<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JULY 2, 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. 12 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13
------------------
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)
__ on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section (a)(1) of Rule
24f-2. Rule 24f-2 Notice for the Registrant's fiscal year ending September 30,
1996 was filed on or about November 26, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page....................... Cover Page
Financial
Highlights.................... Selected Per Share Data and Ratios;
Performance
Synopsis......................... Fee Table
General Description
of Registrant................. BB&T Mutual Funds Group; Investment
Objective and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares
Management of BB&T
Mutual Funds Group............ Management of BB&T Mutual Funds Group;
General Information -Custodian and Transfer
Agent
Capital Stock and
Other Securities.............. BB&T Mutual Funds Group; How to Purchase
and Redeem Shares; Dividends and Taxes;
General Information - Description of the
Group and Its Shares; General Information
-Miscellaneous
Purchase of Securities
Being Offered................. Valuation of Shares; How to Purchase and
Redeem Shares
Redemption or Repurchase......... How to Purchase and Redeem Shares
Legal Proceedings................ Inapplicable
</TABLE>
<PAGE> 3
Money Market Funds
Prime Money Market Fund
U.S. Treasury Money Market Fund
Bond Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
South Carolina Intermediate Tax-Free Fund
Stock Funds
Growth and Income Stock Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund
CLASS A AND B SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED [_________], 1997
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
The Group........................................................
Fee Table........................................................
Financial Highlights.............................................
Investment Objectives and Policies...............................
Investment Restrictions..........................................
Valuation of Shares..............................................
How to Purchase and Redeem Shares................................
Dividends and Taxes..............................................
Management of BB&T Mutual Funds Group............................
General Information..............................................
</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> 5
BB&T MUTUAL FUNDS GROUP
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public eleven 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 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.
The BB&T U.S. Treasury Money Market Fund (the "U.S. Treasury Fund"),
seeks current income with liquidity and stability of principal, through
investment exclusively in short-term obligations issued or guaranteed by the
U.S. Treasury, some of which may be subject to repurchase agreements. The U.S.
Treasury Fund seeks to maintain a constant net asset value of $1.00 per share.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND AND THE
U.S. TREASURY FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE
THE BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the
"Short-Intermediate Fund") seeks current income consistent with the preservation
of capital through investment in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, and high grade collateralized mortgage obligations.
THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND (the "Intermediate Bond
Fund") seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.
<PAGE> 6
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and North Carolina personal income tax. Normally,
the North Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "South Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and South Carolina personal income tax. Normally,
the South Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of South Carolina and its
political subdivisions.
THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND ARE NON-DIVERSIFIED
SERIES AND THEREFORE MAY EACH INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN
OBLIGATIONS OF ONE ISSUER.
THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund")
seeks capital growth, current income or both, through investment in stocks.
THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term
capital growth and produce current income through investment in a broadly
diversified portfolio of securities, including common stocks, preferred stocks
and bonds.
THE BB&T LARGE COMPANY GROWTH FUND (the "Large Company Growth Fund")
seeks long-term capital appreciation through investment primarily in a
diversified portfolio of equity and equity-related securities of large
capitalization growth companies.
THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund")
seeks long-term capital appreciation through investment primarily in a
diversified portfolio of equity and equity-related securities of small
capitalization growth companies.
THE BB&T INTERNATIONAL EQUITY FUND (the "International Equity Fund")
seeks long-term capital appreciation through investment primarily in equity
securities of foreign issuers.
This Prospectus relates to the Class A Shares of the Group (formerly
the Investor Shares) and Class B Shares of the Group, which are offered to the
general public. Through a separate prospectus, the Group also offers Trust
Shares to BB&T and its affiliates and other financial service providers approved
by the Distributor for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial or similar capacity. Additional
information about each of the Funds contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information and the prospectus relating to the Trust
Shares are available upon request without charge by
writing to the Group or by calling the Group at the telephone number shown
above. The
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<PAGE> 7
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Group's
Class A and Class B Shares that a prospective investor ought to know before
investing. Investors should read this Prospectus and retain it for future
reference.
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY,
SOUTHERN NATIONAL CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE
FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is [___________], 1997.
-3-
<PAGE> 8
PROSPECTUS SUMMARY
The Group BB&T Mutual Funds Group, (the "Group") a
Massachusetts business trust, is an open-end
management investment company which currently
consists of eleven separately managed portfolios
(each a "Fund"). The Group also offers three separate
investment Funds (the "Funds of Funds"), offering
Trust Shares only, which offer Shareholders a
professionally-managed investment program by
purchasing shares of existing mutual funds of the
Group (the "Underlying Funds") which are managed by
BB&T. Each Fund, except for the Funds of Funds,
offers to the public three classes of Shares: Class
A, Class B and Trust Class. As of the date of this
prospectus, however, Class B Shares were not yet
being offered in the Prime Money Market,
Short-Intermediate , North Carolina or South Carolina
Funds. Shareholders investing directly in Class B
Shares of the U.S. Treasury Fund as opposed to
Shareholders obtaining Class B Shares upon an
exchange of Class B Shares of any of the other Funds,
will be requested to participate in the Auto Exchange
Program in such a way that their Class B Shares have
been withdrawn from the U.S. Treasury Fund within two
years of purchase. This prospectus relates only to
Class A and Class B Shares.
Investment Objective and
Policies THE PRIME MONEY MARKET FUND seeks as high a level of
current interest income as is consistent with
maintaining liquidity and stability of principal.
THE U.S. TREASURY FUND seeks current income with
liquidity and stability of principal through
investing exclusively in short-term obligations
issued or guaranteed by the U.S. Treasury, some of
which may be subject to repurchase agreements.
THE SHORT-INTERMEDIATE FUND seeks current income
consistent with the preservation of capital through
investment in obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities,
and high grade collateralized mortgage obligations,
some of which may be subject to repurchase
agreements.
-4-
<PAGE> 9
THE INTERMEDIATE BOND FUND seeks current income
consistent with the preservation of capital through
investment of at least 65% of its assets in bonds
issued or guaranteed by the U.S. Government or its
agencies or its instrumentalities, some of which may
be subject to repurchase agreements.
THE NORTH CAROLINA FUND seeks to produce a high level
of current interest income which is exempt from both
federal income tax and North Carolina personal income
tax, normally by investing at least 90% of its total
assets in high grade obligations issued by or on
behalf of the State of North Carolina and its
political subdivisions.
THE SOUTH CAROLINA FUND seeks to produce a high level
of current interest income which is exempt from both
federal income tax and South Carolina personal income
tax, normally by investing at least 90% of its total
assets in high grade obligations issued by or on
behalf of the State of South Carolina and its
political subdivisions.
THE GROWTH AND INCOME FUND seeks capital growth,
current income or both, primarily through investment
in stocks.
THE BALANCED FUND seeks to obtain long-term capital
growth and to produce current income through
investment in a broadly diversified portfolio of
securities, including common stocks, preferred stocks
and bonds.
THE LARGE COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a
diversified portfolio of equity and equity-related
securities of large capitalization growth companies.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a
diversified portfolio of equity and equity-related
securities of small capitalization growth companies.
THE INTERNATIONAL EQUITY FUND seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.
-5-
<PAGE> 10
Investment Risks Each Fund's performance may change daily based on
many factors including interest rate levels, the
quality of the obligations in each Fund's portfolio,
and market conditions. An investment in the North
Carolina and South Carolina Funds may involve special
risk considerations. (See "Other Investment Policies
of the North Carolina Fund and the South Carolina
Fund.") An investment in the International Equity
Fund and the Prime Money Market Fund may involve
special risk considerations. (See "Foreign
Investments.")
Offering Price The public offering price of the Class A Shares of
the Prime Money Market Fund and the U.S. Treasury
Fund is equal to that Fund's net asset value per
Share, which each Money Market Fund will seek to
maintain at $1.00.
The public offering price of the Class A Shares of
the Short-Intermediate, Intermediate Bond, North
Carolina, South Carolina, Growth and Income,
Balanced, Large Company Growth, Small Company Growth,
and International Equity Funds is equal to that
Fund's net asset value per Share plus the applicable
sales charge. The public offering price of the Class
B Shares is equal to the Fund's net asset value per
share. (See "HOW TO PURCHASE AND REDEEM SHARES--Sales
Charge".)
Maximum Purchase For Class A Shares there is no maximum purchase. For
Class B Shares the maximum purchase is $250,000. (See
"HOW TO PURCHASE AND REDEEM SHARES -- Purchases of
Class A and Class B Shares.")
Minimum Purchase For Class A and Class B Shares, there is a $1000
minimum initial purchase with no minimum investment
for subsequent purchases. (See "HOW TO PURCHASE AND
REDEEM SHARES--Purchases of Class A and Class B
Shares.")
Investment Adviser Branch Banking and Trust Company, Raleigh, North
Carolina.
-6-
<PAGE> 11
Dividends The Prime Money Market, U.S. Treasury, North
Carolina, South Carolina, Short-Intermediate and
Intermediate Bond Funds declare dividends daily and
pay such dividends monthly. The Growth and Income and
Balanced Funds declare and pay dividends monthly. The
Large Company Growth Fund, Small Company Growth Fund
and the International Equity Fund declare and pay
dividends quarterly.
Distributor BISYS Fund Services, Columbus, Ohio.
-7-
<PAGE> 12
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management
investment company. The Group consists of eleven series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one of
eleven separate investment funds (each a "Fund"). The Group also offers three
separate investment Funds (the "Funds of Funds"), offering Trust Shares only,
which offer Shareholders a professionally-managed investment program by
purchasing shares of existing mutual funds of the Group (the "Underlying
Funds"), which are managed by BB&T. Each Fund, except for the Funds of Funds,
offers three classes of Shares: Class A, Class B and Trust Class. As of the date
of this prospectus, however, Class B Shares were not yet being offered in the
Prime Money Market, Short-Intermediate , South Carolina and North Carolina
Funds.
-8-
<PAGE> 13
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A and Class B Shares of the Funds will
bear, either directly or indirectly.
<TABLE>
<CAPTION>
Prime Money Market Short-Intermediate Intermediate Bond
Fund U.S. Treasury Fund Fund Fund
Class A Class A Class B Class A Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 0% 0% 0% 2.00% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 5.00% 0% 0% 5.00%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2) 0% 0% 0% 0% 0% 0%
Exchange Fee $ 0 $0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after voluntary
fee reductions) .30%(3) .40% .40% .50%(3) .50%(3) .50%(3)
12b-1 Fees (after voluntary fee reductions) .25%(4) .25%(4) 1.00% .25%(4) .25%(4) 1.00%
Other Expenses .35%(5) .34% .35% .44% .38% .35%
Total Fund Operating Expenses
(after voluntary fee reductions) .90%(6) .99% 1.75% 1.19%(6) 1.13%(6) 1.85%(6)
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
North South
Carolina Carolina Growth and Income
Fund Fund Fund Balanced Fund
Class A Class A Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 2.00% 2.00% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0% 0% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2) 0% 0% 0% 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after voluntary
fee reductions) .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) .50%(3)
12b-1 Fees (after voluntary fee
reductions) .15%(4) .15%(4) .25%(4) 1.00% .25%(4) 1.00%
Other Expenses (after voluntary fee
reductions) .46%(5) .49%(5) .36% .35% .45% .45%
Total Fund Operating Expenses
(after voluntary fee reductions) 1.11%(6) 1.14%(6) 1.11%(6) 1.85%(6) 1.20%(6) 1.95%(6)
</TABLE>
<TABLE>
<CAPTION>
Large
Small Company Company International
Growth Fund Growth Fund Equity Fund
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2) 0% 0% 0% 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after voluntary
fee reductions) 1.00% 1.00% .50%(3) .50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions) .25%(4) 1.00% .25%(4) 1.00% .25%(4) 1.00%
Other Expenses (after voluntary fee
reductions) .76% .72% .49%(5) .49%(5) .87%(5) .87%(5)
Total Fund Operating Expenses
(after voluntary fee reductions) 2.01%(6) 2.72% 1.24%(6) 1.99% 2.12%(6) 2.87%
</TABLE>
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<PAGE> 15
1 A Participating Organization or Bank (both terms used as defined in
this Prospectus) may charge a Customer's (as defined in the Prospectus)
account fees for automatic investment, exchanges, and other investment
management services provided in connection with investment in Class A
Shares or Class B Shares, respectively, of a Fund. (See "HOW TO
PURCHASE AND REDEEM SHARES--Purchases of Class A and Class B Shares"
and "HOW TO PURCHASE AND REDEEM SHARES--Exchange Privilege.")
2 A wire redemption charge (currently $7.00) may be deducted from the
amount of a wire redemption payment made at the request of a
shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES- -Redemption by
Telephone.")
3 Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through
September 30, 1997. Absent the voluntary reduction of investment
advisory fees, Management Fees as a percentage of average daily net
assets for Class A and Class B Shares would be .40% for the Prime Money
Market Fund, .60% for the Intermediate Bond, Short-Intermediate, and
North Carolina and South Carolina Funds and .74% for the Growth and
Income , Balanced and Large Company Growth Funds.
4 BISYS Fund Services has agreed with the Group to voluntarily reduce the
amount of its distribution fee for Class A Shares. Absent the voluntary
fee reduction of distribution fees, 12b-1 Fees as a percentage of
average daily net assets would be .50% for Class A Shares for each
Fund. (See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Distributor.")
5 With respect to the Prime Money Market Fund, the International Equity
Fund, the South Carolina Fund, and the Large Company Growth Fund,
"Other Expenses" are based on estimated amounts for the current fiscal
year. Absent voluntary fee reductions, "Other Expenses" as a percentage
of average daily net assets for Class A Shares would be .45% for the
Prime Money Market Fund, and .51% for the North Carolina Fund and the
South Carolina Fund.
6 As indicated in preceding notes, voluntary fee reductions have lowered
this amount. Lower total fund operating expenses will result in higher
yields. Absent the voluntary reduction of investment advisory and/or
distribution fees, Total Fund Operating Expenses for Class A Shares, as
a percentage of average daily net assets would be 1.35% for the Prime
Money Market Fund, 1.25% for the U.S. Treasury Fund, 1.54% for the
Short-Intermediate Fund, 1.48% for the Intermediate Bond Fund, 1.61%
for the North Carolina Fund, 1.59% for the South Carolina Fund, 1.60%
for the Growth and Income Fund, 1.69% for the Balanced Fund, 2.26% for
the Small Company Growth Fund , 2.37% for the International Equity
Fund, and 1.73% for the Large Company Growth Fund. Absent the voluntary
reduction of investment advisory fees, Total Fund Operating Expenses
for Class B Shares, as a percentage of average daily net assets, would
be 1.95% for the Intermediate Bond Fund, 2.09% for the Growth and
Income Fund, and 2.18% for the Balanced Fund.
-11-
<PAGE> 16
BB&T MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
CLASS A SHARES
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 01/02/97 TO 03/31/97):
( 1,033.5/1,000) - 1 = 3.35%
YEAR TO DATE: ( 01/02/97 TO 03/31/97):
( 1,033.5/1,000) - 1 = 3.35%
QUARTERLY: ( 01/02/97 TO 03/31/97):
( 1,033.5/1,000) - 1 = 3.35%
MONTHLY: ( 03/01/97 TO 03/31/97):
( 994.7/1,000) - 1 = -0.53%
<PAGE> 17
BB&T MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
LOAD CALCULATIONS
CLASS A SHARES
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
----------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 01/02/97 TO 03/31/97):
( 987.1/1,000) - 1 = -1.29%
YEAR TO DATE: ( 01/02/97 TO 03/31/97):
( 987.1/1,000) - 1 = -1.29%
QUARTERLY: ( 01/02/97 TO 03/31/97):
( 987.1/1,000) - 1 = -1.29%
MONTHLY: ( 03/01/97 TO 03/31/97):
( 949.9/1,000) - 1 = -5.01%
<PAGE> 18
BB&T MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
TRUST SHARES
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 01/02/97 TO 03/31/97):
( 1,034.8/1,000) - 1 = 3.48%
YEAR TO DATE: ( 01/02/97 TO 03/31/97):
( 1,034.8/1,000) - 1 = 3.48%
QUARTERLY: ( 01/02/97 TO 03/31/97):
( 1,034.8/1,000) - 1 = 3.48%
MONTHLY: ( 03/01/97 TO 03/31/97):
( 995.0/1,000) - 1 = -0.50%
<PAGE> 19
BB&T MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
CDSC CALCULATIONS
CLASS B SHARES
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
----------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 01/02/97 TO 03/31/97):
( 982.7/1,000) - 1 = -1.73%
YEAR TO DATE: ( 01/02/97 TO 03/31/97):
( 982.7/1,000) - 1 = -1.73%
QUARTERLY: ( 01/02/97 TO 03/31/97):
( 982.7/1,000) - 1 = -1.73%
MONTHLY: ( 03/01/97 TO 03/31/97):
( 944.3/1,000) - 1 = -5.57%
<PAGE> 20
BB&T MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO CDSC CALCULATIONS
CLASS B SHARES
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 01/02/97 TO 03/31/97):
( 1,032.7/1,000) - 1 = 3.26%
YEAR TO DATE: ( 01/02/97 TO 03/31/97):
( 1,032.7/1,000) - 1 = 3.26%
QUARTERLY: ( 01/02/97 TO 03/31/97):
( 1,032.7/1,000) - 1 = 3.26%
MONTHLY: ( 03/01/97 TO 03/31/97):
( 993.9/1,000) - 1 = -0.61%
<PAGE> 21
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Class A Shares of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund $ 9 $ 29 N/A N/A
U.S. Treasury Fund $10 $32 $ 55 $121
Short-Intermediate Fund $32 $57 $ 84 $161
Intermediate Bond Fund $56 $79 $104 $176
North Carolina Fund $31 $55 $ 80 $152
South Carolina Fund $32 $59 N/A N/A
Growth and Income Fund $56 $79 $103 $174
Balanced Fund $57 $81 $108 $184
Small Company Growth Fund $64 $105 $148 $268
Large Company Growth Fund $57 $83 N/A N/A
International Equity Fund $66 $108 N/A N/A
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment in Class B
Shares of the Funds, assuming (1) deduction of the applicable Contingent
Deferred Sales Charge; and (2) 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund
Assuming a complete
redemption at end of period .................. $68 $85 $115 $206
Assuming no redemption........................ $18 $55 $95 $206
</TABLE>
-12-
<PAGE> 22
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate Bond Fund
Assuming a complete
redemption at end of period $69 $88 $120 $217
Assuming no redemption $19 $58 $100 $217
Growth and Income Fund
Assuming a complete
redemption at end of period $69 $88 $120 $217
Assuming no redemption $14 $58 $100 $217
Balanced Fund
Assuming a complete
redemption at end of period $70 $91 $125 $227
Assuming no redemption $20 $61 $105 $227
Small Company Growth Fund
Assuming a complete
redemption at end of period $78 $114 $164 $305
Assuming no redemption $28 $84 $144 $305
Large Company Growth Fund
Assuming a complete
redemption at end of period $70 $92 N/A N/A
Assuming no redemption $20 $62 N/A N/A
International Equity Fund
Assuming a complete
redemption at end of period $79 $119 N/A N/A
Assuming no redemption $29 $89 N/A N/A
</TABLE>
The purpose of the tables above is to assist a potential investor in
the Funds in understanding the various costs and expenses that an investor in
the Class A Shares or Class B Shares of each Fund will bear directly or
indirectly. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete
discussion of annual operating expenses of each Fund. THE FOREGOING EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Class A Shares and Class B Shares may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by NASD Rules.
-13-
<PAGE> 23
The information set forth in the foregoing tables and examples relates
only to Class A and Class B Shares. The Group also offers Trust Shares of each
Fund which are subject to the same expenses except that there are no sales
charges nor distribution costs charged to Trust Shares. (See "MANAGEMENT OF BB&T
MUTUAL FUNDS" -- "Investment Adviser" and "Administrator and Distributor.")
-14-
<PAGE> 24
FINANCIAL HIGHLIGHTS
The tables below sets forth financial highlights concerning the
investment results for each of the Funds for the periods indicated. The
information through the year ended September 30, 1996 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 information for the
six-month period ended March 31, 1997 is unaudited. The Prime Money Market Fund,
the South Carolina Fund and the Large Company Growth Fund had not commenced
operations as of March 31, 1997.
