schedules of Portfolio Investments as of September 30, 1996
(audited).
- Notes to Financial Statements for the year ended September 30,
1996 (audited).
- Financial Highlights for the years or periods
ended September 30, 1996, September 30, 1995,
September 30, 1994 and the periods ended
September 30, 1993 (audited).
C-1
<PAGE> 240
(b) Exhibits:
(1) (a) 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) (a) Article III, Article V, Article VIII, Section 4, and
Article IX, Sections 1, 4, 5, and 7 of the Amended and
Restated 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 on Form N-1A
(filed March 24, 1993).
(b) Article 9, Article 10, Section 6, Article 11 of the By-Laws
are incorporated by reference to Exhibit 2 to Pre-Effective
Amendment No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed on September 9, 1992).
(5) (a) Investment Advisory Agreement between the Registrant and
Branch Banking and Trust Company is incorporated by reference
to Exhibit 5(a) to Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A (filed
March 24, 1993).
(b) Schedule A to the Investment Advisory Agreement between the
Registrant and Branch Banking and Trust Company is
incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 6 to the Registration Statement of the
Registrant on Form N-1A (filed on June 1, 1995).
(c) Form of Revised Schedule A to the Investment Advisory
Agreement between the Registrant and Branch Banking and Trust
company is incorporated by reference to
C-2
<PAGE> 241
Exhibit 5(c) to Post-Effective Amendment No. 9 to the
Registration Statement of the Registrant on Form N-1A (filed
on October 18, 1996).
(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 incorporated by reference to Exhibit 5(f) to Post-Effective
Amendment No. 9 to the Registration Statement of the
Registrant on Form N-1A (filed on October 18, 1996).
(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 incorporated by reference to
Exhibit 6(c) to Post-Effective Amendment
C-3
<PAGE> 242
No. 9 to the Registration Statement of the Registrant on Form
N-1A (filed on October 18, 1996).
(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).
(b) Form of Custody Agreement between the Registrant and Star Bank
incorporated by reference to Exhibit 8(b) to Post-Effective
Amendment No. 9 to the Registration Statement of the
Registrant on Form N-1A (filed on October 18, 1996).
(c) 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).
(d) Form of Custody Agreement between the Registrant and Bank of
New York is incorporated by reference to Exhibit 8(c) to
Post-Effective Amendment No. 9 to the Registration Statement
of the Registrant on Form N-1A (filed on October 18, 1996).
(9) (a) Management and Administration Agreement between the
Registrant and BISYS Fund Services 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. 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) Form of Amended Schedule A to the Transfer Agency Agreement
between the Registrant and BISYS Fund Services Ohio, Inc. is
filed herewith.
C-4
<PAGE> 243
(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).
(e) Revised Schedule A to the Management and
Administration Agreement between the
Registrant and BISYS Fund Services 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 is incorporated by reference to
Exhibit 9(f) to Post-Effective Amendment
No. 9 to the Registration Statement of
the Registrant on Form N-1A (filed on
October 18, 1996).
(g) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. 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. is incorporated by reference to
Exhibit 9(h) to Post-Effective Amendment
No. 9 to the Registration Statement of
the Registrant on Form N-1A (filed on
October 18, 1996).
C-5
<PAGE> 244
(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).
(14) None.
(15) (a) Re-executed Amended and Restated
Distribution and Shareholder Services
Plan between the Registrant and BISYS
Fund Services is incorporated by
reference to Exhibit 15(a) to
Post-Effective Amendment No. 9 to the
Registration Statement of the Registrant
on Form N-1A
(filed on October 18, 1996).
(b) Servicing Agreement with respect to
Shareholder Services between Branch
Banking and Trust Company and BISYS Fund
Services 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) Form of Revised Schedule A to the Amended
and Restated Distribution and Shareholder
Services Plan between the Registrant and
BISYS Fund Services is incorporated by
reference to Exhibit 15(d) to
Post-Effective Amendment No. 9 to the
Registration Statement of the Registrant
on Form N-1A (filed on October 18, 1996).
(d) Revised Schedule A to the Servicing
Agreement with Branch Banking and Trust
Company and BISYS Fund Services is
C-6
<PAGE> 245
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).
(e) Form of Revised Schedule A to the
Servicing Agreement with Branch Banking
and Trust Company and BISYS Fund Services
is incorporated by reference to Exhibit
15(f) to Post-Effective Amendment No. 9
to the Registration Statement of the
Registrant on Form N-1A (filed on October
18, 1996).
(16) (a) Performance Calculation Schedules
relating to period ended September 30,
1993 for each Fund other than the Small
Company Growth Fund are incorporated by
reference to Exhibit 16 to Post-Effective
Amendment No. 2 to the Registration
Statement of the Registrant on Form N-1A
(filed November 24, 1993).
