<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 14, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 11 [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)
-----
ON (DATE) pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(i)
-----
on (date) pursuant to paragraph (a)(i)
-----
X 75 days after filing pursuant to paragraph (a)(ii)
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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
The BB&T U.S. Treasury Money Market Fund
The BB&T Short-Intermediate U.S. Government Income Fund
The BB&T Intermediate U.S. Government Bond Fund
The BB&T North Carolina Intermediate Tax-Free Fund
The BB&T Growth and Income Stock Fund
The BB&T Balanced Fund
The BB&T Small Company Growth Fund
The BB&T International Equity Fund
The BB&T Capital Manager Conservative Growth Fund
The BB&T Capital Manager Moderate Growth Fund
The BB&T Capital Manager Growth Fund
The information required by Items 1 through 9 for the above-referenced
investment portfolios of the BB&T Mutual Funds Group (the "Registrant") is
hereby incorporated by reference to Part A of Post-Effective Amendment No. 10
to the Registrant's Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on December 19, 1996.
<PAGE> 3
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
CLASS A AND TRUST CLASS SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Financial
Highlights . . . . . . . . . . . . . . . . . . . . . . Selected Per Share Data and Ratios;
Performance
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . Fee Table
General Description
of Registrant . . . . . . . . . . . . . . . . . . . . BB&T Mutual Funds Group; Investment Objective and
Policies; Investment Restrictions; General Information -
Description of the Group and Its Shares
Management of BB&T
Mutual Funds Group . . . . . . . . . . . . . . . . . . Management of BB&T
Mutual Funds Group; General Information - Custodian and
Transfer Agent
Capital Stock and
Other Securities . . . . . . . . . . . . . . . . . . . BB&T Mutual Funds Group; How to Purchase and Redeem
Shares; Dividends and Taxes; General Information -
Description of the Group and Its Shares; General
Information - Miscellaneous
Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . Valuation of Shares; How to Purchase and Redeem Shares
Redemption or Repurchase . . . . . . . . . . . . . . . . How to Purchase and Redeem Shares
Legal Proceedings . . . . . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 4
U.S. Treasury Money Market Fund
Prime Money Market Fund
CLASS A SHARES
TRUST CLASS SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED APRIL __, 1997
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . .
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies . . . . . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . . . .
Valuation of Shares . . . . . . . . . . . . . . . . . . . . .
How to Purchase and Redeem Shares . . . . . . . . . . . . . .
Dividends and Taxes . . . . . . . . . . . . . . . . . . . . .
Management of BB&T Mutual Funds Group . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . .
</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.
-i-
<PAGE> 6
BB&T MUTUAL FUNDS GROUP
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public nine 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.
THE BB&T PRIME MONEY MARKET FUND (the "Prime Money Market Fund") seeks
as high a level of current income as is consistent with maintaining liquidity
and stability of principal. The Prime Money Market Fund seeks to maintain a
constant net asset value of $1.00 per share.
This Prospectus relates to Class A Shares (formerly the Investor
Shares), which are offered to the general public, and to Trust Shares 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 B Shares of the U.S. Treasury Fund,
which are offered to the general public.
This Prospectus relates only to the U.S. Treasury Fund and the Prime
Money Market Fund (each a "Money Market Fund"). Interested persons who wish to
obtain a copy of the prospectuses of the BB&T Short-Intermediate U.S.
Government Income Fund, the BB&T Intermediate U.S. Government Bond Fund, the
BB&T North Carolina Intermediate Tax-Free Fund, the BB&T Growth and Income
Stock Fund, the BB&T Balanced Fund, the BB&T Small Company Growth Fund, the
BB&T International Equity Fund, the BB&T Capital Manager Conservative Growth
Fund, the BB&T Capital Manager Moderate Growth Fund and the
<PAGE> 7
BB&T Capital Manager Growth Fund may contact the Distributor at the
telephone number shown above.
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 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 U.S.
Treasury and Prime Money Market Funds that a prospective investor ought to know
before investing. Investors should read this Prospectus and retain it for
future reference.
AN INVESTMENT IN THE U.S. TREASURY FUND AND THE PRIME MONEY MARKET 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
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 April ____, 1997.
-2-
<PAGE> 8
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 nine 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 which are managed by BB&T. This prospectus relates to the U.S.
Treasury and Prime Money Market Funds only (each a "Money Market Fund.") Each Fund,
except for the Funds of Funds and the Prime Money Market Fund, 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 beingoffered in the Short-
Intermediate Fund or the North Carolina Fund. The Prime Money Market Fund offers only
Class A and Trust Shares. This prospectus relates only to Trust Shares and Class A
Shares.
Investment Objective and THE U.S. TREASURY FUND seeks current income with liquidity and stability of principal
Policies 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 PRIME MONEY MARKET FUND seeks as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal.
Investment Risks Each Money Market Fund's performance may change daily based on many factors including
interest rate levels, the characteristics of the obligations in each Money Market
Fund's portfolio, and market conditions. The Prime Money Market Fund may invest in
U.S. dollar-denominated instruments of foreign issuers or municipal securities backed
by the credit of foreign banks, which may be subject to risks in addition to those
inherent in U.S. investments. (See "Foreign Investments.")
Offering Price The public offering price of the Class A Shares and Trust Shares of the U.S. Treasury
and Prime Money Market Funds is equal to that class' net asset value per Share, which
each Money Market Fund will seek to maintain at $1.00.
</TABLE>
-3-
<PAGE> 9
<TABLE>
<S> <C>
Minimum Purchase For Class A Shares there is a $1000 minimum initial purchase with no minimum
investment for subsequent purchases. No minimum purchase applies to purchases of
Trust Shares. (See "HOW TO PURCHASE AND REDEEM SHARES--Purchases of Trust Shares and
Purchases of Class A Shares.")
Investment Adviser Branch Banking and Trust Company, Raleigh, North Carolina.
Dividends The U.S. Treasury and Prime Money Market Funds declare dividends daily and pay such
dividends monthly.
Distributor BISYS Fund Services, Columbus, Ohio.
</TABLE>
-4-
<PAGE> 10
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A and Trust Class Shares of the Money
Market Funds will bear, either directly or indirectly.
<TABLE>
<CAPTION>
U.S. TREASURY FUND PRIME MONEY MARKET FUND
CLASS A TRUST CLASS CLASS A TRUST CLASS
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2) 0% 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0 $ 0
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees (after voluntary fee reductions) .40% .40% .30%(3) .30%(3)
12b-1 Fees (after voluntary fee reductions) .25%(4) 0% .25%(4) 0%
Other Expenses (after voluntary fee reductions) .34% .35% .35%(5) .35%(5)
--- --- --- ---
Total Fund Operating Expenses
(after voluntary fee reductions) .99%(6) .75% .90%(6) .65%(6)
=== === === ===
</TABLE>
-5-
<PAGE> 11
(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 a Money Market Fund. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Trust Shares and Purchases of Class A 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 the Trust Shares and Class A Shares of the Prime Money
Market Fund would be .40% of the Fund's average daily net assets.
(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 Money Market Fund. (See "MANAGEMENT OF BB&T MUTUAL FUNDS
GROUP--Distributor.")
(5) With respect to Class A and Trust Shares of the Prime Money Market
Fund, "Other Expenses" are based on estimated amounts for the
current fiscal year. Absent the voluntary reduction of administration
fees, other expenses are estimated to be .45% of each class of the
Fund's average daily net assets.
(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 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 and 1.35% for the Prime Money
Market Fund. Absent the voluntary reduction of fees, Total Fund
Operating Expenses for Trust Shares, as a percentage of average daily
net assets would be .85% for the Prime Money Market Fund.
-6-
<PAGE> 12
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares of
the Money Market 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
Prime Money Market Fund $ 7 $21
</TABLE>
You would pay the following expenses on a $1,000 investment in Class A Shares
of the Money Market 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
Prime Money Market Fund $ 9 $29
</TABLE>
Example:
The purpose of the tables above is to assist a potential investor in a
Money Market Fund in understanding the various costs and expenses that an
investor in the Class A or Trust Shares of a Money Market 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.
The information set forth in the foregoing tables and examples relates
only to Class A and Trust Shares. The Group also offers Class B Shares of the
U.S. Treasury Money Market Fund, which are subject to the same expenses except
that they are subject to a contingent deferred sales charge and higher
distribution costs.
-7-
<PAGE> 13
FINANCIAL HIGHLIGHTS
The table below sets forth financial highlights concerning the
investment results for the U.S. Treasury Fund 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 Prime Money Market Fund had not commenced operations as of
September 30, 1996.
The Class A Shares (formerly the Investor Shares) and Trust Shares of
the U.S. Treasury Fund effectively were operated as a single class of shares
from the commencement of operations of the Fund until January 31, 1993. On
February 1, 1993, the U.S. Treasury Fund 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 B Shares of the U.S. Treasury Fund 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.
-8-
<PAGE> 14
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR OCT.5, 1992
ENDED ENDED ENDED TO
SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1994 SEPT. 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.
-9-
<PAGE> 15
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR OCT. 5, 1992
ENDED ENDED ENDED TO
SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1994 SEPT. 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
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.
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<PAGE> 16
INVESTMENT OBJECTIVES AND POLICIES
All instruments in which the Money Market Funds invest 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 Money Market
Funds invest 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 each Money Market Fund will not exceed 90 days.
See "VALUATION OF SHARES" and the Statement of Additional Information for
further explanation of the amortized cost valuation method.
All securities acquired by the Money Market Funds will be determined
at the time of purchase by the Group's adviser or sub-adviser, under guidelines
established by the Group's Board of Trustees, to present minimal credit risks
and will be "Eligible Securities" as defined by the SEC. Eligible Securities
are (a) securities that either (i) have short-term debt ratings at the time of
purchase in the two highest rating categories by at least two unaffiliated
nationally recognized statistical rating organizations ("NRSROs") (or one NRSRO
if the security is rated by only one NRSRO), or (ii) are comparable in priority
and security with an instrument issued by an issuer which has such ratings, and
(b) securities that are unrated (including securities of issuers that have
long-term but not short-term ratings) but are of comparable quality as
determined in accordance with guidelines approved by the Board of Trustees.
The Prime Money Market Fund will also limit its investments in
Eligible Securities that are not in the highest rating category as determined
by two NRSROs (or one NRSRO if the security is rated by only one NRSRO) or, if
unrated, are not of comparable quality, to 5% of its total assets, with
investments in any one such issuer being limited to more than 1% of its total
assets or $1 million, whichever is greater, measured at the time of purchase.
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.
The investment objective of the U.S. Treasury 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 the Fund will achieve its investment
objective.
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.
-11-
<PAGE> 17
PRIME MONEY MARKET FUND
The investment objective of the Prime Money Market Fund is to provide
as high a level of current interest income as is consistent with maintaining
liquidity and stability of principal.
The investment objective of the Prime Money Market 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 the Fund will achieve its investment
objective.
The Prime Money Market Fund may invest in a broad range of short-term,
high quality, U.S. dollar-denominated instruments, such as government, bank,
commercial and other obligations, that are available in the money markets. In
particular, the Fund may invest in:
(A) U.S. dollar-denominated obligations issued or supported by the
credit of U.S. or foreign banks or savings institutions with
total assets in excess of $1 billion (including obligations
of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers
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 (an "NRSRO") (for
example, commercial paper rated "A-2" or higher by Standard &
Poor's Corporation ("S&P"), "P-2" or higher by Moody's
Investors Service, Inc. ("Moody's"), corporate bonds rated "AA"
or higher by S&P, or "Aa" or higher by Moody's) or (ii) do not
possess a rating (i.e., are unrated) but are determined to be
of comparable quality to the rated instruments eligible for
purchase by the Fund under the guidelines adopted by the
Trustees.
(C) asset-backed securities (including interests in pools of
assets such as mortgages, installment purchase obligations and
credit card receivables);
(D) securities issued or guaranteed as to principal and interest
by the U.S. Government or by its agencies or instrumentalities
and related custodial receipts;
(E) dollar-denominated securities issued or guaranteed by foreign
governments or their political subdivisions, agencies or
instrumentalities;
(F) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;
(G) securities issued or guaranteed by state or local governmental
bodies; and
-12-
<PAGE> 18
(H) repurchase agreements relating to the above instruments.
The Prime Money Market Fund will concentrate its investments in
obligations issued by the banking industry or instruments secured by such
obligations. Concentration in this context means the investment of more than
25% of the Fund's assets in such investments. However, for temporary defensive
purposes during periods when the Sub-Adviser believes that maintaining this
concentration may be inconsistent with the best interest of Shareholders, the
Fund will not maintain this concentration. Concentration in obligations issued
by commercial banks and bank holding companies will involve a greater exposure
to economic, business, political, or regulatory changes that are generally
adverse to banks and bank holding companies. Such changes could include
significant changes in interest rates, general declines in bank asset quality,
including real estate loans, and the imposition of costly or otherwise
burdensome government regulations or restrictions. The Fund will not purchase
securities issued by PNC Bank or BB&T or any of their affiliates.
CORPORATE AND BANK OBLIGATIONS
To the extent consistent with its investment objective, the Prime
Money Market Fund may invest in debt obligations of domestic corporations and
banks. Bank obligations may include certificates of deposit, notes, bankers'
acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government regulation.
The Prime Money Market Fund may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total
assets.
PRIVATE PLACEMENT INVESTMENTS
The Prime Money Market Fund may invest in commercial paper issued by
corporations without registration under the Securities Act of 1933 (the "1933
Act") in reliance on the exemption in Section 3(a)(3), and commercial paper
issued in reliance on the so-called "private placement" exemption in Section
4(2) ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the Federal securities laws in that any resale must similarly
be made in an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors through or with the assistance of investment
dealers which make a market in Section 4(2) paper, thus providing liquidity.
The Prime Money Market Fund may purchase securities which are not
registered under the 1933 Act but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. These securities will
not be considered illiquid so long as the sub-adviser determines that an
adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in the Fund during
any period that qualified institutional buyers become uninterested in
purchasing these restricted securities.
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GUARANTEED INVESTMENT CONTRACTS
The Prime Money Market Fund may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Under these contracts, the Fund makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits
interest to the Fund on a monthly basis, which is based on an index (such as
the Salomon Brothers CD Index), but is guaranteed not to be less than a certain
minimum rate. The Prime Money Market Fund does not expect to invest more than
5% of its net assets in GICs at any time during the current fiscal year.
WHEN-ISSUED SECURITIES
The Prime Money Market Fund may purchase securities on a when-issued
or delayed-delivery basis and may purchase or sell securities on a "forward
commitment" basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time.
When the 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
the 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. The 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 Fund relies on
the seller to complete the transaction; its failure to do so may cause the Fund
to miss a price or yield considered to be advantageous.
ASSET-BACKED SECURITIES
The Prime Money Market Fund may invest in securities backed by
automobile receivables and credit-card receivables and other securities backed
by other types of receivables.
Offerings of Certificates for Automobile Receivables ("CARS") are
structured either as flow-through grantor trusts or as pay-through notes. CARS
structured as flow-through instruments represent ownership interests in a fixed
pool of receivables. CARS structured as pay-through notes are debt instruments
supported by the cash flows from the underlying assets. CARS may also be
structured as securities with fixed payment schedules which are generally
issued in multiple-classes. Cash-flow from the underlying receivables is
directed first to paying interest and then to retiring principal via paying
down the two respective classes of notes sequentially. Cash-flows on
fixed-payment CARS are certain, while cash-flows on other types of CARS issues
depends on the prepayment rate of the underlying automobile
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<PAGE> 20
loans. Prepayments of automobile loans are triggered mainly by automobile
sales and trade-ins. Many people buy new cars every two or three years,
leading to rising prepayment rates as a pool becomes more seasoned.
Certificates for Amortizing Revolving Debt ("CARDS") represent
participation in a fixed pool of credit card accounts. CARDS pay "interest
only" for a specified period. The CARDS principal balance remains constant
during this period, while any cardholder repayments or new borrowings flow to
the issuer's participation. Once the principal amortization phase begins, the
balance declines with paydowns on the underlying portfolio. Cash flows on
CARDS are certain during the interest-only period. After this initial
interest-only period, the cash flow will depend on how fast cardholders repay
their borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments
on CARDS depend specifically on the method for allocating cardholder repayments
to investors. In many cases, the investor's participation is based on the
ratio of the CARDS' balance to the total credit card portfolio balance. This
ratio can be adjusted monthly or can be based on the balances at the beginning
of the amortization period. In some issues, investors are allocated most of
the repayments, regardless of the CARDS' balance. This method results in
especially fast amortization.
Credit support for asset-backed securities may be based on the
underlying assets or provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and over
collateralization. Asset-backed securities purchased by the Prime Money Market
Fund will be subject to the same quality requirements as other securities
purchased by the Fund.
COLLATERALIZED MORTGAGE OBLIGATIONS
Although under normal market conditions it does not expect to do so,
except in connection with repurchase agreements, the Prime Money Market 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 the
Prime Money Market 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
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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 the Prime
Money Market Fund's weighted average portfolio maturity, the effective maturity
of such securities will be used.
MUNICIPAL OBLIGATIONS
The Fund may, when deemed appropriate by its sub-adviser, invest in
high quality short-term obligations issued by state and local governmental
issuers.
The Prime Money Market Fund may invest in participation certificates
in a lease, an installment purchase contract, or a conditional sales contract
("lease obligations") entered into by a state or political subdivision to
finance the acquisition or construction of equipment, land or facilities.
Although lease obligations are not general obligations of the issuer for which
the state or other governmental body's unlimited taxing power is pledged,
certain lease obligations are backed by a covenant to appropriate money to make
the lease obligation payments. However, under certain lease obligations, the
state or governmental body has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet
marketable as more conventional securities.
FOREIGN INVESTMENTS
The Prime Money Market Fund may invest in debt obligations of foreign
corporations and banks. The Prime Money Market Fund may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; and 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.
The Prime Money Market Fund will not invest in excess of 10% of its
net assets in time deposits, including ETDs and CTDs but not including
certificates of deposit, with maturities in excess of seven days which are
subject to penalties upon early withdrawal.
The Prime Money Market Fund may invest in commercial paper (including
variable amount master demand notes) issued by U.S. or foreign corporations.
The Prime Money Market Fund may also invest in Canadian Commercial Paper
("CCP"), which is commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar denominated commercial paper of a foreign issuer.
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Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may
subject the Prime Money Market Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic
developments, the possible imposition of foreign withholding taxes on interest
income, possible seizure, currency blockage, nationalization, or expropriation
of foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely
effect the payment of principal and interest on such obligations. In addition,
foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing,
reporting, and record keeping standards than those applicable to domestic
branches of U.S. banks. The Prime Money Market Fund will acquire securities
issued by foreign branches of U.S. banks, foreign banks, or other foreign
issuers only when the Adviser or Sub-Adviser believes that the risks associated
with such instruments are minimal and only when such instruments are
denominated and payable in United States dollars.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Prime Money Market Fund may purchase rated and unrated variable
and floating rate instruments, which may have a stated maturity in excess of 13
months but will, in any event, permit the Fund to demand payment of the
principal of the instrument at least once every 13 months upon not more than 30
days' notice (unless the instrument is guaranteed by the U.S. Government or any
agency or instrumentality thereof).
VARIABLE AMOUNT DEMAND NOTES
Variable amount master demand notes in which the Prime Money Market
Fund may invest are unsecured demand notes that permit the indebtedness
thereunder to vary, and that provide for periodic adjustments in the interest
rate according to the terms of the instrument. Because master demand notes are
direct lending arrangements between the Prime Money Market Fund and the issuer,
they are not normally traded. Although there is no secondary market in the
notes, the Prime Money Market Fund may demand payment of principal and accrued
interest at any time. While the notes are not typically rated by credit rating
agencies, issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial, and other business concerns) must satisfy the
same criteria as to quality as set forth above for commercial paper. PIMC 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. In determining average weighted 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. The period of time remaining
until the principal amount can be recovered under a variable master demand note
may not exceed seven days.
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INVESTMENT COMPANIES
In connection with the management of its daily cash positions, the
Prime Money Market Fund may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Fund within the limits prescribed by the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory fees and other expenses the Fund bear directly in connection with its
own operations.
UNINVESTED CASH RESERVES
The Prime Money Market Fund may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Fund's sub-adviser, suitable obligations are unavailable. During normal market
periods, no more than 20% of the Fund's assets will be held uninvested.
Uninvested cash reserves will not earn income.
COMMON INVESTMENT POLICIES OF THE MONEY MARKET FUNDS
REPURCHASE AGREEMENTS
Securities held by each Money Market Fund may be subject to repurchase
agreements. A Money Market Fund will enter into repurchase agreements for the
purposes of maintaining liquidity and obtaining favorable yields. Under the
terms of a repurchase agreement, a Money Market 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 Institutional Management Corporation ("PIMC")), the Prime Money Market
Fund's investment sub-adviser). Except as described in the Statement of
Additional Information, there is no aggregate limitation on the amount of a
Money Market Fund's total assets that may be invested
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<PAGE> 24
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
Money Market Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements. A Money Market Fund will enter into reverse
repurchase agreements for the purpose of meeting liquidity needs. Pursuant to
such agreements, a Money Market 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 Money Market Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Money Market Fund under the Investment Company Act of 1940.
U.S. GOVERNMENT SECURITIES
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.
Types of U.S. Government Securities in which the Prime Money Market Fund 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.
Although under normal market conditions, the Prime Money Market Fund
does not expect to do so, except in connection with repurchase agreements, it
may invest in U.S. Government Securities that are 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
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<PAGE> 25
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.
SECURITIES LENDING
In order to generate additional income, each Money Market 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 PIMC with respect to the Prime Money Market Fund) and should the
market value of the loaned securities increase, the borrower will furnish
additional collateral to the Money Market Fund. During the time portfolio
securities are on loan, the borrower will pay the Money Market Fund any
dividends or interest paid on such securities. Loans are subject to
termination by a Money Market Fund or the borrower at any time. While a Money
Market 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 Money Market Funds will only
enter into loan arrangements with broker-dealers, banks or other institutions
which BB&T (or PIMC with respect to the Prime Money Market Fund) has determined
are creditworthy under guidelines established by the Group's Board of Trustees.
The U.S. Treasury Fund will restrict its securities lending to 30% of its total
assets and the Prime Money Market Fund will restrict its securities lending to
33 1/3% of its total assets.
INVESTMENT RESTRICTIONS
The U.S. Treasury and Prime Money Market 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 and Prime Money Market 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
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<PAGE> 26
Exchange Commission the U.S. Treasury Fund and the Prime Money Market
Fund will apply this restriction to 100% of its portfolio, except that
for the Prime Money Market Fund 25% of the value of its total assets
may be invested in any one issuer for a period of up to three business
days.
2. Borrow money or issue senior securities, except that a
Money Market 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 Prime Money Market 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 Prime Money Market 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. The Prime Money Market 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.
3. Make loans, except that each of the Money Market 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 following is a non-fundamental investment restriction of the U.S.
Treasury and Prime Money Market Funds and therefore subject to change without
shareholder vote.
The U.S. Treasury and Prime Money Market Funds 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 the U.S. Treasury Fund and the Prime Money
Market Fund is determined and the 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
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<PAGE> 27
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 assets in the U.S. Treasury Fund and the Prime Money Market 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 a 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 and Prime Money Market Fund's net asset value per Share at $1.00,
there can be no assurance that net asset value will not vary.
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.
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<PAGE> 28
Trust Shares of each of the Money Market 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.
There is no minimum or subsequent investment requirement for Trust
Shares. There is no limit on the amount of Trust Shares that may be purchased.
PURCHASES OF CLASS A SHARES
Class A 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").
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. Investors
purchasing Shares of the Prime Money Market Fund may only purchase Class A or
Trust Shares.
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 Shares by completing and signing an
Account Registration Form (found at the back of the prospectus) 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 Shares 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 Shares by telephone.
Telephone orders may be placed by calling the Group at (800) 228-1872. Payment
for Class A 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
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<PAGE> 29
regarding the bank account number into which the funds should be wired and
other pertinent information.
The minimum investment is $1,000 for the initial purchase of Class A
Shares. 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. 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 Shares held
of record by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A Shares by a
Participating Organization will be sent to the Customer by the Participating
Organization. Certificates representing Shares will not be issued.
Class A Shares of the U.S. Treasury Fund and the Prime Money Market
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. 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.
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AUTO INVEST PLAN
BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make
regular purchases of Class A Shares through automatic deduction from their bank
accounts. With Shareholder authorization, the Group's transfer agent will
deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
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 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. 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 Trust Shares will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for the U.S.
Treasury Fund and the Prime Money Market 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.
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<PAGE> 31
An order for a Money Market Fund received after the last Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the next Business Day.
An order to purchase Class A and Trust Shares of the Money Market
Funds 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 Money
Market Funds 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
Money Market Funds.
Shares of the Money Market Funds purchased before 12:00 noon, Eastern
Time, begin earning dividends on the same Business Day. All Shares of the
Money Market Funds 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 Trust Shares in whole or in part, including purchases made with
foreign and third party drafts or checks.
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<PAGE> 32
EXCHANGE PRIVILEGE
TRUST SHARES
Trust Shares of each Money Market Fund 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 Money Market Fund may also
be exchanged for Class A Shares, if the Shareholder ceases to be eligible to
purchase Trust Shares. Trust Shares of each Money Market 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.
CLASS A
Class A Shares of each Money Market 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 the Class A Shares of the Funds for Class A Shares
of the North Carolina Fund. Shareholders may exchange Class A Shares of the
Money Market Funds, for which no sales load was paid, for Class A Shares of a
Fund which has a variable net asset value (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
Money Market Funds were acquired in a previous exchange involving Shares of a
Variable NAV Fund, then such Shares of the Money Market Funds 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.
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
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<PAGE> 33
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 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 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.
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 the Prime 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 U.S. Treasury Fund or Prime 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 U.S. Treasury Fund or
Prime Money Market Fund account and maintain a minimum account balance of
$1,000.
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<PAGE> 34
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 and 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 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
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<PAGE> 35
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 and the Prime
Money Market 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. 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.
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<PAGE> 36
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 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 and the Prime Money Market 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 a 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 Class A 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 Class A Shares of a Fund in only
the minimum investment amount may be subject to such involuntary
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<PAGE> 37
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 Class A
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
The net investment income of the Shares of the Money Market Funds 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 Money
Market Funds do not expect to realize any long-term capital gains and,
therefore, do not foresee paying any capital gains dividends. As a result of
the Distribution and Shareholder Services Plan fee applicable to Class A and
Class B Shares, 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.
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.
Each Money Market Fund will be treated as a separate entity for
federal income tax purposes. Each Money Market Fund intends to qualify for
treatment as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). If so qualified, a Money Market 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 Money
Market Fund intends to avoid paying federal income and excise taxes by timely
distributing substantially all its net income and net realized capital gains,
if any.
Dividends will generally be taxable to a Shareholder as ordinary
income to the extent of the Shareholder's ratable share of the net investment
income of a Fund. Because all of the net investment income of the Money Market
Funds is expected to be interest income, it is
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anticipated that no distributions from such Funds will qualify for the
dividends received deduction. Distributions of net realized capital gains, if
any, are taxable to Shareholders as long-term capital gains regardless of how
long the Shareholder has held Shares in the Fund. Shareholders who are not
subject to tax on their income generally will not have to pay federal income
tax on amounts distributed to them.
Dividends received by a Shareholder of a Money Market 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 Money
Market Fund.
Shareholders will be advised at least annually as to the amount and
federal income tax character of distributions made during the year.
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.
The foregoing is a summary of certain federal, state and local income
tax consequences of investing in a Money Market Fund. Shareholders should
consult their own tax advisers concerning the tax consequences of an investment
in a Money Market Fund with specific reference to their own tax situation.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the
Board of Trustees of the Group, who are elected by the Shareholders of the
Group. There are currently five Trustees, two of whom are "interested persons"
of the Group within the meaning of that term under the Investment Company Act
of 1940. The Trustees, in turn, elect the officers of the Group to supervise
actively its day-to-day operations. The Trustees of the Group, their current
addresses, and principal occupations during the past five years are as follows:
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<PAGE> 39
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
---------------- -------------- ----------------
<S> <C> <C>
*Sean M. Kelly Chairman of the Board From 1993 to present, Senior Vice
150 2nd Avenue, North President of Client Services of
Suite 1170 BISYS Fund Services; prior to
St. Petersburg, FL 33701 1993, Senior Vice President of
Concord Financial Group
From January 1994 to present,
William E. Graham, Jr. Trustee Counsel, Hunton & Williams; from
1 Hannover Square 1985 to December, 1993, Vice
Fayetteville Street Mall Chairman, Carolina Power & Light
P.O. Box 109 Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, Foundation
NC 27106
*W. Ray Long Trustee Executive Vice President, Branch
434 Fayetteville Street Mall Banking and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of Engineered
Greenville, SC 29615 Custom Plastics Corporation from
1969 to 1990
</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. Sean M. Kelly is an employee of BISYS
Fund Services and W. Ray Long is an employee of the investment adviser, BB&T.
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<PAGE> 40
INVESTMENT ADVISER
BB&T is the investment adviser of the U.S. Treasury and Prime Money
Market Funds. 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 Prime Money Market Fund, PIMC) 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 Money Market Funds 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 each Money Market 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 U.S. Treasury Fund
paid investment advisory fees of .40% of its average daily net assets.
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<PAGE> 41
INVESTMENT SUB-ADVISER
PNC Institutional Management Corporation ("PIMC") serves as the
Investment Sub-Adviser to the Prime Money Market Fund pursuant to a
Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, PIMC Bank
manages the Fund, selects investments and places all orders for purchases and
sales of the Prime Money Market Fund's securities, subject to the general
supervision of the Group's Board of Trustees and BB&T and in accordance with
the Prime Money Market Fund's investment objective, policies and restrictions.
PIMC is a wholly-owned subsidiary of PNC Asset Management Group, Inc.
("PAMG"). PAMG was organized in 1994 to perform advisory services for
investment companies, and has its principal offices at 1600 Market Street, 29th
Floor, Philadelphia, Pennsylvania 19103. PAMG is an indirect wholly-owned
subsidiary of PNC Bank Corp., a multi-bank holding company. PIMC's principal
business address is 400 Bellevue Parkway, 4th Floor, Wilmington, Delaware
19809.