The Class A Shares (formerly the Investor Shares) and Trust Shares of
each Fund (other than the Balanced Fund and the Small Company Growth Fund, which
had not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. Information regarding the Trust Shares
can be obtained in a separate prospectus by writing to the Group at 3435 Stelzer
Road, Columbus, Ohio 43219 or by calling (800) 228-1872.
-15-
<PAGE> 25
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES
Net investment income 0.022 0.044 0.047 0.027 0.026
Total from Investment Activities 0.022 0.044 0.047 0.027 0.026
DISTRIBUTIONS
Net investment income (0.022) (0.044) (0.047) (0.027) (0.026)
Total Distributions (0.022) (0.044) (0.047) (0.027) (0.026)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 2.18%(b) 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $27,959 $27,931 $13,948 $ 1,486 $ 279
Ratio of expenses to average net
assets 0.94%(c) 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net investment income to
average net assets 4.33%(c) 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to average
net assets* 1.24%(c) 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net investment income
to average net assets* 4.03%(c) 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.
-16-
<PAGE> 26
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-------------------------------
FOR THE SIX MONTHS 01/01/96
ENDED TO
03/31/97 09/30/96(a)
CLASS B SHARES CLASS B SHARES
(Unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
INVESTMENT ACTIVITIES
Net investment income 0.018 0.025
Total from Investment Activities 0.018 0.025
DISTRIBUTIONS
Net investment income (0.018) (0.025)
Total Distributions (0.018) (0.025)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
Total Return (excludes redemption charge) 1.78%(b) 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $1,450 $1,305
Ratio of expenses to average net assets 1.74%(c) 1.75%(c)
Ratio of net investment income to
average net assets 3.58%(c) 3.55%(c)
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-17-
<PAGE> 27
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR 11/30/92
MONTHS ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.73 $ 9.88 $ 9.60 $ 10.29 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.27 $ 0.55 $ 0.53 0.50 0.47
---------- ---------- ---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments (0.11) (0.15) 0.29 (0.68) 0.30
---------- ---------- ---------- ---------- ----------
Total from Investment Activities 0.16 0.40 0.82 (0.18) 0.77
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.27) (0.55) (0.54) (0.50) (0.48)
Net realized gains -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.27) (0.55) (0.54) (0.51) (0.48)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.62 $ 9.73 $ 9.88 $ 9.60 $ 10.29
========== ========== ========== ========== ==========
Total Return (excludes sales charge) 1.65%(b) 4.09% 8.74% (1.86)% 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 5,595 $ 6,356 $ 7,102 $ 10,345 $ 14,915
Ratio of expenses to average
net assets 1.12%(c) 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income to
average net assets 5.58%(c) 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average
net assets* 1.47%(c) 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income to
average net assets* 5.23%(c) 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover(d) 71.02% 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.
-18-
<PAGE> 28
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
--------------------------------------
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
MONTHS ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 9.88 $ 9.33 $ 10.39 $ 10.00
INVESTMENT ACTIVITIES
Net investment income 0.27 0.56 0.59 0.59 0.63
Net realized and unrealized gains
(losses) on investments (0.14) (0.25) 0.55 (1.04) 0.39
--------- --------- --------- --------- ---------
Total from Investment Activities 0.13 0.31 1.14 (0.45) 1.02
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net investment income (0.27) (0.56) (0.59) (0.59) (0.63)
Net realized gains -- -- -- (0.02) --
--------- --------- --------- --------- ---------
Total Distributions (0.27) (0.56) (0.59) (0.61) (0.63)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.49 $ 9.63 $ 9.88 $ 9.33 $ 10.39
========= ========= ========= ========= =========
Total Return (excludes sales charge) 1.30%(b) 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 4,456 $ 3,659 $ 5,173 $ 6,772 $ 5,238
Ratio of expenses to average net assets 1.13%(c) 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income to
average net assets 5.61%(c) 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net
assets* 1.47%(c) 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income to
average net assets* 5.27%(c) 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover(d) 37.35%(c) 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.
-19-
<PAGE> 29
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
--------------------------------------
FOR THE SIX MONTHS 01/01/96
ENDED TO
03/31/97 09/30/96(a)
CLASS B CLASS B
(Unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.60 $ 10.17
------- -------
INVESTMENT ACTIVITIES
Net investment income 0.23 0.31
Net realized and unrealized
loss on investments (0.14) (0.57)
------- -------
Total from Investment Activities 0.09 (0.26)
------- -------
DISTRIBUTIONS
Net investment income (0.23) (0.31)
------- -------
Total Distributions (0.23) (0.31)
------- -------
NET ASSET VALUE, END OF PERIOD $ 9.46 $ 9.60
======= =======
Total Return (excludes redemption charge) 0.92%(b) (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 494 $ 353
Ratio of expenses to average net assets 1.86%(c) 1.85%(c)
Ratio of net investment income to
average net assets 4.77%(c) 5.01%(c)
Ratio of expenses to average net assets* 1.96%(c) 1.95%(c)
Ratio of net investment income to
average net assets* 4.67%(c) 4.91%(c)
Portfolio turnover(d) 37.25% 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.
-20-
<PAGE> 30
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
-----------------------------------------
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/16/92
MONTHS ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.19 0.36 0.36 0.36 0.36
Net realized and unrealized
losses on investments (0.03) (0.10) 0.37 (0.50) 0.29
---------- ---------- ---------- ---------- ----------
Total from Investment Activities 0.16 0.26 0.73 (0.14) 0.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.19) (0.36) (0.36) (0.36) (0.36)
Net realized gains -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.19) (0.36) (0.36) (0.37) (0.36)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.02 $ 10.05 $ 10.15 $ 9.78 $ 10.29
========== ========== ========== ========== ==========
Total Return (excludes sales charge) 1.62%(b) 2.61% 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 9,085 $ 9,261 $ 8,717 $ 11,083 $ 13,695
Ratio of expenses to average net assets 1.06%(c) 1.11% 1.05% 0.75% 0.43%(c)
Ratio of net investment income
to average net assets 3.82%(c) 3.58% 3.63% 3.63% 3.80%(c)
Ratio of expenses to average
net assets* 1.56%(c) 1.61% 1.63% 1.66% 1.77%(c)
Ratio of net investment income
to average net assets* 3.32%(c) 3.08% 3.05% 2.72% 2.45%(c)
Portfolio turnover(d) 1.89% 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.
-21-
<PAGE> 31
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
MONTHS ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.31 $ 12.97 $ 11.26 $ 11.26 $ 10.00
------------ ------------ ------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.13 0.26 0.25 0.25 0.28
Net realized and unrealized gains
on investments 1.31 2.43 1.98 0.12 1.27
------------ ------------ ------------ ------------ ------------
Total from Investment Activities 1.44 2.69 2.23 0.37 1.55
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.13) (0.26) (0.25) (0.26) (0.29)
Net realized gains (0.63) (0.09) (0.12) (0.11) --
In excess of net realized gains -- -- (0.15) -- --
------------ ------------ ------------ ------------ ------------
Total Distributions (0.76) (0.35) (0.52) (0.37) (0.29)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 15.99 $ 15.31 $ 12.97 $ 11.26 $ 11.26
============ ============ ============ ============ ============
Total Return (excludes sales charge) 9.49%(b) 20.97% 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of Period (000) $ 25,290 $ 18,949 $ 10,842 $ 7,973 $ 6,009
Ratio of expenses to average net assets 1.09%(c) 1.11% 1.07% 0.92% 0.63%(c)
Ratio of net investment income to
average net assets 1.60%(c) 1.82% 2.15% 2.26% 2.85%(c)
Ratio of expenses to average net assets* 1.58%(c) 1.60% 1.60% 1.65% 1.68%(c)
Ratio of net investment income to
average net assets* 1.11%(c) 1.33% 1.62% 1.52% 1.81%(c)
Portfolio turnover(d) 13.58% 19.82% 8.73% 21.30% 27.17%
Average commission rate(e) $ 0.0649 $ 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.
-22-
<PAGE> 32
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
----------------------------
FOR THE SIX 01/01/96
MONTHS ENDED TO
03/31/97 09/30/96(a)
CLASS B CLASS B
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.29 $ 13.78
---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.07 0.13
Net realized and unrealized gains
on investments 1.28 1.52
---------- ----------
Total from Investment Activities 1.35 1.65
---------- ----------
DISTRIBUTIONS
Net investment income (0.07) (0.14)
---------- ----------
Net realized gains (0.63) --
---------- ----------
Total Distributions (0.70) (0.14)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.94 $ 15.29
========== ==========
Total Return (excludes redemption charge) 8.92%(b) 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 8,356 $ 3,880
Ratio of expenses to average net assets 1.84%(c) 1.85%(c)
Ratio of net investment income to
average net assets 0.87%(c) 1.13%(c)
Ratio of expenses to average net assets* 2.08%(c) 2.09%(c)
Ratio of net investment income to
average net assets* 1.63%(c) 0.89%(c)
Portfolio turnover(d) 13.58% 19.82%
Average commission(e) $ 0.0649 $ 0.072(1)
</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.
-23-
<PAGE> 33
<TABLE>
<CAPTION>
BALANCED FUND
FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
MONTHS ENDED ENDED ENDED ENDED TO
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
CLASS A CLASS A CLASS A CLASS A CLASS A
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.96 $ 11.04 $ 9.76 $ 10.20 $ 10.00
------------ ------------ ------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.23 0.43 0.44 0.38 0.08
Net realized and unrealized gains
(losses) on investments 0.38 0.92 1.27 (0.44) 0.21
------------ ------------ ------------ ------------ ------------
Total from Investment Activities 0.61 1.35 1.71 (0.06) 0.29
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.23) (0.43) (0.43) (0.38) (0.09)
------------ ------------ ------------ ------------ ------------
Net realized gains (0.37) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Distributions (0.60) (0.43) (0.43) (0.38) (0.09)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 11.97 $ 11.96 $ 11.04 $ 9.76 $ 10.20
============ ============ ============ ============ ============
Total Return (excludes sales charge) 5.11(b) 12.43% 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 13,921 $ 12,456 $ 9,257 $ 8,560 $ 2,569
Ratio of expenses to average net assets 1.19%(c) 1.20% 1.17% 0.98% 0.50%(c)
Ratio of net investment income to
average net assets 3.80%(c) 3.78% 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net assets* 1.68%(c) 1.69% 1.71% 1.75% 2.00%
Ratio of net investment income to
average net assets* 3.31%(c) 3.29% 3.73% 3.25% 2.89%(c)
Portfolio turnover(d) 15.68% 19.87% 23.68% 12.91% 8.32%(c)
Average commission rate(e) $ 0.0626 $ 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.
-24-
<PAGE> 34
<TABLE>
<CAPTION>
Balanced Fund
-------------
FOR THE SIX 01/01/96
MONTHS ENDED TO
03/31/97 09/30/96(a)
CLASS B CLASS B
(Unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.91 $ 11.54
----------- -----------
INVESTMENT ACTIVITIES
Net investment income 0.18 0.27
Net realized and unrealized gains
on investments 0.39 0.37
----------- -----------
Total from Investment Activities 0.57 0.64
----------- -----------
DISTRIBUTIONS
Net investment income (0.19) (0.27)
----------- -----------
Net realized gains (0.37) --
-----------
Total Distributions (0.56) (0.27)
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 11.91
=========== ===========
Total Return (excludes redemption charge) 4.76%(b) 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 4,007 $ 2,339
Ratio of expenses to average net assets 1.94%(c) 1.95%(c)
Ratio of net investment income to
average net assets 3.05%(c) 3.13%(c)
Ratio of expenses to average net assets* 2.18%(c) 2.18%(c)
Ratio of net investment income to
average net assets* 2.81%(c) 2.90%(c)
Portfolio turnover(d) 15.68% 19.87%
Average commission rate(e) $ 0.0626 $ 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.
-25-
<PAGE> 35
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
-------------------------
FOR THE FOR THE YEAR
MONTHS ENDED ENDED 12/07/94 TO
03/31/97 09/30/96 09/30/95(a)
CLASS A CLASS A CLASS A
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.06 $ 14.53 $ 10.00
----------- ----------- -----------
INVESTMENT ACTIVITIES
Net investment loss (0.05) (0.20) (0.08)
Net realized and unrealized gains
on investments (4.94) 6.73 4.61
----------- ----------- -----------
Total from Investment Activities (4.99) 6.53 4.53
=========== =========== ===========
DISTRIBUTIONS
Net realized gains (0.02) -- --
Total Distributions (0.02) -- --
NET ASSET VALUE, END OF PERIOD $ 16.05 $ 21.06 $ 14.53
=========== =========== ===========
Total Return (excludes sales charge) (23.17)%(b) 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 7,673 $ 7,413 $ 1,096
Ratio of expenses to average net assets 1.94% (c) 2.01% 2.50% (c)
Ratio of net investment loss
to average net assets (1.18)%(c) (1.26)% (1.56)%(c)
Ratio of expenses to average net assets* 2.19% (c) 2.26% 2.84% (c)
Ratio of net investment income
to average net assets* (1.43)%(c) (1.51)% (1.90%)(c)
Portfolio turnover(d) 48.44% 71.62% 46.97%
Average commission rate(e) $ 0.0538 $ 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.
-26-
<PAGE> 36
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
FOR THE SIX
MONTHS ENDED 01/01/96 TO
03/31/97 09/30/96(a)
CLASS B CLASS B
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.92 $ 15.24
----------- -----------
INVESTMENT ACTIVITIES
Net investment loss (0.05) (0.21)
Net realized and unrealized gains
on investments (4.98) 5.89
----------- -----------
Total from Investment Activities (5.03) 5.68
=========== ===========
DISTRIBUTIONS
Net realized gains (0.02) --
=========== ===========
Total Distributions (0.02) --
=========== ===========
NET ASSET VALUE, END OF PERIOD $ 15.87 $ 20.92
Total Return (excludes redemption charge) (24.06)%(b) 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 4,631 $ 3,200
Ratio of expenses to average net assets 2.69%(c) 2.72%(c)
Ratio of net investment loss
to average net assets (1.90)%(c) (2.01)%(c)
Portfolio Turnover(d) 48.44% 71.62%
Average Commission rate(e) $ 0.0538 $ 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.
-27-
<PAGE> 37
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------
01/02/97
TO
03/31/97(a)
CLASS A
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INVESTMENT ACTIVITIES
Net realized and unrealized gains on investments 0.34
Total from Investment Activities 0.34
DISTRIBUTIONS
Net investment income (0.03)
Total Distributions (0.03)
NET ASSET VALUE, END OF PERIOD $ 10.31
Total Return (excludes sales charge) 3.35%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 184
Ratio of expenses to average net assets 2.14%(c)
Ratio of net investment income to average net assets 0.03%(c)
Ratio of expenses to average net assets* 2.41%(c)
Ratio of net investment income to average net assets* (0.24)%(c)
Portfolio turnover(d) 5.61%
Average commission rate(e) $ 0.0555
</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.
-28-
<PAGE> 38
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------
01/02/97
TO
03/31/97(a)
CLASS B
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INVESTMENT ACTIVITIES
Net investment loss (0.01)
Net realized and unrealized gains on investments 0.34
Total from Investment Activities 0.33
DISTRIBUTIONS
Net investment income (0.02)
Total Distributions (0.02)
NET ASSET VALUE, END OF PERIOD $ 10.31
Total Return (excludes redemption charge) 3.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 237
Ratio of expenses to average net assets 2.86%(c)
Ratio of net investment income to average net assets (0.49)%(c)
Portfolio turnover(d) 5.61%
Average commission rate(e) $ 0.0555
</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.
-29-
<PAGE> 39
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
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 (the "1940 Act"). 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.
The Prime Money Market Fund will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by at least
two nationally recognized statistical ratings organizations ("NRSROs") (e.g.,
"A-1" by Standard's & Poor's Corporation and "P-1" by Moody's Investors
Services, Inc.); or (2) are single rated and have received the highest
short-term rating by a NRSRO; or (3) are unrated, but are determined to be of
comparable quality by the Investment Adviser or Sub-Adviser pursuant to
guidelines approved by the Board of Trustees, See the Statement of Additional
Information for explanations of the rating systems.
Under the guidelines adopted by the Trustees and in accordance with
Rule 2a-7 under the 1940 Act, the Adviser or the Sub-Adviser may be required
prompted to dispose of an obligation held in a Fund's portfolio in the event of
certain developments that indicate a diminishment of the instrument's credit
quality, such as where an NRSRO downgrades an obligation below the second
highest rating category or in the event of a default relating to the financial
condition of the issuer.
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 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
-30-
<PAGE> 40
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;
(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
(H) repurchase agreements relating to the above instruments.
The Prime Money Market Fund concentrates its investments in obligations
issued by the financial services industry. However, for temporary defensive
purposes during periods when the Adviser or Sub-Adviser believes that
maintaining this concentration may be inconsistent with the best interest of
Shareholders, the Fund will not maintain this concentration. Money market
instruments of companies in the financial services industry include, but are not
limited to, certificates of deposit, commercial paper, bankers' acceptances,
demand and time deposits, and bank notes. These money market obligations are
issued by domestic or foreign banks, savings and loan associations, consumer and
industrial finance companies, securities brokerage companies and a variety of
firms in the insurance field. Financial service companies offering money market
issues must have total assets of $1 billion or more before their issues can be
considered for investment. Because the Fund concentrates more than 25% of its
total assets in the financial services industry, it will be exposed to greater
risks associated with that industry, such as adverse interest rate trends,
increased credit defaults, potentially burdensome government regulation, the
availability and cost of capital funds, and general economic conditions. The
Fund will not purchase securities issued by PNC Bank or BB&T or any of their
affiliates.
-31-
<PAGE> 41
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.
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.
THE FIXED INCOME FUNDS
The investment objective of both the Short-Intermediate Fund and the
Intermediate Bond Fund (collectively the "Fixed Income Funds") is to seek
current income consistent with the preservation of capital. The
Short-Intermediate Fund will invest primarily in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase agreements, or in high
grade collateralized mortgage obligations ("CMOs"). At least 65% of the
Short-Intermediate Fund's assets will be invested in U.S. Government Securities.
The dollar-weighted average portfolio maturity of the Short-Intermediate Fund
will be from two to five years. The Intermediate Bond Fund will also invest
primarily in U.S. Government Securities, and at least 65% of its total assets
will be invested in bonds. Bonds for this purpose will include both bonds
(maturities of ten years or more) and notes (maturities of one to ten years) of
the U.S. Government. The dollar-weighted average portfolio maturity of the
Intermediate Bond Fund will be from five to ten years. CMOs will be considered
bonds for this purpose if their expected average life is comparable to the
maturity of other bonds eligible for purchase by the Fixed Income Funds. The
Fixed Income Funds may also invest in short-term obligations, commercial bonds
and the shares of other investment companies.
Bonds, notes and debentures in which the Fixed Income Funds may invest
may differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
-32-
<PAGE> 42
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high
level of current interest income that is exempt from both federal income tax and
North Carolina personal income tax. Under normal market conditions, the North
Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax and
North Carolina personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the North Carolina Fund would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans. Investors should consult a tax
or other financial adviser to determine whether investment in the North Carolina
Fund would be suitable for them.
THE SOUTH CAROLINA FUND
The South Carolina Fund's investment objective is to produce a high
level of current interest income that is exempt from both federal income tax and
South Carolina personal income tax. Under normal market conditions, the South
Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South 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
South Carolina personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("South Carolina
Tax-Exempt Obligations"). The South Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The South Carolina Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the South Carolina Fund would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans. Investors should consult a tax
or other financial adviser to determine whether investment in the South Carolina
Fund would be suitable for them.