(b) Performance Calculation Schedules
relating to period ended March 31, 1995
for the Small Company Growth Fund are
incorporated by reference to Exhibit
(16)(b) to Post-Effective Amendment No. 6
to the Registration Statement of the
Registrant on Form N-1A (filed June 1,
1995).
(17) Financial Data Schedules
(a) U.S. Treasury Money Market (Class
A)
(b) U.S. Treasury Money Market
(Trust Class)
(c) U.S. Treasury Money Market
(Class B)
(d) Short Intermediate U.S.
Government Income Fund (Class A)
(e) Short Intermediate U.S.
Government Income Fund (Trust
Class)
(f) Intermediate U.S. Government Bond
Fund (Class A)
(g) Intermediate U.S. Government Bond
Fund (Trust Class)
(h) Intermediate U.S. Government
Bond Fund (Class B)
(i) N.C. Intermediate Tax Free Fund
(Class A)
(j) N.C. Intermediate Tax Free Fund
(Trust Class)
(k) Growth & Income Stock (Class A)
(l) Growth & Income Stock (Trust
Class)
C-7
<PAGE> 246
(m) Growth & Income Stock (Class B)
(n) Balanced (Class A)
(o) Balanced (Trust Class)
(p) Balanced (Class B)
(q) Small Company Growth (Class A)
(r) Small Company Growth (Trust
Class)
(s) Small Company Growth (Class B)
(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.
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> <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
</TABLE>
C-8
<PAGE> 247
<TABLE>
<S> <C>
Capital Manager Conservative Growth Fund 0
Capital Manager Moderate Growth Fund 0
Capital Manager Growth Fund 0
</TABLE>
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 Trust Shares
--------------- -----------------------
<S> <C> <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
Title of Series Holders of Trust Shares
--------------- -----------------------
<S> <C> <C>
U.S. Treasury Fund 105
Short-Intermediate Fund 0
Intermediate Bond Fund 32
North Carolina Fund 0
</TABLE>
C-9
<PAGE> 248
<TABLE>
<S> <C> <C>
Growth and Income Fund 532
Balanced Fund 257
Small Company Growth Fund 574
International Equity Fund 0
</TABLE>
Item 27. Indemnification
Article VIII, Sections 1 and 2 of the Registrant's
Declaration of Trust provides as follows:
"Trustees, Officers, etc.
_________________________
Section 1. The Trust shall indemnify each of its Trustees
and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred
to as a "Covered Person") against all liabilities and
expenses, including but not limited to 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
C-10
<PAGE> 249
majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested
Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed
to a full trial type inquiry) that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any
other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith
in the reasonable belief that his action was in the best
interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in
the best interests of the Trust, after notice that it
involves such indemnification, by at least a majority of
the disinterested Trustees acting on 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
C-11
<PAGE> 250
reckless disregard of the duties involved in the conduct
of such Covered Person's office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding)
is asserted by such trustee, officer, or controlling
person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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
C-12
<PAGE> 251
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.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
- ----------------------------- ---------------------------
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson , Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
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<PAGE> 252
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
Director Greenville, S.C.
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
Dr. Richard Janeway Executive Vice President for Health
Director Affairs
Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate\
Director Diagnostics
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.
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<PAGE> 253
Charles E. Nichols Attorney at Law, North Carolina
Director Trust Center
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.
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.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
PNC, Bank, National Association ("PNC Bank") is the
investment sub- adviser to the Small Company Growth Fund.
PNC Bank, with offices located at 1600 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,
1996. 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 consumer banking, corporate
banking, real estate banking, mortgage banking and asset
management. With $104.5 billion in discretionary assets
under management and $310.9 billion of assets under
administration at September 30, 1996, PNC Bank Corp. is
one of the largest bank money managers as well as one of
the largest institutional
C-15
<PAGE> 254
mutual fund managers in the United States. Of such amounts
at September 30, 1996, PNC Bank had $94 billion in
discretionary assets under management and $132.1 billion
in assets under administration. In addition to asset
management and trust services, PNC Bank also provides a
wide range of domestic and international commercial
banking and consumer 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.
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 Coal
of Consol Inc.
Consol Plaza
1800 WASHINGTON ROAD
Pittsburgh, PA 15241
Director Constance E. Clayton Allegheny University Medical
ED.D of the Health Sciences,
Ballet Bldg.
1505 Race Street - Mail Stop 660
Philadelphia, Pa 19102
Director Eberhard Faber IV Chairman and C.E.O. Pencil
of E.F.L., Inc.