As sub-adviser, PIMC is responsible for the day-to-day management of
the Prime Money Market Fund, and generally makes all purchase and sale
investment decisions for the Fund. PIMC also provides research and credit
analysis. Portfolio transactions for the Fund may be directed through
broker/dealers who sell Fund shares, subject to the requirements of best
execution.
For its services and expenses incurred under the Sub-Advisory
Agreement, PIMC is entitled to a fee, payable by BB&T. The fee is computed
daily and paid monthly at the annual rate of nine one-hundredths of one percent
(.09%) or such lower fee as may be agreed upon in writing by BB&T and PIMC.
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
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<PAGE> 42
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 U.S. Treasury Fund paid .20% of its average daily net
assets.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the Group, Securities
and Exchange Commission fees, state securities qualification and renewal fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and
out-of-pocket expenses for fund accounting services, expenses incurred for
pricing securities owned by a Fund, certain insurance premiums, costs of
maintenance of a Fund's existence, costs and expenses of Shareholders' and
Trustees' reports and meetings, and any extraordinary expenses incurred in its
operation. As a general matter, expenses are allocated to the Class A, Class B
and Trust Class of a Fund on the basis of the relative net asset value of each
class. At present, the only expenses that will be borne solely by Class A and
Class B Shares, other than in accordance with the relative net asset value of
the class, are expenses under the Group's Distribution and Shareholder Services
Plan ("Distribution Plan") which relate only to the Class A and Class B Shares.
For the fiscal year ended September 30, 1996, total operating expenses
for the U.S. Treasury Fund as a percentage of average daily net assets was .75%
for Trust Shares and .99% for Class A Shares.
The organizational expenses of the Prime Money Market Fund have been
capitalized and are being amortized in the first two years of the Fund's
operations. Such amortization will reduce the amount of income available for
payment as dividends.
BANKING LAWS
BB&T and PIMC 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
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
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<PAGE> 43
present and future statutes and regulations could change the manner in which
BB&T and PIMC could continue to perform such services for the Group. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass Steagall Act" in the Statement of
Additional Information for further discussion of applicable banking laws and
regulations.
DISTRIBUTION PLAN
The Group's Class A and Class B Shares are sold on a continuous basis
by the Distributor. Under the Group's Distribution and Shareholder Services
Plan (the "Distribution Plan"), a Fund will pay a monthly distribution fee to
the Distributor as compensation for its services in connection with the
Distribution Plan at an annual rate equal to fifty one-hundredths of one
percent (.50%) of the average daily net assets of Class A Shares of each Fund
and one percent (1.00%) of the average daily net assets of Class B Shares of
each Fund. The Distributor may periodically waive all or a portion of the fee
with respect to a Fund in order to increase the net investment income of the
Fund available for distribution as dividends. The Distributor has agreed with
the Group to reduce its fee under the Distribution Plan to an amount not to
exceed twenty-five one-hundredths of one percent (.25%) of the average daily
net assets of Class A Shares of each Fund. The Distributor may use the
distribution fee to provide distribution assistance with respect to a Fund's
Class A and Class B Shares or to provide shareholder services to the holders of
such Shares. The Distributor may also use the distribution fee (i) to pay
financial institutions and intermediaries (such as insurance companies and
investment counselors but not including banks), broker-dealers, and the
Distributor's affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with distribution assistance
or (ii) to pay banks, other financial institutions and intermediaries,
broker-dealers, and the Distributor's affiliates and subsidiaries compensation
for services or reimbursement of expenses incurred in connection with the
provision of shareholder services. All payments by the Distributor for
distribution assistance or shareholder services under the Distribution Plan
will be made pursuant to an agreement (a "Servicing Agreement") between the
Distributor and such bank, other financial institution or intermediary,
broker-dealer, or affiliate or subsidiary of the Distributor (hereinafter
referred to individually as "Participating Organizations"). A Servicing
Agreement will relate to the provision of distribution assistance in connection
with the distribution of a Fund's Class A and Class B Shares to the
Participating Organization's customers on whose behalf the investment in such
Shares is made and/or to the provision of shareholder services to the
Participating Organization's customers owning a Fund's Class A and Class B
Shares. Under the Distribution Plan, a Participating Organization may include
Southern National Corporation or a subsidiary bank or nonbank affiliates, or
the subsidiaries or affiliates of those banks. A Servicing Agreement entered
into with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
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<PAGE> 44
The distribution fee will be payable without regard to whether the
amount of the fee is more or less than the actual expenses incurred in a
particular year by the Distributor in connection with distribution assistance
or shareholder services rendered by the Distributor itself or incurred by the
Distributor pursuant to the Servicing Agreements entered into under the
Distribution Plan. If the amount of the distribution fee is greater than the
Distributor's actual expenses incurred in a particular year (and the
Distributor does not waive that portion of the distribution fee), the
Distributor will realize a profit in that year from the distribution fee. If
the amount of the distribution fee is less than the Distributor's actual
expenses incurred in a particular year, the Distributor will realize a loss in
that year under the Distribution Plan and will not recover from a Fund the
excess of expenses for the year over the distribution fee, unless actual
expenses incurred in a later year in which the Distribution Plan remains in
effect were less than the distribution fee paid in that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
The Glass-Steagall Act and other applicable laws prohibit banks
generally from engaging in the business of underwriting securities, but in
general do not prohibit banks from purchasing securities as agent for and upon
the order of customers. Accordingly, the Group will require banks acting as
Participating Organizations to provide only those services which, in the banks'
opinion, are consistent with the then current legal requirements. It is
possible, however, that future legislative, judicial or administrative action
affecting the securities activities of banks will cause the Group to alter or
discontinue its arrangements with banks that act as Participating
Organizations, or change its method of operations. It is not anticipated,
however, that any change in a Fund's method of operations would affect its net
asset value per share or result in financial loss to any customer.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on October
1, 1987 and commenced active operation on September 24, 1992. The Group has an
unlimited number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into nine 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, the BB&T International Equity Fund and the BB&T Prime
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<PAGE> 45
Money Market 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 and the
Prime Money Market Fund offers Trust Shares and Class A only. Each other Fund
offers to the public three classes of shares: Class A, Class B and Trust
Shares. As of the date of this prospectus, however, Class B Shares were not
yet being offered in the Short-Intermediate Fund or the North Carolina Fund.
Each Share represents an equal 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 January 30, 1997, BB&T owned of record substantially all of the
Trust Shares of the U.S. Treasury Fund and held voting or investment power with
respect to [___%] of the
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<PAGE> 46
Trust Shares of the U.S. Treasury Fund. BB&T may therefore be deemed to be a
"controlling person" of the Trust Shares of the U.S. Treasury Fund within the
meaning of the Investment Company Act of 1940. As of January 30, 1997,
Stephens Inc., For the Exclusive Benefit of Our Customers, 111 Center Street,
Little Rock, AR 72201, is the record owner with respect to 59.31% of the Class
A Shares of the U.S. Treasury Fund. Stephens may therefore be deemed to be
controlling person of the Class A Shares of the Fund within the meaning of the
Investment Company Act of 1940. The Prime Money Market Fund had not commenced
operations as of such date.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for the Group.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and
provides fund accounting services to the Group.
PERFORMANCE INFORMATION
From time to time, the U.S. Treasury and Prime Money Market Fund's
annualized "yield" and "effective yield" and total return for Class A and Trust
Class Shares may be presented in advertisements, sales literature and
Shareholder reports. The "yield" of each Money Market Fund is based upon the
income earned by the 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 Money Market 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 each Money Market Fund. 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 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.
Yield, effective yield and total return 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.
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<PAGE> 47
Investors may also judge the performance of a Money Market 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., 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 Money Market 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 Money Market 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> 48
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
INVESTMENT SUB-ADVISER
(Prime Money Market Fund only)
PNC Institutional Management Corporation
400 Bellevue Parkway
Wilmington, DE 19809
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
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<PAGE> 49
CROSS REFERENCE SHEET
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
- ----------- -----------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History Additional Information -
Description of Shares
Investment Objectives and Policies Investment objectives and
policies
Management of BB&T Mutual Funds Group Management of BB&T Mutual
Funds Group
Control Persons and Principal
Holders of Securities Miscellaneous
Investment Advisory and Other Services Management of BB&T Mutual
Funds Group
Brokerage Allocation Management of the BB&T
Mutual Funds Group
Capital Stock and Other Securities Valuation; Additional
Purchase and Redemption
Information; Management
of BB&T Mutual Funds
Group; Redemptions;
Additional Information
Purchase, Redemption and Pricing
of Securities Being Offered Valuation; Additional
Purchase and Redemption
Information; Management
of BB&T Mutual Funds Group
Tax Status Additional Purchase and
Redemption Information
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
</TABLE>
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<PAGE> 51
----------------
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
APRIL __, 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 are dated January
2, 1997 and the Prospectuses of the BB&T U.S. Treasury Money Market Fund and the
BB&T Prime Money Market Fund which are dated the same date hereof (the
"Prospectuses"). This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. Copies of the Prospectuses
may be obtained by writing BB&T Mutual Funds Group at 3435 Stelzer Road,
Columbus, Ohio 43219, or by telephoning toll free (800) 228-1872.
<PAGE> 52
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-16
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Valuation of the MONEY MARKET FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
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-21
Valuation of the International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . B-22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . B-22
Purchase of Class A and Class B Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-23
Matters Affecting Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Additional Tax Information Concerning the International Equity Fund . . . . . . . . . . . B-26
Additional Tax Information Concerning the North Carolina Fund . . . . . . . . . . . . . . B-27
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-37
Investment Sub-Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-40
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-42
Manager and Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-43
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-45
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-45
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-47
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-47
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-47
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-48
Yields of the MONEY MARKET FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-48
Yields of the Other Funds of the Group . . . . . . . . . . . . . . . . . . . . . . . . . B-48
Calculation of Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-50
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-52
</TABLE>
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<PAGE> 53
<TABLE>
<S> <C>
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-56
Organization and Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-56
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-57
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-57
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-71
Independent Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-71
Audited Financial Statements as of September 30, 1996 . . . . . . . . . . . . . . . . . . B-71
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-72
</TABLE>
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<PAGE> 54
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 nine series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one
of nine separate investment portfolios: the BB&T U.S. Treasury Money Market
Fund (the "U.S. Treasury Fund"), The BB&T Prime Money Market Fund (the "Prime
Money Market Fund" and together with the U.S. Treasury Fund, the "Money Market
Funds") 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 and the Prime Money Market Fund, 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. The Prime Money Market
Fund offers Class A Shares and 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 Equity Advisors Company ("PEAC"), CastleInternational Asset
Management Limited ("CastleInternational") and PNC Institutional Management
Corporation ("PIMC") with regard to portfolio investments for the Funds and
provides a description of relevant ratings
B-1
<PAGE> 55
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.
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 and the
Prime Money Market 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 Prime Money Market Fund, 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
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rate demand notes. Because these notes are direct lending arrangements between
the Fund and the issuer, they are not normally traded. Although there may be
no secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time or during specified periods not exceeding one
year, depending upon the instrument involved, and may resell the note at any
time to a third party. The absence of such an active secondary market,
however, could make it difficult for a 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 a
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 PEAC, with respect to the Small Company Growth
Fund, or PIMC, with respect to the Prime Money Market 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,"
a 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 Prime Money Market Fund, 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
a Fund to investment risks that differ in some respects from those related to
investment in obligations of U.S. domestic issuers or in U.S. securities
markets. Such risks include future adverse political and economic
developments, possible seizure, currency blockage, nationalization or
expropriation of foreign
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investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, and the adoption of other
foreign governmental restrictions.
Additional risks include currency exchange risks, less publicly
available information, the risk that companies may not be subject to the
accounting, auditing and financial reporting standards and requirements of U.S.
companies, the risk that foreign securities markets may have less volume and
therefore many securities traded in these markets may be less liquid and their
prices more volatile than U.S. securities, and the risk that custodian and
brokerage costs may be higher. Foreign issuers of securities or obligations
are often subject to accounting treatment and engage in business practices
different from those respecting domestic issuers of similar securities or
obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks. The Prime Money Market Fund, Growth and Income Fund,
Balanced Fund, Small Company Growth Fund, and the Funds of Funds will acquire
such securities only when BB&T (or PEAC, with respect to the Small Company
Growth Fund or PIMC, with respect to the Prime Money Market 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
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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 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 PEAC, with respect to the Small
Company Growth Fund , CastleInternational, with respect to the International
Equity Fund, or PIMC, with respect to the Prime Money Market 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, a Fund holding such obligation would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement, or to the extent that the
disposition of such securities held by the Fund were delayed pending court
action. Additionally, if the seller should be involved in bankruptcy or
insolvency proceedings, a Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
security to the seller's estate. Securities subject to repurchase agreements
will be held by the Group's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the Investment Company Act of 1940 (the
"1940 Act").
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Reverse Repurchase Agreements . As discussed in the Prospectuses,
each of the Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with each Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and
agree to repurchase the securities at a mutually agreed-upon date and price.
Each Fund intends to enter into reverse repurchase agreements only to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. At the time a Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account assets consistent with the
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that such equivalent value is maintained. Such assets will include U.S.
Government securities or other liquid high quality debt securities or high
grade debt securities. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the price
at which it 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 (or PEAC, with respect to the Small Company Growth Fund,
CastleInternational, with respect to the International Equity Fund, or PIMC,
with respect to the Prime Money Market Fund) believes that the credit risk with
respect thereto is minimal.
Supranational Organizational Obligations. The Small Company Growth
Fund, International Equity Fund and Prime Money Market 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
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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 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 Prime Money Market Fund and the
North Carolina Fund may acquire variable and floating rate notes, subject to
each 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 a Fund will be determined by BB&T with respect to the North
Carolina Fund, (or PIMC with respect to the Prime Money Market Fund) 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 a Fund's investment policies. In making such determinations, BB&T with
respect to the North Carolina Fund (or PIMC with respect to the Prime Money
Market Fund) 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
Prime Money Market Fund or the North Carolina Fund, a Fund may resell a note
at any time to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
obligations and a 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.
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Variable or floating rate notes acquired by the Prime Money Market
Fund may have maturities of more than one year and variable and 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 a 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
a Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature will be
deemed by a 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 a 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 a 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 one year
with respect to the Prime Money Market Fund and not exceeding three years with
respect to 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."
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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.
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.
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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 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, International Equity Fund, and
Prime Money Market 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 Fund's 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
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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.
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
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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 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 PEAC, 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
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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.
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.
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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 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
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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 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
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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 and Prime Money Market Fund) may:
1. Purchase securities on margin, sell securities short, participate
on a joint or joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent that a Fund
may be deemed to be an underwriter under certain securities laws in the
disposition of "restricted securities" acquired in accordance with such Fund's
investment objectives and policies;
2. Purchase or sell commodities, commodity contracts (including
futures contracts, with respect to each Fund other than the Small Company
Growth Fund and the Funds of Funds, which may purchase futures contracts) oil,
gas or mineral exploration or development programs, or real estate (although
investments by the Growth and Income Fund, North Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Small Company
Growth Fund, and the Funds of Funds in marketable securities of companies
engaged in such activities and in securities secured by real estate or
interests therein are not hereby precluded);
None of the Funds (except the Funds of Funds) may:
1. Invest in securities of other investment companies, except as such
securities may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets; provided, however, that (i) the Growth and Income
Fund, North Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund,
Balanced Fund, Small Company Growth Fund, International Equity Fund and Prime
Money Market Fund may purchase securities of a money market fund, including
securities of the U.S. Treasury Fund and the Prime Money Market 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)
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having an aggregate value in excess of 10% of the value of the acquiring Fund's
total assets; (iii) the Small Company Growth Fund, the International Equity
Fund, and the Prime Money Market 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, the International Equity Fund, and the Prime Money Market
Fund and may therefore be changed by a vote of a majority of the Trustees of
the Group.
The U.S. Treasury Fund may not buy common stocks or voting securities,
or state, municipal, or private activity bonds. The U.S. Treasury Fund, North
Carolina Fund, Short-Intermediate Fund, and Intermediate Bond Fund may not
write or purchase call options. Each of the Funds may not write put options.
The U.S. Treasury Fund, Short-Intermediate Fund and Intermediate Bond Fund may
not purchase put options. The North Carolina Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operation.
The International Equity Fund may not:
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof, or the disposition of securities, in
accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
3. Write or sell unsecured put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, securities indices, futures contracts and options on futures
contracts.
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Fund's transactions in futures contracts and related options or a
Fund's sale of securities short against the box, and (b) a Fund may obtain
short-term credit as may be necessary for the clearance or purchases and sales
of portfolio securities.
5. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may, to the
extent 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.
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The Prime Money Market Fund may not:
1. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of its total assets to be invested in the
obligations of issuers in the banking industry, or in obligations, such as
repurchase agreements, secured by such obligations (unless the Fund is in a
temporary defensive position) or which would cause, at the time of purchase,
more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry. In applying the investment
limitations stated in this paragraph, (i) there is no limitation with respect
to the purchase of (a) instruments issued 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, (b) instruments issued by domestic banks (which may include U.S.
branches of foreign banks) and (c) repurchase agreements secured by the
instruments described in clauses (a) and (b); (ii) 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 (iii) utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will be each
considered a separate industry. 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 is not deemed to be a security
issued by the guarantor 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. Underwrite securities except to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as such
statutes, rules or regulations may be amended from time to time.
3. Purchase or sell commodities, commodities contracts, futures
contracts, or real estate except to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statutes,
rules or regulations may be amended from time to time.
Although the foregoing investment limitations would permit the Prime
Money Market Fund to invest in options, futures contracts and options on
futures contracts, the Fund does not currently intend to trade in such
instruments or engage in such transactions during the next twelve months
(except to the extent a portfolio security may be subject to a "demand feature"
or "put" as permitted under SEC regulations for money market funds). Prior to
making any such investments, the Prime Money Market Fund would notify its
shareholders and add appropriate descriptions concerning the instruments and
transactions to its Prospectus.
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:
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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 and the Prime Money Market Fund will limit their
investment in such securities to 10% of their net assets:
None of the Funds (except the Prime Money Market Fund) may:
1. 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;
2. Invest in any issuer for purposes of exercising control or
management; and
3. Purchase or retain securities of any issuer if the officers or
Trustees of the Group or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
Portfolio Turnover
The portfolio turnover rate for each of the Group's Funds is
calculated by dividing the lesser of a Fund's purchases or sales of portfolio
securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities at the
time of acquisition were one year or less. For the 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: 15.01% with respect to the common stock portion of its
portfolio and 4.86% 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
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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 Money Market
Funds, 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 each Money
Market Fund is determined and it Shares are priced as of 12:00 p.m. and as of
the close of regular trading of the New York Stock Exchange (generally 4:00
p.m. Eastern Time) on each Business Day ("Valuation Times"). As used herein a
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading 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, 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.
Valuation of the Money Market Funds
The U.S. Treasury Fund and the Prime Money Market Fund have 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 and the Prime Money Market Fund would receive if it sold the
instrument. The value of securities in the U.S. Treasury Fund and the Prime
Money Market Fund can be expected to vary inversely with changes in prevailing
interest rates.
Pursuant to Rule 2a-7, each Money Market 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
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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 each Money Market Fund's investment objective, to stabilize the
net asset value per Share of each Money Market 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 Money Market 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 a Money Market Fund's
$1.00 amortized cost price per Share may result in material dilution or other
unfair results to new or existing investors, they will take such steps as they
consider appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the dollar-weighted
average portfolio maturity, withholding or reducing dividends, reducing the
number of the Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share determined by using available market
quotations.
Valuation of the Growth and Income Fund, 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.
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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
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.
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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.
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.
Shares of The U.S. Treasury Fund and the Prime Money Market 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. The Prime Money Market Fund does not offer
Class B Shares. 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. 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.
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As the Group's principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the Group to dealers. BISYS re-allows
the applicable sales charge as dealer discounts and brokerage commissions.
Dealer allowances expressed as a percentage of offering price for all offering
prices are set forth in the Class A and Class B Prospectus (see "How to
Purchase and Redeem Shares"). From time to time, BISYS will make expense
reimbursements for special training of a dealer's registered representatives in
group meetings or to help pay the expenses of sales contests. Neither BISYS
nor dealers are permitted to delay the placement of orders to benefit
themselves by a price change.
Matters Affecting Redemption
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as a result of which (i) disposal by the Group of securities owned by it is not
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
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represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, limited in respect
of any one issuer to a value not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same, similar, or related trades or businesses.
The 30% of gross income test described above may restrict a Fund's ability to
sell certain assets held (or considered under Code rules to have been held) for
less than three months and to engage in certain hedging transactions (including
hedging transactions in options and futures) that in some circumstances could
cause certain Fund assets to be treated as held for less than three months.
A non-deductible excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined) for the calendar year plus 98% of their capital
gain net income for the 1-year period ending on October 31 of such calendar
year plus any undistributed amounts from prior years. For the foregoing
purposes, a 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
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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.
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
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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 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.
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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 "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
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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.
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
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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 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
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Fund balance of approximately $537.3 million. Of this amount, $134.3 million
was reserved in the Savings Reserve and $57 million was reserved in a Reserve
for Repair and Renovation of State Facilities, leaving an unrestricted General
Fund balance at June 30, 1993 of $346 million. Fiscal year 1994 ended with a
positive General Fund balance of approximately $444.7 million. An additional
$178 million was available from a reserved fund balance. Of this aggregate
amount, $155.7 million was reserved in the Savings Reserve (bringing the total
reserve to $210.6 million after prior withdrawals) and $60 million was reserved
in the Reserve for Repair and Renovation of State Facilities (bringing the
total reserve to $60 million after prior withdrawals), leaving an unrestricted
General Fund balance at June 30, 1994 of $407 million.
Fiscal year 1995 ended with a positive General Fund balance of
approximately $343.4 million. An additional $269.9 million was available from
a reserved fund balance. Of this aggregate amount, $146.3 million was reserved
in the Savings Reserve (bringing the total reserve to $423.6 million after
prior contributions) and $146.3 million was reserved in the Reserve for Repair
and Renovation of State Facilities (bringing the total reserve to $146.3
million after prior withdrawals), leaving an unrestricted General Fund balance
at June 30, 1995 of $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
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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.
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.
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The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet
its financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds -
Federal Retirees. In Davis v. Michigan (1989), the United States Supreme
Court ruled that a Michigan income tax statute which taxed federal retirement
benefits while exempting those paid by state and local governments violated the
constitutional doctrine of intergovernmental tax immunity. At the time of the
Davis decision, North Carolina law contained similar exemptions in favor of
state and local retirees. Those exemptions were repealed prospectively,
beginning with the 1989 tax year. All public pension and retirement benefits
are now entitled to a $4,000 annual exclusion.
Following Davis, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In
1991, the North Carolina Supreme Court ruled in favor of the State in the state
court action, concluding that Davis could only be applied prospectively and
that the taxes collected from the federal retirees were thus not improperly
collected. In 1993, the United States Supreme Court vacated that decision and
remanded the case back to the North Carolina Supreme Court. The North Carolina
Supreme Court then ruled in favor of the State on the grounds that the federal
retirees had failed to comply with state procedures for challenging
unconstitutional taxes. The United States District Court ruled in favor of the
defendants in the companion federal case, and a petition for reconsideration
was denied. Plaintiffs appealed to the United States Court of Appeals, which
concurred with the lower court's ruling. The United States Supreme Court
rejected an appeal, ruling that the lawsuit was a state matter, leaving the
North Carolina Supreme Court's ruling in force. 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
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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 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
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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 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>
SEAN M. KELLY Chairman and Trustee From 1993 to present, Senior Vice
President of Client Services of BISYS Fund
Services; prior to 1993, Senior Vice
President of Concord Financial Group
</TABLE>
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<PAGE> 89
<TABLE>
<S> <C> <C>
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,
Secretary employee of 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.
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 to 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 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.
B-36
<PAGE> 90
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(2) 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
Chairman of the Board
</TABLE>
(1) Figures are for the Funds' fiscal year ended September 30, 1996. The
Group includes twelve separate series.
(2) Mr. Huber resigned from the Board on December 12, 1996.
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
B-37
<PAGE> 91
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, the International Equity Fund, and the Prime
Money Market 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 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).
B-38
<PAGE> 92
Investment Sub-Advisers
Investment sub-advisory and management services are provided to the
Small Company Growth Fund by PNC Equity Advisors Company ("PEAC") pursuant to
a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of February 13,
1997 between BB&T and PEAC.
The Sub-Advisory Agreement provides that PEAC 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 PEAC in the performance of its
duties, or from reckless disregard by PEAC of its duties and obligations
thereunder.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 1997 and thereafter will continue from year to year
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty by the
Trustees, by vote of the holders of a majority of the outstanding Shares of the
Fund, or, on 60 days' written notice, by PEAC 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, the former sub-adviser to the Fund.
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 Castle International, or by
B-39
<PAGE> 93
BB&T. The Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
Investment sub-advisory and management services are provided to the
Prime Money Market Fund by PNC Institutional Management Corporation ("PIMC"),
an indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to a Sub-
Advisory Agreement ("Sub-Advisory Agreement") dated as of ___________, 1997
between BB&T and PIMC.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until ___________, 1998 and thereafter will continue from year to year
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty, by the
Trustees by vote of the holders of a majority of the outstanding Shares of the
Fund, or on 60 days' written notice by PIMC 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 each investment sub-adviser including, but not limited
to, (i) descriptions of the sub-adviser's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings
related to the sub-adviser's operations.
Portfolio Transactions
Pursuant to the Advisory Agreement, BB&T (and PEAC, with respect to
the Small Company Growth Fund, CastleInternational, with respect to the
International Equity Fund, and PIMC, with respect to the Prime Money Market
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.
B-40
<PAGE> 94
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 PEAC, 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 $173,857. 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 PEAC, with respect to the Small Company
Growth Fund and CastleInternational, with respect to the International Equity
Fund) in its best judgment and in a manner deemed fair and reasonable to
Shareholders. The major consideration in allocating brokerage business is the
assurance that the best execution is being received on all transactions
effected for all accounts. Brokerage will at times be allocated to firms that
supply research, statistical data and other services when the terms of the
transaction and the capabilities of different broker/dealers are consistent
with the guidelines set forth in Section 28(e) of the Securities Exchange Act
of 1934. Information so received is in addition to and not in lieu of services
required to be performed by BB&T (and PEAC, 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, PEAC, or
CastleInternational. Such information may be useful to BB&T, PEAC, 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, PEAC, 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, PEAC and
CastleInternational will not execute portfolio transactions on behalf of the
Funds through, acquire portfolio securities issued by,
B-41
<PAGE> 95
make savings deposits in, or enter into repurchase or reverse repurchase
agreements with BB&T, PEAC, CastleInternational, PIMC, BISYS Fund Services, or
their affiliates, and will not give preference to BB&T's or PEAC'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, PEAC, CastleInternational or PIMC. 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, PEAC, CastleInternational or
PIMC 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, PEAC, CastleInternational or PIMC
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, PEAC, CastleInternational or PIMC 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.
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
B-42
<PAGE> 96
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 and PNC Bank believe that they possess the legal authority to
perform the services for each Fund contemplated by the Advisory Agreement and
Sub-Advisory 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 or PNC Bank
from continuing to perform such services for the Group. Depending upon the
nature of any changes in the services which could be provided by BB&T or PNC
Bank, the Board of Trustees of the Group would review the Group's relationship
with BB&T, PEAC, CastleInternational, or PIMC 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, PEAC, CastleInternational, and
PIMC or their affiliated and correspondent banks (the "Banks") in connection
with Customer's purchases of Shares of the Group, the Banks might be required
to alter materially or discontinue the services offered by them to Customers.
It is not anticipated, however, that any change in the Group's method of
operations would affect its net asset value per Share or result in financial
losses to any Customer.
Manager and Administrator
BISYS serves as administrator (the "Administrator") to each Fund
pursuant to the Management and Administration Agreement dated as of October 1,
1992, as amended (the "Administration Agreement"). The Administrator assists
in supervising all operations of each Fund (other than those performed by BB&T
under the Advisory Agreement and PEAC, Castle International, and PIMC under the
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
B-43
<PAGE> 97
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 and
PEAC, CastleInternational and PIMC under the Sub-Advisory Agreements, 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: $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, the International Equity Fund
and the Prime Money Market 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
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<PAGE> 98
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.
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
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<PAGE> 99
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 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.
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,
B-46
<PAGE> 100
except that any change in the Distribution Plan that would materially increase
the distribution fee with respect to a Fund requires the approval of the
holders of that Fund's Class A and Class B Shares. The Group's Board of
Trustees will review on a quarterly and annual basis written reports of the
amounts received and expended under the Distribution Plan (including amounts
expended by the Distributor to Participating Organizations pursuant to the
Servicing Agreements entered into under the Distribution Plan) indicating the
purposes for which such expenditures were made.
Custodian
Star Bank, N.A. serves as the Group's Custodian. Bank of New York
serves as the International Equity Fund's Custodian.
Transfer Agent and Fund Accounting Services
BISYS Fund Services Ohio, Inc. 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 Money Market Funds
As summarized in the Prospectuses of the U.S. Treasury Fund and the
Prime Money Market Fund under the heading "Performance Information," the
"yield" of the U.S. Treasury Fund and the Prime Money Market 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
B-47
<PAGE> 101
net change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but will not include realized gains or losses or unrealized
appreciation or depreciation on portfolio investments. Yield may also be
calculated on a compound basis (the "effective yield") which assumes that net
income is reinvested in Fund shares at the same rate as net income is earned
for the base period.
The yield and effective yield of each Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of each 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
B-48
<PAGE> 102
dividends; and "d" represents the maximum offering price per share of a
particular class on the last day of the 30-day base period.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed
by mortgages or other assets) and may include recognition of a pro rata portion
of the stated dividend rate of dividend paying portfolio securities. The yield
of each of the Funds will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Group allocated to each Fund. These factors and possible differences in the
methods used in calculating yield should be considered when comparing a Fund's
yield to yields published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the value of
the Fund's shares and to the relative risks associated with the investment
objectives and policies of each Fund.