-33-
<PAGE> 43
THE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to seek capital
growth, current income or both, primarily through investment in stocks. Under
normal market conditions, the Growth and Income Fund will invest at least 65% of
its total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
Equity securities purchased by the Growth and Income Fund will be
either traded on a domestic securities exchange or quoted in the NASDAQ/NYSE
system. While some stocks may be purchased primarily to achieve the Growth and
Income Fund's investment objective for income, most stocks will be purchased by
the Growth and Income Fund primarily in furtherance of its investment objective
for growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the Growth and Income Fund's investments, the net asset
value per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital
growth and to produce current income. The Balanced Fund seeks to achieve this
objective by investing in a broadly diversified portfolio of securities,
including common stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of
security will vary in accordance with economic conditions, the general level of
common stock prices, interest rates and other relevant considerations, including
the risks associated with each investment medium. Thus, although the Balanced
Fund seeks to reduce the risks associated with any one investment medium by
utilizing a variety of investments, performance will depend upon the additional
factors of timing and the ability of BB&T to judge and react to changing market
conditions. The Balanced Fund may invest in short-term obligations in order to
acquire interest income combined with liquidity. For temporary defensive
purposes, as determined by BB&T, these investments may constitute 100% of the
Balanced Fund's portfolio and, in such circumstances, will constitute a
temporary suspension of the Balanced Fund's attempt to achieve its investment
objective.
The Balanced Fund's equity securities will generally consist of common
stocks but may also consist of other equity-type securities such as warrants,
preferred stocks and convertible
-34-
<PAGE> 44
debt instruments. The Fund's equity investments will be in companies with a
favorable outlook and which are believed by BB&T to be undervalued.
The Balanced Fund's debt securities will consist of securities such as
bonds, notes, debentures and money market instruments. The Balanced Fund may
also invest in CMOs. The average dollar-weighted maturity of debt securities
held by the Balanced Fund will vary according to market conditions and interest
rate cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at
least 25% of its total assets in fixed-income senior securities. For this
purpose, fixed-income senior securities include debt securities, preferred stock
and that portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those securities.
THE LARGE COMPANY GROWTH FUND
The Large Company Growth Fund's investment objective is to seek
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of large capitalization growth
companies. ("Capitalization" is the total market value of all the outstanding
shares of a company.) The Large Company Growth Fund will invest in companies
that are considered to have favorable and above average earnings growth
prospects and, as a matter of fundamental policy, at least 65% of the Fund's
total assets will be invested in companies whose weighted average capitalization
is in excess of the market median capitalization of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). In making portfolio investments,
the Large Company Growth Fund will assess characteristics such as financial
condition, revenue, growth, profitability, earnings per share growth, and
trading liquidity. The remainder of the Fund's assets, if not invested in the
securities of large companies, will be invested in the instruments described
below and under "Specific Investment Policies."
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies. The Small Company Growth Fund will invest in companies that are
considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's
- ---------------
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
-35-
<PAGE> 45
total assets will be invested in small companies with a market capitalization
under $1 billion at the time of purchase. In making portfolio investments, the
Small Company Growth Fund will assess characteristics such as financial
condition, revenue, growth, profitability, earnings per share growth and trading
liquidity. The remainder of the Fund's assets, if not invested in the securities
of small companies, will be invested in the instruments described below and
under "Specific Investment Policies."
Smaller, less seasoned companies may be subject to greater business
risk than larger, established companies. They may be more vulnerable to changes
in economic conditions, specific industry conditions, market fluctuations and
other factors affecting the profitability of companies. Therefore, the stock
price of smaller capitalization companies may be subject to greater price
fluctuations than that of larger, established companies. Due to these and other
risk factors, the price movement of the securities held by the Fund may be
volatile and the net asset value of a share of the Fund may fluctuate more than
that of a share of a fund that invests in larger established companies.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek
long-term capital appreciation through investment primarily in equity securities
of foreign issuers. During normal market conditions, the International Equity
Fund will normally invest at least 80%, and, in any event, at least 65%, of the
value of its total assets in equity securities. Equity securities include common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depositary
receipts of companies.
During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks primarily within countries included
in the Morgan Stanley Capital International Europe, Australia and the Far East
Index ("EAFE"). The Fund may also invest its assets in countries with emerging
economies or securities markets. The Fund will be diversified across countries,
industry groups and companies with investment at all times in at least three
foreign countries.
When choosing securities, a value investment style is employed so that
the investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative economic
growth among certain foreign countries, expected levels of inflation, government
policies influencing business conditions, and the outlook for currency
relationships.
-36-
<PAGE> 46
ALL FUNDS
The investment objective of each Fund is fundamental and may not be
changed without the vote of a majority of the outstanding Shares of the Fund (as
defined below under "GENERAL INFORMATION--Miscellaneous.") There can be, of
course, no assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of
the Short-Intermediate, Intermediate Bond, North Carolina, South Carolina,
Growth and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds (collectively, the "Variable NAV Funds"), the net
asset value per Share of each Variable NAV Fund will fluctuate.
SPECIFIC INVESTMENT POLICIES
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. A
Fund will enter into repurchase agreements for the purposes of maintaining
liquidity and obtaining favorable yields. Under the terms of a repurchase
agreement, a Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Equity Advisors Company ("PEAC"), the Small
Company Growth Fund's investment sub-adviser , CastleInternational Asset
Management Limited ("CastleInternational"), the International Equity Fund's
investment sub-adviser 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 Fund's total assets that may be invested in instruments which are
subject to repurchase agreements. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940.
-37-
<PAGE> 47
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, each
Fund may borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.
WHEN-ISSUED SECURITIES
Each of the Funds except the U.S. Treasury Fund may purchase securities
on a when-issued or delayed-delivery basis. In addition, the Prime Money Market
Fund, the Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time. When a Fund
agrees to purchase securities on a when-issued basis, the Fund's custodian must
set aside cash or liquid Fund securities equal to the amount of that commitment
in a separate account and may be required to subsequently place additional
assets in the separate account to maintain equivalence with the Fund's
commitment. The ability to purchase when-issued securities will provide a Fund
with the flexibility of participating in new issues of government securities,
particularly mortgage-related securities. Prior to delivery of when-issued
securities, the securities are subject to fluctuations in value, and no income
accrues until their receipt. A Fund engages in when-issued and delayed-delivery
transactions only with the intent of acquiring Fund securities consistent with
its investment objective and policies, and not for investment leverage. In
when-issued and delayed-delivery transactions, the Funds rely on the seller to
complete the transaction; its failure to do so may cause a Fund to miss a price
or yield considered to be advantageous. A Fund expects that commitments by a
Fund to purchase when-issued securities will not exceed 25% of the value of its
assets under normal market conditions. The Prime Money Market Fund's, the Large
Company Growth Fund's, the Small Company Growth Fund's and the International
Equity Fund's when-issued purchases and forward commitments are not expected to
exceed 25% of the value of their respective total assets absent unusual market
conditions.
SHORT-TERM OBLIGATIONS
The Fixed Income Funds, the North Carolina Fund, the South Carolina
Fund, the Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund and the International Equity Fund may invest
in high quality, short-term obligations (with maturities of 12 months or less)
such as domestic and foreign
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commercial paper (including variable-amount master demand notes), bankers'
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
Such investments will be limited to those obligations which, at the time of
purchase, (i) possess one of the two highest short-term ratings from at least
two nationally recognized statistical rating organizations ("NRSROs") (for
example, commercial paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2" by
Moody's), or (ii) do not possess a rating (i.e., are unrated) but are determined
by BB&T (or PEAC, with respect to the Small Company Growth Fund, or
CastleInternational, with respect to the International Equity Fund) to be of
comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund,
the Large Company Growth Fund, and the Small Company Growth Fund will limit its
investment in short-term obligations to 35% of its total assets.
Each of the Fixed Income Funds, the Growth and Income Fund, the Large
Company Growth Fund and the Small Company Growth Fund may invest in short-term
obligations in order to acquire interest income combined with liquidity. Pending
investment or to meet anticipated redemption requests, the International Equity
Fund may also invest without limitation short-term obligations. For temporary
defensive purposes, as determined by BB&T (or, in the case of the Small Company
Growth Fund, PEAC or, in the case of the International Equity Fund,
CastleInternational), these investments may constitute 100% of such Funds'
portfolio and, in such circumstances, will constitute a temporary suspension of
such Funds' attempts to achieve their investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of
the Short-Intermediate and Intermediate Bond Funds. The Prime Money Market Fund,
the Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, and the International Equity Fund may also invest
in U.S. Government Securities. The types of U.S. Government Securities in which
these Funds will invest include obligations issued or guaranteed as to payment
of principal and interest by the full faith and credit of the U.S. Government,
such as Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by the agencies or instrumentalities of the
U.S. Government, but not supported by such full faith and credit. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks, or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide
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financial support to U.S. Government-sponsored agencies or instrumentalities if
it is not obligated to do so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities. 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 such mortgage-backed pass-through
securities.
The Short-Intermediate, Intermediate Bond, Growth and Income, Balanced,
Large Company Growth, and Small Company Growth Funds may also invest in "zero
coupon" U.S. Government Securities. These securities tend to be more volatile
than other types of U.S. Government Securities. Zero coupon securities are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price.
The U.S. Treasury Fund may invest in U.S. Government Securities to the
extent that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund and the South Carolina Fund may invest in U.S.
Government Securities in connection with the purchase of taxable obligations (as
described below).
COLLATERALIZED MORTGAGE OBLIGATIONS
Each of the Fixed Income Funds, the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund, and the Small Company Growth Fund
may also invest in collateralized mortgage obligations ("CMOs"). 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 CMOs. CMOs
are mortgage-related securities
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which are structured pools of mortgage pass-through certificates or mortgage
loans. CMOs are issued with a number of classes or series which have different
maturities and which may represent interests in some or all of the interest or
principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. Thus, the early retirement of a
particular class or series of CMO held by a Fund would have the same effect as
the prepayment of mortgages underlying a mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are
derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage security will have one class receiving all of the interest
from the mortgage assets (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
securities' yield to maturity. Generally, the market value of the PO class is
unusually volatile in response to changes in interest rates. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not fully developed. Stripped mortgage
securities issued or guaranteed by the U.S. Government and held by a Fund may be
considered liquid securities pursuant to guidelines established by the Group's
Board of Trustees. The Funds will not purchase a stripped mortgage security that
is illiquid if, as a result thereof, more than 15% of the value of the Fund's
net assets would be invested in such securities and other illiquid securities.
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Unless stated otherwise, each Fund will limit its investment in CMOs to
25% of the value of its total assets.
COMMERCIAL BONDS
The Growth and Income Fund, the Large Company Growth Fund, the Small
Company Growth Fund, and the Fixed Income Funds may invest up to 35% of their
total assets, and the Balanced Fund also may invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on
real property or security interests in personal property.
Bonds, notes and debentures in which the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund and the Small Company Growth Fund
may invest may differ in interest rates, maturities and times of issuance and
may include CMOs (which are described above).
The Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund, and the Fixed Income Funds will invest only
in bonds, notes, and debentures which are rated at the time of purchase within
the three highest rating groups assigned by an NRSRO (for example, at least A by
Moody's or S&P), or, if unrated, which BB&T (or PEAC, with respect to the Small
Company Growth Fund) deems to be of comparable quality. The applicable ratings
are described in the Appendix to the Statement of Additional Information. In the
event that the rating of any debt securities falls below the third highest
rating category, these Funds will not be obligated to dispose of such
obligations and may continue to hold such obligations if, in the opinion of BB&T
(or PEAC, with respect to the Small Company Growth Fund), such investment is
considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
The Growth and Income Fund and the Balanced Fund may engage in writing
call options from time to time as BB&T deems to be appropriate. Options are
written solely as covered call options (options on securities owned by a Fund).
Such options must be listed on a national securities exchange and issued by the
Options Clearing Corporation. In order to close out an option position, a Fund
will enter into a "closing purchase transaction"--the purchase of a call option
on the same security with the same exercise price and expiration date as any
call option which it may previously have written. Upon the sale of a portfolio
security upon which it has written a covered call option, a Fund must effect a
closing purchase transaction so as to avoid converting a covered call into a
"naked call," i.e., a call option on a security not owned by the Fund. If a Fund
is unable to effect a closing purchase transaction, it will not be able to sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise. When writing a covered call option, a Fund,
in return for the premium, gives up the opportunity for profit from a price
increase in the underlying
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security above the exercise price but retains the risk of loss should the price
of the security decline.
To the extent consistent with its investment objective, the Large
Company Growth Fund, the Small Company Growth Fund and the International Equity
Fund may write covered call options, buy put options, buy call options, and
write secured put options for the purpose of hedging or earning additional
income, which may be deemed speculative or, with respect to the International
Equity Fund, cross-hedging. These options may relate to particular securities,
financial instruments, foreign currencies, stock or bond indices or the yield
differential between two securities, and may or may not be listed on a
securities exchange and may or may not be issued by the Options Clearing
Corporation. A Fund will not purchase put and call options when the aggregate
premiums on outstanding options exceed 5% of its net assets at the time of
purchase, and will not write options on more than 25% of the value of its net
assets (measured at the time an option is written). Options trading is a highly
specialized activity that entails greater than ordinary investment risks. In
addition, unlisted options are not subject to the protections afforded
purchasers of listed options issued by the Options Clearing Corporation, which
performs the obligations of its members if they default. Cross-hedging is the
use of options or forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency
based on a belief that there is a pattern of correlation between the two
currencies.
To the extent consistent with its investment objective, the Large
Company Growth Fund, the Small Company Growth Fund and the International Equity
Fund may also invest in futures contracts and options on futures contracts to
commit funds awaiting investment in stocks or maintain cash liquidity or, for
other hedging purposes. The value of a Fund contracts may equal or exceed 100%
of the Fund's total assets, although a Fund will not purchase or sell a futures
contract unless immediately afterwards the aggregate amount of margin deposits
on its existing futures positions plus the amount of premiums paid for related
futures options entered into for other than bona fide hedging purposes is 5% or
less of its net assets.
Futures contracts obligate the Large Company Growth Fund, the Small
Company Growth Fund and the International Equity Fund, at maturity, to take or
make delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. A Fund may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A Fund
may do so either to hedge the value of its securities portfolio as a whole, or
to protect against declines occurring prior to sales of securities in the value
of the securities to be sold. In addition, a Fund may utilize futures contracts
in anticipation of changes in the composition of its holdings or in currency
exchange rates.
The Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell call and put options on futures
contracts
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traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or a
seller of a futures contract at a specified exercise price during the option
period. When a Fund sells an option on a futures contract, it becomes obligated
to sell or buy a futures contract if the option is exercised. In connection with
a Fund's position in a futures contract or related option, a Fund will create a
segregated account of liquid assets or will otherwise cover its position in
accordance with applicable SEC requirements.
The risks related to the use of futures contracts include: (i) the
correlation between movements in the market price of the portfolio investments
(held or intended for purchase) being hedged and in the price of the futures
contract may be imperfect; (ii) possible lack of a liquid secondary market for
closing out futures positions; (iii) the need for additional portfolio
management skills and techniques; (iv) losses due to unanticipated market
movements; and (v) a sub-adviser's inability to predict correctly the direction
of securities prices, interest rates, currency exchange rates, and other
economic factors. Successful use of futures is subject to the ability correctly
to predict movements in the direction of the market. For example, if a Fund uses
futures contracts as a hedge against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased value of
its securities that it has hedged because the Fund will have approximately equal
offsetting losses in its future positions. The risk of loss in trading futures
contracts in some strategies can be substantial, due both to the low margin
deposits required, and the extremely high degree of leverage involved in future
pricing. As a result, a relatively small price movement in a futures contract
may result in immediate and substantial loss or gain to the investor. Thus, a
purchase or sale of a futures contract may result in losses or gains in excess
of the amount invested in the contract.
A Fund's ability to engage in options and futures transactions and to
sell related securities may be limited by tax considerations.
FOREIGN INVESTMENTS
The 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.
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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.
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.
The Balanced Fund, the Growth and Income Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may invest in foreign securities through
the purchase of American Depository Receipts ("ADRs") or the purchase of
securities on the New York Stock Exchange. However, the Balanced Fund , the
Growth and Income Fund and the Large Company Growth Fund will not do so if
immediately after a purchase and as a result of the purchase the total value of
such foreign securities owned by such Fund would exceed 25% of the value of the
total assets of the Fund. A Fund may also invest in securities issued by foreign
branches of U.S. banks and foreign banks and in CCP and Europaper.
During normal market conditions, the International Equity Fund will
invest at least 90% and, in any event, at least 65%, of its total assets in
securities of foreign issuers. The International Equity Fund invests primarily
in equity securities of issuers located in countries included in EAFE and may
invest in equity securities of issuers located in emerging markets. EAFE is an
index composed of a sample of companies representative of the market structure
of 20 European and Pacific Basin countries. The Index represents the evolution
of an unmanaged portfolio consisting of all domestically listed stocks.
Australia, Austria, Belgium,
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Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore, Malaysia, Spain, Sweden, Switzerland, and the United
Kingdom are currently included in EAFE.
From time to time the International Equity Fund may invest more than
25% of its total assets in the securities of issuers located in Japan.
Investments of 25% or more of the Fund's total assets in this or any other
country will make the Fund's performance more dependent upon the political and
economic circumstances of a particular country than a mutual fund that is more
widely diversified among issuers in different countries. For example, in the
past events in the Japanese economy as well as social developments and natural
disasters have affected Japanese securities and currency markets, and have
periodically disrupted the relationship of the Japanese yen with other
currencies and with the U.S. dollar.
The International Equity Fund may invest in both sponsored and
unsponsored ADRs, European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs") and other similar global instruments. ADRs typically are
issued by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts, are receipts issued in Europe, typically
by foreign banks and trust companies, that evidence ownership of either foreign
or domestic underlying securities. GDRs are depository receipts structured like
global debt issues to facilitate trading on an international basis. Unsponsored
ADR, EDR and GDR programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, available
information concerning the issuers may not be as current as for sponsored ADRs,
EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more
volatile than if such instruments were sponsored by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.
In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange.
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Accordingly, a Fund's foreign investments may be less liquid and their prices
may be more volatile than comparable investments in securities in U.S.
companies. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
The expense ratio of the International Equity Fund can be expected to
be higher than that of funds investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as the higher cost of investment research, higher cost of custody of
foreign securities, higher commissions paid on comparable transactions on
foreign markets, foreign income taxes withheld at the source and additional
costs arising from delays in settlements of transactions involving foreign
securities.
The International Equity Fund may invest its assets in countries with
emerging economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Greece,
Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco, Peru, The
Philippines, Poland, Romania, Russia, South Africa, South Korea, Taiwan,
Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in countries with emerging economies
or securities markets to 20% of its total assets.
The International Equity Fund may (but is not required to) use forward
foreign currency exchange contracts to hedge against movements in the value of
foreign currencies (including the European Currency Unit (ECU)) relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time.
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OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the Prime Money Market Fund
and the U.S. Treasury Fund may invest up to 5% of the value of its total assets
in the securities of any one money market mutual fund (including Shares of the
Prime Money Market Fund and the U.S. Treasury Fund, pursuant to exemptive relief
granted by the Securities and Exchange Commission) and up to 10% of its total
assets in more than one money market mutual fund. In order to avoid the
imposition of additional fees as a result of investments in Shares of the Prime
Money Market Fund or the U.S. Treasury Fund, BB&T and BISYS Fund Services (the
"Administrator") (see "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP"--"Investment
Adviser" and "Administrator and Distributor") will reduce that portion of their
usual asset-based service fees from each investing Fund by an amount equal to
their service fees from the Prime Money Market Fund or the U.S. Treasury Fund
that are attributable to those Fund investments. BB&T and the Administrator will
promptly forward such fees to the investing Funds. The Funds will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of other unaffiliated money market mutual funds. Additional
restrictions on the Funds' investments in the securities of an unaffiliated
money market fund and/or the Prime Money Market Fund or the U.S. Treasury Fund
are contained in the Statement of Additional Information.
In addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.
In order to generate additional income, each Fund except the North
Carolina Fund and the South Carolina Fund may, from time to time, lend its
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. While the lending of securities may subject a Fund to certain risks,
such as delays or the inability to regain the securities in the event the
borrower was to default on its lending agreement or enter into bankruptcy, the
Fund will receive 100% collateral in the form of cash or U.S. Government
Securities. This collateral will be valued daily by BB&T (or 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)
and should the market value of the loaned securities increase, the borrower will
furnish additional collateral to the Fund. During the time portfolio securities
are on loan, the borrower will pay the Fund any dividends or interest paid on
such securities. Loans are subject to termination by a Fund or the borrower at
any time. While a Fund will not have the right to vote securities on loan, the
Funds intend to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. The Funds will only enter
into loan arrangements with broker-dealers, banks or other institutions which
BB&T (or PEAC with respect to the Small Company Growth Fund ,
CastleInternational with respect to the International Equity Fund, or PIMC with
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respect to the Prime Money Market Fund) has determined are creditworthy under
guidelines established by the Group's Board of Trustees. Each Fund will restrict
its securities lending to 30% (331/3% with respect to the Prime Money Market
Fund and the International Equity Fund) of its total assets.