1220 Mellon Bank Bldg.
8 W. Market Street
Wilkes-Barre, Pa 18701
Director Stuart Heydt, M.D. President and C.E.O. Medical
</TABLE>
C-16
<PAGE> 255
<TABLE>
<S> <C> <C> <C>
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 901 State Street
P.O. Box 8480
Erie, PA 16553
Director Thomas A. McConomy Chairman, Calgon Carbon Manufacturing
Corporation
413 Woodland Road
Sewickley, PA 15143
Director Thomas H. O'Brien Chairman and CEO Banking
and Chairman PNC Bank Corp.
One PNC Plaza, 30th Flr.
Pittsburgh, PA 15265
Director Rocco A. Ortenzio Consultant Medical
Horizon/CMS Healthcare
Corporation
P.O. Box 715
Mechanicsburg, PA 17055
Director Jane G. Pepper President Horticulture
Pennsylvania Horticultural
Society
100 N. 20TH ST. - 5th Floor
Philadelphia, PA 10103-1495
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 and PNC Bank, N.A.
</TABLE>
C-17
<PAGE> 256
<TABLE>
<S> <C> <C> <C>
Chief EXECUTIVE One PNC Plaza,
30th Flr.
Officer Pittsburgh, PA 15265
Director Daniel M. Rooney President, Pittsburgh Steelers Football
300 Stadium Circle
Pittsburgh, PA 15212
Director Seth E. Schofield 9500 S. OCEAN DRIVE AIRLINE
#1601
JENSEN BEACH, FL 34957
</TABLE>
PNC Bank, National Association
Executive Officers
<TABLE>
<S> <C> <C>
PETER K. CLASSEN PRESIDENT & CEO OF PNC BANK,
NORTHEAST, PA
THOMAS K. O'BRIEN CHAIRMAN
Charles C. Pearson, Jr. President and CEO OF PNC Bank,
Central PA
Edward V. Randall, Jr. President and CEO OF PNC BANK
PITTSBURGH
JAMES E. ROHR PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richard L. Smoot President and CEO OF PNC Bank
Philadelphia
David E. Zuern President and CEO OF PNC BANK,
NORTHWEST, PA
EDWARD P. JUNKER, III VICE CHAIRMAN
GEORGE BRIKIS EXECUTIVE VICE PRESIDENT
Richard C. Caldwell Executive Vice President
J. Richard Carnall Executive Vice President
EDWARD V. CARUSO EXECUTIVE VICE PRESIDENT
FREDERICK C. FRANK, III EXECUTIVE VICE PRESIDENT
WILLIAM J. FRIEL EXECUTIVE VICE PRESIDENT
MAURICE H. HARTIGAN, II EXECUTIVE VICE PRESIDENT
SYLVAN M. HOLZER EXECUTIVE VICE PRESIDENT
CARL J. LISMAN EXECUTIVE VICE PRESIDENT
RALPH S. MICHAEL, III EXECUTIVE VICE PRESIDENT
D. BRYANT MITCHELL II EXECUTIVE VICE PRESIDENT
MICHAEL B. NELSON EXECUTIVE VICE PRESIDENT
</TABLE>
C-18
<PAGE> 257
<TABLE>
<S> <C> <C>
Barbara Z. Parker Executive Vice President
David W. Schoffstall Executive Vice President
Herbert G. Summerfield, Jr. Executive Vice President
Stephen L. Swanson Executive Vice President
Bruce E. Walton Executive 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).
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
</TABLE>
C-19
<PAGE> 258
<TABLE>
<S> <C> <C>
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:
(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
1600 Market Street, 29TH Floor
Philadelphia, PA 19103
(Investment Sub-Adviser to the Small Company
Growth Fund)
(4) CastleInternational Management Limited
(Investment Sub-Advisor to the International
Equity Fund)
7 Castle Street
Edinburgh, Scotland EH23AH
(5) BISYS Fund Services (formerly known as The
Winsbury Company)
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
C-20
<PAGE> 259
(6) Star Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45201
(Custodian)
(7) 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)
(8) Bank of New York
90 Washington Street, 22nd Floor
New York, NY 10286
(Custodian to the International Equity Fund)
(9) Ropes & Gray
One Franklin Square, 1301 K Street, N.W.,
Suite 800 East
Washington, D.C. 20005
(Declaration of Trust, Bylaws, Minutes Book)
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.
C-21
<PAGE> 260
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-22
<PAGE> 261
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant CERTIFIES THAT IT
MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT
PURSUANT TO RULE 485(B) UNDER THE 1933 ACT AND has duly caused this
Post-Effective Amendment No. 10 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 DECEMBER, 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 December 18, 1996
- ------------------
*J. David Huber
/S/ William E. Graham Trustee December 18, 1996
- ---------------------
*William E. Graham
/S/ Thomas W. Lambeth Trustee December 18, 1996
- ---------------------
*Thomas W. Lambeth
/S/ George Landreth Treasurer December 18, 1996
- -------------------
*George Landreth
/S/ W. Ray Long Trustee December 18, 1996
- ---------------
*W. Ray Long
/S/ Robert W. Stewart Trustee December 18, 1996
- ---------------------
*Robert W. Stewart
/S/Sean M. KELLY Trustee December 18, 1996
- ------------------
*Sean M. Kelley
*By:/S/ Alan G. Priest
-------------------
Alan G. Priest
Attorney-in-Fact, PURSUANT TO POWERS OF ATTORNEY FILED HEREWITH.