The North Carolina Fund may also advertise a "tax equivalent yield"
and a "tax equivalent effective yield." Tax equivalent yield will be computed
by dividing that portion of the North Carolina Fund's yield which is tax-exempt
by the difference between one and a stated income tax rate and adding the
product to that portion, if any, of the yield of the Fund that is not
tax-exempt. The tax equivalent effective yield for the North Carolina Fund is
computed by dividing that portion of the effective yield of the North Carolina
Fund which is tax-exempt by the difference between one and a stated income tax
rate and adding the product to that portion, if any, of the effective yield of
the Fund that is not tax-exempt.
With respect to Investor Shares (now redesignated as Class A Shares),
for the 30-day period ended September 30, 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 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 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%.
B-49
<PAGE> 103
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.
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 -
B-50
<PAGE> 104
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.
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
B-51
<PAGE> 105
Analytical Services as having the same investment objectives may from time to
time be included in advertisements.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principals
(such as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Group, (5) descriptions of investment strategies for one or
more of such Funds; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, insured bank products,
annuities, qualified retirement plans and individual stocks and bonds), which
may or may not include the Funds; (7) comparisons of investment products
(including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in one or more of the Funds. The Funds may also
include in these communications calculations, such as hypothetical compounding
examples, that describe hypothetical investment results, such performance
examples will be based on an express set of assumptions and are not indicative
of performance of any of the Funds.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500
stocks (the "S&P 500") is a market value-weighted and unmanaged index showing
the changes in the aggregate market value of 500 Stocks relative to the base
period 1941-43. The S&P 500 is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks of
a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Morgan Stanley Capital International Europe, Australia and the Far
East Index ("EAFE") is an index composed of a sample of companies
representative of the 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-52
<PAGE> 106
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-53
<PAGE> 107
<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%
- ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$12,751 TO
$24,650 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$24,651 TO
$59,750 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$59,751 TO
$60,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57%
FROM
$60,001 TO
$124,650 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64%
FROM
$124,651 TO
$271,050 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32%
OVER
$271,050 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------
6.00% 6.50% 7.00%
- -------------------------------------------------------
<S> <C> <C> <C>
FROM
$0 TO
$12,750 7.51% 8.14% 8.76%
FROM
$12,751 TO
$24,650 7.59% 8.22% 8.86%
FROM
$24,651 TO
$59,750 8.96% 9.71% 10.45%
FROM
$59,751 TO
$60,000 9.35% 10.13% 10.91%
FROM
$60,001 TO
$124,650 9.43% 10.21% 11.00%
FROM
$124,651 TO
$271,050 10.16% 11.01% 11.86%
OVER
$271,050 10.77% 11.67% 12.56%
</TABLE>
B-54
<PAGE> 108
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
- ------------------------------------------------------------------------------------------------------------------------
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%
- ------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$21,251 TO
$41,200 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$41,201 TO
$99,600 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$99,601 TO
$100,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57%
FROM
$100,001 TO
$151,750 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64%
FROM
$151,751 TO
$271,050 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32%
OVER
$271,050 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------
6.00% 6.50% 7.00%
- -----------------------------------------------
<S> <C> <C> <C>
FROM
$0 TO
$21,250 7.51% 8.14% 8.76%
FROM
$21,251 TO
$41,200 7.59% 8.22% 8.86%
FROM
$41,201 TO
$99,600 8.96% 9.71% 10.45%
FROM
$99,601 TO
$100,000 9.35% 10.13% 10.91%
FROM
$100,001 TO
$151,750 9.43% 10.21% 11.00%
FROM
$151,751 TO
$271,050 10.16% 11.01% 11.86%
OVER
$271,050 10.77% 11.67% 12.56%
</TABLE>
B-55
<PAGE> 109
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 nine series of Shares offered to
the public which represent interests in the U.S. Treasury Fund, Prime Money
Market 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
B-56
<PAGE> 110
to one vote per share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. Shareholders vote in the
aggregate and not by series or class on all matters except (i) when required by
the 1940 Act, shares shall be voted by individual 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
B-57
<PAGE> 111
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 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 January 30, 1997, 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> <C>
Stephens, Inc. 16,216,820.080 59.31%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Joseph Riddle III and 1,969,884.330 7.20%
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-58
<PAGE> 112
U.S. Treasury Money Market Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Branch Banking & Trust Co. 24,058,258.440 12.24%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
Wilbranch 156,680,552.930 79.73%
Cash
Attn: J. Michael Pollock
P.O. Box 2887
Wilson, NC 27894-1847
Benefit Service Corporation 11,284,429.580 5.74%
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> <C>
Branch Banking & Trust Co., 91,701.450 6.49%
Custodian
Robert A. Robertson
Rollover IRA
1001 Areheart St.
West Columbia, SC 29169
</TABLE>
B-59
<PAGE> 113
Short Intermediate U.S. Government Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Henry Fibers, Inc. 72,916.746 12.08%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
Stephens, Inc. 97,923.007 16.26%
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> <C>
CAP Co. 882,119.263 8.98%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 7,666,898.710 78.03%
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> <C>
Stephens, Inc. 76,249.722 16.75%
For the Exclusive Benefit of
Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-60
<PAGE> 114
<TABLE>
<S> <C> <C>
Federated Bank Trust Agent 53,757.160 11.81%
Agnt For BB&T Trustee
FBO World Acceptance Corp.
Attn: Trust OPS
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
Intermediate U.S. Government Bond Fund - Trust Shares
-----------------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
CAP Co. 755,735.131 5.78%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 6,437,261.635 49.26%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 755,735.131 5.78%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 666,998.115 5.10%
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> <C>
NC Foundation Seed Producers 2,925.409 6.65%
8220 Riley Hill Rd.
Zebulon, NC 27597
Branch Banking & Trust Co., 3,904.868 8.88%
Custodian
Eleanor G. Major
IRA Rollover
P.O. Box 125 105 S Academy
Varnville, SC 29944
</TABLE>
B-61
<PAGE> 115
<TABLE>
<S> <C> <C>
L.J. Inc. 5,412.811 12.31%
Attn: Keith Coffer
220 Stoneridge Dr., Suite 405
Columbia, SC 29210
William Ted Camp 2,617.403 5.95%
2105 W. Nash. St.
Wilson, NC 27893
Indiraben D. Patel 5,230.576 11.90%
P.O. Box 95
Siler City, NC 27344
</TABLE>
Growth and Income Stock Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 241,543.566 16.08%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Federated Bank Trust Agent 88,490.111 5.90%
Agnt for BB&T Trustee
FBO World Acceptance Corp
Attn: Trust Ops.
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
B-62
<PAGE> 116
Growth and Income Stock Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 6,431,408.971 40.86%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 916,179.474 5.82%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 960,416.027 6.10%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
Wilbranch Co. 6,129,411.066 38.94%
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> <C>
Stephens, Inc. 185,168.634 20.43%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Helen H. Hendricks 55,945.710 6.17%
277 Beechwood Dr.
Mocksville, NC 27028
</TABLE>
B-63
<PAGE> 117
North Carolina Intermediate Tax-Free Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch 6,308,465.918 100%
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> <C>
Stephens, Inc. 380,666.834 33.76%
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> <C>
Wilbranch Co. 697,392.036 11.59%
P.O. Box 2887
Wilson, NC 27894-2887
Branch Banking & Trust Co. 791,842.592 13.16%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit Serv/
Ops Manager
434 Fayetteville St., 4th Floor
Raleigh, NC 27601-1767
Wilbranch Co. 3,418,970.226 56.80%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 306,074.911 5.09%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-64
<PAGE> 118
Small Company Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens Inc. 54,446.227 12.47%
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> <C>
Wilbranch Co. 557,360.311 28.62%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 244,058.619 12.53%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 557,101.878 28.61%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 209,764.319 10.77%
Agnt BB & T Savings &
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309-0000
Branch Banking & Trust Co. 154,599.474 7.94%
FBO Daily Recordkeeping Plans
</TABLE>
B-65
<PAGE> 119
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
International Equity Fund - Class A Shares
------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
James T. Ballou 504.234 16.79%
IRA
3706 Darwin Rd.
Durham, NC 27707
Kittara C. Worthington 189.934 6.32%
IRA 11125 U.S. Highway 17 N
Wilmington, NC 28405
Frank A. McClure, III 236.518 7.88%
Cust. Elizabeth Britt McClure
UGMA SC
30 Savage St.
Charleston, SC 29401
Suzanne E. Fleming 222.068 7.39%
1921 Clarksville Dr.
Scotland Neck, NC 27874
Jane M. Greene 246.548 8.21%
and John R. Greene
JTWROS
207 Delbert Dr.
Goldsboro, NC 27534
Jenean Sasser 248.509 8.27%
and Dottie Waters
JTWROS
203 Saddlewood Dr.
Goldsboro, NC 27534
Frank A. McClure, III 236.518 7.88%
Cust. Grant W. McClure
</TABLE>
B-66
<PAGE> 120
<TABLE>
<S> <C> <C>
UGMA SC
30 Savage St.
Charleston, SC 29401
Frank A. McClure, III 236.518 7.88%
Cust. Alexandra Daley McClure
UGMA SC
30 Savage St.
Charleston, SC 29401
Ronette Kolotkin 299.254 9.96%
Trst. S.J. Rhoades Irrevocable
Gift Trust For Edward
DTD 12/30/96
1004 Noorwood Ave.
Durham, NC 27707
</TABLE>
International Equity Fund - Trust Shares
----------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 1,176,311.723 39.69%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 1,634,110.874 55.13%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
International Equity Fund - Class B Shares
------------------------------------------
<TABLE>
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Brian W. Olsen 690.335 11.61%
and Susan M. Olsen
JTWROS
408 March Ln.
Goldsboro, NC 27534
Brenda E. Foscue 396.825 6.67%
767 Renfrow Narron Rd.
Middlesex, NC 27557
</TABLE>
B-67
<PAGE> 121
<TABLE>
<S> <C> <C>
AA 397.614 6.68%
Jane W. Best
IRA
1603 Rose St.
Goldsboro, NC 27530
AA 347.653 5.84%
Rose H. Poole
IRA
132 Poole Rd.
Casar, NC 28020
Jimmy Lee Gwyn 2,002.792 33.67%
3608 Mizell Rd.
Greensboro, NC 27405
Danny E. Evans 886.700 14.91%
201 Muriel Hooks Dr.
Goldsboro, NC 27530
Brenda G. Graham 488.857 8.22%
IRA
P.O. Box 164
Matthews, NC 26106
</TABLE>
As of January 30, 1997, 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 [____%, ____%, ____%, ____%, ____%, ____%, and ____%] 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 January 30, 1997, Stephens Inc., For the Exclusive Benefit of
Our Customers, 111 Center Street, Little Rock, AR 72201: record owner with
respect to 59.31% and 33.76% 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.
B-68
<PAGE> 122
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-69
<PAGE> 123
FINANCIAL STATEMENTS
Independent Auditors Report
Audited Financial Statements as of September 30, 1996
B-70
<PAGE> 124
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-71
<PAGE> 125
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-72
<PAGE> 126
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 repayment capacity will often be
evidenced by many of the following characteristics:
B-73
<PAGE> 127
-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."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B-74
<PAGE> 128
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-term adverse changes
could cause these securities to be rated below investment
grade.
B-75
<PAGE> 129
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.
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.
B-76
<PAGE> 130
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
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.
B-77
<PAGE> 131
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-78
<PAGE> 132
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> 133
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
-19-
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<PAGE> 134
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> 135
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
-21-
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<PAGE> 136
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
-22-
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<PAGE> 137
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
-23-
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<PAGE> 138
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> 139
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> 140
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> 141
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
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<PAGE> 142
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> 143
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
-29-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 144
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 145
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 146
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
-32-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 147
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> 148
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 149
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 150
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> 151
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> 152
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> 153
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> 154
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 155
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> 156
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
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<PAGE> 157
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> 158
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> 159
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> 160
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 161
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> 162
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
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<PAGE> 163
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> 164
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> 165
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> 166
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-
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<PAGE> 167
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-
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<PAGE> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 179
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 180
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> 181
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 182
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-
[LOGO OF BB&T MUTUAL FUNDS APPEARS HERE]
<PAGE> 183
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> 184
(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) Bylaws, Amended and Restated November 8, 1996 are filed herewith.
(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
responsive to this item are filed herewith as Exhibit 2
above.
(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 filed
herewith.
(c) Form of Revised Schedule A to the Investment Advisory
Agreement between the Registrant and Branch Banking and
Trust Company is filed herewith.
(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
C-2
<PAGE> 185
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) Sub-Advisory Agreement between Branch Banking and Trust
Company and CastleInternational Asset Management Limited is
filed herewith.
(g) Sub-Advisory Agreement between Branch Banking and Trust
Company and PNC Equity Advisors Company is filed herewith.
(h) Form of Sub-Advisory Agreement between Branch Banking and
Trust Company and PNC Institutional Management Corporation
is filed herewith.
(6) (a) Distribution Agreement between the Registrant and BISYS
Fund Services AS re-executed February 7, 1997 is filed
herewith.
(7) None.
(8) (a) Custody Agreement between the Registrant and Star Bank,
N.A. is filed herewith.
(b) Form of Amended Appendix b to the Custody Agreement between
the Registrant and Star Bank , N.A. is filed herewith.
(c) Custody Agreement between the Registrant and Bank of New
York is filed herewith.
(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
C-3
<PAGE> 186
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) 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
filed herewith.
(f) Form of Revised Schedule A to the Management and
Administration Agreement between the Registrant and BISYS
Fund Services is filed herewith.
(g) Amended Schedule A to the Transfer Agency Agreement between
the Registrant and BISYS Fund Services Ohio, Inc. is filed
herewith.
(h) Form of Amended Schedule A to the Transfer Agency Agreement
between the Registrant and BISYS Fund Services OHIO, Inc. is
filed herewith.
(i) Revised Schedule A to the Fund Accounting Agreement between
the Registrant and BISYS Fund Services Ohio, Inc. is filed
herewith.
C-4
<PAGE> 187
(j) Form Of Revised Schedule A To The Fund Accounting Agreement
between the Registrant and Bisys Fund Services Ohio, Inc. is
filed herewith.
(10) Opinion of Ropes & Gray is incorporated by reference to
Exhibit 10 of Pre-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A (filed
September 9, 1992).
(11) (a) Consent of KPMG Peat Marwick LLP is filed herewith.
(b) Consent of Ropes & Gray is filed herewith.
(12) None.
(13) Purchase Agreement dated September 3, 1992 between
Registrant and Winsbury Associates is incorporated by
reference to Exhibit 13 of Pre-Effective Amendment No. 2 to
the Registration Statement of the Registrant Form N-1A
(filed September 23, 1992).
(14) None.
(15) (a) Amended and Restated Distribution and Shareholder Services
Plan AS re-executed February 7, 1997 between the Registrant
and BISYS Fund Services is filed herewith.
(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) Revised Schedule A to the Servicing Agreement With Branch
Banking And Trust Company and BISYS Fund Services is Filed
Herewith.
(d) Form of Revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund Services
is filed herewith.
C-5
<PAGE> 188
(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)
(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
C-6
<PAGE> 189
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 February 1, 1997, the number of record holders of Trust
Shares of the Registrant's respective series of Trust Shares were
as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders of Trust Shares
--------------- -----------------------
<S> <C>
U.S. Treasury Fund 7
Short-Intermediate Fund 8
Intermediate Bond Fund 13
North Carolina Fund 1
Growth and Income Fund 12
Balanced Fund 12
Small Company Growth Fund 14
International Equity Fund 5
Capital Manager Conservative Growth Fund 0
Capital Manager Moderate Growth Fund 0
Capital Manager Growth Fund 0
Prime Money Market Fund 0
</TABLE>
C-7
<PAGE> 190
As of February 1, 1997, the number of record holders of Class A
Shares of the Registrant's respective series of Class A Shares
were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders of Class A Shares
--------------- -------------------------
<S> <C>
U.S. Treasury Fund 495
Short-Intermediate Fund 195
Intermediate Bond Fund 165
North Carolina Fund 168
Growth and Income Fund 1646
Balanced Fund 730
Small Company Growth Fund 1464
International Equity Fund 20
Prime Money Market Fund 0
<CAPTION>
As of February 1, 1997, the number of recordholders of
Class B Shares of the Registrant's respective series of
Class B Shares were as follows:
Number of Record Holders
Title of Series of Class B Shares
--------------- -----------------
<S> <C>
U.S. Treasury Fund 158
Short-Intermediate Fund 0
Intermediate Bond Fund 38
North Carolina Fund 0
Growth and Income Fund 856
</TABLE>
C-8
<PAGE> 191
<TABLE>
<S> <C>
Balanced Fund 353
Small Company Growth Fund 898
International Equity Fund 16
</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 majority of the
disinterested Trustees acting on the matter (provided that a
C-9
<PAGE> 192
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-10
<PAGE> 193
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-Advisers.
------------------------
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-11
<PAGE> 194
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.
C-12
<PAGE> 195
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 Affairs
Director Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate Diagnostics
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc., McCauley
Moving & Storage of Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
C-13
<PAGE> 196
Charles E. Nichols Attorney at Law, North Carolina Trust Center
Director Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
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 Equity Advisors Company ("PEAC") Is an indirect wholly-owned
subsidiary of PNC BAnk, N.A. PEAC Serves as the investment sub-adviser to the
Small Company Growth Fund. THe list required by this ITem 28 of Officers and
directors of PEAC, 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 PEAC pursuant to the Investment
Advisers Act of 1940 (SEC File No. 801-47711).
CastleInternational Asset Management Limited
("CastleInternational") is an indirect wholly-owned subsidiary of PNC Bank Corp.
Castleinternational Serves as the investment sub-adviser to the International
Equity Fund. The list required by this Item 28 of officers and directors of
CastleInternational, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by CastleInternational pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-51087).
C-14
<PAGE> 197
PNC Institutional Management Corporation ("PIMC") is an indirect
wholly-owned subsidiary of Pnc Bank Corp. PIMC serves as the investment
sub-adviser to the Prime Money Market Fund. The list required by this item 28 of
officers and directors of PIMC, 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 PIMC pursuant to the
investment adviser act of 1940 (sec file no. 801-13304).
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, HighMark FUNDS, The Sessions Group, the
American Performance Funds, AmSouth Mutual Funds, The Victory
Portfolios, The ARCH Tax-Exempt Trust, the Qualivest Funds, the Summit
Investment Trust, The M.S.D.&T Funds, Inc. and The ARCH Fund, Inc.,
each of which is a management investment company. The parent of BISYS
Fund Services, Inc. (the sole general partner of BISYS Fund Services)
is The BISYS Group, Inc.
(b) Partners of BISYS Fund Services as of the date of this Part C are
as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
C-15
<PAGE> 198
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 Equity Advisors Company
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) PNC Institutional Management Corporation (Investment Sub-
Adviser To The Prime Money Market Fund)
400 Bellevue Park, 4Th Floor
Wilmington, DE 19809
(6) BISYS FUND SERVICES
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
C-16
<PAGE> 199
(7) Star Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45201
(Custodian)
(8) BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(Transfer and Shareholder Servicing Agent, Provider of Fund
Accounting Services)
(9) Bank of New York
90 Washington Street, 22nd Floor
New York, NY 10286
(Custodian to the International Equity Fund)
(10) 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.
The Registrant undertakes on behalf of the BB&T Prime Money Market
fund to file a post-effective amendment, including financial
statements which need not be certified, within four to six months from
the commencement of operations of the Prime Money Market Fund.
C-17
<PAGE> 200
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-18
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused
this Post-Effective Amendment No. 11 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 13TH day of February, 1997.
THE BB&T MUTUAL FUNDS
GROUP
Registrant
/S/ Sean M. Kelly
----------------------------
* Sean M. Kelly
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.
Signature Title Date
--------- ----- ----
/S/ Sean M. Kelly
- --------------------- Chairman February 13, 1997
*Sean M. Kelly
/S/ William E. Graham
- --------------------- Trustee February 13, 1997
*William E. Graham
/S/ Thomas W. Lambeth
- --------------------- Trustee February 13, 1997
*Thomas W. Lambeth
/S/ George Landreth
- --------------------- Treasurer February 13, 1997
*George Landreth
/S/ W. Ray Long
- --------------------- Trustee February 13, 1997
*W. Ray Long
/S/ Robert W. Stewart
- --------------------- Trustee February 13, 1997
*Robert W. Stewart
*By: /S/ Alan G. Priest
--------------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
C-23
<PAGE> 202
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> 203
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> 204
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> 205
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> 206
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> 207
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> 208
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(2) Bylaws, Amended and Restated November 8, 1996.
(5)(b) Schedule A to the Investment Advisory Agreement
between the Registrant and Branch Banking and Trust
Company.
(5)(c) Form of Revised Schedule A to the Investment Advisory
Agreement between the Registrant and Branch Banking and
Trust Company.
(5)(f) Sub-Advisory Agreement between Branch Banking and Trust
Company and CastleInternational Asset Management Limited.
(5)(g) Sub-Advisory Agreement between Branch Banking and Trust
Company and PNC Equity Advisors Company.
(5)(h) Form of Sub-Advisory Agreement between Branch Banking and
Trust Company and PNC Institutional Management Corporation.
(6)(a) Re-executed Distribution Agreement between the Registrant
and BISYS Fund Services.
(8)(a) Custody Agreement between the Registrant and Star Bank, N.A.
(8)(b) Form of Amended Appendix B to the Custody Agreement between
the Registrant and Star Bank, N.A.
(8)(c) Custody Agreement between the Registrant and Bank of New York.
(9)(e) Revised Schedule A to the Management and Administration
Agreement between the Registrant and BISYS Fund Services.
(9)(f) Form of Revised Schedule A to the Management and Administration
Agreement between the Registrant and BISYS Fund Services.
</TABLE>
<PAGE> 209
<TABLE>
<S> <C>
(9)(g) Amended Schedule A to the Transfer Agency Agreement between
the Registrant and BISYS Fund Services Ohio, Inc.
(9)(h) Form of Amended Schedule A to the Transfer Agency Agreement
between the Registrant and BISYS Fund Services Ohio, Inc.
(9)(i) Revised Schedule A to the Fund Accounting Agreement between
the Registrant and BISYS Fund Services Ohio, Inc.
(9)(j) Form of Revised Schedule A to the Fund Accounting Agreement
between the Registrant and BISYS Fund Services Ohio, Inc.
(11)(a) Consent of KPMG Peat Marwick LLP.
(11)(b) Consent of Ropes & Gray.
(15)(a) Re-executed Amended and Restated Distribution and Shareholder
Services Plan between the Registrant and BISYS Fund Services.
(15)(c) Revised Schedule A to the Servicing Agreement with Branch
Banking and Trust Company and BISYS Fund Services.
(15)(d) Form of Revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund Services.
(27) Financial Data Schedules:
(a) U.S. Treasury Money Market (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)
</TABLE>
<PAGE> 210
(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)
<PAGE> 1
EXHIBIT (2)
BYLAWS, AMENDED AND RESTATED NOVEMBER 8, 1996
<PAGE> 2
BYLAWS
OF
BB&T MUTUAL FUNDS GROUP
AMENDED AND RESTATED NOVEMBER 8, 1996
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of BB&T Mutual Funds Group, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 RESIDENT AGENT OF THE TRUST. The Trust shall have an agent for
service of process residing in The Commonwealth of Massachusetts.
1.3 PRINCIPAL OFFICE OF THE TRUST. The initial principal office of the
Trust shall be located in Columbus, Ohio. The Trust may have such other offices
as the Trustees may determine or as they may authorize.
ARTICLE 2
Meetings of Trustees
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice immediately after and
at the same place as the annual meeting of the shareholders.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to the Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram, telex
or telecopy or other electronic facsimile transmission method at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before the meeting, is filed with the records of
the meeting, or to any Trustee who attends the
<PAGE> 3
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
ARTICLE 3
Officers
3.1 ENUMERATION: QUALIFICATION. The officers of the Trust shall be a
President, a Treasurer, and a Secretary who shall also be the Clerk, and such
other officers including a Chairman of the Trustees, if any, as the Trustees
from time to time may in their discretion elect. The Trust may also have such
agents as the Trustees from time to time may in their discretion appoint. The
Chairman of the Trustees, if one is elected, shall be a Trustee and may but need
not be a shareholder; and any other officer may but not need be a Trustee or a
shareholder. Any two or more offices may be held by the same person.
3.2 ELECTION. The President, the Treasurer, and the Secretary shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at said meeting or at any other time. Vacancies in any
office may be filled at any time.
3.3 TENURE. The Chairman of the Trustees, if one is elected, the
President, the Treasurer and the Secretary shall hold office until their
respective successors are chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed or becomes disqualified. Each other officer
shall hold office and each agent shall retain authority at the pleasure of the
Trustees.
3.4 POWERS. Subject to the other provisions of these Bylaws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the Chairman,
the President shall preside at all meetings of the shareholders and of the
Trustees. The President shall be the chief executive officer.
3.6 TREASURER. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or
-2-
<PAGE> 4
transfer, shareholder servicing or similar agent, be in charge of the valuable
papers, books of account and accounting records of the Trust, and shall have
such other duties and powers as may be designated from time to time by the
Trustees or by the President.
3.7 SECRETARY. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.8 RESIGNATIONS. Any officer may resign at any time by written
instrument signed by him or her and delivered to the Chairman, the President or
the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Trust,
no officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
ARTICLE 4
Committees
4.1 QUORUM; VOTING. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may participate in a
meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
-3-
<PAGE> 5
6.1 GENERAL. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 GENERAL. At the discretion of the Trustees, the Trust may have a
seal. The seal of the Trust, if any, shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 GENERAL. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President or by the Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him, in such form as shall be prescribed
from time to time by the Trustees. Such certificates shall be signed by the
President or any Vice-President and by the Treasurer or Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent, or by a registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he were such officer at the time of its issue.
-4-
<PAGE> 6
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 ISSUANCE OF NEW CERTIFICATES TO PLEDGEE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificates shall express on its face that it
is held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not effect the ownership
of shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 CERTAIN DEFINITIONS. When used herein the following words shall
have the following meanings: "Distributor" shall mean any one or more
corporations, firms or associations which have distributor's or principal
underwriter's contracts in effect with the Trust providing that redeemable
shares issued by the Trust shall be offered and sold by such Distributor.
"Manager" shall mean any corporation, firm or association which may at the time
have an advisory or management contract with the Trust and any corporation, firm
or association which may at any time have a sub-advisory contract relating to
the Trust with any such Manager.
10.2 LIMITATION ON HOLDINGS BY THE TRUST OF CERTAIN SECURITIES AND ON
DEALINGS WITH OFFICERS OR TRUSTEES. The Trust may not purchase or retain shares
or securities issued by an issuer if one or more of the holders of the shares or
securities issued by an issuer or one or more of the officers or directors of
such issuer is an officer or Trustee of the Trust or officer or director of the
Manager and if one or more of such officers, Trustees or directors owns
beneficially more than 1/2 of 1% of the shares or securities, or both, of such
issuer and such officers, Trustees and directors owning more than 1/2 of 1% of
such shares or securities together own beneficially more 5% of such shares or
securities. Each officer and Trustee of the Trust shall keep the Treasurer of
the Trust informed of the names of all issuers shares or securities of which are
held in the portfolio of the Trust in which such officer or Trustee owns as much
as 1/2 of 1% of the outstanding shares or securities.
The Trust will not lend any of its assets to the Distributor or Manager
or to any officer or director of the Distributor or Manager or any officer or
Trustee of the Trust, and shall not permit any officer or Trustee or any officer
or director of the Distributor or Manager to deal
-5-
<PAGE> 7
for or on behalf of the Trust with himself or herself as principal or agent, or
with any partnership, association or corporation in which he or she has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or officers and directors of the Distributor
or Manager from buying, holding or selling shares in the Trust or from being
partners, officers or directors of or otherwise financially interested in the
Distributor or the Manager; (b) purchases or sales of securities or other
property if such transaction is permitted by or is exempt or exempted from the
provisions of the Investment Company Act of 1940 or any Rule or Regulation
thereunder (together, the "1940 Act"); (c) employment of legal counsel,
registrar, transfer agent, shareholder servicing agent, dividend disbursing
agent or custodian who is, or has a partner, shareholder, officer or director
who is, an officer or Trustee of the Trust or an officer or director of the
Distributor or Manager; (d) sharing statistical, research, legal and management
expenses and office hire and expenses with any other investment company in which
an officer or Trustee of the Trust or an officer or director of the Distributor
or Manager is an officer or director or otherwise financially interested.
10.3 LIMITATION ON DEALING IN SECURITIES OF THE TRUST BY CERTAIN
OFFICERS, TRUSTEES, DISTRIBUTOR OR MANAGER. Neither the Distributor nor Manager,
nor any officer or Trustee of the Trust or officer or director of the
Distributor or Manager shall take long or short positions in securities issued
by the Trust; provided, however, that:
(a) the Distributor may purchase from the Trust and otherwise deal in
shares issued by the Trust pursuant to the terms of its contract
with the Trust;
(b) any officer or Trustee of the Trust or officer or director of the
Distributor or Manager or any trustee or fiduciary for the
benefit of any of them may at any time, or from time to time,
purchase from the Trust or from the Distributor shares issued by
the Trust at the price available to the public or to such
officer, Trustee, director, trustee or fiduciary, no such
purchase to be in contravention of any applicable state or
federal requirement; and
(c) the Distributor or the Manager may at any time, or from time to
time, purchase for investment shares issued by the Trust.
10.4 SECURITIES AND CASH OF THE TRUST TO BE HELD BY CUSTODIAN SUBJECT
TO CERTAIN TERMS AND CONDITIONS.
(a) All securities and cash owned by this Trust shall be held by or
deposited with one or more banks or trust companies having
(according to its last published report) not less than $5,000,000
aggregate capital, surplus and undivided profits (any such bank
or trust company being hereby designated as "Custodian"),
provided such a Custodian can be found ready and willing to act;
subject to such rules, regulations and orders, if any, as the
Securities and Exchange
-6-
<PAGE> 8
Commission may adopt, this Trust may, or may permit any Custodian
to, deposit all or any part of the securities owned by this Trust
in a system for the central handling of securities pursuant to
which all securities of any particular class or series of any
issue deposited within the system may be transferred or pledged
by bookkeeping entry, without physical delivery. The Custodian
may appoint, subject to the approval of the Trustees, one or more
subcustodians.