In order to generate income, the Short-Intermediate, Intermediate Bond,
Growth and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/or income of the Funds in
order to take advantage of what BB&T (or PEAC, with respect to the Small Company
Growth Fund or CastleInternational, with respect to the International Equity
Fund) believes are changes in market, industry or individual company conditions
or outlook. Any such trading would increase the portfolio turnover rate of the
Funds and their transaction costs.
OTHER INVESTMENT POLICIES OF THE PRIME MONEY MARKET FUND
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.
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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.
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.
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 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
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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.
MUNICIPAL OBLIGATIONS
The Prime Money Market 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. 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
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of dealers to undertake to make a market in the obligation; and (4) the nature
of the marketplace trades.
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.
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.
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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.
OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND
TAX-EXEMPT OBLIGATIONS
In addition to their respective investments in North Carolina
Tax-Exempt Obligations and South Carolina Tax-Exempt Obligations Fund, the North
Carolina Fund and the South Carolina Fund may invest in tax-exempt obligations
issued by or on behalf of states other than North Carolina or South Carolina, as
the case may be, 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, together with North Carolina
Tax-Exempt Obligations and South Carolina Tax-Exempt Obligations, are
hereinafter collectively referred to as "Tax-Exempt Obligations."
Up to 10% of the North Carolina Fund's total assets may be invested in
Tax-Exempt Obligations other than North Carolina Tax-Exempt Obligations. Up to
10% of the South Carolina Fund's total assets may be invested in Tax-Exempt
Obligations other than South Carolina Tax-Exempt Obligations. If deemed
appropriate for temporary defensive periods, as determined by BB&T, the North
Carolina Fund or South Carolina Fund may suspend attempts to achieve its
investment objective and may increase its holdings in Tax-Exempt Obligations
other than North Carolina Tax-Exempt Obligations and South Carolina Tax-Exempt
Obligations, respectively to over 10% of its total assets. Investments made for
temporary defensive purposes will not be intended to achieve either Fund's
investment objective with respect to North Carolina or South Carolina taxation,
as the case may be, but rather will be intended to preserve the value of the
Funds' Shares.
The two principal classifications of Tax-Exempt Obligations which may
be held by the North Carolina Fund and the South Carolina Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in
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some cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Funds are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
private user of the facility involved.
Also included within the general category of Tax-Exempt Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a state or political subdivision to finance the acquisition or
construction of equipment, land, or facilities. In South Carolina, governmental
lease obligations are included in calculation of the general obligation debt
limit.
Among other types of Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund may purchase Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper and
other forms of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
The North Carolina Fund and the South Carolina Fund may also invest in
"moral obligation" securities, which are normally issued by special purpose
public authorities. However, such investments are expected to be limited by the
fact that North Carolina issuers are currently precluded by North Carolina State
law from issuing such securities, and issuers in South Carolina also currently
do not have authority to issue moral obligation securities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
The North Carolina Fund and the South Carolina Fund invest in
Tax-Exempt Obligations which are rated at the time of purchase in one of the
three highest categories by an NRSRO in the case of bonds; one of the two
highest categories by an NRSRO in the case of notes; rated "SP-1" or higher by
S&P or "MIG-2" or higher by Moody's or rated at a comparable level of quality by
another NRSRO in the case of tax-exempt commercial paper; or rated "VMIG-1" or
higher by Moody's or rated at a comparable level of quality by another NRSRO in
the case of variable rate demand obligations. The North Carolina Fund and the
South Carolina Fund may also purchase Tax-Exempt Obligations which are unrated
at the time of purchase but are determined to be of comparable quality by BB&T
pursuant to guidelines approved by the Group's Board of Trustees. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
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Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund, the South Carolina Fund, nor BB&T will review the
proceedings relating to the issuance of Tax-Exempt Obligations or the basis for
such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND
The North Carolina Fund and the South Carolina Fund may each invest up
to 10% of its net assets in taxable obligations or debt securities, the interest
income from which may be subject to the federal alternative minimum tax for both
individual and corporate shareholders. There is no limit on the amount of
taxable obligations that may be held for temporary defensive purposes. Taxable
obligations may include U.S. Government Securities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
domestic banks and domestic branches of foreign banks, commercial paper meeting
each Fund's quality standards (as described above) for tax-exempt commercial
paper, and shares issued by other open-end registered investment companies
issuing taxable dividends (as described above). The North Carolina Fund and the
South Carolina Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of BB&T, suitable North
Carolina Tax-Exempt Obligations or South Carolina Tax-Exempt Obligations Fund,
respectively, are unavailable.
PUTS
The North Carolina Fund and the South Carolina Fund may acquire "puts"
with respect to securities held in their portfolios. Under a put, the Funds
would have the right to sell a specified security within a specified period of
time at a specified price. A put would be sold, transferred, or assigned only
with the underlying security. The North Carolina Fund and the South Carolina
Fund expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either separately in cash
or by paying a higher price for Fund securities which are acquired subject to
the puts (thus reducing the yield to maturity otherwise available for the same
securities). The North Carolina Fund and the South Carolina Fund will acquire
puts solely to facilitate Fund liquidity, shorten the maturity of the underlying
security, or permit the investment of their funds at a more favorable rate of
return.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
Because the North Carolina Fund will invest at least 90% of the value
of its total assets in North Carolina Tax-Exempt Obligations and because it
seeks to maximize income derived from North Carolina Tax-Exempt Obligations, it
is more susceptible to factors adversely affecting issuers of North Carolina
Tax-Exempt Obligations than is a comparable municipal
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bond mutual fund that is not concentrated in these issuers to this degree.
Growth of North Carolina tax revenues slowed considerably during fiscal years
1990-92, requiring tax increases and budget adjustments, including hiring
freezes and restrictions, spending constraints, changes in timing of certain
collections and payments, and other short-term budget adjustments, that were
needed to comply with North Carolina's constitutional mandate for a balanced
budget. Fiscal years 1993-1996, however, ended with a positive General Fund
balance each year. By law, a portion of such positive fund balance was required
to be reserved in the General Fund of North Carolina as part of a "Savings
Reserve" (subject to a maximum reserve of 5% of the preceding fiscal year's
operating appropriation). An additional portion of such unreserved credit
balance was reserved in the General Fund as part of a "Reserve For Repair and
Renovation of State Facilities" and certain other required reserves, leaving the
remaining unrestricted fund balance at the end of each such year available for
future appropriations. See "SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN SOUTH
CAROLINA TAX-EXEMPT OBLIGATIONS" in the Statement of Additional Information for
further discussion of investment considerations associated with South Carolina
Tax-Exempt Obligations.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE SOUTH CAROLINA FUND
Because the South Carolina Fund will invest at least 90% of the value
of its total assets in South Carolina Tax-Exempt Obligations and because it
seeks to maximize income derived from South Carolina Tax-Exempt Obligations, it
is more susceptible to factors adversely affecting issuers of South Carolina
Tax-Exempt Obligations than are comparable municipal bond mutual funds that are
not concentrated in these issuers to this degree. If any issuer of securities
held by the South Carolina Fund is unable to meet its financial obligations, the
Fund's income, capital, and liquidity may be adversely affected. The State of
South Carolina's economy has been dominated since the early 1920's by the
textile industry, with over one-third of the manufacturing workers directly or
indirectly related to the textile industry. The economic base of the state is
gradually becoming more diversified as the trade and service sectors and durable
goods manufacturing industries have developed. Currently, Moody's rates South
Carolina general obligation bonds "Aaa" and S&P rates such bonds
"AA+." There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. See "SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN SOUTH CAROLINA
TAX-EXEMPT OBLIGATIONS" in the Statement of Additional Information for further
discussion of investment considerations associated with South Carolina
Tax-Exempt Obligations.
DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund and the South Carolina Fund are non-diversified
funds under the Investment Company Act of 1940. This means they may concentrate
their
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investments in the securities of a limited number of issuers. Under the Internal
Revenue Code of 1986, as amended, at the end of each fiscal quarter each of the
North Carolina Fund and the South Carolina Fund must nevertheless diversify its
portfolio such that, with respect to 50% of its total assets, not more than 25%
of its assets is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies),
and with respect to the remainder of its total assets, no more than 5% of its
assets is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies).
Because of the relatively small number of issuers of North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund are more likely to invest a higher percentage of
their assets in the securities of a single issuer than is an investment company
that invests in a broad range of tax-exempt securities. This concentration
involves an increased risk of loss to the North Carolina Fund and the South
Carolina Fund if the issuer is unable to make interest or principal payments or
if the market value of such securities declines, and consequently may cause
greater fluctuation in the net asset value of the North Carolina and the South
Carolina Funds' Shares.
VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina
Fund and South Carolina Tax-Exempt Obligations purchased by the South Carolina
Fund may include variable and floating rate tax-exempt notes with ratings that
are similar to those described above. There may be no active secondary market
with respect to a particular variable or floating rate note. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the North Carolina Fund and the South Carolina Fund will approximate their
par value. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other
securities which are not readily marketable, exceeds 15% of the North Carolina
Fund's or South Carolina Fund's total assets only if such notes are subject to a
demand feature that will permit the Fund to receive payment of the principal
within seven days after demand by the Fund.
STAND-BY COMMITMENTS
In addition, the North Carolina Fund and the South Carolina Fund may
acquire "stand-by commitments" with respect to Tax-Exempt Obligations held in
either Fund. Under a stand-by commitment, a dealer would agree to purchase at
the Fund's option specified Tax-Exempt Obligations at a specified price. The
Funds will acquire stand-by commitments solely to facilitate Fund liquidity and
do not intend to exercise their rights thereunder for trading purposes. Stand-by
commitments acquired by the North Carolina Fund and the South Carolina Fund may
also be referred to as "put" options.
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PORTFOLIO TURNOVER
The Portfolio turnover rate for the Short-Intermediate Fund is 54.82%,
for the Intermediate Bond Fund is 76.29%, for the North Carolina Fund is 20.9%,
for the Growth and Income Fund is 19.82%, for the Small Company Growth Fund is
71.62%, and 15.01% for the equity portion and 4.86% for the fixed income portion
of the Balanced Fund. The portfolio turnover of each of the Funds (except the
Prime Money Market Fund and the U.S. Treasury Fund) may vary greatly from year
to year as well as within a particular year. It is presently anticipated that
the portfolio turnover rate of the International Equity Fund will not exceed
200%. It is presently anticipated that the portfolio turnover rate of the South
Carolina Fund will not exceed 50% and the portfolio turnover rate of the Large
Company Growth Fund will not exceed 100%. High turnover rates will generally
result in higher transaction costs to a Fund and may result in higher levels of
taxable realized gains to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may
be changed only by a vote of a majority of the outstanding shares of the
particular Fund (see "GENERAL INFORMATION--Miscellaneous").
The Prime Money Market Fund and the U.S. Treasury Fund may not:
1. Purchase securities of any issuer, other than obligations
issued or guaranteed by the U.S. Government if, as a result, with
respect to 75% of its portfolio, more than 5% of the value of the
Fund's total assets would be invested in such issuer. In addition,
although not a fundamental investment restriction (and therefore
subject to change without shareholder vote), to the extent required by
rules of the Securities and Exchange Commission the Prime Money Market
Fund and the U.S. Treasury 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.
Each Fixed Income Fund may not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase with respect
to 75% of its portfolio, more than 5% of the value of the Fund's total
assets would be invested in such issuer. There is no limit as to the
percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
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2. Purchase any securities that would cause 25% or more of the
value of such Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
The Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the
value of such Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
2. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of any class of securities
of the issuer or more than 10% of the outstanding voting securities of
the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations. There is no
limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
The International Equity Fund May Not:
1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities)
if more than 5% of the value of the Fund's total assets would (taken at
current value) be invested in the securities of such issuer, or more
than
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10% of the issuer's outstanding voting securities would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may
(taken at current value) be invested without regard to these
limitations. For purposes of this limitation, a security is considered
to be issued by the entity (or entities) whose assets and revenues back
the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities
issued and guaranteed by the guarantor, and owned by the Fund, does not
exceed 10% of the value of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to (i) instruments issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivision, and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% (one-third with respect to the
Prime Money Market Fund and the International Equity Fund) of the value
of its total assets at the time of such borrowing; or mortgage, pledge,
or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of (one-third of the value of
the Fund's total assets at the time of such borrowing with respect to
the Prime Money Market Fund and the International Equity Fund) the
lesser of the dollar amounts borrowed or 10% of the value of a Fund's
total assets at the time of its borrowing. Each of the Funds (except
the U.S. Treasury Fund) will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding. The U.S. Treasury Fund will not purchase
securities while borrowings are outstanding.
2. Make loans, except that each of the Funds may purchase or
hold debt securities and lend portfolio securities in accordance with
its investment objective and policies and may enter into repurchase
agreements.
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The North Carolina Fund and the South Carolina Fund may not:
1. Write or sell puts, calls, straddles, spreads, or
combinations thereof except that the Funds may acquire puts with
respect to Tax-Exempt Obligations in their portfolios and sell those
puts in conjunction with a sale of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities, and (b) this limitation shall not
apply to Tax-Exempt Obligations or governmental guarantees of
Tax-Exempt Obligations. For purposes of this limitation, a security is
considered to be issued by the government entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, such nongovernmental user.
The following is a non-fundamental investment restriction of the Prime
Money Market Fund and the U.S. Treasury Fund and therefore subject to change
without shareholder vote.
The Prime Money Market Fund and the U.S. Treasury Fund may not:
1. Invest more than 10% of its assets in instruments which are
not readily marketable.
VALUATION OF SHARES
The net asset value of each of the Funds other than the Prime Money
Market Fund and the U.S. Treasury Fund is determined and the Shares are priced
as of the close of regular trading of the New York Stock Exchange (generally
4:00 p.m. Eastern Time) on each Business Day. The net asset value of the Prime
Money Market Fund and the U.S. Treasury 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,
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Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated by determining the value of the
class's proportional interest in the securities and other assets of a Fund, less
(i) such class's proportional share of general liabilities and (ii) the
liabilities allocable only to such class, and dividing such amount by the number
of relevant class Shares outstanding.
The securities in each of the Funds, except the Prime Money Market Fund
and the U.S. Treasury Fund, will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees of the Group believes accurately reflects fair value.
The assets in the Prime Money Market Fund and the U.S. Treasury Fund
are valued based upon the amortized cost method. This method values a security
at its cost on the date of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. If the Board of
Trustees determines that the extent of any deviation from a $1.00 price per
share may result in material dilution or other unfair results to Shareholders,
it will take such steps as it considers appropriate to eliminate or reduce these
consequences to the extent reasonably practicable. This may include selling
portfolio securities prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity of 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 Prime
Money Market Fund's and the U.S. Treasury Fund's net asset value per Share at
$1.00, there can be no assurance that net asset value will not vary.
Most securities held by the International Equity Fund are priced based
on their market value as determined by reported sales prices or the mean between
their bid and asked prices. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Trustees. The amortized cost method of
valuation will also be used with respect to debt obligations with sixty days or
less remaining to maturity unless the Fund's sub-adviser under the supervision
of the Board of Trustees determines such method does not represent fair value.
For further information about the valuation of investments, see the
Statement of Additional Information.
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<PAGE> 72
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS
Fund Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF CLASS A AND CLASS B SHARES
Class A and Class B Shares may be purchased through procedures
established by the Distributor in connection with the requirements of qualified
accounts maintained by or on behalf of certain persons ("Customers") by
Participating Organizations under the Group's Distribution and Shareholder
Services Plan (see "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Distribution Plan").
As of the date of this Prospectus, however, Class B Shares were not yet
being offered in the Prime Money Market Fund, the Short-Intermediate Fund , the
North Carolina Fund or the South Carolina Fund. Investors purchasing Shares of
the U.S. Treasury Fund are generally required to purchase Class A or Trust
Shares, since such Shares are not subject to any initial sales charge or
contingent deferred sales charge. Shareholders investing directly in Class B
Shares of the U.S. Treasury Money Market Fund, as opposed to Shareholders
obtaining Class B Shares of the U.S. Treasury Money Market Fund upon an exchange
of Class B Shares of any of the other Funds, will be requested to participate in
the Auto Exchange and to set the time and amount of their regular, automatic
withdrawals in such a way that all of their Class B Shares have been withdrawn
from the U.S. Treasury Money Market Fund within two years of purchase. Such
Class B shares may be exchanged for Class B Shares of any other Fund through the
Auto Exchange (see "Auto Exchange").
Shares of the Group sold to Participating Organizations acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of Customers
will normally be held of record by the Participating Organizations. With respect
to Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers.
Investors may purchase Class A and Class B Shares of a Fund by
completing and signing an Account Registration Form and mailing it, together
with a check (or other negotiable bank draft or money order) in at least the
minimum initial purchase amount, payable to the Group, to BB&T Mutual Funds
Group, P.O. Box 182533, Columbus, OH 43218-2533. Investors may obtain an Account
Registration Form and additional information regarding the Group by contacting
their local BB&T office. Subsequent purchases of Class A
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and Class B Shares of a Fund may be made at any time by mailing a check (or
other negotiable bank draft or money order) to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the Group at (800)
228-1872. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by sending funds electronically to the Group's custodian. To
make payments electronically, investors must call the Group at (800) 228-1872 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Class A or Class B Shares of the Variable NAV Funds are sold at the net
asset value per Share next determined after receipt by the Distributor of an
order in good form to purchase Shares, plus a sales charge at the time of
purchase in the case of Class A Shares (see "VALUATION OF SHARES"). In the case
of orders for the purchase of Shares placed through a broker-dealer, the public
offering price will be the net asset value as so determined plus any applicable
sales charge, but only if the broker-dealer receives the order prior to the
Valuation Time for that day and transmits to the Group by the Valuation Time.
The broker-dealer is responsible for transmitting such orders promptly. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer. If the broker-dealer
receives the order after the Valuation Time for that day, the price will be
based on the net asset value determined as of the Valuation Time for the next
Business Day.
The minimum investment is $1,000 for the initial purchase of Class A
and Class B Shares of a Fund. There is no minimum investment for subsequent
purchases. The minimum initial investment amount may be waived if purchases are
made in connection with qualified retirement plans, systematic investment plans
or payroll deduction plans.
The maximum investment is $250,000 for total purchases of Class B
Shares. There is no limit on the amount of Class A Shares that may be purchased.
Every Shareholder will be mailed a confirmation of each new transaction
in the Shareholder's account. In the case of Class A and Class B Shares held of
record by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A and Class B
Shares by a Participating Organization will be sent to the Customer by the
Participating Organization. Certificates representing Shares will not be issued.
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SALES CHARGE -- CLASS A
The public offering price of a Class A Share of each of the North
Carolina, South Carolina and Short-Intermediate Funds equals its net asset value
plus a sales charge in accordance with the table below.
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
<S> <C> <C> <C>
Less than $100,000 2.04% 2.00% 1.80%
$100,000 but less
than $250,000 1.52% 1.50% 1.35%
$250,000 but less
than $500,000 1.01% 1.00% 0.90%
$500,000 but less
than $1,000,000 0.50% 0.50% 0.45%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
The public offering price of a Class A Share of each of the
Intermediate Bond, Growth and Income, Balanced , Large Company Growth, Small
Company Growth, and International Equity Funds equals its net asset value plus a
sales charge in accordance with the table below.
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<PAGE> 75
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
<S> <C> <C> <C>
Less than $100,000 4.71% 4.50% 4.05%
$100,000 but less
than $250,000 3.63% 3.50% 3.15%
$250,000 but less
than $500,000 2.56% 2.50% 2.25%
$500,000 but less
than $1,000,000 1.52% 1.50% 1.35%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
BISYS Fund Services (the "Distributor") receives this sales charge as
Distributor and reallows a portion of it as dealer discounts and brokerage
commissions. However, the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it receives. A broker or
dealer who receives a reallowance in excess of 90% of the sales charge may be
deemed to be an "underwriter" for purposes of the Securities Act of 1933.
Class A Shares of the Prime Money Market Fund and the U.S. Treasury
Fund are sold at net asset value without imposition of a sales charge.