</TABLE>
C-23
<PAGE> 262
POWER OF ATTORNEY
J. David Huber, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas Rich, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The BB&T Mutual
Funds Group (the "Group"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee J. David Huber and/or officer of the Fund any and
all amendments to the Group's Registration Statement as filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: 2-15-94
/s/ J. David Huber
------------------
J. David Huber
<PAGE> 263
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
<PAGE> 264
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 W. Lambeth
---------------------
Thomas Willis Lambeth
<PAGE> 265
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
<PAGE> 266
POWER OF ATTORNEY
W. Ray Long, whose signature appears below, does hereby constitute and
appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas Rich, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The BB&T Mutual
Funds Group (the "Group"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee W. Ray Long and/or officer of the Fund any and all
amendments to the Group's Registration Statement as filed with the Securities
and Exchange Commission under said Acts, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: 2-15-94
/s/ W. Ray Long
---------------
W. Ray Long
<PAGE> 267
POWER OF ATTORNEY
Robert W. Stewart, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The BB&T Mutual
Funds Group (the "Group"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee Robert W. Stewart and/or officer of the Fund any
and all amendments to the Group's Registration Statement as filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: 2-15-94
/s/ Robert W. Stewart
---------------------
Robert W. Stewart
<PAGE> 268
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
<PAGE> 269
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(9)(C) Form of Amended Schedule A to the Transfer Agency
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc.
(11)(a) Consent of KPMG Peat Marwick LLP.
(11)(b) Consent of Ropes & Gray.
(27) Financial Data Schedules
(a) U.S. Treasury Money Market (Class A)
(b) U.S. Treasury Money Market (Trust Class)
(c) U.S. Treasury Money Market (Class B)
(d) Short Intermediate U.S. Government Income
Fund (Class A)
(e) Short Intermediate U.S. Government Income
Fund (Trust Class)
(f) Intermediate U.S. Government Bond Fund
(Class A)
(g) Intermediate U.S. Government Bond Fund
(Trust Class)
(h) Intermediate U.S. Government Bond Fund
(Class B)
(i) N.C. Intermediate Tax Free Fund (Class A)
(j) N.C. Intermediate Tax Free Fund (Trust
Class)
(k) Growth & Income Stock (Class A)
(l) Growth & Income Stock (Trust Class)
(m) Growth & Income Stock (Class B)
(n) Balanced (Class A)
(o) Balanced (Trust Class)
(p) Balanced (Class B)
(q) Small Company Growth (Class A)
(r) Small Company Growth (Trust Class)
(s) Small Company Growth (Class B)
</TABLE>
<PAGE> 1
EXHIBIT (9)(c)
Form of Amended Schedule A to the Transfer Agency
Agreement between the Registrant and
BISYS Fund Services Ohio, Inc.
<PAGE> 2
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
FUNDS PORTFOLIOS
- ------------------------
U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
Growth and Income Stock Fund
Balanced Fund
Small Company Growth Fund
International Equity Fund
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund
BISYS FUND SERVICES, INC.
By:
---------------------------
J. David Huber
Title: Executive Vice President
BB&T MUTUAL FUNDS GROUP
By:
---------------------------
Richard B. Ille
Title: President
<PAGE> 1
EXHIBIT (11)(a)
Consent of KPMG Peat Marwick LLP
<PAGE> 2
AUDITOR'S CONSENT
The Board of Trustees of
BB&T Mutual Funds Group
We consent to the use of our report included herein dated November 8, 1996 for
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, as of September 30, 1996 and for the periods
indicated therein, and to the references to our firm under the headings
"Financial Highlights" in the Prospectus and "Independent Accountants" in the
Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Columbus, Ohio
December 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. 10 to the Registration Statement of the BB&T Mutual Funds Group on
Form N-1A under the Securities Act of 1933, as amended.
/s/ Ropes & Gray
ROPES & GRAY
Washington, D.C.