(b) The Trust shall enter into a written contract with each Custodian
regarding the powers, duties and compensation of such Custodian
with respect to the cash and securities of the Trust held by such
Custodian. Said contract and all amendments thereto shall be
approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve of any
Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve, use
its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by the Trust be
delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be found,
submit to the shareholders, before permitting delivery of
the cash and securities owned by the Trust otherwise than to
a successor Custodian, the question whether the Trust shall
be liquidated or shall function without a Custodian.
10.5 REQUIREMENTS AND RESTRICTIONS REGARDING THE MANAGEMENT CONTRACT.
Every advisory or management contract entered into by the Trust shall provide
that in the event that the total expenses of any series of shares of the Trust
for any fiscal year should exceed the limits imposed on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Trust are offered for sale, the compensation due the Manager
for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof.
10.6 REPORTS TO SHAREHOLDERS: DISTRIBUTIONS FROM REALIZED GAINS. The
Trust shall send to each shareholder of record at least semi-annually a
statement of the condition of the Trust and of the results of its operations,
containing all information required by applicable laws or regulations.
10.7 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset value per
share of each series of shares of the Trust shall mean: (i) the value of all the
assets of such series; (ii) less total liabilities of such series; (iii) divided
by the number of shares of such series outstanding,
-7-
<PAGE> 9
in each case at the time of each determination. The net asset value per share of
each series shall be determined as of the normal close of trading on the New
York Stock Exchange on each day on which such Exchange is open. As of any time
other than the normal close of trading on such Exchange, the Trustees may cause
the net asset value per share last determined to be determined again in a
similar manner or adjusted to reflect changes in market values of securities in
the portfolio, such adjustment to be made on the basis of changes in selected
security prices determined by the Trustees to be relevant to the portfolio of
such series or in averages or in other standard and readily ascertainable market
data, and the Trustees may fix the time when such redetermined or adjusted net
asset value per share of each series shall become effective.
In valuing the portfolio investments of any series for determination of
net asset value per share of such series, securities for which market quotations
are readily available shall be valued at prices which, in the opinion of the
Trustees or the person designated by the Trustees to make the determination,
most nearly represent the market value of such securities, and other securities
and assets shall be valued at their fair value as determined by or pursuant to
the direction of the Trustees, which in the case of short-term debt obligations,
commercial paper and repurchase agreements may, but need not, be on the basis of
quoted yields for securities of comparable maturity, quality and type, or on the
basis of amortized cost. Expenses and liabilities of the Trust shall be accrued
each day. Liabilities may include such reserves for taxes, estimated accrued
expenses and contingencies as the Trustees or their designates may in their sole
discretion deem fair and reasonable under the circumstances. No accruals shall
be made in respect of taxes on unrealized appreciation of securities owned
unless the Trustees shall otherwise determine. Dividends payable by the Trust
shall be deducted as at the time of but immediately prior to the determination
of net asset value per share on the record date therefor.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 VOTING POWERS. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Article IV, Section 1 of the
Declaration of Trust, PROVIDED, HOWEVER, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until such
time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in
Article IV, Section 6 of the Declaration of Trust to the extent required by the
1940 Act, (iii) with respect to any termination of this Trust to the extent and
as provided in Article IX, Section 4 of the Declaration of Trust, (iv) with
respect to any amendment of the Declaration of Trust to the extent and as
provided in Article IX, Section 7 of the Declaration of Trust, (v) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration of Trust, these Bylaws
-8-
<PAGE> 10
or any registration of the Trust with the Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable.
Shareholders holding at least 10% of the Trust's Shares shall have the right to
call a meeting to elect or remove one or more of the Trustees of the Trust.
Removal of one or more Trustees by Shareholder vote may be accomplished without
a showing of cause. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. The Shareholders of any particular
series or class shall not be entitled to vote on any matters as to which such
series or class is not affected. Except with respect to matters as to which the
Trustees have determined that only the interests of one or more particular
series are affected or as required by law, all of the Shares of each series or
class shall, on matters as to which it is entitled to vote, vote with other
series so entitled as a single class. Notwithstanding the foregoing, with
respect to matters which would otherwise be voted on by two or more series as a
single class, the Trustees may, in their sole discretion, submit such matters to
the Shareholders of any or all such series, separately. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, the Declaration of Trust or these Bylaws to be taken by
shareholders.
11.2 VOTING POWER AND MEETINGS. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 of the Declaration of Trust and for such other purposes as
may be prescribed by law, by the Declaration of Trust or by these Bylaws.
Meetings of the Shareholders may also be called by the Trustees from time to
time for the purpose of taking action upon any other matter deemed by the
Trustees to be necessary or desirable. A meeting of Shareholders may be held at
any place designated by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a meeting
is required to be given to a Shareholder under the Declaration of Trust or these
Bylaws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
11.3 QUORUM AND REQUIRED VOTE. A majority of Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where any provision of law or of the Declaration of Trust or these
Bylaws permits or requires that holders of any series shall vote as a series,
then a majority of the aggregate number of Shares of that series entitled to
vote shall be necessary to constitute a quorum for the transaction of
-9-
<PAGE> 11
business by that series. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by any provision of law or the Declaration
of Trust or these Bylaws, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, provided that where any
provision of law or of the Declaration of Trust or these Bylaws permits or
requires that the holders of any series shall vote as a series, then a majority
of the Shares of that series voted on the matter (or a plurality with respect to
the election of a Trustee) shall decide that matter insofar as that series is
concerned.
11.4 ACTION BY WRITTEN CONSENT. Any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of law or the Declaration of Trust or these Bylaws) consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
11.5 RECORD DATES. For the purpose of determining the shareholders who
are entitled to vote or act at any meeting or any adjournment thereof, or who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a time, which shall be not more than 90
days before the date of any meeting of shareholders or the date for the payment
of any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only shareholders of record on such record date shall have such
right notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 12
Amendments to the Bylaws
12.1 GENERAL. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
-10-
<PAGE> 1
EXHIBIT (5)(b)
SCHEDULE A TO THE INVESTMENT ADVISORY AGREEMENT BETWEEN
THE REGISTRANT AND BRANCH BANKING AND TRUST COMPANY
<PAGE> 2
Dated: January 2, 1997
Schedule A
to the
Investment Advisory Agreement between BB&T Mutual Funds Group
and Branch Banking & Trust Company
dated October 1, 1992
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of forty one-hundredths of one
Fund percent (.40%) of the BB&T U.S. Treasury
Money Market Fund's average daily net
assets.
The BB&T Short-Intermediate U.S. Annual rate of sixty one-hundredths of one
Government Income Fund percent (.60%) of the BB&T Short-
Intermediate U.S. Government Income Fund's
average daily net assets.
The BB&T Intermediate U.S. Annual rate of sixty one-hundredths of
Government Bond Fund one percent (.60%) of the BB&T
Intermediate U.S. Government Bond Fund's
average daily assets.
The BB&T Growth and Income Annual rate of seventy-four one-hundredths
Stock Fund of one percent (.74%) of the BB&T Growth
and Income Stock Fund's average daily net
assets.
The BB&T North Carolina Intermediate Annual rate of sixty one-hundredths of one
Tax-Free Fund percent (.60%) of the BB&T North Carolina
Intermediate Tax-Free Fund's average daily
net assets.
The BB&T Balanced Fund Annual rate of seventy-four one-hundredths
of one percent (.74%) of the BB&T Balanced
Fund's average daily net assets.
The BB&T Small Company Growth Annual rate of one percent (1.00%) of
Fund the BB&T Small Company Growth Fund's
average daily net assets.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T International Equity Fund Annual rate of one percent (1.00%)of the BB&T
International Equity Fund's average daily assets.
The BB&T Capital Manager Conservative Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital Manager
Conservative Growth Fund's average daily net assets.
The BB&T Capital Manager Moderate Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital
Manager Moderate Growth Fund's average
daily net assets.
The BB&T Capital Manager Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital Manager
Growth Fund's average daily net assets.
</TABLE>
BB&T MUTUAL FUNDS GROUP
By: /s/ Richard B. Ille
--------------------------
BRANCH BANKING AND
TRUST COMPANY
By: /s/ E.G. Purcell, III
--------------------------
- ----------------
* All fees are computed daily and paid monthly.
A-2
<PAGE> 1
EXHIBIT(5)(c)
FORM OF REVISED SCHEDULE A TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN THE REGISTRANT AND BRANCH BANKING AND TRUST COMPANY
<PAGE> 2
Dated: ________, 1997
Schedule A
to the
Investment Advisory Agreement between BB&T Mutual Funds Group
and Branch Banking & Trust Company
dated October 1, 1992
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of forty one-hundredths of one
Fund percent (.40%) of the BB&T U.S. Treasury
Money Market Fund's average daily net
assets.
The BB&T Short-Intermediate U.S. Annual rate of sixty one-hundredths of one
Government Income Fund percent (.60%) of the BB&T Short-
Intermediate U.S. Government Income Fund's
average daily net assets.
The BB&T Intermediate U.S. Annual rate of sixty one-hundredths of
Government Bond Fund one percent (.60%) of the BB&T
Intermediate U.S. Government Bond Fund's
average daily assets.
The BB&T Growth and Income Annual rate of seventy-four one-hundredths
Stock Fund of one percent (.74%) of the BB&T Growth
and Income Stock Fund's average daily net
assets.
The BB&T North Carolina Intermediate Annual rate of sixty one-hundredths of one
Tax-Free Fund percent (.60%) of the BB&T North Carolina
Intermediate Tax-Free Fund's average daily
net assets.
The BB&T Balanced Fund Annual rate of seventy-four one-hundredths
of one percent (.74%) of the BB&T Balanced
Fund's average daily net assets.
The BB&T Small Company Growth Annual rate of one percent (1.00%) of
Fund the BB&T Small Company Growth Fund's
average daily net assets.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T International Equity Fund Annual rate of one percent (1.00%)of the BB&T
International Equity Fund's average daily assets.
The BB&T Capital Manager Conservative Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital Manager
Conservative Growth Fund's average daily net assets.
The BB&T Capital Manager Moderate Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital
Manager Moderate Growth Fund's average
daily net assets.
The BB&T Capital Manager Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the BB&T Capital Manager
Growth Fund's average daily net assets.
The BB&T Prime Money Market Fund Annual rate of forty one-hundreths of one percent
(.40%) of the BB&T Prime Money Market Fund's
average daily net assets.
</TABLE>
BB&T MUTUAL FUNDS GROUP
By:
--------------------------
BRANCH BANKING AND
TRUST COMPANY
By:
--------------------------
- ----------------
* All fees are computed daily and paid monthly.
A-2
<PAGE> 1
EXHIBIT (5)(F)
SUB-ADVISORY AGREEMENT BETWEEN BRANCH BANKING AND TRUST COMPANY
AND CASTLEINTERNATIONAL ASSET MANAGEMENT LIMITED
<PAGE> 2
SUB-ADVISORY AGREEMENT
(International Equity Fund)
AGREEMENT made as of January 2, 1997 between BRANCH BANKING & TRUST
COMPANY, a state chartered bank with its principal office in Wilson, North
Carolina (the "Adviser"), and CASTLEINTERNATIONAL ASSET MANAGEMENT LIMITED, a
U.K. corporation registered under the U.S. Investment Advisers Act of 1940, as
amended, and a member of the Investment Management Regulatory Organization
("IMRO") and regulated by IMRO in the conduct of its affairs ("Sub-Adviser").
WHEREAS, BB&T Mutual Funds Group, a Massachusetts business trust (the
"Trust"), is registered as an open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to the
Trust's International Equity Fund (the "Fund");
WHEREAS, the Adviser desires to retain Sub-Adviser to assist it in the
provision of a continuous investment program for the Fund and Sub-Adviser is
willing to furnish such services upon the terms and conditions herein set forth;
and
WHEREAS, the Board of Directors of the Fund has approved this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. (a) The Adviser hereby appoints Sub-Adviser to act as
sub-adviser to the Fund as permitted by the Adviser's Advisory Agreement with
the Trust pertaining to the Fund. Intending to be legally bound, Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
(b) Adviser acknowledges that the services to be provided by
Sub-Adviser hereunder will be provided on the basis that the Fund is a
non-private customer as defined in the rules of IMRO.
2. SUB-ADVISORY SERVICES. Subject to the supervision of the Trust's
Board of Directors, Sub-Adviser will assist the Adviser in providing a
continuous investment program for the Fund, including research and management
with respect to all securities and investments and cash equivalents in the Fund.
Sub-Adviser will provide services under this Agreement in accordance with the
Fund's investment objective, policies and restrictions as stated in the Fund's
prospectuses and resolutions of the Trust's Board of Directors applicable to the
Fund. Adviser
<PAGE> 3
hereby undertakes to provide Sub-Adviser with copies of such prospectuses and
resolutions as the same become available from time to time.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will:
(a) prepare, subject to the Adviser's approval, lists of
foreign countries for investment by the Fund and determine from time to time
what securities and other investments will be purchased, retained or sold for
the Fund, including, with the assistance of the Adviser, the Fund's investments
in futures and forward currency contracts; PROVIDED, HOWEVER, that Sub-Adviser
shall not be responsible for taking action with respect to any proxies, notices,
reports or other communications relating to any of the Fund's portfolio
securities;
(b) manage in consultation with the Adviser the Fund's
temporary investments in securities;
(c) place orders for the Fund either directly with the issuer
or with any broker or dealer;
(d) provide, at Sub-Adviser's expense, using one or more
pricing services believed by Sub-Adviser to be reliable, the value of the
portfolio securities and other assets of the Fund in accordance with the 1940
Act, the Fund's current prospectuses and applicable resolutions of the Board of
Directors of the Trust on each day that the Fund's assets are required to be
valued; such information to be transmitted by telephone, telecopy or other
transmission as soon as possible and in any event within 24 hours of the time of
valuation to the Fund's accountant, or to such other person(s) as the Adviser
may direct for the benefit of the Fund;
(e) manage the Fund's overall cash position, and determine
from time to time what portion of the Fund's assets will be held in different
currencies;
(f) provide the Adviser with foreign broker research, a
quarterly review of international economic and investment developments, and
occasional "White Papers" on international investment issues;
(g) attend regular business and investment-related meetings
with the Trust's Board of Directors and the Adviser if requested to do so by the
Trust and/or the Adviser; and
(h) maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and the Trust's Board of
Directors such periodic and special reports as they may request with respect to
the Fund, and provide in advance to the Adviser all reports to the Board of
Directors for examination and review within a reasonable time prior to the
Trust's Board meetings. Adviser hereby undertakes to provide Sub-Adviser with at
least fourteen days prior written notice of the date, time and location of all
of the Trust's Board meetings pertaining to the Fund.
-2-
<PAGE> 4
3. SUBCONTRACTORS. It is understood that Sub-Adviser may from time to
time engage or associate itself with such person or persons as Sub-Adviser may
believe to be particularly fitted to assist Sub-Adviser in the performance of
certain ministerial or administrative services required by this Agreement;
PROVIDED, HOWEVER, that such person or persons shall have been approved by the
Board of Directors of the Trust, that the compensation of such person or persons
shall be paid by Sub-Adviser and that Sub-Adviser shall be as fully responsible
to the Adviser and the Trust for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
4. COVENANTS BY SUB-ADVISER. Sub-Adviser agrees with respect to the
services provided to the Fund that it:
(a) will conform with all Rules and Regulations of the
Securities and Exchange Commission ("SEC") applicable to it and will also
conform with all Rules and Regulations of IMRO;
(b) will telecopy trade information to the Adviser on the
first business day following the day of the trade and cause broker confirmations
to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Fund and prior,
present or potential shareholders, and will not use such records and information
for any purpose other then performance of its responsibilities and duties
hereunder (except after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
and will be deemed granted where Sub-Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust).
5. SERVICES NOT EXCLUSIVE.
(a) The services furnished by Sub-Adviser hereunder are deemed
not to be exclusive, and nothing in this Agreement shall (i) prevent Sub-Adviser
or any affiliated person (as defined in the 1940 Act) of Sub-Adviser from acting
as investment adviser or manager for any other person or persons, including
other management investment companies with investment objectives and policies
the same as or similar to those of the Fund or (ii) limit or restrict
Sub-Adviser or any such affiliated person from buying selling or trading any
securities or other investments (including any securities or other investments
which the Fund is eligible to buy) for its or their own accounts or for the
account of others for whom it or they may be acting; PROVIDED, HOWEVER, that
Sub-Adviser agrees that it will not undertake any activities which, in its
reasonable judgement, will adversely affect the performance of its obligations
to the Fund under this Agreement.
-3-
<PAGE> 5
(b) Nothing contained herein, however, shall prohibit
Sub-Adviser from advertising or soliciting the public generally with respect to
products or services, regardless of whether such advertisement or solicitation
may include prior, present or potential shareholders of the Trust.
6. PORTFOLIO TRANSACTIONS. Investment decisions for the Fund shall be
made by Sub-Adviser independently from those for any other investment companies
and accounts advised or managed by Sub-Adviser. The Fund and such investment
companies and accounts may, however, invest in the same securities. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and/or another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which Sub-Adviser believes to be equitable to the Fund and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund. To the extent permitted by
law, Sub-Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Fund's policies and restrictions regarding brokerage allocations.
Sub-Adviser shall place orders pursuant to its investment determination for the
Fund either directly with the issuer or with any broker or dealer selected by
Sub-Adviser. In executing portfolio transactions and selecting brokers or
dealers, Sub-Adviser shall use its reasonable best efforts to seek the most
favorable execution of orders, after taking into account all factors Sub-Adviser
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this obligation,
Sub-Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers and dealers who provide brokerage and research
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934) to or for the benefit of the Fund and/or other accounts over which
Sub-Adviser or any of its affiliates exercises investment discretion.
Sub-Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Sub-Adviser's overall responsibilities to the Fund and to the Trust. In no
instance will portfolio securities be purchased from or sold to Sub-Adviser, or
the Fund's principal underwriter, or any affiliated person thereof except as
permitted by the Securities and Exchange Commission.
-4-
<PAGE> 6
7. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request;
PROVIDED, HOWEVER, that the Sub-Adviser may take and retain photocopies of such
records in order to comply with applicable regulatory requirements. Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the Act.
8. EXPENSES. During the term of this Agreement, Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
9. COMPENSATION. For the services provided and the expenses assumed
with respect to the Fund pursuant to this Agreement, Sub-Adviser will be
entitled to a fee, computed daily and payable quarterly, from the Adviser,
calculated at the annual rate of .50% of the Fund's first $50 million of average
daily net assets; .45% of the Fund's next $50 million of average daily net
assets; and .40% of the Fund's average daily net assets in excess of $100
million. If the fee payable to the Sub-Adviser pursuant to this paragraph begins
to accrue after the beginning of any calendar quarter or if this Agreement
terminates before the end of any calendar quarter, the fee for the period from
such date to the end of such calendar quarter or from the beginning of such
calendar quarter to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full
calendar quarter in which such effectiveness or termination occurs. For purposes
of calculating fees, the value of a Fund's net assets shall be computed in the
manner specified in the Prospectus and the Trust's Declaration of Trust for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of the Fund's shares. Payment of said
compensation shall be the sole responsibility of the Adviser and shall in no way
be an obligation of the Fund or of the Trust.
10. LIMITATION OF LIABILITY.
(a) The Sub-Adviser shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Adviser, the Trust
or the Fund in connection with the matters to which this Agreement relates,
except that Sub-Adviser shall be liable to the Adviser for a loss resulting from
a breach of fiduciary duty by Sub-Adviser under the 1940 Act with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Sub-Adviser in the
performance of its duties or from reckless disregard by it of its obligations or
duties under this Agreement. In no case shall the Sub-Adviser be liable for
actions taken or non-actions with respect to the performance of services under
this Agreement based upon specific information, instructions or requests given
or made to the Sub-Adviser by the Adviser.
-5-
<PAGE> 7
(b) The Adviser shall be responsible at all times for
supervising the Sub-Adviser, and this Agreement does not in any way limit the
duties and responsibilities that the Adviser has agreed to under the Advisory
Agreement.
11. REFERENCE TO SUB-ADVISER. Neither the Adviser not any affiliate or
agent of it shall make reference to or use the name of Sub-Adviser or any of its
affiliates, or any of their clients, except references concerning the identity
of any services provided by Sub-Adviser to the Fund, which references shall not
differ in substance from those included in the current registration statement
pertaining to the Fund, this Agreement and the Advisory Agreement between the
Adviser and the Trust with respect to the Fund, in any advertising or
promotional materials without the prior approval of Sub-Adviser, which approval
shall not be unreasonably withheld or delayed. The Adviser hereby agrees to make
all reasonable efforts to cause the Trust and any affiliate thereof to satisfy
the foregoing obligation.
12. DURATION AND TERMINATION. Unless sooner terminated, this Agreement
shall continue until December 31, 1997 and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by the Trust's Board of Directors or
vote the lesser of (a) 67% of the shares of the Fund represented at a meeting if
holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Trust's Directors who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable at any
time without penalty, on 60 days' prior written notice, by Adviser, Sub-Adviser
or the Trust's Board of Directors or by vote of the lesser of (a) 67% of the
shares of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to the Fund until approved by the vote of a majority of
the outstanding voting securities of the Fund.
14. NOTICE. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Sub-Adviser at:
------------------
125 S. Wacker Drive
Suite 300
-6-
<PAGE> 8
Chicago, IL 60606
and
7 Castle Street
Edinburgh, EH2 3AH
United Kingdom
To the Adviser at:
------------------
434 Fayetteville Street Mall
Raleigh, NC 27611
To the Trust at:
----------------
3435 Stelzer Road
Columbus, OH 43219
15. MISCELLANEOUS; COMPLAINTS.
(a) The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
(b) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
shall be governed by Massachusetts law.
(c) The names "BB&T Mutual Funds Group" and
"Trustees of BB&T Mutual Funds Group" refer respectively to the Trust created
and the Trustees, as trustees but not individually or personally, acting from
time to time under an Agreement and Declaration of Trust dated as of October 1,
1987 to which reference is hereby made and a copy of which is on file at the
office of the Secretary of the Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "BB&T Mutual Funds Group" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any series of shares of
the Trust must look solely to the assets of the Trust belonging to such series
for the enforcement of any claims against the Trust.
-7-
<PAGE> 9
(d) All formal complaints should in the first
instance be made in writing to the Sub-Adviser's Compliance Officer at 7 Castle
Street, Edinburgh, EH2 3AH, United Kingdom, fax number 44 131 6248151. In
addition, Adviser has the right to complain directly to IMRO.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-8-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BRANCH BANKING & TRUST COMPANY
BY: /S/ David McMahon
--------------------------
CASTLEINTERNATIONAL ASSET
MANAGEMENT LIMITED
BY: /S/ Douglas B. Waggoner
--------------------------
-9-
<PAGE> 1
EXHIBIT (5)(G)
SUB-ADVISORY AGREEMENT BETWEEN BRANCH BANKING
AND TRUST COMPANY AND PNC EQUITY ADVISORS COMPANY
<PAGE> 2
SUB-ADVISORY AGREEMENT
AGREEMENT dated as of February 13, 1997, between Branch Banking & Trust
Company, a state chartered bank with its principal office in Wilson, North
Carolina (herein called the "Investment Adviser") and PNC Equity Advisors
Company, a Delaware corporation with an office in Philadelphia, Pennsylvania
(herein called the "Sub-Adviser").
WHEREAS, the Investment Adviser is the investment adviser to BB&T
Mutual Funds Group, a Massachusetts business trust (herein called the "Trust"),
an open-end management investment company registered under the Investment
Company Act of 1940, as amended ("40 Act"); and
WHEREAS, the Investment Adviser wishes to retain the Sub-Adviser to
assist the Investment Adviser in providing investment advisory services in
connection with such portfolios of the Trust as now or hereafter may be
identified on Schedule A hereto as such Schedule may be amended from time to
time with the consent of the parties hereto (each herein called a "Fund").
WHEREAS, the Sub-Adviser is willing to provide such services to the
Investment Adviser upon the terms and conditions and for the compensation set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. APPOINTMENT. the Investment Adviser hereby appoints the Sub-Adviser
its sub-adviser with respect to the Fund as provided for in the Investment
Advisory Agreement between the Investment Adviser and the Trust dated as of
October 1, 1992 (such Agreement or the most recent successor advisory agreement
between such parties is herein called the "Advisory Agreement"). The Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Investment Adviser shall provide to the
Sub-Adviser copies of the Trust's most recent prospectus and statement of
additional information (including supplement thereto) which relate to any class
of shares representing interests in the Fund (each such prospectus and statement
of additional information as presently in effect, and as they shall from time to
time be amended and supplemented, is herein respectively called a "Prospectus"
and a "Statement of Additional Information").
3. SUB-ADVISORY SERVICES TO THE FUNDS.
<PAGE> 3
(a) Subject to the supervision of the Investment Adviser, the
Sub-Adviser will supervise the day-to-day operations of the Fund and perform the
following services: (i) provide investment research and credit analysis
concerning the Fund's investments; (ii) conduct a continual program of
investment of the Fund's assets; (iii) place orders for all purchases and sales
of the investments made for the Fund; (iv) maintain the books and records
required in connection with its duties hereunder; and (v) keep the Investment
Adviser informed of developments materially affecting the Fund.
(b) The Sub-Adviser will use the same skill and care in
providing such services as it uses in providing services to fiduciary accounts
for which it has investment responsibilities; provided that, notwithstanding
this Paragraph 3(b), the liability of the Sub-Adviser for actions taken and
non-actions with respect to the performance of services under this Agreement
shall be subject to the limitations set forth in Paragraph 11(a) of this
Agreement.
(c) The Sub-Adviser will communicate to the Investment Adviser
and to the Trust's custodian and Fund accountants as instructed by the
Investment Adviser on each day that a purchase or sale of a security is effected
for the Fund (i) the name of the issuer, (ii) the amount of the purchase or
sale, (iii) the name of the broker or dealer, if any, through which the purchase
or sale will be affected, (iv) the CUSIP number of the security, if any, and (v)
such other information as the Investment Adviser may reasonably require for
purposes of fulfilling its obligations to the Trust under the Advisory
Agreement.
(d) The Sub-Adviser will provide the services rendered by it
hereunder in accordance with the Fund's investment objectives, policies and
restrictions as stated in the Prospectus and Statement of Additional
Information.
(e) The Sub-Adviser will not make loans to any person to
purchase or carry shares in the Trust or make loans to the Trust.
(f) The Sub-Adviser will maintain records of the information
set forth in Paragraph 3(c) hereof with respect to the securities transactions
of the Fund and will furnish the Trust's Board of Trustees with such periodic
and special reports as the Board may reasonably request.
(g) The Sub-Adviser will promptly review all (1) reports of
current security holdings in the Fund, (2) summary reports of transactions and
pending maturities (including the principal, cost and accrued interest on each
portfolio security in maturity date order) and (3) current cash position reports
(including cash available from portfolio sales and maturities and sales of the
Fund's shares less cash needed for redemptions and settlement of portfolio
purchases), all within a reasonable time after receipt thereof from the Trust
and will report any errors or discrepancies in such reports to the Trust or its
designee within three (3) business days after discovery of such discrepancies.
-2-
<PAGE> 4
4. BROKERAGE. The Sub-Adviser may place orders pursuant to its
investment determinations for the Fund either directly with the issuer or with
any broker or dealer. In placing orders, the Sub-Adviser will consider the
experience and skill of the firm's securities traders, as well as the firm's
financial responsibility and administrative efficiency. The Sub-Adviser will
attempt to obtain the best price and the most favorable execution of its orders.
Consistent with these obligations, the Sub-Adviser may, subject to the approval
of the Board of Trustees of the Trust, select brokers on the basis of the
research, statistical and pricing services they provide to the Fund. A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that the
Sub-Adviser determines in good faith that such transaction is reasonable in
terms either of the transaction or the overall responsibility of the Sub-Adviser
to the Fund and its other clients and that the total commissions paid by the
Fund will be reasonable in relation to the benefits in the Fund over the long
term. In no instance will portfolio securities be purchased from or sold to the
Trust's principal distributor, the Investment Adviser or any affiliate thereof
(as the term "affiliate" is defined in the 40 Act), except to the extent
permitted by SEC exemptive order or by applicable law.
5. COMPLIANCE WITH LAWS: CONFIDENTIALITY: CONFLICTS OF INTEREST.
(a) The Sub-Adviser agrees that it will comply with all
applicable laws, rules and regulations of all federal and state regulatory
agencies having jurisdiction over the Sub-Adviser in performance of its duties
hereunder (herein called the "Rules").
(b) The Sub-Adviser will treat confidentially and as
proprietary information of the Trust all records and information relative to the
Trust and prior, present or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Sub-Adviser may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
(c) The Sub-Adviser will maintain a policy and practice of
conducting sub-advisory services hereunder independently of the banking
operations of its affiliates. In making investment recommendations for the Fund,
the Sub-Adviser's personnel will not inquire or take into consideration whether
the issuers of securities proposed for purchase or sale for the Fund's account
are bank customers of the Sub-Adviser's affiliates unless so required by
applicable law. In dealing with their bank customers, affiliates of Sub-Adviser
will not inquire or take into consideration whether securities of those
customers are held by the Fund.
6. CONTROL BY TRUST'S BOARD OF TRUSTEES. Any recommendations concerning
the Fund's investment program proposed by the Sub-Adviser to the Fund and the
Investment
-3-
<PAGE> 5
Adviser pursuant to this Agreement, as well as any other activities undertaken
by the Sub-Adviser on behalf of the Fund pursuant thereto shall at all times be
subject to any applicable directives of the Board of Trustees of the Trust.
7. SERVICES NOT EXCLUSIVE. The Sub-Adviser's services hereunder are not
deemed to be exclusive, and the Sub-Adviser shall be free to render similar or
dissimilar services to others so long as its services under this Agreement are
not impaired thereby.
8. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
of the Rules, and any other applicable Rule, the Sub-Adviser hereby agrees that
all records which it maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust any such records upon the
Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 and any other applicable Rule, the records required to
be maintained by the Sub-Adviser hereunder pursuant to Rule 31a-1 and any other
applicable Rule.
9. EXPENSES. During the term of this Agreement, the Sub-Adviser will
bear all expenses incurred by it in connection with the performance of its
services under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Fund. Notwithstanding the
foregoing, the Sub-Adviser shall not bear expenses related to the operation of
the Trust or any Fund including, but not limited to, taxes, interest, brokerage
fees and commissions and any extraordinary expense items.