From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional
compensation to dealers in connection with sales of Class A Shares of any of the
Funds of the Group. The maximum cash compensation payable by the Distributor is
4.50% of the public offering price of Class A Shares. Compensation will also
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to dealers whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1)vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at
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exotic locations, (2) tickets for entertainment events (such as concerts,
cruises and sporting events) and (3) merchandise (such as clothing, trophies,
clocks and pens). Dealers may not use sales of a Fund's Shares to qualify for
this compensation to the extent such may be prohibited by the laws of any state
or any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or
its shareholders.
The sales charges set forth in the table above are applicable to
purchases made at one time by any purchaser (a "Purchaser"), which includes: (i)
an individual, his or her spouse and children under the age of 21; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Class A Shares of the
Funds with no sales charge in the manner described below (which may be changed
or eliminated at any time by the Distributor):
(1) Existing Shareholders of a Fund upon the reinvestment of dividend
and capital gain distributions;
(2) Officers, trustees, directors, advisory board members, employees
and retired employees of the Group, BB&T and its affiliates, the Distributor and
its affiliates, and employees of the Investment Sub-Adviser (and spouses,
children and parents of each of the foregoing);
(3) Investors for whom a BB&T correspondent bank or other financial
institution acts in a fiduciary, advisory, custodial, agency, or similar
capacity;
(4) BB&T Fund shares purchased with the proceeds from a distribution
from BB&T or an affiliate trust or agency account (this waiver applies only to
the initial purchase of a BB&T Fund subject to a sales load);
(5) Investors who beneficially hold Trust Shares of any Fund of the
Group;
(6) Investors who purchase Shares of a Fund through a payroll deduction
plan, a 401(k) plan or a 403(b) plan which by its terms permits purchases of
Shares;
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(7) Investors whose shares are held of record by, and purchases made on
behalf of, other investment companies distributed by the Distributor or its
affiliated companies; and
In addition, the Distributor may waive the sales charge for the
purchase of a Fund's shares with the proceeds from the recent redemption of
shares of another non-money market mutual fund that imposes a sales charge. The
purchase must be made within 60 days of the redemption, and the Distributor must
be notified in writing by the investor or by his or her financial institution at
the time the purchase is made. A copy of the investor's account statement
showing such redemption must accompany such notice. The Distributor may also
periodically waive the sales charge for all investors with respect to a Fund.
LETTER OF INTENT
Any Purchaser may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such Purchaser to invest a
certain amount in Class A Shares of any of the Variable NAV Funds, i.e., those
Funds which charge a sales charge, within a period of 13 months. Each purchase
of Shares under a Letter of Intent will be made at the public offering price
plus the sales charge applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the Letter of Intent. A
Letter of Intent may include purchases of Class A Shares made not more than 90
days prior to the date such Purchaser signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included. When a purchaser enters into a
Letter of Intent which includes shares purchased prior to the date of the Letter
of Intent, the sales charge will be adjusted and used to purchase additional
Shares of the Fund at the then current public offering price at the end of the
13 month period. This program may be modified or eliminated at any time or from
time to time by the Group without notice.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Class A Shares purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the investor) to secure payment of the higher sales charge applicable to the
Class A Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Class A Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on escrowed Class A Shares,
whether paid in cash or reinvested in additional Class A Shares are not subject
to escrow. The escrowed Class A Shares will not be available for disposal by the
investor until all purchases pursuant to the Letter of Intent have been made or
the higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an investor purchases
more than the dollar amount indicated on the Letter of Intent and qualifies for
a further reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales
charges will be used to purchase additional Class A Shares subject to the rate
of sales charge applicable to the actual amount of the aggregate purchases at
the net asset value next calculated.
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For further information, interested investors should contact the
Distributor. Letter of Intent privileges may be amended or terminated without
notice at any time by the Distributor.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser (as defined under "HOW TO PURCHASE AND REDEEM SHARES--Sales
Charge -- Class A") may qualify for a reduced sales charge by combining
concurrent purchases of Class A Shares of one or more of the Variable NAV Funds
or by combining a current purchase of Class A Shares of a Variable NAV Fund with
prior purchases of Shares of any Variable NAV Fund. The applicable sales charge
is based on the sum of (i) the Purchaser's current purchase of Class A Shares of
any Variable NAV Fund sold with a sales charge plus (ii) the then current net
asset value of all Class A Shares held by the Purchaser in any Variable NAV
Fund. To receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must at the time of purchase provide the Transfer
Agent or the Distributor with sufficient information to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Distributor.
CLASS B SHARES
Class B Shares are not subject to a sales charge when they are
purchased, but are subject to a sales charge (the "Contingent Deferred Sales
Charge") if a Shareholder redeems them prior to the sixth anniversary of
purchase. When a Shareholder purchases Class B Shares, the full purchase amount
is invested directly in the applicable Fund. Class B Shares of each Fund are
subject to an ongoing distribution and Shareholder service fee at an annual rate
of 1.00% of such Fund's average daily net assets as provided in the Distribution
Plan (described below under "The Distributor"). This ongoing fee will cause
Class B Shares to have a higher expense ratio and to pay lower dividends than
Class A Shares. Class B Shares convert automatically to Class A Shares after
eight years, commencing from the end of the calendar month in which the purchase
order was accepted under the circumstances and subject to the qualifications
described in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and Shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.00% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission at its sole
discretion.
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CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth
anniversary of purchase, the Shareholder will pay a Contingent Deferred Sales
Charge at the rates set forth below. The Contingent Deferred Sales Charge is
assessed on an amount equal to the lesser of the then-current market value or
the cost of the Shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on Shares derived from reinvestment of dividends or
capital gain distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such Shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of Shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a
Contingent Deferred Sales Charge, it is assumed that the redemption is first of
any Class A Shares in the Shareholder's Fund account (unless the Shareholder
elects to have Class B Shares redeemed first) or Shares representing capital
appreciation, next of Shares acquired pursuant to reinvestment of dividends and
capital gain distributions, and finally of other Shares held by the Shareholder
for the longest period of time. This method should result in the lowest possible
sales charge.
To provide an example, assume you purchased 100 Shares at $10 per share
(a total cost of $1,000) and prior to the second anniversary after purchase, the
net asset value per share is
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$12 and during such time you have acquired 10 additional Shares through
dividends paid in Shares. If you then make your first redemption of 50 Shares
(proceeds of $600), 10 Shares will not be subject to charge because you received
them as dividends. With respect to the remaining 40 Shares, the charge is
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds
is subject to a Contingent Deferred Sales Charge at a rate of 4.00% (the
applicable rate prior to the second anniversary after purchase).
The Contingent Deferred Sales Charge is waived on redemption of Shares:
(i) following the death or disability (as defined in the Code) of a Shareholder
or a participant or beneficiary of a qualifying retirement plan if redemption is
made within one year of such death or disability; or (ii) to the extent that the
redemption represents a minimum required distribution from an Individual
Retirement Account or other qualifying retirement plan to a Shareholder who has
attained the age of 70 1/2. A Shareholder or his or her representative should
contact the Transfer Agent to determine whether a retirement plan qualifies for
a waiver and must notify the Transfer Agent prior to the time of redemption if
such circumstances exist and the Shareholder is eligible for this waiver. In
addition, the following circumstances are not deemed to result in a "redemption"
of Class B Shares for purposes of the assessment of a Contingent Deferred Sales
Charge, which is therefore waived: (i) plans of reorganization of the Fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
or (ii) exchanges for Class B Shares of other Funds of the Group as described
under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Class A Shares and will be subject to the lower distribution and Shareholder
service fees charged to Class A Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Class A Shares, shares received as
dividends and other distributions paid on Class B Shares in a Shareholder's Fund
account will be considered to be held in a separate sub-account. Each time any
Class B Shares in a Shareholder's Fund account (other than those in the
sub-account) convert to Class A Shares, a pro-rata portion of the Class B Shares
in the sub-account will also convert to Class A Shares.
If a Shareholder effects one or more exchanges among Class B Shares of
the Funds of the Group during the eight-year period, the Group will aggregate
the holding periods for the shares of each Fund of the Group for purposes of
calculating that eight-year period. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B
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Shares at the time of conversion, a Shareholder may receive fewer Class A Shares
than the number of Class B Shares converted, although the dollar value will be
the same.
AUTO INVEST PLAN
BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make
regular purchases of Class A and Class B Shares through automatic deduction from
their bank accounts. With Shareholder authorization, the Group's transfer agent
will deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $50 per Fund; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the Account Registration Form or a
supplemental sign-up form that can be acquired by calling the Distributor. For a
Shareholder to change the Auto Invest instructions or to discontinue the
feature, the request must be made in writing to the BB&T Mutual Funds Group,
P.O. Box 182533, Columbus, OH 43218-2533. The Auto Invest Plan may be amended or
terminated without notice at any time by the Distributor.
BB&T MUTUAL FUNDS GROUP INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A BB&T Mutual Funds Group IRA enables individuals, even if they
participate in an employer-sponsored retirement plan, to establish their own
retirement program by purchasing Class A or Class B Shares for an IRA. BB&T
Mutual Funds Group IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All BB&T Mutual Funds Group IRA distribution requests must be made in
writing to BISYS Fund Services. Any additional deposits to a BB&T Mutual Funds
Group IRA must distinguish the type and year of the contribution.
For more information on a BB&T Mutual Funds Group IRA call the Group at
(800) 228-1872. Investment in Shares of the North Carolina Fund would not be
appropriate for any IRA. Shareholders are advised to consult a tax adviser on
BB&T Mutual Funds Group IRA contribution and withdrawal requirements and
restrictions.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Class A or Class B Shares of the Funds will be effected
only on a Business Day (as defined in "VALUATION OF SHARES"). An order for the
Prime Money
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Market Fund or the U.S. Treasury Fund received prior to a Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the date of receipt.
An order for the Prime Money Market Fund or the U.S. Treasury Fund
received after the last Valuation Time on any Business Day will be executed at
net asset value determined as of the next Valuation Time on the next Business
Day. An order for a Variable NAV Fund received prior to the Valuation Time on
any Business Day will be executed at the net asset value determined as of the
Valuation Time on the date of receipt. An order for a Variable NAV Fund received
after the Valuation Time on any Business Day will be executed at the net asset
value determined as of the Valuation Time on the next Business Day.
An order to purchase Class A Shares of the Prime Money Market Fund or
the U.S. Treasury Fund will be deemed to have been received by the Distributor
only when federal funds with respect thereto are available to the Group's
custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Shares of the
Prime Money Market Fund or the U.S. Treasury Fund which is transmitted by
federal funds wire will be available the same day for investment by the Group's
custodian, if received prior to the last Valuation Time (see "VALUATION OF
SHARES"). It is strongly recommended that investors of substantial amounts use
federal funds to purchase Shares of the Prime Money Market Fund or the U.S.
Treasury Fund.
Shares of the Prime Money Market Fund or the U.S. Treasury Fund
purchased before 12:00 noon, Eastern Time, begin earning dividends on the same
Business Day. All Shares of the Prime Money Market Fund or the U.S. Treasury
Fund continue to earn dividends through the day before their redemption.
Depending upon the terms of a particular Customer account, a
Participating Organization or Bank may charge a Customer account fees for
services provided in connection with investment in the Group. Information
concerning this Prospectus should be read in conjunction with any such
information received from the Participating Organizations or Banks.
The Group reserves the right to reject any order for the purchase of
its Class A or Class B Shares in whole or in part, including purchases made with
foreign and third party drafts or checks.
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EXCHANGE PRIVILEGE
CLASS A
Class A Shares of each Fund may be exchanged for Class A Shares of the
other Funds, provided that the Shareholder making the exchange is eligible on
the date of the exchange to purchase Class A Shares (with certain exceptions and
subject to the terms and conditions described in this prospectus). Class A
Shares may not be exchanged for Class B Shares of the other Funds, and may be
exchanged for Trust Shares of the other Funds only if the Shareholder becomes
eligible to purchase Trust Shares. Only residents of North Carolina may exchange
their Class A Shares of the other Funds for Class A Shares of the North Carolina
Fund. [Only residents of South Carolina may exchange their Class A Shares of the
other Funds for Class A Shares of the South Carolina Fund.] Shareholders may
exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of the Prime
Money Market Fund or the U.S. Treasury Fund, for which no sales load was paid,
for Class A Shares of a Variable NAV Fund. Under such circumstances, the cost of
the acquired Class A Shares will be the net asset value per share plus the
appropriate sales load. If Class A Shares of the Prime Money Market Fund or the
U.S. Treasury Fund were acquired in a previous exchange involving Shares of a
Variable NAV Fund, then such Shares of the Prime Money Market Fund or the U.S.
Treasury Fund may be exchanged for Shares of a Variable NAV Fund without payment
of any additional sales load within a twelve month period. Under such
circumstances, the Shareholder must notify the Distributor that a sales load was
originally paid. Depending upon the terms of a particular Customer account, a
Participating Organization may charge a fee with regard to such an exchange.
Information about such charges will be supplied by the Participating
Organization.
CLASS B
Class B Shares of each Fund may be exchanged for Class B Shares of the
other Funds on the basis of relative net asset value per Class B Share, without
the payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
as of the date of this prospectus, Class B Shares were not yet being offered in
the Prime Money Market Fund, the Short-Intermediate Fund, the North Carolina
Fund, or the South Carolina Fund, and thus, as of the date of this prospectus,
no exchanges could be effected for Class B Shares of these four Funds. For
purposes of computing the Contingent Deferred Sales Charge that may be payable
upon a disposition of the newly acquired Class B Shares, the holding period for
outstanding Class B Shares of the Fund from which the exchange was made is
"tacked" to the holding period of the newly acquired Class B Shares. For
purposes of calculating the holding period applicable to the newly acquired
Class B Shares, the newly acquired Class B Shares shall be
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deemed to have been issued on the date of receipt of the Shareholder's order to
purchase the outstanding Class B Shares of the Fund from which the exchange was
made.
Class B Shares may not be exchanged for Class A Shares of the other
Funds, and may be exchanged for Trust Shares of the other Funds only if the
Shareholder becomes eligible to purchase Trust Shares. A Contingent Deferred
Sales Charge will apply as described in "How To Purchase and Redeem Shares" --
"Class B Shares" to exchanges of Class B Shares for Trust Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
An exchange is considered a sale of Shares and will result in a capital
gain or loss for federal income tax purposes, which, in general, is calculated
by netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange. If a Shareholder exchanges
Class A Shares within 90 days of acquiring them and if a sales charge is waived
on the exchange, for purposes of measuring the capital gain or loss on the
exchange, the Shareholder's basis in the surrendered Shares is reduced by the
lesser of (i) the sales charge paid for the surrendered shares or (ii) the
amount of the sales charge that is waived on the exchange.
A Shareholder wishing to exchange Class A or Class B Shares purchased
directly from the Group may do so by contacting the Group at (800) 228-1872 or
by providing instructions to the Transfer Agent. If not selected on the Account
Registration form, the Shareholder will automatically receive Exchange
privileges. A Shareholder wishing to exchange Class A or Class B Shares
purchased through a Participating Organization or Bank may do so by contacting
the Participating Organization or Bank. If an exchange request in good order is
received by the Distributor or the Transfer Agent by 12:00 noon (Eastern Time)
on any Business Day, the exchange usually will occur on that day. Any
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be exercised only in those
states where the class of Shares of such other Fund may legally be sold. The
Group reserves the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days written notice.
The Group's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
AUTO EXCHANGE
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BB&T Mutual Funds Group Auto Exchange enables Shareholders to make
regular, automatic withdrawals from Class A Shares and Class B Shares of the
BB&T U.S. Treasury Money Market Fund and Class A Shares of the BB&T 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 Prime
Money Market Fund or U.S. Treasury Fund account and will automatically invest
that amount in Class A Shares or Class B 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 Prime Money Market Fund or U.S. Treasury
Fund account and maintain a minimum account balance of $1,000.
Shareholders investing directly in Class B Shares of the U.S. Treasury
Fund, as opposed to Shareholders obtaining Class B Shares of the U.S. Treasury
Fund upon an exchange of Class B Shares of any of the other Funds, will be
requested to participate in the Auto Exchange and to set the time and amount of
their regular, automatic withdrawals in such a way that all of their Class B
Shares have been withdrawn from the U.S. Treasury Fund within two years of
purchase.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the BB&T
Mutual Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Exchange
may be amended or terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Class A Shares without charge, and their
Class B Shares subject to the applicable Contingent Deferred Sales Charge, on
any day that net asset value is calculated (see "VALUATION OF SHARES") and
Shares may ordinarily be redeemed by mail or by telephone. However, all or part
of a Customer's Shares may be required to be redeemed in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization or Bank. For example, if a Customer has agreed to
maintain a minimum balance in his or her account, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Participating Organization or Bank may redeem for and on behalf of the Customer,
all or part of the Customer's Shares to the extent necessary to maintain the
required minimum balance.
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REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order
to constitute a valid tender for redemption. The signature on the written
request must be guaranteed by a bank, broker, dealer, credit union, securities
exchange, securities association, clearing agency or savings association, as
those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 if (a) a redemption check is to be payable to anyone other than the
Shareholder(s) of record or (b) a redemption check is to be mailed to the
Shareholder(s) at an address other than the address of record or other than to a
commercial bank designated on the Account Registration Form of such
Shareholder(s). The Distributor reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine, (2)
it has reason to believe that the transaction would otherwise be improper, or
(3) the guarantor institution is a broker or dealer that is neither a member of
a clearing corporation nor maintains net capital of at least $100,000. Proceeds
may be mailed to the address of record or sent electronically or mailed to a
previously designated bank account without a signature guarantee. See
"Redemption by Telephone" for further discussion on sending proceeds to your
bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that
option on the Account Registration Form. A Shareholder may have the proceeds
mailed to the address of record or sent electronically or mailed directly to a
domestic commercial bank account previously designated by the Shareholder on the
Account Registration Form. Under most circumstances, such payments will be
transmitted on the next Business Day following receipt of a valid request for
redemption. Such electronic redemption requests may be made by the Shareholder
by telephone to the Transfer Agent. The Transfer Agent will reduce the amount of
a wire redemption payment by its then-current wire redemption charge. Such
charge is presently $7.00 for each wire redemption. There is no charge for
having payment of redemption requests mailed or sent via the Automated Clearing
House to a designated bank account. For telephone redemptions, call the Group at
(800) 228-1872. If not selected on the Account Registration form, the
Shareholder will automatically receive telephone redemption privileges. None of
the Distributor, the Group's transfer agent, BB&T or the Group will be liable
for any losses, damages, expense or cost arising out of any telephone
transaction (including exchanges and redemptions) effected in accordance with
the Group's telephone transaction procedures, upon instructions reasonably
believed to be genuine. The Group will employ procedures designed to provide
reasonable assurance that instructions communicated by telephone are genuine; if
these procedures are not followed, the Group may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures include recording all
phone conversations, sending confirmations to Shareholders within 72 hours of
the telephone transaction, verifying the account name and a shareholder's
account number or tax 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
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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 Prime Money Market Fund and the
U.S. Treasury Fund may write checks on Fund accounts for $100 or more. Once a
Shareholder has signed and returned a signature card, he or she will receive a
supply of checks. A check may be made payable to any person, and the
Shareholder's account will continue to earn dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. The
Shareholder's account will be charged a fee for stopping payment of a check upon
the Shareholder's request or if the check cannot be honored because of
insufficient funds or other valid reasons.
AUTO WITHDRAWAL PLAN
BB&T Mutual Funds Group Auto Withdrawal Plan enables Shareholders to
make regular redemptions of Class A Shares of a Fund. With Shareholder
authorization, the Group's transfer agent will automatically redeem Class A
Shares at the net asset value of the applicable Fund on the dates of withdrawal
and have the amount specified transferred according to the instructions of the
Shareholder. Shareholders participating in the Auto Withdrawal Plan must
maintain a minimum account balance of $1,000 in the Fund from which Class A
Shares are being redeemed. Purchase of additional Class A Shares concurrent with
withdrawals may be disadvantageous to certain Shareholders because of tax
liabilities.