December 18, 1996
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<SERIES>
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<PER-SHARE-NII> .57<F1>
<PER-SHARE-GAIN-APPREC> (.15)<F1>
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</FN>
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<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 3
<NAME> BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
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<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> (.25)<F1>
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<FN>
<F1>Class A Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 302
<NAME> BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND
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<PER-SHARE-NAV-BEGIN> 10.17<F1>
<PER-SHARE-NII> .31<F1>
<PER-SHARE-GAIN-APPREC> (.57)<F1>
<PER-SHARE-DIVIDEND> .31<F1>
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<PER-SHARE-NAV-END> 9.60<F1>
<EXPENSE-RATIO> 1.85<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
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<NAME> BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND
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<OVERDISTRIBUTION-GAINS> 1,942,092
<ACCUM-APPREC-OR-DEPREC> (1,534,280)
<NET-ASSETS> 123,645,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,251,688
<OTHER-INCOME> 0
<EXPENSES-NET> 937,764
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (725,469)
<APPREC-INCREASE-CURRENT> (2,757,133)
<NET-CHANGE-FROM-OPS> 2,831,322
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,059,606<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 6,757,431
<NUMBER-OF-SHARES-REDEEMED> 2,876,321
<SHARES-REINVESTED> 478,491
<NET-CHANGE-IN-ASSETS> 39,893,290
<ACCUMULATED-NII-PRIOR> 5,718
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,216,623
<GROSS-ADVISORY-FEES> 638,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,055,617
<AVERAGE-NET-ASSETS> 101,944,157<F1>
<PER-SHARE-NAV-BEGIN> 9.89<F1>
<PER-SHARE-NII> .58<F1>
<PER-SHARE-GAIN-APPREC> (.25)<F1>
<PER-SHARE-DIVIDEND> .58<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.64<F1>
<EXPENSE-RATIO> .87<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 4
<NAME> BB&T N.C. INTERMEDIATE TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 38,239,071
<INVESTMENTS-AT-VALUE> 38,344,894
<RECEIVABLES> 505,044
<ASSETS-OTHER> 3,840
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,853,778
<PAYABLE-FOR-SECURITIES> 994,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 154,774
<TOTAL-LIABILITIES> 1,149,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,723,453
<SHARES-COMMON-STOCK> 921,898<F1>
<SHARES-COMMON-PRIOR> 858,931<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 125,022
<ACCUM-APPREC-OR-DEPREC> 105,823
<NET-ASSETS> 37,704,254
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,681,472
<OTHER-INCOME> 0
<EXPENSES-NET> 359,118
<NET-INVESTMENT-INCOME> 1,322,554
<REALIZED-GAINS-CURRENT> (47,072)
<APPREC-INCREASE-CURRENT> (302,527)
<NET-CHANGE-FROM-OPS> 972,955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 322,468<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,171,335
<NUMBER-OF-SHARES-REDEEMED> 1,071,579
<SHARES-REINVESTED> 265,063
<NET-CHANGE-IN-ASSETS> 896,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 77,950
<GROSS-ADVISORY-FEES> 215,256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,445,126
<AVERAGE-NET-ASSETS> 9,017,356<F1>
<PER-SHARE-NAV-BEGIN> 10.15<F1>
<PER-SHARE-NII> .36<F1>
<PER-SHARE-GAIN-APPREC> (.10)<F1>
<PER-SHARE-DIVIDEND> .36<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05<F1>
<EXPENSE-RATIO> 1.11<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 402
<NAME> BB&T N.C. INTERMEDIATE TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 38,239,071
<INVESTMENTS-AT-VALUE> 38,344,894
<RECEIVABLES> 505,044
<ASSETS-OTHER> 3,840
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,853,778
<PAYABLE-FOR-SECURITIES> 113,896
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,035,628
<TOTAL-LIABILITIES> 1,149,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,723,453
<SHARES-COMMON-STOCK> 2,830,793<F1>
<SHARES-COMMON-PRIOR> 2,767,497<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 125,022
<ACCUM-APPREC-OR-DEPREC> 105,823
<NET-ASSETS> 3,770,454
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,681,672
<OTHER-INCOME> 0
<EXPENSES-NET> 359,118
<NET-INVESTMENT-INCOME> 1,322,554
<REALIZED-GAINS-CURRENT> (47,072)
<APPREC-INCREASE-CURRENT> (302,527)
<NET-CHANGE-FROM-OPS> 972,955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,000,086<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,171,335
<NUMBER-OF-SHARES-REDEEMED> 1,071,579
<SHARES-REINVESTED> 26,506