10. COMPENSATION.
(a) For the services provided and the expenses assumed
pursuant to this Agreement, the Investment Adviser will pay the Sub-Adviser and
the Sub-Adviser will accept as full compensation therefor a fee computed daily
and paid monthly in arrears on the first business day of each month equal to the
lesser of (i) the fee at the applicable annual rates set forth on Schedule A
hereto or (ii) such fee as may from time to time be agreed upon in writing by
the Investment Adviser and the Sub-Adviser. If the fee payable to the
Sub-Adviser pursuant to this paragraph begins to accrue after the beginning of
any month or if this Agreement terminates before the end of any month, the fee
for the period from such date to the end of such month or from the beginning of
such month to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full month in which
such effectiveness or termination occurs. For purposes of calculating fees, the
value of a Fund's net assets shall be computed in the manner specified in the
Prospectus and the Trust's Declaration of Trust for the computation of the value
of the Fund's net assets in connection with the determination of the net asset
value of the Fund's shares. Payment of said compensation shall be the sole
responsibility of the Investment Adviser and shall in no way be an obligation of
the Fund or of the Trust.
-4-
<PAGE> 6
(b) The obligation of the Investment Adviser to pay the above
described fee to the Sub-Adviser will begin as of the first to occur of (i) the
conversion of trust funds or other bank assets to the Fund, (ii) the date of the
initial public sale of shares of the Fund.
11. LIMITATION OF LIABILITY.
(a) The Sub-Adviser shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Investment Adviser,
the Trust or the Fund in connection with the matters to which Agreement relates,
except that Sub-Adviser shall be liable to the Investment Adviser for a loss
resulting from a breach of fiduciary duty by Sub-Adviser under the 40 Act with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Sub-Adviser in
the performance of its duties or from reckless disregard by it of its
obligations or duties under this Agreement. In no case shall the Sub-Adviser be
liable for actions taken or non-actions with respect to the performance of
services under this Agreement based upon specific information, instructions or
requests given or made to the Sub-Adviser by the Investment Adviser.
(b) The Investment Adviser shall be responsible at all times
for supervising the Sub-Adviser, and this Agreement does not in any way limit
the duties and responsibilities that the Investment Adviser has agreed to under
the Advisory Agreement.
12. DURATION AND TERMINATION. This Agreement shall become effective as
of the date hereof provided that it shall have been approved by vote of a
majority of the outstanding voting securities of the Fund and, unless sooner
terminated as provided herein, shall continue with respect to the Fund until
September 30, 1997. Thereafter, if not terminated, this Agreement shall continue
in effect for successive 12-month periods ending on September 30th of each year,
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of those members of the Board of Trustees of the Trust who
are not parties to this Agreement or interested persons of the Trust or any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Trustees of the Trust or by vote of a majority
of the outstanding voting securities of the Fund; PROVIDED, HOWEVER, that this
Agreement may be terminated with respect to the Fund (i) by the Trust at any
time without the payment of any penalty by the Board of Trustees of the Trust,
(ii) by vote of a majority of the outstanding voting securities of the Fund,
(iii) by the Investment Adviser on 60 days written notice to the Sub-Adviser or
(iv) by the Sub-Adviser on 60 days written notice to the Investment Adviser.
This Agreement will also immediately terminate in the event of its assignment.
(As used in this Agreement, the terms "majority of the outstanding voting
securities", "interested person" and "assignment" shall have the same meaning as
such terms have in the 40 Act.)
-5-
<PAGE> 7
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any provisions
hereof or otherwise affect their construction or effect. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be effected thereby.
This Agreement shall be binding upon and shall inure to the benefit of the
parties herein and their respective successors and shall be governed by
Massachusetts law.
The names "BB&T Mutual Funds Group" and Trustees of BB&T Mutual Funds
Group" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of October 1, 1987 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
The Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "BB&T
Mutual Funds Group" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
(SEAL) Branch Banking & Trust Company
By: David C. McMahon
_______________________________
Title: Senior Vice President
(SEAL) PNC Equity Advisors Company
By: Ernest E. Cecilia
_______________________________
Title: President & CEO
-6-
<PAGE> 8
SCHEDULE A
TO SUB-ADVISORY AGREEMENT DATED AS OF FEBRUARY 13, 1997 BETWEEN BRANCH BANKING &
TRUST COMPANY AND PNC EQUITY ADVISORS COMPANY.
NAME OF FUND COMPENSATION
- ------------ ------------
BB&T Small Company Growth Fund .50% of the Fund's first $50 million of
average daily net assets; .45% of the Fund's
next $50 million of average daily net
assets; and .40% of the Fund's average
daily net assets in excess of $100 million.
Consented to by:
Date 2/12/97 Branch Banking & Trust Company
By: David C. McMahon
_______________________________________
Date: 2/11/97 PNC Equity Advisors Company
By: Ernest E. Cecilia
_______________________________________
A-1
<PAGE> 1
EXHIBIT (5)(H)
FORM OF SUB-ADVISORY AGREEMENT BETWEEN BRANCH BANKING AND TRUST COMPANY
AND PNC INSTITUTIONAL MANAGEMENT CORPORATION
<PAGE> 2
FORM OF SUB-ADVISORY AGREEMENT
AGREEMENT dated as of _____________, 199__, between Branch Banking &
Trust Company, a state chartered bank with its principal office in Wilson, North
Carolina (herein called the "Investment Adviser") and PNC Institutional
Management Corporation, a Delaware corporation with an office in Wilmington,
Delaware (herein called the "Sub-Adviser").
WHEREAS, the Investment Adviser is the investment adviser to BB&T
Mutual Funds Group, a Massachusetts business trust (herein called the "Trust"),
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "40 Act"); and
WHEREAS, the Investment Adviser wishes to retain the Sub-Adviser to
assist the Investment Adviser in providing investment advisory services in
connection with such portfolios of the Trust as now or hereafter may be
identified on Schedule A hereto as such Schedule may be amended from time to
time with the consent of the parties hereto (each herein called a "Fund").
WHEREAS, the Sub-Adviser is willing to provide such services to the
Investment Adviser upon the terms and conditions and for the compensation set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. APPOINTMENT. the Investment Adviser hereby appoints the Sub-Adviser
its sub-adviser with respect to the Fund as provided for in the Investment
Advisory Agreement between the Investment Adviser and the Trust dated as of
October 1, 1992 (such Agreement or the most recent successor advisory agreement
between such parties is herein called the "Advisory Agreement"). The Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Investment Adviser shall provide to the
Sub-Adviser copies of the Trust's most recent prospectus and statement of
additional information (including supplement thereto) which relate to any class
of shares representing interests in the Fund (each such prospectus and statement
of additional information as presently in effect, and as they shall from time to
time be amended and supplemented, is herein respectively called a "Prospectus"
and a "Statement of Additional Information").
3. SUB-ADVISORY SERVICES TO THE FUNDS.
<PAGE> 3
(a) Subject to the supervision of the Investment Adviser, the
Sub-Adviser will supervise the day-to-day operations of the Fund and perform the
following services: (i) provide investment research and credit analysis
concerning the Fund's investments; (ii) conduct a continual program of
investment of the Fund's assets; (iii) place orders for all purchases and sales
of the investments made for the Fund; (iv) maintain the books and records
required in connection with its duties hereunder; and (v) keep the Investment
Adviser informed of developments materially affecting the Fund.
(b) The Sub-Adviser will use the same skill and care in
providing such services as it uses in providing services to accounts for which
it has investment responsibilities; provided that, notwithstanding this
Paragraph 3(b), the liability of the Sub-Adviser for actions taken and
non-actions with respect to the performance of services under this Agreement
shall be subject to the limitations set forth in Paragraph 11(a) of this
Agreement.
(c) The Sub-Adviser will communicate to the Investment Adviser
and to the Trust's custodian and Fund accountants as instructed by the
Investment Adviser on each day that a purchase or sale of a security is effected
for the Fund (i) the name of the issuer, (ii) the amount of the purchase or
sale, (iii) the name of the broker or dealer, if any, through which the purchase
or sale will be affected, (iv) the CUSIP number of the security, if any, and (v)
such other information as the Investment Adviser may reasonably require for
purposes of fulfilling its obligations to the Trust under the Advisory
Agreement.
(d) The Sub-Adviser will provide the services rendered by it
hereunder in accordance with the Fund's investment objectives, policies and
restrictions as stated in the Prospectus and Statement of Additional
Information.
(e) The Sub-Adviser will maintain records of the information
set forth in Paragraph 3(c) hereof with respect to the securities transactions
of the Fund and will furnish the Trust's Board of Trustees with such periodic
and special reports as the Board may reasonably request.
(f) The Sub-Adviser will promptly review all (1) reports of
current security holdings in the Fund, (2) summary reports of transactions and
pending maturities (including the principal, cost and accrued interest on each
portfolio security in maturity date order) and (3) current cash position reports
(including cash available from portfolio sales and maturities and sales of the
Fund's shares less cash needed for redemptions and settlement of portfolio
purchases), all within a reasonable time after receipt thereof from the Trust
and will report any errors or discrepancies in such reports to the Trust or its
designee within three (3) business days after discovery of such discrepancies.
4. BROKERAGE. The Sub-Adviser may place orders pursuant to its
investment determinations for the Fund either directly with the issuer or with
any broker or dealer. In
-2-
<PAGE> 4
placing orders, the Sub-Adviser will consider the experience and skill of the
firm's securities traders, as well as the firm's financial responsibility and
administrative efficiency. The Sub-Adviser will attempt to obtain the best price
and the most favorable execution of its orders. Consistent with these
obligations, the Sub-Adviser may, subject to the approval of the Board of
Trustees of the Trust, select brokers on the basis of the research, statistical
and pricing services they provide to the Fund. A commission paid to such brokers
may be higher than that which another qualified broker would have charged for
effecting the same transaction, provided that the Sub-Adviser determines in good
faith that such transaction is reasonable in terms either of the transaction or
the overall responsibility of the Sub-Adviser to the Fund and its other clients
and that the total commissions paid by the Fund will be reasonable in relation
to the benefits in the Fund over the long term. In no instance will portfolio
securities be purchased from or sold to the Trust's principal distributor, the
Investment Adviser or any affiliate thereof (as the term "affiliate" is defined
in the 40 Act), except to the extent permitted by SEC exemptive order or by
applicable law.
5. COMPLIANCE WITH LAWS: CONFIDENTIALITY: CONFLICTS OF INTEREST.
(a) The Sub-Adviser agrees that it will comply with all
applicable laws, rules and regulations of all federal and state regulatory
agencies having jurisdiction over the Sub-Adviser in performance of its duties
hereunder (herein called the "Rules").
(b) The Sub-Adviser will treat confidentially and as
proprietary information of the Trust all records and information relative to the
Trust and prior, present or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Sub-Adviser may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
(c) The Sub-Adviser will maintain a policy and practice of
conducting sub-advisory services hereunder independently of the banking
operations of its affiliates. In making investment recommendations for the Fund,
the Sub-Adviser's personnel will not inquire or take into consideration whether
the issuers of securities proposed for purchase or sale for the Fund's account
are bank customers of the Sub-Adviser's affiliates unless so required by
applicable law. In dealing with their bank customers, affiliates of Sub-Adviser
will not inquire or take into consideration whether securities of the customers
of the Sub-Adviser's affiliates that are banks are held by the Fund.
6. CONTROL BY TRUST'S BOARD OF TRUSTEES. Any recommendations concerning
the Fund's investment program proposed by the Sub-Adviser to the Fund and the
Investment Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-
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<PAGE> 5
Adviser on behalf of the Fund pursuant thereto shall at all times be subject to
any applicable directives of the Board of Trustees of the Trust.
7. SERVICES NOT EXCLUSIVE. The Sub-Adviser's services hereunder are not
deemed to be exclusive, and the Sub-Adviser shall be free to render similar or
dissimilar services to others so long as its services under this Agreement are
not impaired thereby.
8. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
of the Rules, and any other applicable Rule, the Sub-Adviser hereby agrees that
all records which it maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust any such records upon the
Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 and any other applicable Rule, the records required to
be maintained by the Sub-Adviser hereunder pursuant to Rule 31a-1 and any other
applicable Rule.
9. EXPENSES. During the term of this Agreement, the Sub-Adviser will
bear all expenses incurred by it in connection with the performance of its
services under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Fund. Notwithstanding the
foregoing, the Sub-Adviser shall not bear expenses related to the operation of
the Trust or any Fund including, but not limited to, taxes, interest, brokerage
fees and commissions and any extraordinary expense items.
10. COMPENSATION.
For the services provided and the expenses assumed pursuant to
this Agreement, the Investment Adviser will pay the Sub-Adviser and the
Sub-Adviser will accept as full compensation therefor a fee computed daily and
paid monthly in arrears on the first business day of each month equal to the
lesser of (i) the fee at the applicable annual rates set forth on Schedule A
hereto or (ii) such fee as may from time to time be agreed upon in writing by
the Investment Adviser and the Sub-Adviser. If the fee payable to the
Sub-Adviser pursuant to this paragraph begins to accrue after the beginning of
any month or if this Agreement terminates before the end of any month, the fee
for the period from such date to the end of such month or from the beginning of
such month to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full month in which
such effectiveness or termination occurs. For purposes of calculating fees, the
value of a Fund's net assets shall be computed in the manner specified in the
Prospectus and the Trust's Declaration of Trust for the computation of the value
of the Fund's net assets in connection with the determination of the net asset
value of the Fund's shares. Payment of said compensation shall be the sole
responsibility of the Investment Adviser and shall in no way be an obligation of
the Fund or of the Trust.
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<PAGE> 6
11. LIMITATION OF LIABILITY.
(a) The Sub-Adviser shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Investment Adviser,
the Trust or the Fund in connection with the matters to which Agreement relates,
except that Sub-Adviser shall be liable to the Investment Adviser for a loss
resulting from a breach of fiduciary duty by Sub-Adviser under the 40 Act with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Sub-Adviser in
the performance of its duties or from reckless disregard by it of its
obligations or duties under this Agreement. In no case shall the Sub-Adviser be
liable for actions taken or non-actions with respect to the performance of
services under this Agreement based upon specific information, instructions or
requests given or made to the Sub-Adviser by the Investment Adviser.
(b) The Investment Adviser shall be responsible at all times
for supervising the Sub-Adviser, and this Agreement does not in any way limit
the duties and responsibilities that the Investment Adviser has agreed to under
the Advisory Agreement.
12. DURATION AND TERMINATION. This Agreement shall become effective as
of the date hereof provided that it shall have been approved by vote of a
majority of the outstanding voting securities of the Fund and, unless sooner
terminated as provided herein, shall continue with respect to the Fund until
______________________, 199__. Thereafter, if not terminated, this Agreement
shall continue in effect for successive 12-month periods ending on
___________________ of each year, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Trustees of the Trust who are not parties to this Agreement or
interested persons of the Trust or any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund; PROVIDED, HOWEVER, that this Agreement may be terminated
with respect to the Fund (i) by the Trust at any time without the payment of any
penalty by the Board of Trustees of the Trust, (ii) by vote of a majority of the
outstanding voting securities of the Fund, (iii) by the Investment Adviser on 60
days written notice to the Sub-Adviser or (iv) by the Sub-Adviser on 60 days
written notice to the Investment Adviser. This Agreement will also immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested person" and
"assignment" shall have the same meaning as such terms have in the 40 Act.)
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought.
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<PAGE> 7
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any provisions
hereof or otherwise affect their construction or effect. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be effected thereby.
This Agreement shall be binding upon and shall inure to the benefit of the
parties herein and their respective successors and shall be governed by
Massachusetts law.
The names "BB&T Mutual Funds Group" and Trustees of BB&T Mutual Funds
Group" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of October 1, 1987 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
The Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "BB&T
Mutual Funds Group" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
(SEAL) Branch Banking & Trust Company
By: _______________________________
Title: Senior Vice President
(SEAL) PNC Institutional Management Corporation
By: _______________________________
Title:
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<PAGE> 8
SCHEDULE A
TO SUB-ADVISORY AGREEMENT DATED AS OF ___________________, 19__ BETWEEN BRANCH
BANKING & TRUST COMPANY AND PNC INSTITUTIONAL MANAGEMENT CORPORATION. This
Schedule A shall supersede all previous forms of Schedule A hereto.
NAME OF FUND COMPENSATION
- ------------ ------------
BB&T Prime Money Market Fund .09% of the Fund's
average daily net assets.
Consented to by:
Date _______________ Branch Banking & Trust Company
By: _______________________________________
Date: _______________ PNC Institutional Management Corporation
By: _______________________________________
A-1
<PAGE> 1
EXHIBIT (6)(A)
RE-EXECUTED DISTRIBUTION AGREEMENT BETWEEN
THE REGISTRANT AND BISYS FUND SERVICES
<PAGE> 2
DISTRIBUTION AGREEMENT
BB&T MUTUAL FUNDS GROUP
BISYS Fund Services, Inc. February 7, 1997
3435 Stelzer Road
Columbus, Ohio 43219
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, BB&T Mutual Funds Group (the "Group"), a
Massachusetts business trust, has agreed that BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor"), shall be, for the
period of this Distribution Agreement (the "Agreement"), the distributor of the
units of beneficial interest of each of the investment portfolios of the Group
identified on Schedule A hereto (the "Funds"). Such units of beneficial interest
are hereinafter called "Shares."
1. SERVICES AS DISTRIBUTOR
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectuses of the Group then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Securities and Exchange Commission (the "Commission"), together with
any amendments thereto. The term "prospectus" shall mean each form of prospectus
and Statement of Additional Information used by the Funds for delivery to
shareholders and prospective shareholders after the effective dates of the
above-referenced registration statement, together with any amendments and
supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale for the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Group understands
that Distributor is now and may in the future be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Group. The Group
further understands that investors and potential investors in the Group may
invest in shares of such other Companies. The Group agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Group under this paragraph 1.2.
<PAGE> 3
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriter, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the
Investment Company Act of 1940, as amended (the "1940 Act"), all rules and
regulations promulgated by the Commission thereunder and all rules and
regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4. Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Group.
1.5. Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.6. Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Group's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7. Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8. The Group agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9. The Group shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Group warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Group shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Group; (b) a monthly itemized list of the securities in
the Funds; (c) monthly balance sheets as soon as practicable after the end of
each month; and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
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<PAGE> 4
1.10. The Group represents to Distributor that, with respect to the
shares, all registration statements and prospectuses filed by the Group with the
Securities and Exchange Commission under the Securities Act have been carefully
prepared in conformity with requirements of said Act and rules and regulations
of the Commission thereunder. The Group represents and warrants to Distributor
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct, when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Group may, but shall not be obligated to, propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Group's counsel, be necessary or
advisable. If the Group shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Group of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Group shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Group's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Group may deem
advisable, such right being in all respects absolute and unconditional.
1.11. The Group authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Group agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Group's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations, as are contained
in any prospectus an in such financial and other statements as are furnished in
writing to the Group by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any
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<PAGE> 5
omission or alleged omission to state a material fact in connection with the
giving of such information required to be stated in such answers or necessary to
make the answers not misleading; and further provided that the Group's agreement
to indemnify Distributor and the Group's representations and warranties
hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any
liability to the Group or its Shareholders to which Distributor would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of Distributor's reckless disregard
of its obligations and duties under this Agreement. The Group's agreement to
indemnify Distributor, its partners and employees and any such controlling
person, as aforesaid, is expressly conditioned upon the Group being notified of
any action brought against Distributor, its partners or employees, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Group at its principal office in Columbus, Ohio and sent to the
Group by the person against whom such action is brought, within 10 days after
the summons or other first legal process shall have been served. The failure to
so notify the Group of any such action shall not relieve the Group from any
liability which the Group may have to the person against whom such action is
brought by reason of any such untrue, or allegedly untrue, statement or
omission, or alleged omission, otherwise than on account of the Group's
indemnity agreement contained in this paragraph 1.11. The Group will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Group and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Group elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expense of any additional counsel retained by any of them; but in case the Group
does not elect to assume the defense of any such suit, or in case Distributor
reasonably does not approve of counsel chosen by the Group, the Group will
reimburse Distributor, its partners and employees, or the controlling person or
persons named as defendant or defendants in such suit, for the fees and expenses
of any counsel retained by Distributor or them. The Group's indemnification
agreement contained in this paragraph 1.11 and the Group's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Distributor, its
partners and employees, or any controlling person, and shall survive the
delivery of any Shares.
This Agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Group agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Group or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.12. Distributor agrees to indemnify, defend and hold the Group, its
several officers and Trustees and any person who controls the Group within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities
-4-
<PAGE> 6
and any counsel fees incurred in connection therewith) which the Group, its
officers or Trustees or any such controlling person, may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Group, its officers or Trustees or
such controlling person resulting from such claims or demands, shall arise out
of or be based upon any untrue, or alleged untrue, statement of a material fact
contained in the information furnished in writing by Distributor to the Group
and used in the answers to any of the items of the registration statement or in
the corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by Distributor to the
Group required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the Group, its
officers and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor being notified of any action brought
against the Group, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Group, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Group, its officers or Trustees or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Group,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.12.
1.13. No Shares shall be offered by either Distributor or the Group
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Group if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10(b)(2) of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Group's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Group's prospectus,
Agreement and Declaration of Trust, or Bylaws.
1.14. The Group agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for
additional information;
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<PAGE> 7
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation by service of process
on the Group of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of
a material fact made in the registration statement or prospectus
then in effect or which requires the making of a change in such
registration statement or prospectus in order to make the
statements therein not misleading; and,
(d) of all action of the Commission with respect to any amendment to
any registration statement or prospectus which may from time to
time be filed with the Commission.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Group
all records and other information relative to the Group and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Group, which
approval shall not be unreasonably withheld and may not be withheld where the
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Group.
1.16 This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
2. FEES
2.1 The Distributor shall receive from certain classes of the Funds
identified on Schedule B hereto a distribution fee at the rate and upon the
terms and conditions set forth in the Distribution and Shareholder Services Plan
dated October 1, 1992, as amended (the "Distribution Plan") entered into between
the Group and the Distributor on behalf of such classes. The distribution fee
shall be accrued daily and shall be paid on the first business day of each
month, or at such time(s) as the Distributor shall reasonably request.
3. FRONT-END LOAD SHARES -- SALE AND PAYMENT
Pursuant to the Declaration of Trust dated October 1, 1987, each Fund
may be divided into separate classes of Shares in which case the Shares of one
or more classes may be subject
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<PAGE> 8
to a front-end sales load and may be subject to the imposition of a distribution
fee pursuant to the Distribution Plan referred to above. To the extent that all
Shares of a Fund are sold at an offering price which includes a sales load or
that Shares of one or more classes of a Fund are sold at such an offering price,
such Shares shall hereinafter be referred to collectively as "Front-End Load
Shares" and individually as a "Front-End Load Share." Funds that contain
Front-End Load Shares shall hereinafter be referred to collectively as
"Front-End Load Funds" and individually as a "Front-End Load Fund." Under this
Agreement, the following provisions shall apply with respect to the sale of, and
payment for, Front-End Load Shares of the Front-End Load Funds identified on
Schedule C hereto.
(a) The Distributor shall have the right, as principal, to purchase
Front-End Load Shares at their net asset value and to sell such Front-End Load
Shares to the public against orders therefor at the applicable public offering
price, as defined in Section 4 hereof. The Distributor shall also have the
right, as principal, to sell Front-End Load Shares to dealers against orders
therefor at the public offering price less a concession determined by the
Distributor, which concession shall not exceed the amount of the sales charge or
underwriting discount, if any, referred to in Section 4 below.
(b) Prior to the time of delivery of any Front-End Load Shares by a
Front-End Load Fund to, or on the order of, the Distributor, the Distributor
shall pay or cause to be paid to the Front-End Load Fund or to its order an
amount in Boston or New York clearing house funds equal to the applicable net
asset value of such Shares. The Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by the Distributor as a
concession to dealers.
4. FRONT-END LOAD SHARES -- PUBLIC OFFERING PRICE
The public offering price of a Front-End Load Share shall be the asset
value of such Front-End Load Share, plus any applicable sales charge, all as set
forth in the current prospectus of the Front-End Load Fund. The net asset value
of Shares shall be determined in accordance with the provisions of the Agreement
and Declaration of Trust and By-Laws of the Group and the then current
prospectus of the Front-End Load Fund.
5. FRONT-END LOAD SHARES -- ISSUANCE OF SHARES
The Group reserves the right to issue, transfer or sell Front-End Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Group or the Front-End Load Fund(s) with any other investment company or the
acquisition by the Group or the Front-End Load Fund(s) of all or substantially
all of the assets or of the outstanding Shares of any other investment company;
(b) in connection with a pro rata distribution directly to the holders of Shares
in the nature of a stock dividend or split; (c) upon the exercise of
subscription rights granted to the holders of Shares on a pro rata basis; (d) in
connection with the issuance of Front-End Load Shares pursuant to any exchange
and reinvestment privileges described in any
-7-
<PAGE> 9
then current prospectus of the Front-End Load Fund; and (e) otherwise in
accordance with any then current prospectus of the Front-End Load Fund.
6. SALE OF SHARES SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE
6.1. The Group may offer Shares subject to a contingent deferred sales
charge (a "CDSC"). The Distributor may pay brokers, dealers and other financial
institutions and intermediaries commissions with regard to the sale of CDSC
Shares. Under this Agreement, the following provisions shall apply with respect
to Shares of a Class featuring a CDSC (a "CDSC Class") as described in the
prospectus(es) of the Funds and identified on Schedule D hereto.
(a) The Distributor shall be entitled to receive all CDSC payments on
Shares of a CDSC Class. The Distributor may assign or sell to a third party (a
"CDSC Financing Entity") all or a part of the CDSC payments on Shares of a CDSC
Class that the Distributor is entitled to receive under this Agreement. The
Distributor's right to payment on such Shares, if assigned or sold to a CDSC
Financing Entity, shall continue after termination of this Agreement.
(b) (i) The Distributor shall be entitled to receive all distribution
and service fees at the rate and under the terms and conditions set forth in the
Distribution Plan adopted by a CDSC Class on all Shares of such CDSC Class so
long as the Plan is in effect. The Distributor may assign or sell to a CDSC
Financing Entity all or a part of the distribution fees the Distributor is
entitled to receive from the Group under the Distribution Plan. The
Distributor's right to payment of distribution fees on such Shares, if assigned
or sold to a CDSC Financing Entity, shall continue after termination of this
Agreement. Otherwise, the right to receive all distribution and service fee
payments in respect of periods subsequent to the termination of this Agreement
shall terminate upon termination of this Agreement. In the event Distributor
assigns or sells all or a part of the CDSC payments or the distribution and
service fees referenced above to a CDSC Financing Entity and this Agreement is
subsequently terminated, Distributor shall have no obligation to assist the CDSC
Financing Entity in connection with such Entity's right to receive such payments
or fees subsequent to such termination.
(ii) The Distributor shall not be required to offer or sell
Shares of a CDSC Class unless and until it has received a binding commitment
from a CDSC Financing Entity (a "Commitment") satisfactory to the Distributor
which Commitment shall cover all expenses and fees related to the offer and sale
of such Shares of the CDSC Class including but not limited to dealer
reallowances, financing commitment fees, and legal fees. If at any time during
the term of this Agreement the then-current CDSC financing is terminated through
no fault of the Distributor, the Distributor shall have the right to immediately
cease offering or selling CDSC Shares until substitute financing becomes
effective.
-8-
<PAGE> 10
(c) The Distributor and the Group hereby agree that the terms and
conditions set forth herein regarding the offer and sale of Shares of a CDSC
Class may be amended upon approval of both parties in order to comply with the
terms and conditions of any agreement with a CDSC Financing Entity to finance
the costs for the offer and sale of Shares of a CDSC Class so long as such terms
and conditions are in compliance with the Plan.
7. TERM AND MATTER RELATING TO THE GROUP AS A MASSACHUSETTS BUSINESS
TRUST
This Agreement shall become effective on October 1, 1992 and, unless
sooner terminated as provided herein, shall continue until September 30, 1993,
and thereafter shall continue automatically for successive annual periods ending
on the last day of September each year, provided such continuance is
specifically approved at least annually by (i) the Group's Board of Trustees or
(ii) by vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Group PROVIDED, HOWEVER, that in either event the
continuance is also approved by the majority of the Group's Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on not less than sixty days notice, by the Group's Board of Trustees,
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Group or the Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The names "BB&T Mutual Funds Group" and "Trustees of BB&T Mutual Funds
Group" refer respectively to the Group created and the Trustees, as trustees but
not individually or personally, acting from time to time under the Agreement and
Declaration of Trust dated as of October 1, 1987 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of BB&T
Mutual Funds Group entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Group personally, but bind only the assets of the Group,
and all persons dealing with any series of Shares of the Group must look solely
to the assets of the Group belonging to such series for the enforcement of any
claims against the Group.
-9-
<PAGE> 11
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place designated
below, whereupon it shall become a binding agreement between us.
Yours very truly,
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
--------------------------
Accepted:
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /S/ J. David Huber
---------------------------
-10-
<PAGE> 12
Dated: February 7, 1997
Schedule A
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
NAME OF FUND
- -----------------------
The BB&T U.S. Treasury
Money Market Fund
The BB&T Short-Intermediate
U.S. Government Income Fund
The BB&T Intermediate U.S.
Government Bond Fund
The BB&T North Carolina
Intermediate Tax-Free Fund
The BB&T Growth and
Income Stock Fund
The BB&T Balanced Fund
The BB&T Small Company
Growth Fund
The BB&T International
Equity Fund
The BB&T Capital Manager
Conservative Growth Fund
The BB&T Capital Manager
Moderate Growth Fund
The BB&T Capital Manager
Growth Fund
A-1
<PAGE> 13
The BB&T Prime Money Market
Fund
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
-----------------------------
Name:
---------------------------
Title:
--------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /S/ J. David Huber
-----------------------------
Names:
---------------------------
Title:
--------------------------
A-2
<PAGE> 14
Dated: February 7, 1997
Schedule B
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc. (formerly The Winsbury Company Limited Partnership)
Class A Shares of Class B Shares of
The BB&T U.S. Treasury The BB&T U.S. Treasury
Money Market Fund Money Market Fund
Class A Shares of Class B Shares of
The BB&T Short-Intermediate The BB&T Short-Intermediate
U.S. Government Income Fund U.S. Government Income Fund
Class A Shares of Class B Shares of
The BB&T Intermediate U.S. The BB&T Intermediate U.S.