To participate in the Auto Withdrawal Plan, Shareholders should
complete a supplemental sign-up form that can be acquired by calling the
Distributor. For a Shareholder to change the Auto Withdrawal instructions or to
discontinue the feature, the request must be made in writing to the BB&T Mutual
Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Withdrawal Plan
may be amended or terminated without notice at any time by the Distributor.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders for next Business Day payments upon redemptions 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
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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 Prime Money Market Fund and the U.S.
Treasury Fund will attempt to honor requests from its Shareholders for same day
payment upon redemption of Shares if the request for redemption is received by
the Transfer Agent before 12:00 noon Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon Eastern Time, to honor
requests for payment on the next Business Day, unless it would be
disadvantageous to the Fund or its Shareholders to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, a Fund may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Group may delay
the forwarding of proceeds only until payment has been collected for the
purchase of such Shares, which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing Shares, investors should
purchase Shares by certified check or by wire transfer. The Group intends to pay
cash for all Shares redeemed, but under abnormal conditions which may make
payment in cash unwise, the Group may make payment wholly or partly in portfolio
securities at their then market value equal to the redemption price. In such
cases, an investor may incur brokerage costs in converting such securities to
cash.
Due to the relatively high cost of handling small investments, the
Group reserves the right to redeem, at net asset value, the Shares of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder, the account of such Shareholder in a Fund has a value of less than
$1,000. Accordingly, an investor purchasing Shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before the Group exercises its
right to redeem such Shares and sends proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Shares of a Fund in his
or her account is less than the minimum amount and will be allowed 60 days to
make an additional investment in an amount which will increase the value of the
account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the
Statement of Additional Information for examples of when the Group may suspend
the right of redemption or redeem Shares involuntarily if it appears appropriate
to do so in light of the Group's responsibilities under the Investment Company
Act of 1940.
DIVIDENDS AND TAXES
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified, a Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute substantially all of their income on a
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timely basis. Each Fund intends to avoid paying federal income and excise taxes
by timely distributing substantially all its net investment income and net
realized capital gains.
Dividends received by a Shareholder of a Fund that are derived from
such Fund's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.
Shareholders will be advised at least annually as to the amount and
federal income tax character of distributions made during the year.
The net investment income of the Shares of the Prime Money Market Fund
and the U.S. Treasury Fund is declared daily as a dividend to Shareholders at
the close of business on the day of declaration. Dividends will generally be
paid monthly. The Prime Money Market Fund and the U.S. Treasury Fund do not
expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gain dividends" as described in the Code.
The amount of dividends payable with respect to the Trust Shares will
exceed dividends on Class A Shares, and the amount of dividends on Class A
Shares will exceed the dividends on Class B Shares, as a result of the
Distribution and Shareholder Services Plan fee applicable to Class A and Class B
Shares.
A dividend on the Shares of the North Carolina, South Carolina,
Short-Intermediate and Intermediate Bond Funds is declared daily, and a dividend
on the Shares of the Growth and Income and Balanced Funds is declared monthly.
Net realized capital gains, if any, are distributed at least annually to
Shareholders of record. Dividends for each of the Funds other than the Small
Company Growth Fund will generally be paid monthly. The Large Company Growth,
Small Company Growth and the International Equity Funds declare and pay
dividends quarterly.
A Shareholder will automatically receive all income dividends and
capital gain distributions in additional full and fractional Shares at net asset
value as of the date of payment unless the Shareholder elects to receive such
dividends or distributions in cash. Such election, or any revocation thereof,
must be made in writing to the BB&T Mutual Funds Group,
P.O. Box 182533, Columbus, OH 43218-2533, and will become effective with respect
to dividends and distributions having record dates after its receipt by the
transfer agent. Reinvested dividends receive the same tax treatment as dividends
paid in cash. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares.
Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month
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and paid during the following January are treated for tax purposes as if they
were received by each Shareholder on December 31 of the year in which the
dividends were declared.
Dividends will generally be taxable to a Shareholder as ordinary income
to the extent of the Shareholder's ratable share of the earnings and profits of
a Fund as determined for tax purposes. Certain dividends paid by the Growth and
Income, Balanced, Large Company Growth, Small Company Growth, and International
Equity Funds, and so-designated by the Funds, may qualify for the dividends
received deduction for corporate shareholders. Because all of the net investment
income of the remaining Funds is expected to be interest income, it is
anticipated that no distributions from such Funds will qualify for the dividends
received deduction. Distributions of net realized capital gains are taxable to
Shareholders as long-term capital gains regardless of how long the Shareholder
has held Shares in the Fund. Shareholders who are not subject to tax on their
income generally will not have to pay federal income tax on amounts distributed
to them.
Dividends that are derived from interest on a Fund's investments in
U.S. Government Securities and that are received by a Shareholder who is a North
Carolina or South Carolina resident are currently eligible for exemption from
those states' income taxes. Such dividends may be eligible for exemption from
the state and local taxes of other jurisdictions as well, although state and
local tax authorities may not agree with this view. However, in North Carolina
and South Carolina, as well as in other states, distributions of income derived
from repurchase agreements and securities lending transactions generally will
not qualify for exemption from state and local income taxes.
The foregoing is a summary of certain federal, state and local income
tax consequences of investing in a Fund. Shareholders should consult their own
tax advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.
TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND
Dividends and certain interest income earned by the International
Equity Fund from foreign securities may be subject to foreign withholding taxes
or other taxes. So long as more than 50% of the value of the Fund's total assets
at the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that the
International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
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Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA
FUND
The portions of dividends paid for each year that are exempt from
federal, and North Carolina or South Carolina income tax, respectively, will be
designated within 60 days after the end of a Fund's taxable year and will be
based for each of the North Carolina and South Carolina Funds upon the ratio of
net tax-exempt income to total net income earned by the
Fund during the entire year. That ratio may be substantially different from the
ratio of net tax-exempt income to total net income earned during any portion of
the year. Thus, a Shareholder who holds Shares in either Fund for only a part of
the year may be allocated more or less tax-exempt dividends than would be the
case if the allocation were based on the ratio of net tax-exempt income to total
net income actually earned by the Fund while he or she was a Shareholder.
Distributions will not be subject to North Carolina income tax if made
to individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina income tax to the extent such distributions are either
(i) exempt from federal income tax and attributable to interest on obligations
of North Carolina or its political subdivisions, or Guam, Puerto Rico, or the
United States Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, or (ii) attributable to interest on
direct obligations of the United States.
Distributions will not be subject to South Carolina income tax if made
to individual Shareholders residing in South Carolina or to trusts or estates
subject to South Carolina income tax to the extent such distributions are either
(i) attributable to interest on obligations of South Carolina or its political
subdivisions, including any agencies, instrumentalities and authorities thereof,
or (ii) attributable to interest on direct obligations of the United States.
Distributions designated by the Funds as "exempt-interest dividends"
are not generally subject to federal income tax. However, if the Shareholder
receives Social Security or railroad retirement benefits, the Shareholder should
consult his or her tax adviser to determine what effect, if any, an investment
in a Fund may have on the taxation of such benefits.
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Dividends derived from interest income from certain types of securities
in which the North Carolina Fund or the South Carolina Fund may invest may
subject individual and corporate investors to liability under the federal
alternative minimum tax. As a matter of policy, under normal market conditions,
not more than 10% of a Fund's total assets will be invested in securities the
interest on which is treated as a preference item for purposes of the federal
alternative minimum tax for individuals. To the extent the North Carolina Fund
or the South Carolina Fund invests in securities the interest on which is
subject to federal alternative minimum tax, Shareholders, depending on their tax
status, may be subject to alternative minimum tax on that part of the Fund's
distributions derived from those securities. Interest income on all Tax-Exempt
Obligations is included in "adjusted current earnings" for purposes of computing
the alternative minimum tax applicable to corporate Shareholders of the North
Carolina Fund or the South Carolina Fund.
Under the Code, if a Shareholder receives an exempt-interest dividend
with respect to any Share and such Share is held for six months or less, any
loss on the sale or exchange of such Share will be disallowed for North
Carolina, South Carolina, and federal income tax purposes to the extent of the
amount of such exempt-interest dividend, even though, in the case of North
Carolina or South Carolina, some portion of such dividend actually may have been
subject to North Carolina or South Carolina income tax. Although the Treasury
Department is authorized to issue regulations reducing such period to as short
as 31 days for regulated investment companies that regularly distribute at least
90% of their net tax-exempt interest, no such regulations have been issued as of
the date of this Prospectus.
The North Carolina Fund or the South Carolina Fund may at times
purchase Tax-Exempt Obligations at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of this market
discount will be included in a Fund's ordinary income and will be taxable to
shareholders as such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable
income (for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund and the South Carolina Fund of the
excess of net long-term capital gain over net short-term capital loss are
taxable to Shareholders as long-term capital gain, regardless of how long the
Shareholder has held Shares in the North Carolina Fund or the South Carolina
Fund [, except that distributions which are directly attributable to gains from
certain obligations of the State of North Carolina and its political
subdivisions that were issued before July 1, 1995 are exempt from North Carolina
State income tax.] Distributions will be taxable as described above even if the
net asset value of a Share in the North Carolina Fund or the South Carolina Fund
is reduced below the Shareholder's cost of that Share by the distribution of
income or gain realized on the sale of securities and the distribution is, as an
economic matter, a return of capital. If a
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shareholder purchases mutual fund shares, receives a capital gain dividend (or
is credited with an undistributed capital gain) and then sells the shares at a
loss within 6 months after purchasing the shares, the loss is treated as a
long-term capital loss to the extent of the capital gain dividend (or
undistributed capital gain).
Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.
Part or all of the interest on indebtedness incurred by a Shareholder
to purchase or carry Shares of the North Carolina Fund or the South Carolina
Fund is not deductible for federal , North Carolina and South Carolina income
tax purposes . The portion of interest that is not deductible is equal to the
total interest multiplied by the percentage of the Fund's total distributions
(not including distributions from net long-term capital gains) paid to the
Shareholder that are exempt-interest dividends. It is anticipated that none of
the distributions from the North Carolina Fund or the South Carolina Fund will
be eligible for the dividends received deduction for corporations.
Additional information regarding federal taxes is contained in the
Statement of Additional Information under the heading "Additional Tax
Information Concerning the North Carolina Fund and the South Carolina Fund."
However, the foregoing and the material in the Statement of Additional
Information are only brief summaries of some of the important tax considerations
generally affecting the North Carolina Fund and the South Carolina Fund and
their Shareholders. Accordingly, potential investors in the North Carolina Fund
and the South Carolina Fund are urged to consult their tax advisers with
specific reference to their own tax situation and in particular regard to state
and local tax consequences of investment in the North Carolina Fund and the
South Carolina Fund.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board
of Trustees of the Group, who are elected by the Shareholders of the Group.
There are currently five Trustees, two of whom are "interested persons" of the
Group within the meaning of that term under the Investment Company Act of 1940.
The Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:
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<TABLE>
<CAPTION>
Position(s) Held Principal Occupation During
Name and Address With the Group the Past 5 Years
- ---------------- -------------- ----------------
<S> <C> <C>
* Walter B. Grimm Chairman of the Board From June, 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services; from 1987 to June,
1992, President of Leigh
Consulting/Investments
(investment firm).
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall from 1985 to December, 1993,
P.O. Box 109 Vice Chairman, Carolina
Raleigh, NC 27602 Power & Light Company
Thomas W. Lambeth Trustee From 1978 to present,
101 Reynolda Village Executive Director, Z. Smith
Winston-Salem, Reynolds Foundation
NC 27106
*W. Ray Long Trustee Executive Vice President,
434 Fayetteville Street Mall Branch Banking and Trust
Raleigh, NC 27601 Company
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of
Greenville, SC 29615 Engineered 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. Walter B. Grimm is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.
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INVESTMENT ADVISER
BB&T is the investment adviser of each Fund. BB&T is the oldest bank in
North Carolina and is the principal bank affiliate of BB&T Corporation (formerly
Southern National Corporation), a bank holding company that is a North Carolina
corporation, headquartered in Winston-Salem, North Carolina. As of December 31,
1996, BB&T Corporation had assets of approximately $25 billion. Through its
subsidiaries, BB&T Corporation operates over 425 banking offices in North
Carolina, South Carolina and Virginia, providing a broad range of financial
services to individuals and businesses.
In addition to general commercial, mortgage and retail banking
services, BB&T also provides trust, investment, insurance and travel services.
BB&T has provided investment management services through its Trust and
Investment Services Division since 1912. While BB&T has not provided investment
advisory services to registered investment companies other than the Group, it
has experience in managing collective investment funds with investment
portfolios and objectives comparable to those of the Group. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds for
its fiduciary accounts for more than 15 years and currently manages assets of
more than $4.5 billion.
Subject to the general supervision of the Group's Board of Trustees and
in accordance with the investment objectives and restrictions of a Fund, BB&T
(and, with respect to the Small Company Growth Fund, PNC Bank and, with respect
to the International Equity Fund, CastleInternational) manages the Funds, makes
decisions with respect to, and places orders for, all purchases and sales of its
investment securities, and maintains its records relating to such purchases and
sales.
Under an investment advisory agreement between the Group and BB&T, the
fee payable to BB&T by the Prime Money Market Fund and the U.S. Treasury Fund
for investment advisory services is the lesser of: (a) a fee computed daily and
paid monthly at the annual rate of forty one hundredths of one percent (.40%) of
each Fund's average daily net assets; sixty one-hundredths of one percent (.60%)
of each Fixed Income Funds' and the North Carolina and South Carolina Funds'
average daily net assets; and seventy-four one-hundredths of one percent (.74%)
of the Large Company Growth Fund's, the Growth and Income Fund's and the
Balanced Fund's average daily net assets; one percent (1.00%) of the Small
Company Growth and International Equity Funds' average daily net assets, or (b)
such fee as may from time to time be agreed upon in writing by the Group and
BB&T. A fee agreed to in writing from time to time by the Group and BB&T may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase the net income
of the fund during the period when such lower fee is in effect.
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For the fiscal year ended September 30, 1996, the Funds paid the
following investment advisory fees: the U.S. Treasury Fund paid .40% of its
average daily net assets; each of the Short-Intermediate, Intermediate Bond,
North Carolina, Growth and Income, and Balanced Funds, after voluntary fee
reductions, paid .50% of its average daily net assets; and the Small Company
Growth paid 1.00% of its average daily net assets. The Prime Money Market Fund,
the International Equity Fund, the South Carolina Fund, and the Large Company
Growth Fund had not commenced operations as of September 30, 1996.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the Group other than the Small Company Growth and
International Equity Funds (which are managed by sub-advisers, described below),
as well as their previous business experience, are as follows:
PORTFOLIO MANAGER BUSINESS EXPERIENCE
- ----------------- -------------------
Keith F. Karlawish Manager of the Intermediate Bond Fund and
Short-Intermediate Fund since September, 1994. From
June, 1993 to September, 1994, Mr. Karlawish was
Assistant Manager of the Intermediate Bond Fund and
the Short-Intermediate Fund. From September, 1991 to
June, 1993, he was a Financial Analyst Team Leader
for Branch Banking and Trust Co. Mr. Karlawish earned
a B.S. in Business Administration from the University
of Richmond, an MBA from the University of North
Carolina at Chapel Hill and is a Chartered Financial
Analyst.
Richard B. Jones Manager of the Growth and Income Fund since February
1, 1993. Since 1987, Mr. Jones has been a portfolio
manager in the BB&T Trust Division. He is a Chartered
Financial Analyst, and holds a B.S. in Business
Administration from Miami (Ohio) University and an
MBA from Ohio State University.
Alice B. Flowers Manager of the North Carolina Fund since April, 1994
and co- manager of the South Carolina Fund since its
inception. From February, 1993 to April, 1994, Ms.
Flowers served as co-manager of the North Carolina
Fund. She has been a securities trader and portfolio
manager in the BB&T Trust Division since 1985. She
earned a B.S. degree in Business Administration from
Barton College, and an A.A.S. degree in Accounting
from Wilson Technical Community College.
David R. Ellis Manager of the Balanced Fund since its inception and
Manager of the Funds of Funds since inception. Since
1986, Mr. Ellis
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has been a portfolio manager in the BB&T Trust
Division. He holds a B.S. degree in Business
Administration from the University of North Carolina
at Chapel Hill.
C. Steven Brennaman Co-manager of the South Carolina Fund since its
inception. Mr. Brennaman joined BB&T after its merger
with United Carolina Bank in July, 1997. He has been
a Senior Portfolio Manager with UCB since June, 1995.
Mr. Brennaman holds a B.A. degree in Political
Science from Mercer University and a M.S. degree in
Management from Troy State University.
Daniel J. Rivera Manager of the Large Company Growth Fund since its
inception, Mr. Rivera joined the BB&T staff in July,
1997, after BB&T's merger with United Carolina Bank.
He had been Director of Investments at UCB since
January, 1994. Mr. Rivera received a Bachelors degree
in Languages from the Virginia Military Institute,
and is a Chartered Financial Analyst.
INVESTMENT SUB-ADVISERS
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.
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<PAGE> 98
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.
PEAC serves as the Investment Sub-Adviser to the Small Company Growth
Fund pursuant to a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory
Agreement, PEAC manages the Fund, selects investments and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of the Group's Board of Trustees and BB&T and in accordance with the Small
Company Growth Fund's investment objective, policies and restrictions.
The person primarily responsible for the management of the Small
Company Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of
the Small Company Growth Fund since its inception. Mr. Wykle has been an
investment manager with PEAC since 1995 and has been the portfolio manager of
the Compass Capital FundsSM Small Cap Growth Equity Portfolio since its
inception. He has also been Vice President and Small Cap Growth Equity Fund
portfolio manager for PNC Bank since 1992. He has been a portfolio manager at
PNC Bank and its predecessor, Provident National Bank, since 1986.
PEAC is an indirect wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), the former Sub-Adviser to the Small Company Growth
Fund, with offices located at 1600 Market Street, Philadelphia, Pennsylvania
19103. PNC Bank is a wholly owned indirect subsidiary of PNC Bank Corp. PNC Bank
Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania, was the
13th largest bank holding company in the United States based on total assets at
March 31, 1997. PNC Bank Corp. operates banking subsidiaries in Pennsylvania,
Delaware, Florida, Indiana, Kentucky, Massachusetts, New Jersey and Ohio and
conducts certain non-banking operations throughout the United States. Its major
businesses include consumer banking, corporate banking, real estate banking,
mortgage banking and asset management. With $114.9 billion in managed assets and
$346.4 billion of assets under administration at March 31, 1997, PNC Bank Corp.
is one of the largest bank money managers as well as one of the largest
institutional mutual fund managers in the United States. Of such amounts at
March 31, 1997, PNC Bank had $104.5 billion in managed assets $148.2 billion in
assets under administration. In addition to asset management and trust services,
PNC Bank also provides a wide range of domestic and international commercial
banking and consumer banking services. PNC Bank's origins, and in particular its
trust administration services, date back to the mid-to-late 1800s.
For its services and expenses incurred under the Sub-Advisory
Agreement, PEAC is entitled to a fee, payable by BB&T. The fee is computed daily
and paid monthly at the
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following annual rates (as a percentage of the Small Company Growth Fund's
average daily net assets), which vary according to the level of Fund assets:
FUND ASSETS ANNUAL FEE
----------- ----------
Up to $50 million .50%
Next $50 million .45%
Over $100 million .40%
CastleInternational Asset Management Limited ("CastleInternational")
serves as the Investment Sub-Adviser to the International Equity Fund pursuant
to a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement,
CastleInternational manages the Fund, selects investments and places all orders
for purchases and sales of the International Equity Fund's securities, subject
to the general supervision of the Group's Board of Trustees and BB&T and in
accordance with the International Equity Fund's investment objective, policies,
and restrictions.
CastleInternational, formed in 1996, with its primary office at 7
Castle Street, Edinburgh, Scotland, EH2 3AH, is an indirect wholly-owned
subsidiary of PNC Bank Corp. As of September 30, 1996, CastleInternational had
approximately $1.6 billion in discretionary assets under management, including
three mutual fund portfolios, one bank common trust fund and a tax exempt
institutional portfolio.