<NET-CHANGE-IN-ASSETS> 696,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 77,950
<GROSS-ADVISORY-FEES> 215,256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 444,512
<AVERAGE-NET-ASSETS> 26,858,098<F1>
<PER-SHARE-NAV-BEGIN> 10.15<F1>
<PER-SHARE-NII> .38<F1>
<PER-SHARE-GAIN-APPREC> (.10)<F1>
<PER-SHARE-DIVIDEND> .38<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05<F1>
<EXPENSE-RATIO> .96<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 5
<NAME> BB&T GROWTH & INCOME STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 182,180,043
<INVESTMENTS-AT-VALUE> 229,746,482
<RECEIVABLES> 49,577
<ASSETS-OTHER> 6,854
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,245,913
<PAYABLE-FOR-SECURITIES> 301,705
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 456,219
<TOTAL-LIABILITIES> 757,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,703,921
<SHARES-COMMON-STOCK> 1,237,278<F1>
<SHARES-COMMON-PRIOR> 836,152<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,217,629
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,566,439
<NET-ASSETS> 229,487,989
<DIVIDEND-INCOME> 5,439,921
<INTEREST-INCOME> 451,511
<OTHER-INCOME> 0
<EXPENSES-NET> 1,773,282
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 9,428,482
<APPREC-INCREASE-CURRENT> 24,542,390
<NET-CHANGE-FROM-OPS> 38,089,022
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 270,458<F1>
<DISTRIBUTIONS-OF-GAINS> 76,748<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 5,587,933
<NUMBER-OF-SHARES-REDEEMED> 2,926,808
<SHARES-REINVESTED> 252,319
<NET-CHANGE-IN-ASSETS> 73,043,004
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 910,876
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,490,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,295,228
<AVERAGE-NET-ASSETS> 14,646,556<F1>
<PER-SHARE-NAV-BEGIN> 12.97<F1>
<PER-SHARE-NII> .26<F1>
<PER-SHARE-GAIN-APPREC> 2.13<F1>
<PER-SHARE-DIVIDEND> .26<F1>
<PER-SHARE-DISTRIBUTIONS> .09<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.31<F1>
<EXPENSE-RATIO> 1.11<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 502
<NAME> BB&T GROWTH & INCOME STOCK FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 182,180,043
<INVESTMENTS-AT-VALUE> 229,746,482
<RECEIVABLES> 492,577
<ASSETS-OTHER> 6,854
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,245,913
<PAYABLE-FOR-SECURITIES> 254,872
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,052
<TOTAL-LIABILITIES> 757,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,703,921
<SHARES-COMMON-STOCK> 253,687<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,217,629
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,566,439
<NET-ASSETS> 229,487,989
<DIVIDEND-INCOME> 5,439,921
<INTEREST-INCOME> 451,511
<OTHER-INCOME> 0
<EXPENSES-NET> 1,773,282
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 9,428,482
<APPREC-INCREASE-CURRENT> 24,542,390
<NET-CHANGE-FROM-OPS> 38,089,022
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,098<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 5,587,933
<NUMBER-OF-SHARES-REDEEMED> 2,926,808
<SHARES-REINVESTED> 252,319
<NET-CHANGE-IN-ASSETS> 73,043,004
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 910,876
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,490,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,294,228
<AVERAGE-NET-ASSETS> 1,995,907<F1>
<PER-SHARE-NAV-BEGIN> 13.78<F1>
<PER-SHARE-NII> .13<F1>
<PER-SHARE-GAIN-APPREC> 1.52<F1>
<PER-SHARE-DIVIDEND> .14<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.29<F1>
<EXPENSE-RATIO> 1.85<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARES
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000689284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 503
<NAME> BB&T GROWTH & INCOME STOCK FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 182,180,043
<INVESTMENTS-AT-VALUE> 229,746,482
<RECEIVABLES> 492,577
<ASSETS-OTHER> 6,854
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,245,913
<PAYABLE-FOR-SECURITIES> 254,872
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,052
<TOTAL-LIABILITIES> 757,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,703,921
<SHARES-COMMON-STOCK> 13,468,959<F1>
<SHARES-COMMON-PRIOR> 11,210,329<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,217,629
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,566,439
<NET-ASSETS> 229,487,989
<DIVIDEND-INCOME> 5,439,921
<INTEREST-INCOME> 451,511
<OTHER-INCOME> 0
<EXPENSES-NET> 1,773,282
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 9,428,482
<APPREC-INCREASE-CURRENT> 24,542,390
<NET-CHANGE-FROM-OPS> 38,089,002
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,828,594<F1>
<DISTRIBUTIONS-OF-GAINS> 1,044,981<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 5,587,933
<NUMBER-OF-SHARES-REDEEMED> 2,926,808