Government Bond Fund Government Bond Fund
Class A Shares of Class B Shares of
The BB&T North Carolina The BB&T North Carolina
Intermediate Tax-Free Fund Intermediate Tax-Free Fund
Class A Shares of Class B Shares of
The BB&T Growth and The BB&T Growth and
Income Stock Fund Income Stock Fund
Class A Shares of Class B Shares of
The BB&T Balanced Fund The BB&T Balanced Fund
Class A Shares of Class B Shares of
The BB&T Small The BB&T Small
Company Growth Fund Company Growth Fund
Class A Shares of Class B Shares of
The BB&T International The BB&T International
Equity Fund Equity Fund
Class A Shares of Class B Shares of
The BB&T Capital Manager The BB&T Capital Manager
Conservative Growth Fund Conservative Growth Fund
Class A Shares of Class B Shares of
The BB&T Capital Manager The BB&T Capital Manager
Moderate Growth Fund Moderate Growth Fund
B-1
<PAGE> 15
Class A Shares of Class B Shares of
The BB&T Capital Manager The BB&T Capital Manager
Growth Fund Growth Fund
Class A Shares of Class B Shares of
The BB&T Prime The BB&T Prime
Money Market Fund Money Market Fund
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
-----------------------------
Name:
---------------------------
Title:
--------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /S/ J. David Huber
-----------------------------
Names:
---------------------------
Title:
--------------------------
B-2
<PAGE> 16
Dated: January 2, 1997
Schedule C
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
Class A Shares of
The BB&T Short-Intermediate
U.S. Government Income Fund
Class A Shares of
The BB&T Intermediate U.S.
Government Bond Fund
Class A Shares of
The BB&T North Carolina
Intermediate Tax-Free Fund
Class A Shares of
The BB&T Growth and
Income Stock Fund
Class A Shares of
The BB&T Balanced Fund
Class A Shares of
The BB&T Small
Company Growth Fund
Class A Shares of
The BB&T International
Equity Fund
Class A Shares of
The BB&T Capital Manager
Conservative Growth Fund
Class A Shares of
The BB&T Capital Manager
Moderate Growth Fund
C-1
<PAGE> 17
Class A Shares of
The BB&T Capital Manager
Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
----------------------------
Name:
--------------------------
Title
--------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /S/ J. David Huber
----------------------------
Names:
-------------------------
Title
--------------------------
C-2
<PAGE> 18
Dated: February 7, 1997
Schedule D
to the
Distribution Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
Class B Shares of
The BB&T U.S. Treasury
Money Market Fund
Class B Shares of
The BB&T Short-Intermediate
U.S. Government Income Fund
Class B Shares of
The BB&T Intermediate U.S.
Government Bond Fund
Class B Shares of
The BB&T North Carolina
Intermediate Tax-Free Fund
Class B Shares of
The BB&T Growth and
Income Stock Fund
Class B Shares of
The BB&T Balanced Fund
Class B Shares of
The BB&T Small
Company Growth Fund
Class B Shares of
The BB&T International
Equity Fund
D-1
<PAGE> 19
Class B Shares of
The BB&T Capital Manager
Conservative Growth Fund
Class B Shares of
The BB&T Capital Manager
Moderate Growth Fund
Class B Shares of
The BB&T Capital Manager
Growth Fund
Class B Shares of
The BB&T Prime
Money Market Fund
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
---------------------------
Name:
-------------------------
Title:
------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /S/ J. David Huber
---------------------------
Name:
-------------------------
Title:
------------------------
D-2
<PAGE> 1
EXHIBIT (8)(A)
CUSTODY AGREEMENT BETWEEN THE REGISTRANT AND STAR BANK, N.A.
<PAGE> 2
AMENDED CUSTODY AGREEMENT
-------------------------
Amended Custody Agreement ("Agreement") made as of the 7th day of
February, 1997, between BB&T Mutual Funds Group, (the "Trust"), a business trust
organized under the laws of Massachusetts and having its office at 3435 Stelzer
Road, Columbus, Ohio 43219 and Star Bank, N.A. (the "Custodian"), a national
banking association having its principal office and place of business at Star
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, which Agreement provides
for the furnishing of custodian services to the Trust.
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set
forth the Trust and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include the Chairman,
President, Secretary, Treasurer, and the Vice Presidents, or any other person,
whether or not any such person is an officer or employee of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral Instructions and
Written Instructions for the accounts of the investment portfolios of the Trust
and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, subject in
each case to any limitations on the authority of such person as set forth in
Appendix A or any such Certificate.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees, provided the Custodian has received a
certified copy of a resolution of Board of Trustees of the Trust specifically
approving deposits in the Book-Entry System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is signed by an officer of the Trust and is actually
received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person or clearing agency authorized to act
as a depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, provided that the Custodian
<PAGE> 3
has received a certified copy of a resolution of the Board of Trustees of the
Trust specifically approving such other person or clearing agency as a
depository.
5. "Dividend and Transfer Agent" shall mean the dividend and transfer
agent active, from time to time, in such capacity pursuant to a written
agreement with the Trust, changes in which the Trust shall immediately report to
the Custodian in writing.
6. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
interest by the government of the United States or agencies or instrumentalities
thereof, commercial paper, obligations (including certificates of deposit,
bankers' acceptances, repurchase and reverse repurchase agreements with respect
to the same) and bank time deposits of domestic banks that are members of
Federal Deposit Insurance Corporation, and short-term corporate obligations
where the purchase and sale of such securities normally require settlement in
federal funds or their equivalent on the same day as such purchase or sale.
7. "Officers" shall be deemed to include the Chairman, the President,
the Secretary, the Treasurer, and Vice Presidents of the Trust listed in the
Certificate annexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time.
8. "Oral Instructions" shall mean oral instructions actually received
by the Custodian from an Authorized Person (or from a person which the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions from Authorized Persons in such manner so that such Written
Instructions are received by the Custodian on the next business day.
9. "Prospectus" shall mean the currently effective prospectuses for the
Trust and statement of additional information, as filed with and declared
effective by the Securities and Exchange Commission.
10. "Security or Securities" shall mean Money Market Securities, common
or preferred stocks, options, bonds, debentures, corporate debt securities,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interest therein, or
any property or assets.
11. "Written Instructions" shall mean communication actually received
by the Custodian from one Authorized Person or from one person which the
Custodian reasonably believes in good faith to be an Authorized Person in
writing or by telex or any other such system whereby the receiver of such
communication is able to verify by codes or otherwise with a reasonable degree
of certainty the authenticity of the senders of such communication.
-2-
<PAGE> 4
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
1. The Trust hereby constitutes and appoints the Custodian as custodian
of all the Securities and monies of each investment portfolio of the Trust and
are defined as "Fund Assets".
2. The Custodian hereby accepts appointment as such Custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
--------------------------------------
The Trust hereby agrees to furnish to the Custodian the
following documents:
1. A copy of its Agreement and Declaration of Trust (the "Declaration
of Trust") and any amendments thereto, certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. A copy of the resolution of its Board of Trustees appointing the
Custodian certified by its Secretary.
4. A copy of the most recent Prospectus of the Trust.
5. A Certificate of the President and Secretary setting forth the names
and signatures of the present officers of the Trust.
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
------------------------------
1. The Trust will deliver or cause to be delivered to the Custodian all
Fund Asset, including cash received for the issuance of its shares, at any time
during the period of this Agreement. The Custodian will not be responsible for
such Fund Assets until actually received by it. Upon such receipt, the Custodian
shall hold in safekeeping and physically segregate at all times from the
property of any other persons, firms or corporations all Fund Assets received by
it from or for the account of a Fund. The Custodian will be entitled to reverse
any credits made on a Fund's behalf where such credits have been previously made
and monies are not finally collected within 90 days of the making of such
credits. The Custodian is hereby authorized by the Trust to actually deposit any
Fund Assets in the Book-Entry System or in a Depository, provided, however, that
the Custodian shall always be accountable to the Trust for the Fund Assets so
deposited. Fund Assets deposited in the Book-Entry System or the Depository will
be represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts in which the Custodian acts in
a fiduciary or representative capacity.
-3-
<PAGE> 5
2. The Custodian shall credit to a separate account or accounts in the
name of a Fund all monies received by it for the account of a Fund, and shall
disburse the same only:
(a) In payment for Securities purchased for the account of a
Fund, as provided in Article V;
(b) In payment of dividends or distributions, as provided in
Article VI hereof;
(c) In payment of original issue or other taxes, as provided in
Article VII hereof;
(d) In payment for shares of a Fund redeemed by it, as provided
in Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting
forth the name and address of the person to whom the payment is to be
made, the amount of such payment and the purpose for which payment is
to be made (the Custodian not being required to question such
direction) or (ii) if reserve requirements are established for the
Trust by law or by valid regulation, directing the Custodian to
deposit a specified amount of collected funds in the form of U.S.
dollars at a specified Federal Reserve Bank and stating the purpose of
such deposit;
(f) In reimbursement of the expenses and liabilities of the
Custodian, as provided in paragraph 10 of Article IX hereof; or
(g) For transfer to a demand or time deposit account of a Fund in
any bank, whether domestic or foreign, or in any savings and loan
association.
3. Promptly after the close of business on each day the Trust is open
and valuing its portfolios, the Custodian shall furnish the Trust with a
detailed statement of monies held for the Trust under this Agreement and with
confirmations and a summary of all transfers to or from the account of the Funds
during said day. Where Securities are transferred to the account of the Funds
without physical delivery, the Custodian shall also identify as belonging to a
Fund a quantity of Securities in a fungible bulk of Securities registered in the
name of the Custodian (or its nominee) or shown on the Custodian's account on
the books of the Book-Entry System or the Depository. At least monthly and from
time to time, the Custodian shall furnish the Trust with a detailed statement of
the Securities held for the Funds under this Agreement.
4. All Securities held for a Fund, which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Custodian in that form; all other Securities held for a Fund may
be registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the Depository or
-4-
<PAGE> 6
their successor or successors, or their nominee or nominees. The Trust agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of a Fund and which may from
time to time be registered in the name of the Funds. The Custodian shall hold
all such Securities which are not held in the Book-Entry System by the
Depository or a Sub-Custodian in a separate account or accounts in the name of
each Fund segregated at all times from those of any other Fund maintained and
operated by the Trust and from those of any other person or persons. The
Custodian shall have no power or authority to assign, hypothecate, pledge or
otherwise dispose of any Securities held for the Trust, except pursuant to Oral
or Written Instructions or a Certificate, or as otherwise provided herein and
only for the account of a Fund as provided herein.
5. Unless otherwise instructed to the contrary by a Certificate, the
Custodian shall with respect to all Securities held for a Fund in accordance
with this Agreement:
(a) Collect all income due or payable to the Fund with respect to
the Fund Assets;
(b) Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed, or retired, or
otherwise become payable;
(c) Surrender Securities in temporary form for definitive
Securities;
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the
laws or regulations of any other taxing authority, including any
foreign taxing authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of the Fund all rights and similar securities issued with
respect to any Securities held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian
directly or through the use of the Book-Entry System or the Depository shall:
(a) Execute and deliver to such persons as may be designated in
such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of a Fund as owner of any Securities
may be exercised;
(b) Deliver any Securities held for a Fund in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization
of any corporation, or the exercise of any conversion privilege;
-5-
<PAGE> 7
(c) Deliver any Securities held for the account of a Fund to any
protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any corporation,
and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery; and
(d) Make such transfers or exchanges of the assets of a Fund and
take such other steps as shall be stated in said Certificate to be for
the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of a Fund.
7. The Custodian shall promptly deliver to the Trust all notices, proxy
material and executed but unvoted proxies pertaining to shareholder meetings of
Securities held by a Fund. The Custodian shall not vote or authorize the voting
of any Securities or give any consent, waiver or approval with respect thereto
unless so directed by a Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Trust all material
received by the Custodian and pertaining to Securities held by a Fund with
respect to tender or exchange offers, calls for redemption or purchase,
expiration of rights, name changes, stock splits and stock dividends, or any
other activity involving ownership rights in such Securities.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
---------------------------------------------
1. Promptly after each purchase of Securities by a Fund, the Trust
shall deliver to the Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, a Certificate or Written Instructions,
and (ii) with respect to each purchase of Money Market Securities, Written
Instructions, a Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the name of the issuer and the title of the Securities,
(b) the principal amount purchased and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase and (f) the name of the person from whom or the
broker through whom the purchase was made. The Custodian shall upon receipt of
Securities purchased by or for a Fund, pay out of the monies held for the
account of such Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Written Instructions
or Oral Instructions.
2. Promptly after each sale of Securities by the Trust for the account
of a Fund, the Trust shall deliver to the Custodian (i) with respect to each
sale of Securities which are not Money Market Securities, a Certificate or
Written Instructions, and (ii) with respect to each sale of Money Market
Securities, Written Instructions, a Certificate or Oral Instructions, specifying
with respect to each such sale: (a) the name of the issuer and the title of the
-6-
<PAGE> 8
Security, (b) the principal amount sold, and accrued interest, if any, (c) the
date of sale, (d) the sale price per unit, (e) the total amount payable to such
Fund upon such sale and (f) the name of the broker through whom or the person to
whom the sale was made. The Custodian shall deliver the Securities upon receipt
of the total amount payable to such Fund upon such sale, provided that the same
conforms to the total amount payable as set forth in such Certificate, Written
Instructions or Oral Instructions. Subject to the foregoing, the Custodian may
accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
3. Promptly after the time as of which a Fund, either -
(a) writes an option on Securities or writes a covered put option
in respect of a Security, or
(b) notifies the Custodian that its obligations in respect of any
put or call option, as described in the Prospectus, require that the
Fund deposit Securities or additional Securities with the Custodian,
specifying the type and value of Securities required to be so
deposited, or
(c) notifies the Custodian that its obligations in respect of any
other Security, as described in the Prospectus, require that the Fund
deposit Securities or additional Securities with the Custodian,
specifying the type and value of Securities required to be so
deposited, the Custodian will cause to be segregated or identified as
deposited, pursuant to the Fund's obligations as set forth in the
Prospectus, Securities of such kinds and having such aggregate values
as are required to meet the Fund's obligations in respect thereof.
The Trust will provide to the Custodian, as of the end of each trading
day, the market value of each Fund's option liability and the market value of
its portfolio of common stocks.
4. Subject to the above provisions of Article V, on contractual
settlement date, the account of the Fund will be charged for all purchases
settling on that day, regardless of whether or not delivery is made. On
contractual settlement date, sale proceeds will likewise be credited to the
account of the Fund irrespective of delivery.
In the case of "sale fails", the Custodian may request the assistance
of the Fund in making delivery of the failed Security.
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
-------------------------------------
1. The Trust shall furnish to the Custodian a copy of the resolution of
the Board of Trustees, certified by the Secretary, either (i) setting forth the
date of the declaration of any dividend or distribution in respect of shares of
a Fund, the date of payment thereof, the record date as of which Fund
shareholders entitled to payment shall be determined, the amount
-7-
<PAGE> 9
payable per share to Fund shareholders of record as of that date and the total
amount to be paid by the Dividend and Transfer Agent of the Fund on the payment
date, or (ii) authorizing the declaration of dividends and distributions in
respect of shares of a Fund on a daily basis and authorizing the Custodian to
rely on Written Instructions or a Certificate setting forth the date of the
declaration of any such dividend or distribution, the date of payment thereof,
the record date as of which Fund shareholders entitled to payment shall be
determined, the amount payable per share to Fund shareholders of record as of
that date and the total amount to be paid by the Dividend and Transfer Agent on
the payment date.
2. Upon the payment date specified in such resolution, Written
Instructions or Certificate, as the case may be, the Custodian shall arrange for
such payments to be made by the Dividend and Transfer Agent out of monies held
for the account of a Fund.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUNDS
------------------------------------------
1. The Custodian shall receive and credit to the account of a Fund such
payments for shares of the Fund issued or sold from time to time as are received
from the distributor for the Fund's shares, from the Dividend and Transfer Agent
of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, the Custodian shall arrange
for payment of redemption proceeds to be made by the Dividend and Transfer Agent
out of the monies held for the account of a Fund in the total amount specified
in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption of any
shares of a Fund, whenever shares of a Fund which is marked by an asterisk on
Appendix B, are redeemed pursuant to any check redemption privilege which may
from time to time be offered by the Fund, the Custodian, unless otherwise
subsequently instructed by Written Instructions shall, upon receipt of any
Written Instructions setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the money held in
the account of such Fund for such purposes.
ARTICLE VIII
INDEBTEDNESS
------------
In connection with any borrowings, the Trust will cause to be delivered
to the Custodian by a bank or broker (including the Custodian, if the borrowing
is from the Custodian), requiring Securities as collateral for such borrowings,
a notice or undertaking in the form currently employed by any such bank or
broker setting forth the amount which such bank or broker will loan to a Fund
against delivery of a stated amount of collateral. The Trust shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
borrowing: (a) the name of the bank or broker, (b) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Trust, acting on behalf of the Fund, or
other loan agreement, (c) the date and
-8-
<PAGE> 10
time, if known, on which the loan is to be entered into, (d) the date on which
the loan becomes due and payable, (e) the total amount payable to a Fund on the
borrowing date, (f) the market value of Securities collateralizing the loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities and (g) a statement that such loan
conforms with the Investment Company Act of 1940 and the then current
Prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank or broker of the total amount of the loan
payable provided that the same conforms to the total amount payable as set forth
in the Certificate. The Custodian may, at the option of the lending bank or
broker, keep such collateral in its possession, but such collateral shall be
subject to all rights therein given the lending bank or broker, by virtue of any
promissory note or loan agreement. The Custodian shall deliver in the manner
directed by the Trust from time to time such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Trust shall cause all Securities released from
collateral status to be returned directly to the Custodian and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Trust fails to specify in a Certificate or Written
Instructions the name of the issuer, the title and number of shares or the
principal amount of any particular Securities to be delivered as collateral by
the Custodian, the Custodian shall not be under any obligation to deliver any
Securities. The Custodian may require such reasonable conditions with respect to
such collateral and its dealings with third-party lenders as it may deem
appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
------------------------
1. Except as otherwise provided herein, the Custodian shall not be
liable for any loss or damage, including counsel fees, resulting from its action
or omission to act or otherwise, except for any such loss or damage arising out
of its own negligence, bad faith or willful misconduct. The Trust, on behalf of
a Fund and only from Fund Assets (or insurance purchased by the Trust with
respect to its liabilities on behalf of a Fund hereunder), shall defend,
indemnify and hold harmless the Custodian and its directors, officers, employees
and agents with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or relating to the
Trust's duties with respect to a Fund hereunder or any other action or inaction
of the Trust or its Directors, officers, employees or agents, except such as may
arise from the negligent action, omission or willful misconduct of the
Custodian, its directors, officers, employees or agents. The Custodian shall
defend, indemnify and hold harmless the Trust and its Trustees, officers,
employees or agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Custodian's duties with respect to a Fund hereunder or any other
action or inaction of the Custodian or its directors, officers, employees,
agents, nominees or Sub-Custodians, except such as may arise from the negligent
action, omission or willful misconduct of the Trust, its Trustees, officers,
employees or agents. The Custodian may, with respect to questions of law apply
for and obtain the advice and opinion of counsel to the Trust at the expense of
a Fund, or of its own counsel at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
the
-9-
<PAGE> 11
advice or opinion of counsel to the Trust, and shall be similarly protected with
respect to anything done or omitted by it in good faith in conformity with
advice or opinion of its counsel, unless counsel to the Trust shall, within a
reasonable time after being notified of legal advice received by the Custodian,
have a differing interpretation of such question of law. The Custodian shall be
liable to the Trust for any proximate loss or damage resulting from the use of
the Book-Entry System or any Depository arising by reason of any negligence,
misfeasance or misconduct on the part of the Custodian or any of its employees,
agents, nominees or Sub-Custodians but not for any special, incidental,
consequential, or punitive damages; provided, however, that nothing contained
herein shall preclude recovery by the Trust of principal and of interest to the
date of recovery on, Securities incorrectly omitted from a Fund's account or
penalties imposed on the Trust for any failures to deliver Securities.
In any case in which one party hereto may be asked to
indemnify the other or hold the other harmless, the party from whom
indemnification is sought (the "Indemnifying Party") shall be advised of all
pertinent facts concerning the situation in question, and the party claiming a
right to indemnification (the "Indemnified Party") will use reasonable care to
identify and notify the Indemnifying Party promptly concerning any situation
which presents or appears to present a claim for indemnification against the
Indemnifying Party. The Indemnifying Party shall have the option to defend the
Indemnified Party against any claim which may be the subject of the
indemnification, and in the event the Indemnifying Party so elects, such defense
shall be conducted by counsel chosen by the Indemnifying Party and satisfactory
to the Indemnified Party and the Indemnifying Party will so notify the
Indemnified Party and thereupon such Indemnifying Party shall take over the
complete defense of the claim and the Indemnifying Party shall sustain no
further legal or other expenses in such situation for which indemnification has
been sought under this paragraph, except the expenses of any additional counsel
retained by the Indemnified Party. In no case shall any party claiming the right
to indemnification confess any claim or make any compromise in any case in which
the other party has been asked to indemnify such party (unless such confession
or compromise is made with such other party's prior written consent).
The obligations of the parties hereto under this paragraph
shall survive the termination of this Agreement.
2. Without limiting the generality of the foregoing, the Custodian,
acting in the capacity of Custodian hereunder, shall be under no obligation to
inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased by or
for the account of a Fund, the legality of the purchase thereof, or
the propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by or for the
account of a Fund, or the propriety of the amount for which the same
are sold;
-10-
<PAGE> 12
(c) The legality of the issue or sale of any shares of a Fund, or
the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of a Fund, or
the propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any dividend by
the Trust in respect of shares of a Fund;
(f) The legality of any borrowing by the Trust, on behalf of a
Fund, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a Certificate
described in clause (ii) of paragraph 2(e) of Article IV hereof,
3. The Custodian shall not be liable for any money or collected funds
in U.S. dollars deposited in a Federal Reserve Bank in accordance with a
Certificate described in clause (ii) of paragraph 2(e) of Article IV hereof, nor
be liable for or considered to be the Custodian of any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by it on behalf of a Fund until the Custodian actually receives and
collects such money directly or by the final crediting of the account
representing a Fund's interest at the Book-Entry System or Depository.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to a Fund from the Dividend and
Transfer Agent nor to take any action to effect payment or distribution by the
Dividend and Transfer Agent of any amount paid by the Custodian to the Dividend
and Transfer Agent in accordance with this Agreement.
5. Income due or payable to a Fund with respect to Fund Assets will be
credited to the account of the Fund as follows:
(a) Dividends will be credited on the first business day
following payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities
issued or guaranteed as to principal and/or interest by the government
of the United States or agencies or instrumentalities thereof
(excluding securities issued by the Government National Mortgage
Association) will be credited on payable date irrespective of
collection.
(c) Interest on fixed rate corporate debt securities will be
credited on the first business day following payable date irrespective
of collection.
(d) Interest on variable and floating rate debt securities and
debt securities issued by the Government National Mortgage Association
will be credited upon the Custodian's receipt of funds.
-11-
<PAGE> 13
(e) Proceeds from options will be credited upon the Custodian's
receipt of funds.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian shall
not be under any duty or obligation to take action on behalf of any Fund of the
Trust to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) the Fund, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it. The Custodian will, however, promptly notify the Trust in
writing of such default and refusal to pay.
7. The Custodian may appoint one or more financial or banking
institutions, as Depository or Depositories or as Sub-Custodian or
Sub-Custodians, provided, however, that any such Depository or Sub-Custodian be
eligible to act as such under the Investment Company Act of 1940, including, but
not limited to, banking institutions located in foreign countries, of Securities
and monies at any time owned by a Fund, upon terms and conditions approved in a
Certificate. Current Depository(s) and Sub-Custodian(s) are noted in Appendix C.
The Custodian shall not be relieved of any obligation or liability under this
Agreement in connection with the appointment or activities of such Depositories
or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
a Fund are such as properly may be held by the Fund under the provisions of the
Declaration of Trust and the Trust's By-Laws.
9. The Custodian shall treat all records and other information relating
to the Trust, the Funds and the Fund Assets as confidential and shall not
disclose any such records or information to any other person unless (a) the
Trust shall have consented thereto in writing or (b) such disclosure is
compelled by law.
10. The Custodian shall be entitled to receive and the Trust agrees to
pay to the Custodian, for a Fund's account from Fund Assets only, such
compensation as shall be determined pursuant to Appendix D attached hereto, or
as shall be determined pursuant to amendments to such Appendix approved by the
Custodian and the Trust. The Custodian shall be entitled to charge against any
money held by it for the account of a Fund the amount of any loss, damage,
liability or expense, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement as determined by agreement
of the Custodian and the Trust or by the final order of any court or arbitrator
having jurisdiction and as to which all rights of appeal shall have expired. The
expenses which the Custodian may charge against the account of a Fund include,
but are not limited to, the expenses of Sub-Custodians incurred in settling
transactions involving the purchase and sale of Securities of the Fund.
-12-
<PAGE> 14
11. The Custodian shall be entitled to rely upon any Certificate. The
Custodian shall be entitled to rely upon any Oral Instructions and any Written
Instructions actually received by the Custodian pursuant to Article IV or V
hereof. The Trust agrees to forward to the Custodian Written Instructions from
Authorized Persons confirming Oral Instructions in such manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, on the first business day following the day on which such
Oral Instructions are given to the Custodian. The Trust agrees that the fact
that such confirming instructions are not received by the Custodian shall in no
way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Trust. The Trust agrees that the Custodian
shall incur no liability to the Trust in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
12. The Custodian will (a) set up and maintain proper books of account
and complete records of all transactions in the accounts maintained by the
Custodian hereunder in such manner as will meet the obligations of the Trust
under the Investment Company Act of 1940, with particular attention to Section
31 thereof and Rules 31 a-1 and 31 a-2 thereunder, and (b) preserve for the
periods prescribed by applicable Federal statute or regulation all records
required to be so preserved. All books and records shall be the property of the
Trust and shall be open to inspection and audit at reasonable times and with
prior notice by Officers and auditors employed by the Trust.
13. The Custodian and its Sub-Custodians shall promptly send to the
Trust, for the account of the Funds, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and with
such reports on their own systems of internal accounting control as the Trust
may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of the
Securities from time to time owned by the Funds. The Custodian is not a selling
agent for shares of the Funds and performance of its duties as a custodial agent
shall not be deemed to be a recommendation to the Custodian's depositors or
others of shares of a Fund as an investment.
ARTICLE X
TERMINATION
-----------
1. Either of the parties hereto may terminate this Agreement for any
reason by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after the date
of giving of such notice. If such notice is given by the Trust, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits and which shall be eligible to act as a
Custodian under the Investment Company Act of 1940. In the event such notice is
given by the Custodian, the Trust shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of its Board of Trustees,
-13-
<PAGE> 15
certified by the Secretary, designating a successor custodian or custodians. In
the absence of such designation by the Trust, the Custodian may designate a
successor custodian which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus, and undivided profits and which shall be
eligible to act as a Custodian under the Investment Company Act of 1940. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian, provided that it has received a notice of acceptance by the successor
custodian, shall deliver, on that date, directly to the successor custodian all
Securities and monies then owned by a Fund and held by it as Custodian. Upon
termination of this Agreement, the Trust shall pay to the Custodian such
compensation as may be due as of the date of such termination. The Trust agrees
that the Custodian shall be reimbursed for its reasonable costs in connection
with the termination of this Agreement.
2. If a successor custodian is not designated by the Trust or by the
Custodian in accordance with the preceding paragraph, or the designated
successor cannot or will not serve, the Trust shall upon the delivery by the
Custodian to the Trust of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Trust) and monies then owned
by a Fund, other than monies deposited with a Federal Reserve Bank pursuant to a
Certificate described in clause (ii) of paragraph 2(e) of Article IV, be deemed
to be the custodian for a Fund, and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which cannot be
delivered to the Trust to hold such Securities hereunder in accordance with this
Agreement.
ARTICLE XI
MISCELLANEOUS
-------------
1. Appendix A sets forth the names and the signatures of all Authorized
Persons. The Trust agrees to furnish to the Custodian, a new Appendix A in form
similar to the attached Appendix A, if any present Authorized Person ceases to
be an Authorized Person or if any other or additional Authorized Persons are
elected or appointed. Until such new Appendix A shall be received, the Custodian
shall be fully protected in acting under the provisions of this Agreement upon
Oral Instructions or signatures of the present Authorized Persons as set forth
in the last delivered Appendix A.
2. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer,
Director, past, present or future as such, of the Trust or of any predecessor or
successor, either directly or through the Trust or any such predecessor or
successor, whether by virtue of any constitution, statute or rule of law or
equity, or be the enforcement of any assessment or penalty or otherwise; it
being expressly agreed and understood that this Agreement and the obligations
thereunder are enforceable solely against Fund Assets, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, Officers, Trustees of the Trust or of any predecessor
or successor, or any of them as such, because of the obligations contained in
this Agreement or implied therefrom and that any and all such liability is
hereby
-14-
<PAGE> 16
expressly waived and released by the Custodian as a condition of, and as a
consideration for, the execution of this Agreement.
3. The names "BB&T Mutual Funds Group" and "The Trustees of BB&T Mutual
Funds Group" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated as of October 1, 1987, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto filed or hereafter filed. The obligations of "BB&T Mutual
Funds Group" entered into in the name or on behalf of thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
4. Such provisions of the Prospectus of the Fund and any other
documents (including advertising material) specifically mentioning the Custodian
(other than merely by name and address) shall be reviewed with the Custodian by
the Trust.
5. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at Star
Bank Center, 425 Walnut Street, M. L. 6118, Cincinnati, Ohio 45202, attention
Trust Custody Services Department, or at such other place as the Custodian may
from time to time designate in writing.
6. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust shall be sufficiently given when
delivered to the Trust or on the second business day following the time such
notice is deposited in the U.S. mail postage prepaid and addressed to the Trust
at its office at 3435 Stelzer Road, Columbus, Ohio 43219, or at such other place
as the Trust may from time to time designate in writing.
7. This Agreement with the exception of Appendices A, B and C may not
be amended or modified in any manner except by a written agreement executed by
both parties with the same formality as this Agreement, and authorized and
approved by a resolution of the Board of Trustees of the Trust.
8. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust or by the Custodian, and no
attempted assignment by the Trust or the Custodian shall be effective without
the written consent of the other party hereto.
9. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
-15-
<PAGE> 17
10. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto duly authorized
as of the day and year first above written.
ATTEST: BB&T Mutual Funds Group
/s/ By: Richard B. Ille
- ---------------------- --------------------------
ATTEST: Star Bank, N.A.
/s/ By: /s/ Marsha A. Croxton
- ---------------------- --------------------------
By: /s/ Lynnette C. Gibson
--------------------------
-16-
<PAGE> 18
APPENDIX A
BOARD OF TRUSTEES
Authorized Persons Specimen Signatures
President:
------------------ -------------------
Secretary:
------------------ -------------------
Treasurer:
------------------ -------------------
Vice President:
------------------ -------------------
Adviser Employees: *
------------------ -------------------
*
------------------ -------------------
*
------------------ -------------------
*Authority restricted; does not include: (i) authority to sign checks on Fund
accounts or make other withdrawals or distributions of Fund monies or (ii) such
other authority as may be withheld or limited by a Certificate or Written
Instructions signed by two Officers of the Trust and delivered to the Custodian.
BB&T Mutual Funds Group
By: /s/ Richard B. Ille
----------------------
Date:
--------------------
Star Bank, N.A.
By: /s/ Marsha A. Croxton
----------------------
Date: 2/10/97
--------------------
A-1
<PAGE> 19
APPENDIX B
NAME OF FUND
- ------------
*The BB&T U. S. Treasury Money Market Fund
The BB&T Short-Intermediate U. S. Government Income Fund
The BB&T Intermediate U. S. Government Bond Fund
The BB&T North Carolina Intermediate Tax-Free Fund
The BB&T Growth and Income Stock Fund
The BB&T Capital Manager Growth Fund
The BB&T Capital Manager Moderate Growth Fund
The BB&T Capital Manager Conservative Growth Fund
BB&T Mutual Funds Group
By: /s/ Richard B. Ille
--------------------------
Date:
------------------------
Star Bank, N.A.
By: /s/ Marsha A. Croxton
--------------------------
Date: 2/10/97
------------------------
B-1
<PAGE> 20
APPENDIX C
The following Depository(s) and Sub-Custodian(s) are employed currently
by Star Bank, N.A. for securities processing and control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
C-1
<PAGE> 21
APPENDIX D
CUSTODY COMPENSATION SCHEDULE
Star Bank, N.A. as Custodian, will receive monthly compensation for services
according to the terms of the following schedule:
I. PORTFOLIO TRANSACTION FEES:
---------------------------
<TABLE>
<S> <C>
(a) For each repurchase agreement transaction $ 7.00
(b) For each portfolio transaction processed through $10.00
DTC or Federal Reserve
(c) For each portfolio transaction processed through $25.00
our New York custodian
(d) For each GNMA/Amortized Security Purchase $40.00
(f) For each GNMA Prin/Int Paydown, GNMA Sales $ 8.00
(g) For each option/future contract written, $25.00
exercised or expired
(h) For each disbursement (Fund expenses only) $ 5.00
(i) Wires:
<CAPTION>
Telephone ECDA (PC-customer
(initiated) initiated)
----------- ----------
<S> <C> <C>
Incoming (with notification) $8.00 $5.50
Outgoing (Repetitive) $8.00 $6.75
Outgoing (Non-repetitive) $8.00 Not yet available
</TABLE>
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange.
D-1
<PAGE> 22
II. MONTHLY BASE FEE PER ACCOUNT $400.00
----------------------------
III. OUT-OF-POCKET EXPENSES
----------------------
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
IV. IRA DOCUMENTS
-------------
Per Shareholder/year to hold each IRA Document $8.00
V. EARNINGS CREDITS
----------------
On a monthly basis any earnings credits generated from uninvested
custody balances will be first applied against any cash management service fees
and then to custody transaction fees (as referenced in item #1 above). Earnings
credits are based on the average yield on the 91 day U.S. Treasury Bill for the
preceding thirteen weeks less the 10% reserve.
All compensation is payable monthly.
BB&T Mutual Funds Group
By: /s/ Richard B. Ille
----------------------
Date:
---------------------
Star Bank, N.A.
By: /s/ Marsha A. Croxton
----------------------
Date: 2/10/97
---------------------
D-2
<PAGE> 1
EXHIBIT (8)(B)
FORM OF AMENDED APPENDIX B TO THE CUSTODY
AGREEMENT BETWEEN THE REGISTRANT AND STAR
BANK, N.A.
<PAGE> 2
APPENDIX B
NAME OF FUND
- ------------
*The BB&T U. S. Treasury Money Market Fund
The BB&T Short-Intermediate U. S. Government Income Fund
The BB&T Intermediate U. S. Government Bond Fund
The BB&T North Carolina Intermediate Tax-Free Fund
The BB&T Growth and Income Stock Fund
The BB&T Capital Manager Growth Fund
The BB&T Capital Manager Moderate Growth Fund
The BB&T Capital Manager Conservative Growth Fund
*The BB&T Prime Money Market Fund
BB&T Mutual Funds Group
By:___________________
Date:_________________
Star Bank, N.A.
By:___________________
Date:_________________
B-2
<PAGE> 1
EXHIBIT (8)(c)
CUSTODY AGREEMENT BETWEEN THE REGISTRANT AND BANK OF NEW YORK
<PAGE> 2
CUSTODY AGREEMENT
-----------------
Agreement made as of this 2nd day of January, 1997, between BB&T MUTUAL
FUNDS GROUP, a Massachusetts business trust organized and existing under the
laws of the Commonwealth of Massachusetts, having its principal office and place
of business at 3435 Stelzer Road, Columbus, Ohio 43219 on behalf of the BB&T
International Equity Fund (hereinafter called the "Fund"), and THE BANK OF NEW
YORK, a New York corporation authorized to do a banking business, having its
principal office and place of business at 48 Wall Street, New York, New York
10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this
<PAGE> 3
Agreement to be given to the Custodian which is actually received by the
Custodian and signed on behalf of the Fund by any two Officers, and the term
Certificate shall also include Instructions.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of the O.C.C. and a member of a national
securities exchange qualified to act as a custodian for an investment company,
or any broker-dealer reasonably believed by the Custodian to be such a clearing
member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Composite Currency Unit" shall mean the European Currency Unit or
any other composite unit consisting of the aggregate of specified amounts of
specified Currencies as such unit may be constituted from time to time.
8. "Currency" shall mean money denominated in a lawful currency of any
country or the European Currency Unit.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
-2-
<PAGE> 4
10. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
13. "FX Transaction" shall mean any transaction for the purchase by one
party of an agreed amount in one Currency against the sale by it to the other
party of an agreed amount in another Currency.
14. "Instructions" shall mean instructions communications transmitted
by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an Officer or unsigned) and tested telex.
13. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
14. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
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<PAGE> 5
authority, commercial paper, certificates of deposit and bankers' acceptances,
repurchase agreements with respect to the same and bank time deposits, where the
purchase and sale of such securities normally requires settlement in federal
funds on the same day as such purchase or sale.
15. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
16. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Trustees of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
17. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
18. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
19. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
20. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
21. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common
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<PAGE> 6
stocks and other securities having characteristics similar to common stocks,
preferred stocks, debt obligations issued by state or municipal governments and
by public authorities, (including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or representing any
other rights or interest therein, or any property or assets.
22. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
23. "Series" shall mean the various portfolios, if any, of the Fund as
listed on Appendix B hereto as amended from time to time.
24. "Shares" shall mean the shares of beneficial interest of the Fund,
each of which is, in the case of a Fund having Series, allocated to a particular
Series.
25. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
26. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II
APPOINTMENT OF CUSTODIAN
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<PAGE> 7
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by the Fund and allocated to a
Series during the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for
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<PAGE> 8
deposit therein, and to utilize the Depository to the extent possible with
respect to such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
Securities collateral. Securities and moneys deposited in either the Book-Entry
System or the Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not limited to,
accounts in which the Custodian acts in a fiduciary or representative capacity
and will be specifically allocated on the Custodian's books to the separate
account for the applicable Series. Prior to the Custodian's accepting, utilizing
and acting with respect to Clearing Member confirmations for Options and
transactions in Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the Fund's Board of
Trustees, substantially in the form of Exhibit C hereto, approving, authorizing
and instructing the Custodian on a continuous and on-going basis, until
instructed to the contrary by a Certificate actually received by the Custodian,
to accept, utilize and act in accordance with such confirmations as provided in
this Agreement with respect to such Series. All Securities are to be held or
disposed of by the Custodian for, and subject at all times to the instructions
of, the Fund pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be subject only
to drafts, orders, or charges of the Custodian pursuant to this Agreement and
shall be disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
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<PAGE> 9
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and
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<PAGE> 10
therein deposited, shall with respect to all Securities held for the Fund
hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income, dividends and distributions
due or payable;
(b) Promptly give notice to the Fund and promptly present for
payment and collect the amount payable upon such Securities which are called,
but only if either (i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publications listed in
Appendix C annexed hereto, which may be amended at any time by the Custodian
without the prior notification or consent of the Fund;
(c) Promptly present for payment and collect the amount
payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations
or certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered owner (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
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<PAGE> 11
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Promptly execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held by
the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Promptly deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any right, warrant or conversion privilege and
receive and hold hereunder specifically allocated to such Series any cash or
other Securities received in exchange;
(c) Promptly deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold hereunder specifically al-
located to such Series such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Promptly make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Promptly present for payment and collect the amount
payable upon Securities not described in preceding paragraph 5(b) of this
Article which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures
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<PAGE> 12
Contract, any Option, or any Futures Contract Option until after it shall have
determined, or shall have received a Certificate from the Fund stating, that any
such instruments or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to such availability,
the Custodian shall comply with Section 17(f) of the Investment Company Act of
1940, as amended, in connection with the purchase, sale, settlement, closing out
or writing of Futures Contracts, Options, or Futures Contract Options by making
payments or deliveries specified in Certificates received by the Custodian in
connection with any such purchase, sale, writing, settlement or closing out upon
its receipt from a broker, dealer, or futures commission merchant of a statement
or confirmation reasonably believed by the Custodian to be in the form
customarily used by brokers, dealers, or future commission merchants with
respect to such Futures Contracts, Options, or Futures Contract Options, as the
case may be, confirming that such Security is held by such broker, dealer or
futures commission merchant, in book- entry form or otherwise, in the name of
the Custodian (or any nominee of the Custodian) as custodian for the Fund,
provided, however, that notwithstanding the foregoing, payments to or deliveries
from the Margin Account and payments with respect to Securities to which a
Margin Account relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such instruments or
certificates are available, the Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any Futures Contract,
Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
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1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount payable as set forth
in such Certificate or Oral Instructions.
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<PAGE> 14
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
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<PAGE> 15
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
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<PAGE> 16
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which
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<PAGE> 17
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying
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<PAGE> 18
with respect to such Stock Index Option: (a) the Series for which such Stock
Index Option was written; (b) whether such Stock Index Option is a put or a
call; (c) the number of options written; (d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise price; (g) the
Clearing Member through whom such Option was written; (h) the premium to be
received by the Fund; (i) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; (j) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and (k) the amount of
cash and/or the amount and kind of Securities, if any, specifically allocated to
such Series to be deposited in a Margin Account, and the name in which such
account is to be or has been established. The Custodian shall, upon receipt of
the premium specified in the Certificate, make the deposits, if any, into the
Senior Security Account specified in the Certificate, and either (1) deliver
such receipts, if any, which the Custodian has specifically agreed to issue,
which are in accordance with the customs prevailing among Clearing Members in
Stock Index Options and make the deposits into the Collateral Account specified
in the Certificate, or (2) make the deposits into the Margin Account specified
in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the
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Certificate the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
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1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the moneys specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the
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Securities and/or amount of cash to be delivered or received; (c) the broker,
dealer, or futures commission merchant to or from whom payment or delivery is to
be made or received; and (d) the amount of cash and/or Securities to be
withdrawn from the Senior Security Account for such Series. The Custodian shall
make the payment or delivery specified in the Certificate, and delete such
Futures Contract from the statements delivered to the Fund pursuant to paragraph
3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or
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futures commissions merchant through whom the purchase was made, provided that
the same conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Future Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b)
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<PAGE> 23
the type of Futures Contract Option (put or call); (c) the type of Futures
Contract and such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (d) the expiration date; (e)
the exercise price; (f) the premium to be received by the Fund; (g) the name of
the broker or futures commission merchant through whom the premium is to be
received; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
out of the moneys and Securities specifically allocated to such Series the
deposits into the Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total
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<PAGE> 24
amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or deposited in, the Senior
Security Account for such Series, if any. The Custodian shall, upon its receipt
of the net total amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made
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<PAGE> 25
by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing- out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the
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amount of cash and the amount and kind of Securities to be withdrawn, if any,
from the Margin Account; (i) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Senior Security Account; and (j)
the name of the broker through whom the Fund is effecting such closing-out. The
Custodian shall, upon receipt of the net total amount payable to the Fund upon
such closing-out, and the return and/or cancellation of the receipts, if any,
issued by the Custodian with respect to the short sale being closed-out, pay out
of the moneys held for the account of the Fund to the broker the net total
amount payable to the broker, and make the withdrawals from the Margin Account
and the Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a
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Certificate or Oral Instructions to the Custodian specifying: (a) the Reverse
Repurchase Agreement being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with such termination;
(c) the amount and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such termination; (d)
the date of termination; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of
cash and/or the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
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<PAGE> 28
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
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<PAGE> 29
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall to the extent permitted by the Fund's
Declaration of Trust, investment restrictions and the Investment Company Act of
1940 have a continuing lien and security interest in and to any property at any
time held by the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its lien and realize on
any such property whenever the Custodian has made payment or delivery pursuant
to any Put Option guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should realize on any
such property net proceeds which are less than the Custodian's obligations under
any Put Option guarantee letter or similar document or any receipt, such
deficiency shall be a debt owed the Custodian by the Fund within the scope of
Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or
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<PAGE> 30
Securities to be deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
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(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
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ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted to the Custodian
with respect to a Series, including any indebtedness to The Bank of New York
under the Fund's Cash Management and Related Services Agreement, (except a
borrowing for investment or for temporary or emergency purposes using Securities
as collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting in the Custodian's behalf, provided that
such lien shall be enforceable only to the amount of the overdraft or
indebtedness and interest thereon. The Fund authorizes the Custodian, in its
sole discretion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any balance of account standing to
such Series' credit on the Custodian's books. In addition, the Fund hereby
covenants that on each Business Day on which either it intends to enter a
Reverse Repurchase Agreement and/or otherwise borrow from a third party, or
which next succeeds a Business Day on which at the close of business the Fund
had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of each
such borrowing, shall specify the Series to which the
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same relates, and shall not incur any indebtedness not so specified other than
from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the
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Custodian, the Custodian shall not be under any obligation to deliver any
Securities.
ARTICLE XV
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in
order for the Fund to transmit Instructions to the Custodian (the "Software"),
the Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund agrees not to sell, reproduce, lease or otherwise provide,
directly or indirectly, the Software or any portion thereof to any third party
without the prior written consent of the Custodian.
2. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including but not limited to communications services,
necessary for it to utilize the Software and transmit Instructions to the
Custodian. The Custodian shall not be responsible for the reliability,
compatibility with the Software or availability of any such equipment or
services or the performance or nonperformance by any nonparty to this Agreement.
3. The Fund acknowledges that the Software, all data bases made
available to the Fund by utilizing the Software (other than data bases relating
solely to the assets of the Fund and transactions with respect thereto), and any
proprietary data, processes, information and documentation (other than which are
or become part of the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses with
respect to its own confidential property and trade secrets and shall neither
make nor permit any disclosure without the prior written consent of the
Custodian. Upon termination of this Agreement or the Software license granted
hereunder for any reason, the Fund shall return to the Custodian all copies of
the Information which are in its possession or under its control or which the
Fund distributed to third parties.
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4. The Custodian reserves the right to modify the Software from time to
time upon reasonable prior notice and the Fund shall install new releases of the
Software as the Custodian may direct. The Fund agrees not to modify or attempt
to modify the Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the Fund or the
Custodian and whether with or without the Custodian's consent, shall become the
property of the Custodian.
5. THE CUSTODIAN MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY KIND
WITH REGARD TO THE SOFTWARE OR THE METHOD(S) BY WHICH THE FUND MAY TRANSMIT
INSTRUCTIONS TO THE CUSTODIAN, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6. Where the method for transmitting Instructions by the Fund involves
an automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
7. (a) The Fund agrees that where it delivers to the Custodian
Instructions hereunder, it shall be the Fund's sole responsibility to ensure
that only persons duly authorized by the Fund transmit such Instructions to the
Custodian. The Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable use and authorization codes, passwords and
authentication keys with extreme care, and irrevocably authorizes the Custodian
to act in accordance with and rely upon Instructions received by it pursuant
hereto.
(b) The Fund hereby represents, acknowledges and agrees that
it is fully informed of the protections and risks associated with the various
methods of transmitting Instructions to the Custodian and that there may be more
secure methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
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8. The Fund hereby presents, warrants and covenants to the Custodian
that this Agreement has been duly approved by a resolution of its Board of
Trustees, and that its transmission of Instructions pursuant hereto shall at all
times comply with the Investment Company Act of 1940, as amended.
9. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24 hours after
the earliest of (i) discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care and (iii) in the
case of any error, the date of actual receipt of the earliest notice which
reflects such error, it being agreed that discovery and receipt of notice may
only occur on a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for
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maintaining custody of the Fund's assets and such Foreign Sub-Custodian shall be
deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund or
any Series if and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed
upon, information concerning the Foreign Sub-Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they
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are located and their ability to provide the custodial services required, and
(ii) whether the Foreign Sub-Custodians would provide a level of safeguards for
safekeeping and custody of securities not materially different form those
prevailing in the United States. The Custodian shall monitor the general
operating performance of each Foreign Sub-Custodian. The Custodian agrees that
it will use reasonable care in monitoring compliance by each Foreign
Sub-Custodian with the terms of the relevant Foreign Sub-Custodian Agreement and
that if it learns of any breach of such Foreign Sub-Custodian Agreement believed
by the Custodian to have a material adverse effect on the Fund or any Series it
will promptly notify the Fund of such breach. The Custodian also agrees to use
reasonable and diligent efforts to enforce its rights under the relevant Foreign
Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall be limited to amounts so recovered from the Foreign
Sub-Custodian.
ARTICLE XVII
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FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall
promptly deliver to the Custodian a Certificate or Oral Instructions specifying
with respect to such FX Transaction: (a) the Series to which such FX Transaction
is specifically allocated; (b) the type and amount of Currency to be purchased
by the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the Currency to be purchased is to be delivered; (e) the date on
which the Currency to be sold is to be delivered; and (f) the name of the person
from whom or through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian shall
deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to
be sold on the date on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive,
the Currency to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as
the Currency to be purchased, as specified in the Certificate or Oral
Instructions, the Custodian or a Foreign Sub-Custodian may arrange for such
deliveries and receipts to be made in accordance with the customs prevailing
from time to time among brokers or dealers in Currencies, and such receipt and
delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
3. Any foreign exchange transaction effected by the Custodian in
connection with this Agreement may be entered with the Custodian, any office,
branch or subsidiary of The Bank of New York Company, Inc., or any Foreign
Sub-Custodian acting as principal or otherwise through customary banking
channels. The Fund may issue a standing Certificate with respect to foreign
exchange transactions but the Custodian may establish rules or limitations
concerning any foreign exchange facility made available to the Fund. The Fund
shall bear all risks of investing in Securities or holding Currency. Without
limiting the foregoing, the Fund shall bear the risks that rules or procedures
imposed by a Foreign Sub-Custodian or foreign
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depositories, exchange controls, asset freezes or other laws, rules, regulations
or orders shall prohibit or impose burdens or costs on the transfer to, by or
for the account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Custodian shall
not be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its
duties hereunder, and, except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including reasonable counsel
fees, resulting from its action or omission to act or otherwise, either
hereunder or under any Margin Account Agreement, except for any such loss or
damage arising out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party for special,
indirect or consequential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action. The Custodian
may, with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of counsel to the
Fund, at the Fund's expense, or of its own counsel, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
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(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend
by the Fund;
(d) The legality of any borrowing by the Fund using Securities
as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer,
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futures commission merchant or Clearing Member, to see that any payment received
by the Custodian from any broker, dealer, futures commission merchant or
Clearing Member is the amount the Fund is entitled to receive, or to notify the
Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its reasonable opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expense and liability
be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or
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if payment is refused after due demand or presentation, unless and until (i) it
shall be directed to take such action by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub- Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all reasonable out-of-pocket expenses and such compensation
as may be agreed upon in writing from time to time between the Custodian and the
Fund. The Custodian may charge such compensation and any expenses with respect
to a Series incurred by the Custodian in the performance of its duties pursuant
to such agreement against any money specifically allocated to such Series.
Unless and until the Fund instructs the Custodian by a Certificate to apportion
any loss, damage, liability or expense among the Series in a specified manner,
the Custodian shall also be entitled to charge against any money held by it for
the account of a Series such Series' pro rata share (based on such Series net
asset value at the time of the charge to the aggregate net asset value of all
Series at that time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses for which the Custodian shall be
entitled to reimbursement hereunder shall include, but are not limited to,
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the expenses of sub- custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving the purchase and
sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian (including any sub-custodian records in Custodian's
possession) shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives including the Fund's independent
public accountants, shall have access to such
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books and records during the Custodian's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Custodian to the Fund or the Fund's authorized representative,
and the Fund shall reimburse the Custodian its expenses of providing such
copies. Upon reasonable request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Custodian elects, any records included in
any such delivery which are maintained by the Custodian on a computer disc, or
are similarly maintained, and the Fund shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book- Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including reasonable attorney's fees, howsoever arising or incurred because of
or in connection with this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any such liability,
claim, loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Articles XVI and XVII the Custodian may
deliver and receive Securities, and receipts with respect to such Securities,
and arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are
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specifically set forth in this Agreement, and no covenant or obligation shall be
implied in this Agreement against the Custodian.
17. Whenever the Custodian has the authority to deduct monies from the
account for a Series without a Certificate, it shall notify the Fund within one
business day of such deduction and the reason for it. Whenever the Custodian has
the authority to sell Securities or any other property of the Fund on behalf of
any Series without a Certificate, the Custodian will notify the Fund of its
intention to do so and afford the Fund the reasonable opportunity to select
which Securities or other property it wishes to sell on behalf of such Series.
If the Fund does not promptly sell sufficient Securities or other property on
behalf of the Series, then, after notice, the Custodian may proceed with the
intended sale.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, or any Assistant Secretary electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a copy of a
resolution of the Board of Trustees of the Fund, certified by the Secretary, or
any Assistant Secretary designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Fund and
-45-
<PAGE> 47
held by it as Custodian, after deducting all fees, expenses and other amounts
for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
Notwithstanding the foregoing, the Fund may terminate this
Agreement upon the date specified in a written notice in the event of the
bankruptcy of the Custodian, or any other event that the Fund reasonably
believes materially adversely affects the continued financial viability of the
Custodian.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such present Officer
ceases to be an Officer or in the event that other or additional Officers are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or signatures of the present Officers as set
forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York,
-46-
<PAGE> 48
New York 10286, or at such other place as the Custodian may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable
-47-
<PAGE> 49
to any other Series of the Fund and that all persons extending credit to, or
contracting with or having any claim against a particular Series of the Fund
shall look only to the assets of that particular Series for payment of such
credit, contract or claim.
-48-
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
BB&T MUTUAL FUNDS GROUP
[SEAL] By: /S/ Richard B. Ille
--------------------------
Name: Richard B. Ille
Title:
Attest:
- -----------------------
THE BANK OF NEW YORK
[SEAL] By: /S/
--------------------------
Name:
Title:
Attest:
/S/
- -----------------------
-49-
<PAGE> 51
APPENDIX A
I, Richard B. Ille, President and I, _______________. of BB&T MUTUAL
FUNDS GROUP, a Massachusetts business trust (the "Fund"), do hereby certify
that: The following individuals serve in the following positions with the Fund
and each has been duly elected or appointed by the Board of Trustees of the Fund
to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
Richard B. Ille President and Secretary /S/ Richard B. Ille
------------------------
-50-
<PAGE> 52
APPENDIX B
SERIES
BB&T International Equity Fund
-51-
<PAGE> 53
APPENDIX C
I, Richard Yacovone, a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
-52-
<PAGE> 54
EXHIBIT A
CERTIFICATION
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of January 2, 1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to deposit in the
Book-Entry System, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of BB&T MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
--------------------------
[SEAL]
-53-
<PAGE> 55
EXHIBIT B
CERTIFICATION
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of January 2, 1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated, and to utilize
the Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
--------------------
[SEAL]
-54-
<PAGE> 56
EXHIBIT B-1
CERTIFICATION
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of January 2, 1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Participants Trust Company as Depository, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are speci-fically
allocated, and to utilize the Participants Trust Company to the extent
possible in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
--------------------
[SEAL]
-55-
<PAGE> 57
EXHIBIT C
CERTIFICATION
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of January 2, 1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of the
Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
--------------------
[SEAL]
-56-
<PAGE> 58
EXHIBIT D
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), further certifies that the following resolutions
were adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as of January
2, 1997 (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis to act in accordance with, and to rely on Certificates (as
defined in the Custody Agreement) given by the Fund to the Custodian by a
Terminal Link (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant us of
such access codes only to Officers of the fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes, shall limit
its use of the Terminal Link to those purposes permitted by the Custody
Agreement, shall require at least two such Officers to utilize their respective
access codes in connec-tion with each such Certificate, and shall use the
Terminal Link only in a manner that does not contravene the Investment Company
Act of 1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the establishment
of such access codes and such internal safe-keeping procedures, advise the
Custodian that the same have been established by delivering a Certificate, as
defined in the Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
-57-
<PAGE> 59
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
-------------------
[SEAL]
-58-
<PAGE> 60
EXHIBIT E
The undersigned, Richard B. Ille, hereby certifies that he is the duly
elected and acting Secretary of the BB&T MUTUAL FUNDS GROUP, a Massachusetts
business trust (the "Fund"), further certifies that the following resolutions
were adopted by the Board of Trustees of the Fund at a meeting duly held on
November 8, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each country
listed in Schedule I hereto be, and hereby is, approved by the Board of Trustees
as consistent with the best interests of the Fund and its shareholders; and
further
RESOLVED, that the maintenance of the Fund's assets with the foreign
branches of The Bank of New York (the "Bank") listed in Schedule I located in
the countries specified therein, and with the foreign sub-custodians and
depositories listed in Schedule I located in the countries specified therein be,
and hereby is, approved by the Board of Trustees as consistent with the best
interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-custodian Agreements presented to this meeting
between the Bank and each of the foreign sub-custodians and depositories listed
in Schedule I providing for the maintenance of the Fund's assets with the
applicable entity, be and hereby are, approved by the Board of Trustees as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign branches
and foreign sub-custodians and depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of them,
are authorized to do any and all other acts, in the name of the Fund and on its
behalf, as they, or any of them, may
-59-
<PAGE> 61
determine to be necessary or desirable and proper in connection with or in
furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of BB&T
MUTUAL FUNDS GROUP, as of the 2nd day of January, 1997.
/s/ Richard B. Ille
--------------------
[SEAL]
-60-
<PAGE> 1
EXHIBIT (9)(E)
REVISED SCHEDULE A TO THE MANAGEMENT AND ADMINISTRATION AGREEMENT
BETWEEN THE REGISTRANT AND BISYS FUND SERVICES
<PAGE> 2
Dated: As of January 2, 1997
Schedule A
to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
<TABLE>
<CAPTION>
Name of Fund Compensation*
------------ -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual Rate of twenty one-
Fund hundredths of one percent (.20%) of
each such Fund's average daily assets
The BB&T Short-Intermediate U.S. Annual Rate of twenty one-hundredths
Government Income Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Intermediate U.S. Annual Rate of twenty one-hundredths
Government Bond Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Growth and Income Stock Annual Rate of twenty one-hundredths
Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T North Carolina Intermediate Annual Rate of twenty one-hundredths
Tax-Free Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Balanced Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such Fund's
average daily assets
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T Small Company Growth Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such
Fund's average daily assets
The BB&T International Equity Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such
Fund's average daily assets
The BB&T Capital Manager Conservative Annual Rate of five one-hundredths of
Growth Fund one percent (.05%) of each such Fund's
average daily assets
The BB&T Capital Manager Moderate Annual Rate of five one-hundredths of
Growth Fund one percent (.05%) of each such Fund's
average daily assets
The BB&T Capital Manager Growth Annual Rate of five one-hundredths of
Fund one percent (.05%) of each such Fund's
average daily assets
</TABLE>
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
(formerly The Winsbury Corporation)
General Partner
By: /S/ Stephen G. Mintos
------------------------------
- ----------------------
*All fees are computed daily and paid periodically.