For its services and expenses incurred under the Sub-Advisory
Agreement, CastleInternational is entitled to a fee, payable by BB&T. The fee is
computed daily and paid quarterly at the following annual rates (as a percentage
of the International Equity Fund's average daily net assets), which vary
according to the level of Fund assets:
FUND ASSETS ANNUAL FEE
Up to $50 million .50%
Next $50 million .45%
Over $100 million .40%
The person primarily responsible for the management of the
International Equity Fund is Gordon Anderson. Mr. Anderson has served as
Managing and Investment Director of CastleInternational Asset Management Limited
since 1996. Prior to joining CastleInternational, Mr. Anderson was the
Investment Director of Dunedin Fund Managers Ltd. Mr. Anderson has been the
Portfolio Manager for the Compass Capital Fund'SM International Equity Portfolio
since 1996.
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<PAGE> 100
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund and also acts as
the Group's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context
indicates) under agreements approved by the Group's Board of Trustees. BISYS
Fund Services is wholly owned by The BISYS Group, Inc., 150 Clove Road, Little
Falls, New Jersey 07424, a publicly owned company engaged in information
processing, loan servicing and 401(k) administration and recordkeeping services
to and through banking and other financial organizations.
The Administrator generally assists in all aspects of a Fund's
administration and operation. Under a management and administration agreement
between the Group and the Administrator, the fee payable by a Fund to the
Administrator for management administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (.20%) of a
Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon in writing by the Group and the Administrator. A fee agreed to in
writing from time to time by the Group and the Administrator may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase the net income
of the Fund during the period when such lower fee is in effect.
For the fiscal year ended September 30, 1996, the Funds paid the
following Administration fees (as a percentage of each Fund's average daily net
assets): .20% for each of the U.S. Treasury Fund, the Short-Intermediate Fund,
the Intermediate Bond Fund, the Growth and Income Fund, the Balanced Fund, and
the Small Company Growth Fund and .15% for the North Carolina Fund. No
Administration fees were paid by the Prime Money Market Fund, the International
Equity Fund, the South Carolina Fund, or the Large Company Growth Fund for that
period as they had not commenced operations as of September 30, 1996.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (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
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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 periods ended September 30, 1996, each Fund's total operating
expenses for Investor Shares (now redesignated as Class A Shares) were as
follows (as a percentage of average daily net assets of each Fund): U.S.
Treasury Fund: .99%; Short-Intermediate Fund: 1.19%; Intermediate Bond Fund:
1.13%; North Carolina Fund: 1.11%; Growth and Income Fund: 1.11%; Balanced Fund:
1.20%; and Small Company Growth Fund: 2.01%. Absent fee waivers by the Adviser
and Administrator, these operating expenses would have been: U.S. Treasury Fund:
1.25%; Short-Intermediate Fund: 1.54%; Intermediate Bond Fund: 1.48%; North
Carolina Fund: 1.61%; Growth and Income Fund: 1.60%; Balanced Fund: 1.69%; and
Small Company Growth Fund: 2.26%.
For the fiscal year ended September 30, 1996, each Fund's total
operating expenses for Class B Shares were as follows (as a percentage of
average daily net assets of each Fund): U.S. Treasury Fund: 1.75%; Intermediate
Bond Fund: 1.85%; Growth and Income Fund: 1.85%; Balanced Fund: 1.95% and Small
Company Growth Fund: 2.72%. Absent fee waivers by the Adviser, these operating
expenses would have been: Intermediate Bond Fund: 1.95%; Growth and Income Fund:
2.09%; and Balanced Fund: 2.18%.
The organizational expenses of the Prime Money Market Fund, the South
Carolina Fund, the Large Company Growth Fund, the Small Company Growth Fund, and
the International Equity Fund have been capitalized and are being amortized in
the first two years of the Fund's operations. Such amortization will reduce the
amount of income available for payment as dividends.
BANKING LAWS
BB&T, PIMC, PEAC, and CastleInternational each believes that it
possesses the legal authority to perform the investment advisory and
sub-advisory services for the Group contemplated by its investment advisory
agreement with the Group and investment and sub-advisory agreement with BB&T and
described in this Prospectus without violation of applicable banking laws and
regulations, and has so represented to the Group. Future changes in federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which BB&T, PIMC, PEAC, and
CastleInternational could continue
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<PAGE> 102
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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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 eleven 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 South Carolina Intermediate Tax-Free Fund, the BB&T
North Carolina Intermediate Tax-Free Fund, the BB&T Prime Money
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Market Fund, the BB&T U.S. Treasury Money Market Fund, the BB&T Balanced Fund,
the BB&T Large Company Growth Fund, the BB&T Small Company Growth Fund and the
BB&T International Equity Fund. The Group also offers three additional series of
Shares: the BB&T Capital Manager Conservative Growth Fund, the BB&T Capital
Manager Moderate Growth Fund, and the BB&T Capital Manager Growth Fund
(collectively, the "Funds of Funds"). The Funds of Funds offer Trust Shares
only. Each Fund, except for the Funds of Funds, offers to the public three
classes of shares: Class A, Class B and Trust Shares. As of the date of this
prospectus, however, Class B Shares were not yet being offered in the Prime
Money Market Fund, the Short-Intermediate Fund , the North Carolina Fund or the
South Carolina Fund. Shareholders investing directly in Class B Shares of the
U.S. Treasury Fund , as opposed to Shareholders obtaining Class B Shares of the
U.S. Treasury Fund upon an exchange of Class B Shares of any other Fund, will be
requested to participate in the Auto Exchange Program in such a way that their
Class B Shares have been withdrawn from the U.S. Treasury Fund within two years
of purchase. Each Share represents an equal proportionate interest in a Fund
with other Shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per Share (with proportional
voting for fractional Shares) on such matters as Shareholders are entitled to
vote. Shareholders vote in the aggregate and not by series or class on all
matters except (i) when required by the Investment Company Act of 1940, Shares
shall be voted by individual series, (ii) when the Trustees have determined that
the matter affects only the interests of a particular series or class, and (iii)
only the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such classes.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Group or a
particular Fund means the affirmative vote, at a meeting of Shareholders duly
called, of the lesser of (a) 67% or more of the votes of Shareholders of the
Group or such Fund present at such meeting at which the holders of more than 50%
of the votes attributable to the Shareholders of record of the Group or such
Fund are represented in person or by proxy, or (b) the holders of more than 50%
of the outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the
Board of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the
Group." Individual Trustees are elected by the Shareholders and may be removed
by the Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
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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 June 5, 1997 the following persons owned of record or
beneficially more than 25% of the Class A Shares (formerly Investor Shares) of
the following Funds: Stephens Inc., for the Exclusive Benefit of Our Customers,
111 Center Street, Little Rock, AR 72201: record owner with respect to: [63.61%
and 34.34%] of the Class A shares of the U.S. Treasury Money Market Fund and
Balanced Fund, respectively. Accordingly, Stephens Inc., may be deemed to be a
"controlling person" of the Class A Shares of the Funds of which it is a
shareholder. The Prime Money Market Fund, the South Carolina Fund, and the Large
Company Growth Fund had not commenced operations as of June 5, 1997.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for the Group. Bank of New York serves as the Custodian for the
International Equity Fund.
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation ) serves as transfer agent for and provides fund accounting services
to the Group.
OTHER CLASSES OF SHARES
In addition to Class A and Class B Shares, the Group also offers Trust
Shares of each Fund. Trust Shares are offered to BB&T and its affiliates and
other financial service providers approved by the Distributor for the investment
of funds for which they act in a fiduciary, advisory, agency, custodial or
similar capacity. Trust Shares are sold at net asset value and are not subject
to a sales charge or a Distribution Plan fee. A salesperson or other person
entitled to receive compensation for selling or servicing the shares may receive
different compensation with respect to one particular class of shares over
another in the Fund. For further details regarding eligibility requirements for
the purchase of Trust Shares, call the Distributor at (800) 228-1872.
PERFORMANCE INFORMATION
From time to time, the Prime Money Market Fund's and the U.S. Treasury
Fund's annualized "yield" and "effective yield" and total return for Class A and
Class B Shares may be presented in advertisements, sales literature and
Shareholder reports. The "yield" of the Prime Money Market Fund and the U.S.
Treasury 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
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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 Money Market Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.
From time to time performance information of a Variable NAV Fund
showing its average annual total return, aggregate total return, and/or yield
may be presented in advertisements, sales literature and shareholder reports.
Such performance figures are based on historical earnings and are not intended
to indicate future performance. In addition, tax equivalent yield may be
presented in advertisements, sales literature and shareholder reports of the
North Carolina Fund and the South Carolina Fund. Average annual total return
will be calculated for the period since the establishment of a Fund and will,
unless otherwise noted, reflect the imposition of the maximum sales charge.
Average annual total return is measured by comparing the value of an investment
in a Fund at the beginning of the relevant period to the redemption value of an
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for a Variable NAV Fund
earned during a recent 30-day period by the Fund's per Share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the results.
The North Carolina Fund and the South Carolina Fund may also advertise
their tax equivalent yield, which reflects the amount of income subject to
federal income taxation that a taxpayer would have to earn in order to obtain
the same after-tax income as that derived from the yield of the Fund. The tax
equivalent yield will be significantly higher than the yield of the North
Carolina Fund or the South Carolina Fund.
Each Fund may also present its average annual total return, aggregate
total return, yield and/or tax equivalent yield, as the case may be, excluding
the effect of a sales charge, if any.
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<PAGE> 107
The Variable NAV Funds may also calculate a distribution rate.
Distribution rates will be computed by dividing the distribution per Share of a
class made by a Fund over a twelve-month period by the maximum offering price
per Share. The distribution rate includes both income and capital gain dividends
and does not reflect unrealized gains or losses. The calculation of income in
the distribution rate includes both income and capital gain dividends and does
not reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Class A Shares are
subject to lower Distribution Plan fees than Class B Shares, the yield and total
return for Class A Shares will be higher than that of the Class B Shares for the
same period. Because Trust Shares are not subject to Distribution Plan fees, the
yield and total return for Trust Shares will be higher than that of the Class A
and Class B Shares for the same period.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/Donoghue's MONEY
FUND REPORT and Ibbotson Associates, Inc. References may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger,
Pension and Investments, U.S.A. Today and local newspapers. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Information about the performance of a Fund is based on a Fund's record
up to a certain date and is not intended to indicate future performance. Yield
and total return of any investment are generally functions of portfolio quality
and maturity, type of investments and operating expenses. Yields and total
returns of a Fund will fluctuate. Any fees charged by the Participating
Organizations to their customers in connection with investment in a Fund are not
reflected in the Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
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<PAGE> 108
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> 109
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
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> 110
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T MUTUAL FUNDS GROUP
TRUST SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page................................ Cover Page
Financial
Highlights............................. Selected Per Share Data and Ratios;
Performance
Synopsis.................................. Fee Table
General Description
of Registrant.......................... BB&T Mutual Funds Group; Investment Objective and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares
Management of BB&T
Mutual Funds Group..................... Management of BB&T Mutual Funds Group; General Information
-Custodian and Transfer Agent
Capital Stock and
Other Securities....................... BB&T Mutual Funds Group; How to Purchase and Redeem Shares;
Dividends and Taxes; General
Information - Description of the Group
and Its Shares; General Information -Miscellaneous
Purchase of Securities
Being Offered.......................... Valuation of Shares; How to Purchase and Redeem Shares
Redemption or Repurchase.................. How to Purchase and Redeem Shares
Legal Proceedings......................... Inapplicable
</TABLE>
<PAGE> 111
MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund
Bond Funds
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
South Carolina Intermediate Tax-Free Fund
Stock Funds
Growth and Income Stock Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund
Funds of Funds
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund
TRUST SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED [_______________]
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Group..............................................................
Fee Table..............................................................
Financial Highlights...................................................
Investment Objectives and Policies.....................................
Investment Restrictions................................................
Valuation of Shares....................................................
How to Purchase and Redeem Shares......................................
Dividends and Taxes....................................................
Management of BB&T Mutual Funds Group..................................
General Information....................................................
</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.
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<PAGE> 113
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 ELEVEN 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 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.
THE BB&T U.S. TREASURY MONEY MARKET FUND (the "U.S. Treasury Fund"), seeks
current income with liquidity and stability of principal, through investment
exclusively in short-term obligations issued or guaranteed by the U.S. Treasury,
some of which may be subject to repurchase agreements. The U.S. Treasury Fund
seeks to maintain a constant net asset value of $1.00 per share.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND AND THE U.S. TREASURY FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
THE BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the
"Short-Intermediate Fund") seeks current income consistent with the preservation
of capital through investment in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, and high grade collateralized mortgage obligations.
THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND (the "Intermediate Bond
Fund") seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.
<PAGE> 114
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and North Carolina personal income tax. Normally,
the North Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "South Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and South Carolina personal income tax. Normally,
the South Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of South Carolina and its
political subdivisions.
THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND ARE NON-DIVERSIFIED
SERIES AND THEREFORE MAY EACH INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN
OBLIGATIONS OF ONE ISSUER.
THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund") seeks
capital growth, current income or both, through investment in stocks.
THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term
capital growth and produce current income through investment in a broadly
diversified portfolio of securities, including common stocks, preferred stocks
and bonds.
THE BB&T LARGE COMPANY GROWTH FUND (the "Large Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of large capitalization growth
companies.
THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies.
THE BB&T INTERNATIONAL EQUITY FUND (the "International Equity Fund") seeks
long-term capital appreciation through investment primarily in equity securities
of foreign issuers.
THE BB&T CAPITAL MANAGER CONSERVATIVE GROWTH FUND (the "Capital Manager
Conservative Growth Fund") seeks capital appreciation and income by investing
primarily in a group of diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.
THE BB&T CAPITAL MANAGER MODERATE GROWTH FUND (the "Capital Manager
Moderate Growth Fund") seeks capital appreciation and, secondarily, income by
investing primarily in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
-2-
<PAGE> 115
THE BB&T CAPITAL MANAGER GROWTH FUND (the "Capital Manager Growth Fund")
seeks capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.
This Prospectus relates to the Trust Shares of the Group, which are
offered to BB&T and its affiliates and other financial service providers
approved by the Distributor for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial or similar capacity. Through a separate
prospectus, the Group also offers Class A and Class B Shares, which are offered
to the general public. Additional information about each of the Funds, contained
in a Statement of Additional Information, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information and the prospectus
relating to the Class A and Class B Shares are available upon request without
charge by writing to the Group or by calling the Group at the telephone number
shown above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Group's
Trust Shares that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY,
SOUTHERN NATIONAL CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE
FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is [__________________].
-3-
<PAGE> 116
<TABLE>
PROSPECTUS SUMMARY
<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 eleven separately
managed portfolios (each a "Fund"). The Group also
offers three separate investment Funds (the "Funds of
Funds") offering Trust Shares only, which offer
Shareholders a professionally-managed investment program
by purchasing shares of existing mutual funds of the
Group (the "Underlying Funds"), which are managed by
BB&T. Each Fund, except for the Funds of Funds, offers
to the public three classes of Shares: Class A, Class B
and Trust Class. As of the date of this prospectus,
Class B Shares were not yet being offered in the Prime
Money Market, Short-Intermediate, North Carolina and
South Carolina Funds. This prospectus relates to only
the Trust Class Shares.
Investment Objective
and Policies THE PRIME MONEY MARKET FUND seeks as high a level of
current interest income as is consistent with
maintaining liquidity and stability of principal.
THE U.S. TREASURY FUND seeks current income with
liquidity and stability of principal through investing
exclusively in short-term obligations issued or
guaranteed by the U.S. Treasury, some of which may be
subject to repurchase agreements.
THE SHORT-INTERMEDIATE FUND seeks current income
consistent with the preservation of capital through
investment in obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities,
and high grade collateralized mortgage obligations, some
of which may be subject to repurchase agreements.
THE INTERMEDIATE BOND FUND seeks current income
consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued
or guaranteed by the U.S. Government or its agencies or
its instrumentalities, some of which may be subject to
repurchase agreements.
THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both
federal
</TABLE>
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<PAGE> 117
<TABLE>
<S> <C>
income tax and North Carolina personal income tax,
normally by investing at least 90% of its total assets
in high grade obligations issued by or on behalf of the
State of North Carolina and its political subdivisions.
THE SOUTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both
federal income tax and South Carolina personal income
tax, normally by investing at least 90% of its total
assets in high grade obligations issued by or on behalf
of the State of South Carolina and its political
subdivisions.
THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.
THE BALANCED FUND seeks to obtain long-term capital
growth and to produce current income through investment
in a broadly diversified portfolio of securities,
including common stocks, preferred stocks and bonds.
THE LARGE COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a
diversified portfolio of equity and equity-related
securities of large
capitalization growth companies.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a
diversified portfolio of equity and equity-related
securities of small capitalization growth companies.
THE INTERNATIONAL EQUITY FUND seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.
THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND seeks
capital appreciation and income by investing primarily
in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
THE CAPITAL MANAGER MODERATE GROWTH FUND seeks capital
appreciation and, secondarily, income by investing
primarily in a
</TABLE>
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<PAGE> 118
<TABLE>
<S> <C>
group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
THE CAPITAL MANAGER GROWTH FUND seeks capital
appreciation by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in
equity securities.
Funds of Funds Capital Manager Conservative Growth, Capital Manager
Moderate Growth and Capital Manager Growth Funds intend
to primarily invest in the shares of other BB&T mutual
funds.
Investment Risks Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of
the obligations in each Fund's portfolio, and market
conditions. An investment in the North Carolina Fund and
the South Carolina Fund involves special risk
considerations. (See "Other Investment Policies of the
North Carolina Fund and the South Carolina Fund.") An
investment in the International Equity FUND AND THE
Prime Money Market Fund may involve special risk
considerations. (See "Foreign Investments.") The net
asset value of the Funds of Funds will fluctuate with
changes in the equity markets and the value of the
Underlying Funds in which they invest. For a complete
description of the manner in which the Funds of Funds
will allocate their assets among the Underlying Funds,
and the special risk considerations applicable to the
Funds of Funds, see "The Funds of Funds."
Offering Price The public offering price of the Prime Money Market Fund
and the U.S. Treasury Fund is equal to the net asset
value per Trust Share, which each Money Market Fund
will seek to maintain at $1.00.
The public offering price of the Short-Intermediate,
Intermediate Bond, North Carolina, South Carolina,
Growth and Income, Balanced, Large Company Growth, Small
Company Growth, International Equity, Capital Manager
Conservative Growth, Capital Manager Moderate Growth,
and Capital Manager Growth Funds is equal to that Fund's
net asset value per Trust Share. (See "HOW TO PURCHASE
AND REDEEM SHARES--Purchases of Trust Shares.")
Minimum Purchase No minimum purchase applies to purchases of Trust
Shares.
Investment Adviser Branch Banking and Trust Company, Raleigh, North
Carolina.
</TABLE>
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<PAGE> 119
<TABLE>
<S> <C>
Dividends The Prime Money Market, U.S. Treasury, North Carolina,
South Carolina, Short-Intermediate, and Intermediate
Bond Funds declare dividends daily and pay such
dividends monthly. The Growth and Income and Balanced
Funds declare and pay dividends monthly. The Large
Company Growth Fund, Small Company Growth Fund,
International Equity Fund, and the Funds of Funds
declare and pay dividends quarterly.
Distributor BISYS Fund Services, Columbus, Ohio.
</TABLE>
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of eleven series of units of beneficial interest
("Shares"), each representing interests in one of eleven separate investment
funds (each a "Fund"). The Group also offers three separate investment Funds
(the "Funds of Funds"), offering Trust Shares only, which offer Shareholders a
professionally-managed investment program by purchasing shares of existing
mutual funds of the Group (the "Underlying Funds"), which are managed by BB&T.
Each Fund, except for the Funds of Funds, offers to the public three classes of
Shares: Class A Shares, Class B Shares and Trust Shares. However, as of the date
of this prospectus, Class B Shares were not yet being offered in the Prime Money
Market, Short-Intermediate, North Carolina and South Carolina Funds.
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<PAGE> 120
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Trust Shares of the Funds will bear, either
directly or indirectly.