<SHARES-REINVESTED> 252,319
<NET-CHANGE-IN-ASSETS> 73,043,004
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 910,876
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,490,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,294,228
<AVERAGE-NET-ASSETS> 185,290,584<F1>
<PER-SHARE-NAV-BEGIN> 12.99<F1>
<PER-SHARE-NII> .29<F1>
<PER-SHARE-GAIN-APPREC> 2.44<F1>
<PER-SHARE-DIVIDEND> .38<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.34<F1>
<EXPENSE-RATIO> .86<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 6
<NAME> BB&T BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 75,172,426
<INVESTMENTS-AT-VALUE> 83,721,546
<RECEIVABLES> 802,367
<ASSETS-OTHER> 2,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,526,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 357,573
<TOTAL-LIABILITIES> 357,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,805,105
<SHARES-COMMON-STOCK> 1,041,648<F1>
<SHARES-COMMON-PRIOR> 838,797<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,814,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,549,120
<NET-ASSETS> 84,168,595
<DIVIDEND-INCOME> 996,840
<INTEREST-INCOME> 2,702,304
<OTHER-INCOME> 0
<EXPENSES-NET> 742,376
<NET-INVESTMENT-INCOME> 2,956,768
<REALIZED-GAINS-CURRENT> 2,206,261
<APPREC-INCREASE-CURRENT> 3,503,931
<NET-CHANGE-FROM-OPS> 8,666,960
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 421,901<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,636,434
<NUMBER-OF-SHARES-REDEEMED> 1,159,914
<SHARES-REINVESTED> 214,800
<NET-CHANGE-IN-ASSETS> 25,117,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 391,891
<GROSS-ADVISORY-FEES> 549,962
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 949,129
<AVERAGE-NET-ASSETS> 11,214,409<F1>
<PER-SHARE-NAV-BEGIN> 11.04<F1>
<PER-SHARE-NII> .43<F1>
<PER-SHARE-GAIN-APPREC> .92<F1>
<PER-SHARE-DIVIDEND> .43<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.96<F1>
<EXPENSE-RATIO> 1.20<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A SHARES
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 602
<NAME> BB&T BALANCE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 75,172,426
<INVESTMENTS-AT-VALUE> 83,721,546
<RECEIVABLES> 802,367
<ASSETS-OTHER> 2,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,526,168
<PAYABLE-FOR-SECURITIES> 270,535
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,038
<TOTAL-LIABILITIES> 357,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,805,105
<SHARES-COMMON-STOCK> 196,298<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,814,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,549,120
<NET-ASSETS> 84,168,595
<DIVIDEND-INCOME> 996,840
<INTEREST-INCOME> 2,702,304
<OTHER-INCOME> 0
<EXPENSES-NET> 742,376
<NET-INVESTMENT-INCOME> 2,956,768
<REALIZED-GAINS-CURRENT> 2,206,261
<APPREC-INCREASE-CURRENT> 3,503,931
<NET-CHANGE-FROM-OPS> 8,666,960
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39,026<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,636,434
<NUMBER-OF-SHARES-REDEEMED> 1,159,914
<SHARES-REINVESTED> 214,800
<NET-CHANGE-IN-ASSETS> 25,117,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 391,891
<GROSS-ADVISORY-FEES> 549,962
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 949,129
<AVERAGE-NET-ASSETS> 1,584,846<F1>
<PER-SHARE-NAV-BEGIN> 11.54<F1>
<PER-SHARE-NII> .27<F1>
<PER-SHARE-GAIN-APPREC> .37<F1>
<PER-SHARE-DIVIDEND> .27<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.91<F1>
<EXPENSE-RATIO> 1.95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARES
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 603
<NAME> BB&T BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 75,172,426
<INVESTMENTS-AT-VALUE> 83,721,546
<RECEIVABLES> 802,367
<ASSETS-OTHER> 2,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,526,168
<PAYABLE-FOR-SECURITIES> 270,535
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,038
<TOTAL-LIABILITIES> 357,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,051,105
<SHARES-COMMON-STOCK> 5,812,814<F1>
<SHARES-COMMON-PRIOR> 4,520,644<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,814,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,549,120
<NET-ASSETS> 84,168,595
<DIVIDEND-INCOME> 996,840
<INTEREST-INCOME> 2,702,304
<OTHER-INCOME> 0
<EXPENSES-NET> 742,376
<NET-INVESTMENT-INCOME> 2,956,768
<REALIZED-GAINS-CURRENT> 2,206,261
<APPREC-INCREASE-CURRENT> 3,503,931
<NET-CHANGE-FROM-OPS> 8,666,960
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,495,841<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,636,434
<NUMBER-OF-SHARES-REDEEMED> 1,159,914
<SHARES-REINVESTED> 214,800
<NET-CHANGE-IN-ASSETS> 25,117,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 391,891
<GROSS-ADVISORY-FEES> 549,962
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 949,129