A-2
<PAGE> 1
EXHIBIT (9)(F)
FORM OF REVISED SCHEDULE A TO THE MANAGEMENT AND ADMINISTRATION AGREEMENT
BETWEEN THE REGISTRANT AND BISYS FUND SERVICES
<PAGE> 2
Dated: As of _________, 1997
Schedule A
to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
<TABLE>
<CAPTION>
Name of Fund Compensation*
------------ -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual Rate of twenty one-
Fund hundredths of one percent (.20%) of
each such Fund's average daily assets
The BB&T Short-Intermediate U.S. Annual Rate of twenty one-hundredths
Government Income Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Intermediate U.S. Annual Rate of twenty one-hundredths
Government Bond Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Growth and Income Stock Annual Rate of twenty one-hundredths
Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T North Carolina Intermediate Annual Rate of twenty one-hundredths
Tax-Free Fund of one percent (.20%) of each such
Fund's average daily assets
The BB&T Balanced Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such Fund's
average daily assets
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T Small Company Growth Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such
Fund's average daily assets
The BB&T International Equity Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such
Fund's average daily assets
The BB&T Capital Manager Conservative Annual Rate of five one-hundredths of
Growth Fund one percent (.05%) of each such Fund's
average daily assets
The BB&T Capital Manager Moderate Annual Rate of five one-hundredths of
Growth Fund one percent (.05%) of each such Fund's
average daily assets
The BB&T Capital Manager Growth Annual Rate of five one-hundredths of
Fund one percent (.05%) of each such Fund's
average daily assets
The BB&T Prime Money Market Fund Annual Rate of twenty one-hundredths
of one percent (.20%) of each such
Fund's average daily assets
</TABLE>
BB&T MUTUAL FUNDS GROUP
By:
------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
(formerly The Winsbury Corporation)
General Partner
By:
------------------------------
- ----------------------
*All fees are computed daily and paid periodically.
A-2
<PAGE> 1
EXHIBIT (9)(G)
AMENDED SCHEDULE A TO THE TRANSFER AGENCY
AGREEMENT BETWEEN THE REGISTRANT AND BISYS FUND
SERVICES OHIO, INC.
<PAGE> 2
Dated: January 2, 1997
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)
FUND 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
BB&T MUTUAL FUNDS GROUP
By: /S/ J. David Huber
----------------------------
J. David Huber
Title: President
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /S/ Richard B. Ille
----------------------------
Richard B. Ille
Title: President
<PAGE> 1
EXHIBIT (9)(H)
FORM OF AMENDED SCHEDULE A TO THE TRANSFER AGENCY
AGREEMENT BETWEEN THE REGISTRANT AND BISYS FUND
SERVICES OHIO, INC.
<PAGE> 2
Dated: ___________, 1997
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)
FUND 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
Prime Money Market Fund
BB&T MUTUAL FUNDS GROUP
By:
---------------------------------
Title:
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By:
---------------------------------
Title:
<PAGE> 1
EXHIBIT (9)(I)
REVISED SCHEDULE A TO THE FUND ACCOUNTING
AGREEMENT BETWEEN THE REGISTRANT AND BISYS FUND
SERVICES OHIO, INC.
<PAGE> 2
Dated: January 2, 1997
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
NAME OF FUND
------------
The BB&T U.S. Treasury Money Market Fund
The BB&T Short Intermediate U.S. Government Income Fund
The BB&T Intermediate U.S. Government Bond Fund
The BB&T Growth and Income Stock Fund The BB&T North Carolina Intermediate
Tax-Free Fund The BB&T Balanced Fund The BB&T Small Company Growth Fund The BB&T
International Equity Fund The BB&T Capital Manager Conservative Growth Fund The
BB&T Capital Manager Moderate Growth Fund The BB&T Capital Manager Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
------------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /S/ Stephen G. Mintos
------------------------------
A-8
<PAGE> 1
EXHIBIT (9)(J)
FORM OF REVISED SCHEDULE A TO THE FUND ACCOUNTING
AGREEMENT BETWEEN THE REGISTRANT AND BISYS FUND
SERVICES OHIO, INC.
<PAGE> 2
Dated: ___________, 1997
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
NAME OF FUND
------------
The BB&T U.S. Treasury Money Market Fund
The BB&T Short Intermediate U.S. Government Income Fund
The BB&T Intermediate U.S. Government Bond Fund
The BB&T Growth and Income Stock Fund The BB&T North Carolina Intermediate
Tax-Free Fund The BB&T Balanced Fund The BB&T Small Company Growth Fund The BB&T
International Equity Fund The BB&T Capital Manager Conservative Growth Fund The
BB&T Capital Manager Moderate Growth Fund The BB&T Capital Manager Growth Fund
The BB&T Prime Money Market Fund
BB&T MUTUAL FUNDS GROUP
By:
-------------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By:
-------------------------------
<PAGE> 1
EXHIBIT (11)(A)
CONSENT OF KPMG PEAT MARWICK LLP
<PAGE> 2
Auditors' 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.
KPMG Peat Marwick LLP
Columbus, Ohio
February 13, 1997
<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. 11 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.
February 14, 1997
<PAGE> 1
EXHIBIT (15)(A)
RE-EXECUTED AMENDED AND RESTATED DISTRIBUTION AND
SHAREHOLDER SERVICES PLAN BETWEEN THE REGISTRANT AND BISYS FUND SERVICES
<PAGE> 2
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
October 1, 1992
As Amended and Restated September 21, 1995
As Re-Executed February 7, 1997
This Plan (the "Plan") constitutes the DISTRIBUTION AND SHAREHOLDER
SERVICES PLAN of BB&T Mutual Funds Group, a Massachusetts business trust (the
"Group"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Part A of the Plan relates to each series (each a "Fund")
and class of the units of participation ("Shares") of the Group. Part B of the
Plan relates to the Shares of the Class A ("A Shares") and /or Class B ("B
Shares") of particular Funds identified on Schedule A hereto, as such may be
amended from time to time.
PART A
------
1. The Group has entered into a Distribution Agreement (the
"Agreement") with BISYS Fund Services (the "Distributor"), under which the
Distributor uses all reasonable efforts, consistent with its other business, to
secure purchasers for the Group's Shares. Under the Agreement, the Distributor
pays the expenses of printing and distributing any prospectuses, reports and
other literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of the Group's Shares for sale to the
public. BISYS Fund Services also serves as the Group's Administrator, under a
Management and Administration Agreement with the Fund. It is understood that the
Distributor may pay for these expenses from any source available to it,
including management and administration fees paid to it by the Group.
2. The Distributor may, subject to the oversight of the Board of
Trustees, make payments to securities dealers and other third parties who engage
in the sale of Shares or who render shareholder support services, including but
not limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Group, processing shareholder
transactions and providing such other shareholder services as the Group may
reasonably request.
3. The Group will not make separate payments as a result of this Part A
of the Plan to the Distributor or any other party, it being recognized that the
Group presently pays, and will continue to pay, a management and administration
fee to the Distributor. To the extent that any payments made by the Fund to the
Distributor, including payment of management and administration fees, should be
deemed to be indirect financing of any activity primarily intended to result in
the sale of the Shares issued by the Group within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to be authorized by this
Part A of the Plan.
<PAGE> 3
4. During the existence of this Part A of the Plan, the Group shall
require the Distributor to provide the Group, for review by the Group's Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended (other than amounts expended pursuant to Part B
of the Plan) in connection with financing any activity primarily intended to
result in the sale of Shares issued by the Group (making estimates of such costs
where necessary or desirable) and the purposes for which such expenditures were
made.
PART B
------
WHEREAS, it is desirable to enable the Group to have flexibility in
meeting the investment and Shareholder servicing needs of its future investors;
and
WHEREAS, the Board of Trustees, mindful of the requirements imposed by
Rule 12b-1 under the 1940 Act, has determined to effect the Plan for the
provision of distribution assistance with respect to the A Shares and B Shares
of each Fund listed on Schedule A hereto and for the provision of Shareholder
services with respect to the holders of such Shares of each Fund;
NOW THEREFORE, the Group and BISYS Fund Services (the "Distributor")
hereby agree as follows:
SECTION 1. Each Fund, the A Shares of which are listed on Schedule A
hereto, shall pay out of its assets attributable to its A Shares a distribution
and shareholder services fee (the "A Share Fee") to the Distributor equal to the
lesser of (i) the fee at the applicable annual rate set forth in Schedule A
hereto or (ii) such fee as may from time to time be agreed upon in writing by
the Group and the Distributor. The Distributor may apply the A Share Fee toward
the following: (i) compensation for its services in connection with distribution
assistance with respect to such Fund's A Shares or for its services in
connection with the rendering of Shareholder services to the holders of such
Fund's A Shares; (ii) payments to financial institutions and intermediaries
(such as insurance companies and investment counselors but not including banks
and savings and loan associations), broker-dealers, and the Distributor's
affiliates and subsidiaries as compensation for services and/or reimbursement of
expenses incurred in connection with distribution assistance or Shareholder
services with respect to such Fund's A Shares; or (iii) payments to banks and
savings and loan associations, other financial institutions and intermediaries,
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with the provision of Shareholder services to the holders of such
Fund's A Shares.
SECTION 2. Each Fund, the B Shares of which are listed on Schedule A
hereto, shall pay out of its assets attributable to its B Shares a distribution
and shareholder services fee (the "B Share Fee") to the Distributor equal to the
lesser of (i) the fee at the applicable annual rate set forth in Schedule A
hereto, or (ii) such fee as may be agreed upon in writing by the Group
-2-
<PAGE> 4
and the Distributor. The Distributor may apply the B Share Fee toward the
following: (i) compensation for its services or expenses in connection with
distribution assistance with respect to such Fund's B Shares; (ii) payments to
financial institutions and intermediaries (such as banks, savings and loan
associations, insurance companies, and investment counselors) as brokerage
commissions in connection with the sale of such Fund's B Shares; and (iii)
payments to financial institutions and intermediaries (such as banks, savings
and loan associations, insurance companies, and investment counselors),
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with distribution or shareholder services with respect to such Fund's
B Shares. The maximum amount of the B Share Fee that may be payable by the
Fund's B Shares for the aforementioned services and expenses other than services
and/or reimbursement of expenses incurred in connection with shareholder
services with respect to such Fund's B Shares is .75% of the average daily net
assets of such Fund's B Shares. The remaining portion of the B Share Fee is
payable by the Fund's B Shares only as compensation for services and/or
reimbursement of expenses incurred in connection with shareholder services with
respect to such Fund's B Shares. As provided in the Distribution Agreement, the
Distributor may assign its right to receive the B Share Fee to any entity in
connection with the sale of a Fund's B Shares.
SECTION 3. The A Share and B Share Fees shall be accrued daily and
payable monthly, and shall be paid by each Fund to the Distributor irrespective
of whether such fee exceeds the amounts paid (or payable) by the Distributor
pursuant to Sections 1 and 2 of this Part B.
SECTION 4. The Plan shall not take effect with respect to the A Shares
or B Shares of a Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities (as defined in the 1940 Act) of
that Fund's A Shares or B Shares, respectively, subject to the Plan.
SECTION 5. The Plan shall not take effect with respect to the A Shares
or B Shares of a Fund until it has been approved, together with any related
agreements, by a vote of a majority (or whatever greater percentage may, from
time to time, be required by Section 12(b) of the 1940 Act or the rules and
regulations thereunder) of the Trustees who are not "interested persons" of the
Group (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements related to this Plan
(the "Independent Trustees"), cast in person at a meeting called for the purpose
of voting on the Plan or such agreement.
SECTION 6. The Plan shall continue in effect with respect to a class of
a Fund for a period of more than one year after it takes effect, provided that
such continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Section 5.
-3-
<PAGE> 5
SECTION 7. Any person authorized to direct the disposition of monies
paid or payable by a Fund pursuant to the Plan or any related agreement shall
provide to the Trustees of the Group, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 8. The Plan may be terminated with respect to the A Shares or B
Shares of a Fund at any time by vote of a majority of the Independent Trustees,
or by vote of a majority of the outstanding A Shares or B Shares, respectively,
of that Fund.
SECTION 9. All agreements with any person relating to the
implementation of the Plan shall be in writing and any agreement related to the
Plan shall provide:
A. That such agreement, may be terminated with respect to the A
Shares or B Shares of a Fund at any time, without payment of
any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding A Shares
or B Shares, respectively, of that Fund, on not more than 60
days' written notice; and
B. That such agreement shall terminate automatically in the event
of its assignment.
SECTION 10. The Plan may not be amended to increase materially the
amount of the A Share or B Share Fee with respect to a Fund without approval by
Shareholders and Trustees in the manner provided in Sections 4 and 5 hereof, and
all material amendments to the Plan with respect to a Fund shall be approved in
the manner provided for approval of the Plan in Section 5.
SECTION 11. As used herein, the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
SECTION 12. The names "BB&T Mutual Funds Group" and "Trustees of BB&T
Mutual Funds Group" refer respectively to the Group created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated October 1, 1987 to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of the Commonwealth of Massachusetts and elsewhere as required by law, and
to any and all amendments thereto so filed or hereafter filed. The obligations
of BB&T Mutual Funds Group entered into in the name or on behalf thereof by any
of the Trustees, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Group personally, but bind only the assets of the Group,
and all persons dealing with any series
-4-
<PAGE> 6
and/or class of Shares of the Group must look solely to the assets of the Group
belonging to such series and/or class for the enforcement of any claims against
the Group.
[SEAL] By: BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
------------------------------
BISYS FUND SERVICES
By: /S/ J. David Huber
------------------------------
Dated: February 7, 1997
-5-
<PAGE> 7
Dated: February 7, 1997
Schedule A to the
Distribution and Shareholder Services Plan
dated October 1, 1992
As Amended and Restated September 21, 1995
As Re-Executed February 7, 1997
<TABLE>
<CAPTION>
Name of Funds Compensation*
- ------------- -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T U.S. Treasury Money Market Fund.
The BB&T Short-Intermediate U.S. Annual rate of fifty one-hundredths of one
Government Income Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Short-Intermediate U.S.
Government Income Fund.
The BB&T Intermediate U.S. Government Annual rate of fifty one-hundredths of one
Bond Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Intermediate U.S. Government
Bond Fund.
The BB&T Growth and Income Stock Annual rate of fifty one-hundredths of one
Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T Growth and Income Stock Fund.
The BB&T North Carolina Intermediate Annual rate of fifty one-hundredths of one
Tax-Free Fund -- A Shares percent (.50%) of the average daily net assets
of the BB&T North Carolina Intermediate Tax-Free
Fund.
The BB&T Balanced Fund -- A Shares Annual rate of fifty one-hundredths of one
percent (.50%) of the average daily net assets
of the BB&T Balanced Fund.
The BB&T Small Company Growth Fund -- Annual rate of fifty one-hundredths of one
A Shares percent (.50%) of the average daily net
assets of the BB&T Small Company Growth Fund.
</TABLE>
A-1
<PAGE> 8
<TABLE>
<S> <C>
The BB&T International Equity Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T International
Equity Fund.
The BB&T Capital Manager Conservative Annual rate of fifty one-hundredths of
Growth Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Conservative Growth Fund.
The BB&T Capital Manager Moderate Annual rate of fifty one-hundredths of
Growth Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Moderate Growth Fund.
The BB&T Capital Manager Growth Fund -- Annual rate of fifty one-hundredths of
A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Growth Fund.
The BB&T Prime Money Market Fund -- Annual rate of fifty one-hundredths of
A Shares one percent (.50%) of the average daily
net assets of the BB&T Prime Money Market
Fund.
The BB&T U.S. Treasury Money Market Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T
U.S. Treasury Money Market Fund.
The BB&T Short-Intermediate U.S. Government Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T Short-
Intermediate U.S. Government Fund.
The BB&T Intermediate U.S. Government Bond Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T
Intermediate U.S. Government Bond Fund.
The BB&T Growth and Income Stock Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T Growth
and Income Stock Fund.
The BB&T North Carolina Intermediate Tax- Annual rate of one percent (1.00%) of the
Free Fund -- B Shares average daily net assets of the BB&T
North Carolina Tax-Free Fund.
</TABLE>
A-2
<PAGE> 9
<TABLE>
<S> <C>
The BB&T Balanced Fund -- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the BB&T
Balanced Fund.
The BB&T Small Company Growth Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T Small
Company Growth Fund.
The BB&T International Equity Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T
International Equity Fund.
The BB&T Capital Manager Conservative Annual rate of one percent (1.00%) of the
Growth Fund -- B Shares average daily net assets of the BB&T Capital
Manager Conservative Growth Fund.
The BB&T Capital Manager Moderate Growth Annual rate of one percent (1.00%) of the
Fund -- B Shares average daily net assets of the BB&T Capital
Manager Moderate Growth Fund.
The BB&T Capital Manager Growth Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T Capital
Manager Growth Fund.
The BB&T Prime Money Market Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the BB&T Prime
Money Market Fund. [SEAL]
</TABLE>
BB&T MUTUAL FUNDS GROUP
By: /S/ Richard B. Ille
------------------------------
BISYS FUND SERVICES
By: /S/ J. David Huber
------------------------------
* All fees are computed and paid monthly.
A-3
<PAGE> 1
EXHIBIT (15)(c)
REVISED SCHEDULE A TO THE SERVICING AGREEMENT WITH BRANCH BANKING
AND TRUST COMPANY AND BISYS FUND SERVICES
<PAGE> 2
Dated: January 2, 1997
Schedule A
to the
Servicing Agreement With Respect To
Distribution Assistance and Shareholder Services
between BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
and Branch Banking and Trust Company
<TABLE>
<CAPTION>
Name of The Fund Compensation*
- ---------------- -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of twenty-five one-hundredths
Fund of one percent (.25%) of the average daily
net asset value of the BB&T U.S. Treasury
Money Market Fund's Class A Shares held of
record by the Participating Organization from
time to time on behalf of Customers.
The BB&T Short-Intermediate U.S. Annual rate of twenty-five one-hundredths
Government Income Fund of one percent (.25%) of the average daily
net asset value of the BB&T Short-Intermediate
U.S. Government Income Fund's Class A Shares
held of record by the Participating Organization
from time to time on behalf of Customers.
The BB&T Intermediate U.S. Government Annual rate of twenty-five one-hundredths of one
Bond Fund percent (.25%) of the average daily net asset
value of the BB&T Intermediate U.S. Government
Bond Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
The BB&T Growth and Income Stock Fund Annual rate of twenty-five one-hundredths of
one percent (.25%) of the average daily net
asset value of the BB&T Growth and Income Stock
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T North Carolina Intermediate Annual rate of twenty-five one-hundredths of
Tax-Free Fund one percent (.25%) of the average daily net
asset value of the BB&T North Carolina
Intermediate Tax-Free Fund's Class A Shares
held of record by the Participating Organization
from time to time on behalf of Customers.
The BB&T Balanced Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average daily
net asset value of the BB&T Balanced Fund's
Class A Shares held of record by the
Participating Organization from time to time
on behalf of the Customers.
The BB&T Small Company Growth Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average daily net
asset value of the BB&T Small Company Growth
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
The BB&T International Equity Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average
daily net asset value of the BB&T
International Equity Fund's Class A Shares
held of record by the Participating
Organization from time to time on behalf of
customers.
The BB&T Capital Manager Conservative Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net
asset value of the BB&T Capital Manager
Conservative Growth Fund's Class A Shares held
of record by the Participating Organization
from time to time on behalf of customers.
The BB&T Capital Manager Moderate Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net asset
value of the BB&T Capital Manager Moderate Growth
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of customers.
</TABLE>
A-2
<PAGE> 4
<TABLE>
<S> <C>
The BB&T Capital Manager Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net
asset value of the BB&T Capital Manager
Growth Fund's Class A Shares held of record
by the Participating Organization from time to
time on behalf of customers.
</TABLE>
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
By: BISYS FUND SERVICES
(formerly The Winsbury Corporation) BRANCH BANKING AND TRUST
GENERAL PARTNER COMPANY
By: /s/ Stephen G. Mintos By: /s/ E.G. Purcell, III
----------------------------- ---------------------------
- -----------------
* All fees are computed daily and paid monthly.
A-3
<PAGE> 1
EXHIBIT (15)(d)
FORM OF REVISED SCHEDULE A TO THE SERVICING AGREEMENT WITH
BRANCH BANKING AND TRUST COMPANY AND BISYS FUND SERVICES
<PAGE> 2
Dated: _____________, 1997
Schedule A
to the
Servicing Agreement With Respect To
Distribution Assistance and Shareholder Services
between BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
and Branch Banking and Trust Company
<TABLE>
<CAPTION>
Name of The Fund Compensation*
- ---------------- -------------
<S> <C>
The BB&T U.S. Treasury Money Market Annual rate of twenty-five one-hundredths
Fund of one percent (.25%) of the average daily
net asset value of the BB&T U.S. Treasury
Money Market Fund's Class A Shares held of
record by the Participating Organization from
time to time on behalf of Customers.
The BB&T Short-Intermediate U.S. Annual rate of twenty-five one-hundredths
Government Income Fund of one percent (.25%) of the average daily
net asset value of the BB&T Short-Intermediate
U.S. Government Income Fund's Class A Shares
held of record by the Participating Organization
from time to time on behalf of Customers.
The BB&T Intermediate U.S. Government Annual rate of twenty-five one-hundredths of one
Bond Fund percent (.25%) of the average daily net asset
value of the BB&T Intermediate U.S. Government
Bond Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
The BB&T Growth and Income Stock Fund Annual rate of twenty-five one-hundredths of
one percent (.25%) of the average daily net
asset value of the BB&T Growth and Income Stock
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T North Carolina Intermediate Annual rate of twenty-five one-hundredths of
Tax-Free Fund one percent (.25%) of the average daily net
asset value of the BB&T North Carolina
Intermediate Tax-Free Fund's Class A Shares
held of record by the Participating Organization
from time to time on behalf of Customers.
The BB&T Balanced Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average daily
net asset value of the BB&T Balanced Fund's
Class A Shares held of record by the
Participating Organization from time to time
on behalf of the Customers.
The BB&T Small Company Growth Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average daily net
asset value of the BB&T Small Company Growth
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of Customers.
The BB&T International Equity Fund Annual rate of twenty-five one-hundredths
of one percent (.25%) of the average
daily net asset value of the BB&T
International Equity Fund's Class A Shares
held of record by the Participating
Organization from time to time on behalf of
customers.
The BB&T Capital Manager Conservative Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net
asset value of the BB&T Capital Manager
Conservative Growth Fund's Class A Shares held
of record by the Participating Organization
from time to time on behalf of customers.
The BB&T Capital Manager Moderate Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net asset
value of the BB&T Capital Manager Moderate Growth
Fund's Class A Shares held of record by the
Participating Organization from time to time on
behalf of customers.
</TABLE>
A-2
<PAGE> 4
<TABLE>
<S> <C>
The BB&T Capital Manager Annual rate of twenty-five one-hundredths of
Growth Fund one percent (.25%) of the average daily net
asset value of the BB&T Capital Manager
Growth Fund's Class A Shares held of record
by the Participating Organization from time to
time on behalf of customers.
The BB&T Prime Money Market Fund Annual rate of twenty-five one-hundredths of
one percent (.25%) of the average daily net
asset value of the BB&T Prime Money Market
Fund's Class A Shares held of record by the
Participating Organization from time to time
on behalf of Customers.
</TABLE>
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
By: BISYS FUND SERVICES
(formerly The Winsbury Corporation) BRANCH BANKING AND TRUST
GENERAL PARTNER COMPANY
By: By:
----------------------------- ---------------------------
- -----------------
* All fees are computed daily and paid monthly.
A-3
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 1
<NAME> BB&T U.S. TREASURY MONEY MARKET 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> 236,129,449
<INVESTMENTS-AT-VALUE> 126,129,449
<RECEIVABLES> 111,458
<ASSETS-OTHER> 6,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,247,718
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,037,123
<TOTAL-LIABILITIES> 1,037,123
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 235,210,595
<SHARES-COMMON-STOCK> 27,931,354<F1>
<SHARES-COMMON-PRIOR> 13,947,892<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 235,210,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,828,598
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,437
<NET-INVESTMENT-INCOME> 8,394,161
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,394,161
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 948,869<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 449,946,776
<NUMBER-OF-SHARES-REDEEMED> 350,488,723
<SHARES-REINVESTED> 1,721,604
<NET-CHANGE-IN-ASSETS> 101,179,657
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,490,807
<AVERAGE-NET-ASSETS> 21,689,548<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .044<F1>
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .44<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .99<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 102
<NAME> BB&T U.S. TREASURY MONEY MARKET 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> 118,757,258
<INVESTMENTS-AT-VALUE> 118,757,258
<RECEIVABLES> 111,458
<ASSETS-OTHER> 117,378,002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,247,716
<PAYABLE-FOR-SECURITIES> 865,628
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 171,495
<TOTAL-LIABILITIES> 1,037,123
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 235,210,595
<SHARES-COMMON-STOCK> 1,304,785<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 235,270,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,828,598
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,437
<NET-INVESTMENT-INCOME> 8,394,161
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,394,161
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,543<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 449,946,776
<NUMBER-OF-SHARES-REDEEMED> 350,488,723
<SHARES-REINVESTED> 1,721,604
<NET-CHANGE-IN-ASSETS> 101,179,657
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,490,807
<AVERAGE-NET-ASSETS> 778,474<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .025<F1>
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .025<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 1.75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 103
<NAME> BB&T U.S. TREASURY MONEY MARKET 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> 118,757,258
<INVESTMENTS-AT-VALUE> 118,757,258
<RECEIVABLES> 111,458
<ASSETS-OTHER> 117,379,002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,247,718
<PAYABLE-FOR-SECURITIES> 865,628
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 171,495
<TOTAL-LIABILITIES> 1,037,123
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 235,210,595
<SHARES-COMMON-STOCK> 205,974,456<F1>
<SHARES-COMMON-PRIOR> 120,083,046<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 235,210,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,828,598
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,437
<NET-INVESTMENT-INCOME> 8,394,161
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,425,749<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 449,946,776
<NUMBER-OF-SHARES-REDEEMED> 350,488,723
<SHARES-REINVESTED> 1,721,604
<NET-CHANGE-IN-ASSETS> 101,179,657
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,490,807
<AVERAGE-NET-ASSETS> 160,532,016<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .046<F1>
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .046<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .75<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> 2
<NAME> BB&T SHORT INTERMEDIATE U.S. GOV. INCOME 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> 68,917,857
<INVESTMENTS-AT-VALUE> 68,372,719
<RECEIVABLES> 999,247
<ASSETS-OTHER> 2,354
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,374,320
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 396,834
<TOTAL-LIABILITIES> 396,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,003,107
<SHARES-COMMON-STOCK> 653,039<F1>
<SHARES-COMMON-PRIOR> 718,579<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,480,483
<ACCUM-APPREC-OR-DEPREC> (545,138)
<NET-ASSETS> 68,977,486
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,889,555
<OTHER-INCOME> 0
<EXPENSES-NET> 554,292
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (162,759)
<APPREC-INCREASE-CURRENT> (686,269)
<NET-CHANGE-FROM-OPS> 2,486,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 371,250<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3,264,121
<NUMBER-OF-SHARES-REDEEMED> 1,597,468
<SHARES-REINVESTED> 146,965
<NET-CHANGE-IN-ASSETS> 16,871,021
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,317,724
<GROSS-ADVISORY-FEES> 346,207
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 628,963
<AVERAGE-NET-ASSETS> 6,692,536<F1>
<PER-SHARE-NAV-BEGIN> 9.88<F1>
<PER-SHARE-NII> .55<F1>
<PER-SHARE-GAIN-APPREC> (.15)<F1>
<PER-SHARE-DIVIDEND> .55<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73<F1>
<EXPENSE-RATIO> 1.19<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 203
<NAME> BB&T SHORT INTERMEDIATE U.S. GOV. INCOME 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> 68,917,857
<INVESTMENTS-AT-VALUE> 68,372,719
<RECEIVABLES> 999,247
<ASSETS-OTHER> 2,354
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,374,320
<PAYABLE-FOR-SECURITIES> 331,984
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,850
<TOTAL-LIABILITIES> 396,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,003,107
<SHARES-COMMON-STOCK> 6,430,579<F1>
<SHARES-COMMON-PRIOR> 4,551,421<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,480,483
<ACCUM-APPREC-OR-DEPREC> (645,138)
<NET-ASSETS> 68,977,486
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,889,553
<OTHER-INCOME> 0
<EXPENSES-NET> 554,292
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (162,759)
<APPREC-INCREASE-CURRENT> (686,269)
<NET-CHANGE-FROM-OPS> 2,486,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,964,013<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3,264,121
<NUMBER-OF-SHARES-REDEEMED> 1,597,468
<SHARES-REINVESTED> 146,965
<NET-CHANGE-IN-ASSETS> 16,871,021
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,317,724
<GROSS-ADVISORY-FEES> 346,207
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 628,963
<AVERAGE-NET-ASSETS> 51,007,946<F1>
<PER-SHARE-NAV-BEGIN> 9.89<F1>
<PER-SHARE-NII> .57<F1>
<PER-SHARE-GAIN-APPREC> (.15)<F1>
<PER-SHARE-DIVIDEND> .57<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.74<F1>
<EXPENSE-RATIO> .93<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> 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
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 124,082,549
<INVESTMENTS-AT-VALUE> 122,548,269
<RECEIVABLES> 1,819,677
<ASSETS-OTHER> 3,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 124,371,401
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 726,290
<TOTAL-LIABILITIES> 726,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,175,765
<SHARES-COMMON-STOCK> 380,071<F1>
<SHARES-COMMON-PRIOR> 523,612<F1>
<ACCUMULATED-NII-CURRENT> 5,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<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> 247,352<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> 638,532
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,055,617
<AVERAGE-NET-ASSETS> 4,354,368<F1>
<PER-SHARE-NAV-BEGIN> 9.88<F1>
<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> (.25)<F1>
<PER-SHARE-DIVIDEND> .56<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.63<F1>
<EXPENSE-RATIO> 1.13<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> 302
<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
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 124,082,549
<INVESTMENTS-AT-VALUE> 122,548,269
<RECEIVABLES> 1,819,677
<ASSETS-OTHER> 3,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 124,371,401
<PAYABLE-FOR-SECURITIES> 615,773
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,517
<TOTAL-LIABILITIES> 726,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,115,765
<SHARES-COMMON-STOCK> 36,791<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 5,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<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> 6,966<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> 213,946<F1>
<PER-SHARE-NAV-BEGIN> 10.17<F1>
<PER-SHARE-NII> .31<F1>
<PER-SHARE-GAIN-APPREC> (.57)<F1>
<PER-SHARE-DIVIDEND> .31<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<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.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 303
<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
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 124,082,549
<INVESTMENTS-AT-VALUE> 122,548,269
<RECEIVABLES> 1,819,677
<ASSETS-OTHER> 3,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 124,371,401
<PAYABLE-FOR-SECURITIES> 615,773
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,517
<TOTAL-LIABILITIES> 726,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,115,765
<SHARES-COMMON-STOCK> 12,411,224<F1>
<SHARES-COMMON-PRIOR> 7,944,872<F1>
<ACCUMULATED-NII-CURRENT> 5,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<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>