<AVERAGE-NET-ASSETS> 61,982,453<F1>
<PER-SHARE-NAV-BEGIN> 11.01<F1>
<PER-SHARE-NII> .46<F1>
<PER-SHARE-GAIN-APPREC> .92<F1>
<PER-SHARE-DIVIDEND> .46<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.93<F1>
<EXPENSE-RATIO> .95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 7
<NAME> BB&T SMALL COMPANY GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,600,228
<INVESTMENTS-AT-VALUE> 47,530,175
<RECEIVABLES> 165,255
<ASSETS-OTHER> 23,964
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,719,394
<PAYABLE-FOR-SECURITIES> 655,782
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,212
<TOTAL-LIABILITIES> 733,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,650,081
<SHARES-COMMON-STOCK> 351,971<F1>
<SHARES-COMMON-PRIOR> 75,426<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 421,082
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 173,546
<ACCUM-APPREC-OR-DEPREC> 15,929,947
<NET-ASSETS> 46,985,400
<DIVIDEND-INCOME> 9,282
<INTEREST-INCOME> 233,058
<OTHER-INCOME> 0
<EXPENSES-NET> 571,159
<NET-INVESTMENT-INCOME> (328,819)
<REALIZED-GAINS-CURRENT> 90,971
<APPREC-INCREASE-CURRENT> 12,148,737
<NET-CHANGE-FROM-OPS> 11,910,889
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,298,090
<NUMBER-OF-SHARES-REDEEMED> 315,568
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 28,927,768
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 92,263
<OVERDIST-NET-GAINS-PRIOR> 264,517
<GROSS-ADVISORY-FEES> 308,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,385
<AVERAGE-NET-ASSETS> 3,754,537<F1>
<PER-SHARE-NAV-BEGIN> 14.53<F1>
<PER-SHARE-NII> (.20)<F1>
<PER-SHARE-GAIN-APPREC> 6.73<F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.06<F1>
<EXPENSE-RATIO> 2.01<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A SHARES
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 702
<NAME> BB&T SMALL COMPANY GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,600,226
<INVESTMENTS-AT-VALUE> 47,530,175
<RECEIVABLES> 165,255
<ASSETS-OTHER> 23,964
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,719,394
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 733,994
<TOTAL-LIABILITIES> 733,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,650,081
<SHARES-COMMON-STOCK> 152,963<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 421,062
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 173,546
<ACCUM-APPREC-OR-DEPREC> 15,929,947
<NET-ASSETS> 46,985,400
<DIVIDEND-INCOME> 9,282
<INTEREST-INCOME> 233,058
<OTHER-INCOME> 0
<EXPENSES-NET> 571,159
<NET-INVESTMENT-INCOME> (328,819)
<REALIZED-GAINS-CURRENT> 90,971
<APPREC-INCREASE-CURRENT> 12,148,737
<NET-CHANGE-FROM-OPS> 111910,889
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,298,090
<NUMBER-OF-SHARES-REDEEMED> 315,568
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 28,927,768
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 92,263
<OVERDIST-NET-GAINS-PRIOR> 264,517
<GROSS-ADVISORY-FEES> 308,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,385
<AVERAGE-NET-ASSETS> 1,495,198<F1>
<PER-SHARE-NAV-BEGIN> 15.24<F1>
<PER-SHARE-NII> (.21)<F1>
<PER-SHARE-GAIN-APPREC> 5.89<F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.92<F1>
<EXPENSE-RATIO> 2.72<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARES
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 703
<NAME> BB&T SMALL COMPANY GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,600,228
<INVESTMENTS-AT-VALUE> 47,530,175
<RECEIVABLES> 165,255
<ASSETS-OTHER> 23,964
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,719,394
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 733,994
<TOTAL-LIABILITIES> 733,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,650,061
<SHARES-COMMON-STOCK> 1,717,398<F1>
<SHARES-COMMON-PRIOR> 1,164,384<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 421,082
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 173,546
<ACCUM-APPREC-OR-DEPREC> 15,929,947
<NET-ASSETS> 46,985,400
<DIVIDEND-INCOME> 9,282
<INTEREST-INCOME> 233,058
<OTHER-INCOME> 0
<EXPENSES-NET> 571,159
<NET-INVESTMENT-INCOME> (328,819)
<REALIZED-GAINS-CURRENT> 90,971
<APPREC-INCREASE-CURRENT> 12,148,737
<NET-CHANGE-FROM-OPS> 11,910,889
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,298,090
<NUMBER-OF-SHARES-REDEEMED> 315,568
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 28,927,768
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 92,263
<OVERDIST-NET-GAINS-PRIOR> 264,517
<GROSS-ADVISORY-FEES> 308,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 587,385
<AVERAGE-NET-ASSETS> 26,059,744<F1>
<PER-SHARE-NAV-BEGIN> 14.57<F1>
<PER-SHARE-NII> (.17)<F1>
<PER-SHARE-GAIN-APPREC> 6.78<F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.18<F1>
<EXPENSE-RATIO> 1.79<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