<TABLE>
<CAPTION>
PRIME U.S. SHORT- INTERMEDIATE
MONEY MARKET TREASURY INTERMEDIATE BOND
FUND FUND FUND FUND
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount 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) .30%(3) .40% .50%(3) .50%(3)
12b-1 Fee 0% 0% 0% 0%
Other Expenses .35%(4) .35% .43% .37%
--- --- --- ---
Total Fund Operating Expenses
(after voluntary fee reductions) .65%(5) .75% .93%(5) .87%(5)
=== === === ===
</TABLE>
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<PAGE> 121
<TABLE>
<CAPTION>
NORTH SOUTH GROWTH
CAROLINA CAROLINA AND INCOME BALANCED
FUND FUND FUND FUND
TRUST TRUST TRUST TRUST
CLASS CLASS CLASS CLASS
----- ----- ----- -----
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0% 0% 0% 0%
Redemption Fees (as a percentage of
amount 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) .50%(3) .50%(3) .50%(3) .50%(3)
12b-1 Fees 0% 0% 0% 0%
Other Expenses (after voluntary
fee reductions) .46%(4) .49%(4) .36% .45%
--- --- --- ---
Total Fund Operating Expenses
(after voluntary fee reductions) .96%(5) .99%(5) .86%(5) .95%(5)
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
LARGE SMALL INTERNATIONAL
COMPANY COMPANY EQUITY
GROWTH FUND GROWTH FUND FUND
TRUST TRUST TRUST
CLASS CLASS CLASS
SHAREHOLDER TRANSACTION EXPENSES(1) ----- ----- -----
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0% 0% 0%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2) 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions) .50%(3) 1.00% 1.00%
12b-1 Fees 0% 0% 0%
Other Expenses (after voluntary
fee reductions) .49%(4) .79% .87%(4)
--- ---- ----
Total Fund Operating Expenses
(after voluntary fee Reductions) .99%(5) 1.79% 1.87%
=== ==== ====
</TABLE>
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<PAGE> 122
1 A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of a Fund.
(See "HOW TO PURCHASE AND REDEEM SHARES--"Purchases of Trust Shares" and
"HOW TO PURCHASE AND REDEEM SHARES--Exchange Privilege.")
2 A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. (See
"HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.")
3 Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through
September 30, 1997. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets for
Trust Shares would be .40% for the Prime Money Market Fund, .60% for the
Short-Intermediate, Intermediate Bond, North Carolina and South Carolina
Funds; and .74% for the Growth and Income, Balanced and Large Company
Growth Funds.
4 With respect to the Prime Money Market Fund, International Equity Fund,
South Carolina Fund, and Large Company Growth Fund, "Other Expenses" are
based on estimated amounts for the current fiscal year. Absent voluntary
fee reductions, "Other Expenses" As a percentage of average daily net
assets for Trust Shares would be .45% for the Prime Money Market Fund, and
.51% for the North Carolina Fund and the South Carolina Fund.
5 As indicated in preceding notes, voluntary fee reductions have lowered
this amount. Lower total fund operating expenses will result in higher
yields. Absent the voluntary reduction of 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, 1.03% for the
Short-Intermediate Fund, .97% for the Intermediate Bond Fund, 1.11% for
the North Carolina Fund, 1.09% for the South Carolina Fund, 1.10% for the
Growth and Income Fund, 1.19% for the Balanced Fund and 1.23% for the
Large Company Growth Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
-10-
<PAGE> 123
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund $ 7 $21 N/A N/A
U.S. Treasury Fund $ 8 $24 $ 42 $ 93
Short-Intermediate Fund $ 9 $30 $ 51 $114
Intermediate Bond Fund $ 9 $28 $ 48 $107
North Carolina Fund $10 $31 $ 53 $118
South Carolina Fund $10 $32 N/A N/A
Growth and Income Fund $ 9 $27 $ 48 $106
Balanced Fund $10 $30 $ 53 $117
Large Company Growth Fund $10 $32 N/A N/A
Small Company Growth Fund $18 $56 $ 97 $211
International Equity Fund $19 $59 N/A N/A
</TABLE>
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the table above is to assist a potential investor in the
Funds in understanding the various costs and expenses that an investor in the
Trust Shares of each Fund will bear directly or indirectly. See "MANAGEMENT OF
BB&T MUTUAL FUNDS GROUP" for a more complete discussion of annual operating
expenses of each Fund. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
-11-
<PAGE> 124
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Trust Shares of the Funds of Funds will bear,
either directly or indirectly.
<TABLE>
<CAPTION>
CAPITAL MANAGER CAPITAL MANAGER
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2) 0% 0% 0%
Exchange Fee $0 $0 $0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees .25% .25% .25%
12b-1 Fee 0% 0% 0%
Other Expenses(3) .58% .58% .58%
--- --- ---
Total Fund Operating Expenses .83% .83% .83%
=== === ===
</TABLE>
-12-
<PAGE> 125
1 A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of a Fund.
(See "HOW TO PURCHASE AND REDEEM SHARES--"Purchases of Trust Shares" and
"HOW TO PURCHASE AND REDEEM SHARES--Exchange Privilege.")
2 A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. (See
"HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.")
3 "Other Expenses" are based on estimated amounts for the current fiscal
year.
The Funds of Funds will each indirectly bear its pro rata share of fees
and expenses incurred by the Underlying Funds and the investment returns of each
Fund of Funds will be net of the expenses of the Underlying Funds.
The following charts provide the expense ratio for each of the Underlying
Funds in which each Fund of Funds invests. The chart below provides the expense
ratios which include any voluntary reduction in fees.
<TABLE>
<CAPTION>
Name of Underlying Fund Expense Ratio
----------------------- -------------
<S> <C>
U.S. Treasury Fund .75%
Short-Intermediate Fund .93%
Intermediate Bond Fund .87%
Growth and Income Fund .86%
Balanced Fund .95%
Small Company Growth Fund 1.79%
International Equity Fund 1.87%
Large Company Growth Fund .99%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Class Shares of the Capital Manager Conservative Growth Fund is
1.88%, for the Capital Manager Moderate Growth Fund is 1.96% and for the
Capital Manager Growth Fund is 2.00%.
-13-
<PAGE> 126
The chart below provides the expense ratios for each of the Underlying
Funds, absent any voluntary reductions in fees.
<TABLE>
<CAPTION>
Name of Underlying Fund
-----------------------
Expense Ratio
-------------
<S> <C>
U.S. Treasury Fund .75%
Short-Intermediate Fund 1.03%
Intermediate Bond Fund .97%
Growth and Income Fund 1.10%
Balanced Fund 1.19%
Small Company Growth Fund 1.79%
International Equity Fund 1.87%
Large Company Growth Fund 1.10%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Class Shares of the Capital Manager Conservative Growth Fund is
2.00%, for the Capital Manager Moderate Growth Fund is 2.07%, and for the
Capital Manager Growth Fund is 2.12%.
EXAMPLE:
On the basis of estimated expenses for the Funds of Funds, including voluntary
fee reductions, set forth on page 12, the following examples illustrate the
expenses you would pay on a $1,000 investment in Trust Shares of the Funds of
Funds, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund $19 $59
Capital Manager Moderate Growth Fund $20 $62
Capital Manager Growth Fund $20 $63
</TABLE>
Absent voluntary fee reductions, the dollar amounts in the above example
would be as follows:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund $20 $63
</TABLE>
-14-
<PAGE> 127
<TABLE>
<S> <C> <C>
Capital Manager Moderate Growth Fund $21 $65
Capital Manager Growth Fund $22 $66
</TABLE>
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the tables above is to assist a potential investor in the Funds
of Funds in understanding the various costs and expenses that an investor in
the Trust Shares of each Fund of Funds will bear directly or indirectly. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete discussion of
annual operating expenses of each Fund. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
-15-
<PAGE> 128
FINANCIAL HIGHLIGHTS
The tables below set forth financial highlights concerning the
investment results for each of the Funds for the periods indicated. The
information through the year ended September 30, 1996 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 Information for the
six-month period ended March 31, 1997 is unaudited. The Prime Money Market Fund,
the South Carolina Fund, the Large Company Growth Fund and the Funds of Funds
had not commenced operations as of March 31, 1997.
The Class A Shares (formerly the Investor Shares) and Trust Shares of each
Fund (other than the Balanced Fund and the Small Company Growth Fund, which had
not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. Information regarding the Class A and
Class B Shares can be obtained in a separate prospectus by writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling (800) 228-1872.
-16-
<PAGE> 129
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE SIX For the year For the year For the year 10/05/92
MONTHS ENDED ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
Trust Class Trust Class Trust Class Trust Class Trust Class
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income 0.023 0.046 0.050 0.030 0.027
------------ ------------ ------------ ------------ ------------
Total from Investment Activities 0.023 0.046 0.050 0.030 0.027
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.023) (0.046) (0.050) (0.030) (0.027)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.023) (0.046) (0.050) (0.030) (0.027)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return 2.28%(b) 4.74% 5.07% 3.01% 2.70%(b)
============
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 195,889 $ 205,974 $ 120,083 $ 77,464 $ 74,962
============
Ratio of expenses to average net assets 0.74%(c) 0.75% 0.72% 0.67% 0.38%(c)
============
Ratio of net investment income
average net assets 4.53%(c) 4.63% 4.97% 2.97% 2.71%(c)
============
Ratio of expenses to average net assets* 0.74%(c) 0.75% 0.75% 0.83% 0.81%(c)
============
Ratio of net investment income
to average net assets* 4.53%(c) 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.
-17-
<PAGE> 130
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
For the six For the year For the year For the year 11/30/92
months ended ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
-------- -------- -------- -------- -----------
Trust Class Trust Class Trust Class Trust Class Trust Class
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $ 9.89 $ 9.61 $ 10.30 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.28 0.57 0.56 0.52 0.49
==========
Net realized and unrealized gains
(losses) on investments (0.11) (0.15) 0.28 (0.68) 0.30
---------- ---------- ---------- ---------- ----------
Total from Investment Activities 0.17 0.42 0.84 (0.16) 0.79
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.28) (0.57) (0.56) (0.52) (0.49)
==========
Net realized gains -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.28) (0.57) (0.56) (0.53) (0.49)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 9.74 $ 9.89 $ 9.61 $ 10.30
========== ========== ========== ========== ==========
Total Return 1.78%(b) 4.36% 9.01% (1.66)% 8.01%(b)
==========
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 96,020 $ 62,621 $ 45,005 $ 38,208 $ 34,646
==========
Ratio of expenses to average
net assets 0.87%(c) 0.93% 0.93% 0.71% 0.39%(c)
==========
Ratio of net investment income
average net assets 5.84%(c) 5.81% 5.78% 5.20% 5.60%(c)
==========
Ratio of expenses to average
net assets* 0.97%(c) 1.03% 1.08% 1.08% 1.05%(c)
==========
Ratio of net investment income to
average net assets* 5.74%(c) 5.71% 5.64% 4.83% 4.94%(c)
==========
Portfolio turnover(d) 71.02% 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.
-18-
<PAGE> 131
INTERMEDIATE U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
For the six For the year For the year For the year 10/09/92
months ended ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
Trust Class Trust Class Trust Class Trust Class Trust Class
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 9.89 $ 9.34 $ 10.40 $ 10.00
----------- ----------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.28 0.58 0.61 0.62 0.64
Net realized and unrealized gains
(losses) on investments (0.13) (0.25) 0.55 (1.04) 0.40
----------- ----------- ---------- ---------- ----------
Total from Investment Activities 0.15 0.33 1.16 (0.42) 1.04
----------- ----------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.28) (0.58) (0.61) (0.62) (0.64)
Net realized gains -- -- -- (0.02) --
----------- ----------- ---------- ---------- ----------
Total Distributions (0.28) (0.58) (0.61) (0.64) (0.64)
----------- ----------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.51 $ 9.64 $ 9.89 $ 9.34 $ 10.40
----------- =========== ========== ========== ==========
Total Return 1.53%(b) 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 126,871 $ 119,633 $ 78,578 $ 68,451 $ 59,816
Ratio of expenses to average net assets 0.86%(c) 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income to
average net assets 5.77%(c) 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net assets* 0.96%(c) 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income to
average net assets* 5.67%(c) 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d) 37.25% 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.
-19-
<PAGE> 132
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
For the six For the year For the year For the year 10/16/92
months ended ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
-------- -------- -------- -------- -----------
Trust Class Trust Class Trust Class Trust Class Trust Class
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.20 0.38 0.37 0.38 0.36
Net realized and unrealized gains
(losses) on investments (0.03) (0.10) 0.37 (0.50) 0.29
---------- ---------- ---------- ---------- ----------
Total from Investment Activities 0.17 0.28 0.74 (0.12) 0.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.20) (0.38) (0.37) (0.38) (0.36)
Net realized gains -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.20) (0.38) (0.37) (0.39) (0.36)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.02 $ 10.05 $ 10.15 $ 9.78 $ 10.29
========== ========== ========== ========== ==========
Total Return 1.68%(b) 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 63,046 $ 28,443 $ 28,091 $ 27,770 $ 20,128
Ratio of expenses to average net
assets 0.87%(c) 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment income
to average net assets 4.05%(c) 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average
net assets* 1.03%(c) 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment income
to average net assets* 3.89%(c) 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover(d) 1.89% 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.
-20-
<PAGE> 133
GROWTH AND INCOME STOCK FUND
<TABLE>
<CAPTION>
For the SIX For the year For the year For the year 10/09/92
months ended ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
--------- --------- ---------- --------- --------
Trust Class Trust Class Trust Class Trust Class Trust Class
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.34 $ 12.99 $ 11.28 $ 11.28 $ 10.00
--------- --------- ---------- --------- --------
INVESTMENT ACTIVITIES
Net investment income 0.15 0.29 0.28 0.28 0.30
Net realized and unrealized gains
on investments 1.31 2.44 1.98 0.11 1.28
--------- --------- ---------- --------- --------
Total from Investment Activities 1.46 2.73 2.26 0.39 1.58
--------- --------- ---------- --------- --------
DISTRIBUTIONS
Net investment income (0.15) (0.29) (0.28) (0.28) (0.30)
Net realized gains (0.63) (0.09) (0.12) (0.11) --
--------
In excess of net realized gains -- -- (0.15) -- --
--------- --------- ---------- --------- --------
Total Distributions (0.78) (0.38) (0.55) (0.39) (0.30)
--------- --------- ---------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 16.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28
========= ========= ========== ========= ========
Total Return 9.61%(b) 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 244,065 $ 206,659 $ 145,603 $ 89,355 $ 82,358
Ratio of expenses to average net assets 0.84%(c) 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income to
average net assets 1.86%(c) 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average net assets* 1.08%(c) 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income to
average net assets* 1.62%(c) 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d) 13.58% 19.82% 8.73% 21.30% 27.17%
Average commission rate(e) $ 0.0649 $ 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.
-21-
<PAGE> 134
BALANCED FUND
<TABLE>
<CAPTION>
For the six For the year For the year For the year 07/01/93
months ended ended ended ended to
03/31/97 09/30/96 09/30/95 09/30/94 09/30/93(a)
-------- -------- -------- -------- --------
Trust Class Trust Class Trust Class Trust Class Trust Class
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.93 $ 11.01 $ 9.74 $ 10.18 $ 10.00
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income 0.25 0.46 0.46 0.40 0.09
Net realized and unrealized gains
(losses) on investments 0.39 0.92 1.27 (0.44) 0.18
-------- -------- -------- -------- --------
Total from Investment Activities 0.64 1.38 1.73 (0.04) 0.27
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income (0.25) (0.46) (0.46) (0.40) (0.09)
-------- -------- -------- -------- --------
Net Realized Gains (0.37)
Total Distributions (0.62) (0.46) (0.46) (0.40) (0.09)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.95 $ 11.93 $ 11.01 $ 9.74 $ 10.18
======== ======== ======== ======== ========
Total Return 5.34%(b) 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 70,833 $ 69,374 $ 49,794 $ 39,715 $ 20,374
Ratio of expenses to average net assets 0.95%(c) 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income to
average net assets 4.04%(c) 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average net assets* 1.19%(c) 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income to
average net assets* 3.80%(c) 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d) 15.68% 19.87% 23.68% 12.91% 8.32%
Average commission rate (e) $ 0.0626 $ 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.
-22-
<PAGE> 135
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
For the six For the year 12/07/94
months ended ended to
03/31/97 09/30/96 09/30/95(a)
-------- -------- -----------
Trust Class Trust Class Trust Class
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.18 $ 14.57 $ 10.00
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment loss (0.05) (0.17) (0.07)
Net realized and unrealized gains on investments (4.95) 6.78 4.64
------------ ------------ ------------
Total from Investment Activities (5.00) 6.61 4.57
============ ============ ============
DISTRIBUTIONS
Net realized gains (0.02) -- --
============ ============ ============
Total Distributions (0.02) -- --
============ ============ ============
NET ASSET VALUE, END OF PERIOD $ 16.16 $ 21.18 $ 14.57
============ ============ ============
Total Return (23.62)%(b) 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 33,873 $ 36,373 $ 16,962
Ratio of expenses to average net assets 1.70%(c) 1.79% 2.33%(c)
Ratio of net investment loss to average net assets (0.93)%(c) (1.00)% (1.34)%(c)
Ratio of expenses to average net assets* 1.70%(c) 1.79% 2.42%(c)
Ratio of net investment loss to average net assets* (0.93)%(c) (1.00)% (1.43)%(c)
Portfolio Turnover(d) 48.44% 71.62% 46.97%
Average commission rate(e) $ 0.0538 $ 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.
-23-
<PAGE> 136
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
01/02/97
TO
03/31/97
--------
Trust Class
-----------
(Unaudited)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INVESTMENT ACTIVITIES
Net realized and unrealized gains on investments 0.35
Total from Investment Activities 0.35
DISTRIBUTIONS
Net investment income (0.03)
Total Distributions (0.03)
NET ASSET VALUE, END OF PERIOD $ 10.32
Total Return 3.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 39,670
Ratio of expenses to average net assets 2.00%(c)
Ratio of net investment loss to average net assets 0.08%(c)
Ratio of expenses to average net assets* 2.06%(c)
Ratio of net investment loss to average net assets* 0.02%(c)
Portfolio Turnover(d) 5.61%
Average commission rate(e) $ 0.0555
</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.
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INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
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 (the "1940 Act"). 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.
The Prime Money Market Fund will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by at least
two nationally recognized statistical ratings organizations ("NRSROs")
(e.g., "A-1" by Standard's & Poor's Corporation and "P-1" by Moody's Investors
Services, Inc.); or (2) are single rated and have received the highest
short-term rating by a NRSRO; or (3) are unrated, but are determined to be of
comparable quality by the Investment Adviser or Sub-Adviser pursuant to
guidelines approved by the Board of Trustees, See the Statement of Additional
Information for explanations of the rating systems.
Under the guidelines adopted by the Trustees and in accordance with Rule
2a-7 under the 1940 Act, the Adviser or the Sub-Adviser may be required prompted
to dispose of an obligation held in a Fund's portfolio in the event of certain
developments that indicate a diminishment of the instrument's credit quality,
such as where an NRSRO downgrades an obligation below the second highest rating
category or in the event of a default relating to the financial condition of the
issuer.
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 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:
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<PAGE> 138
(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;
(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
(H) repurchase agreements relating to the above instruments.
The Prime Money Market Fund concentrates its investments in obligations
issued by the financial services industry. However, for temporary defensive
purposes during periods when the Adviser or Sub-Adviser believes that
maintaining this concentration may be inconsistent with the best interest of
Shareholders, the Fund will not maintain this concentration. Money market
instruments of companies in the financial services industry include, but are not
limited to, certificates of deposit, commercial paper, bankers' acceptances,
demand and time deposits, and bank notes. These money market obligations are
issued by domestic or foreign banks, savings and loan associations, consumer and
industrial finance companies, securities brokerage companies and a variety of
firms in the insurance field. Financial service companies offering money market
issues must have total assets of $1 billion or more before their issues can be
considered for investment. Because the Fund concentrates more than 25% of its
total assets in the financial services industry, it will be exposed to greater
risks associated with that industry, such as adverse interest rate trends,
increased credit defaults, potentially burdensome government regulation, the
availability and cost of capital funds, and general economic conditions. The
Fund will not purchase securities issued by PNC Bank or BB&T or any of their
affiliates.
U.S. TREASURY FUND
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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.
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.
THE FIXED INCOME FUNDS
The investment objective of the Short-Intermediate Fund and the
Intermediate Bond Fund (the "Fixed Income Funds") is to seek current income
consistent with the preservation of capital. The Short-Intermediate Fund will
invest primarily in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities"), some of which
may be subject to repurchase agreements, or in high grade collateralized
mortgage obligations ("CMOs"). At least 65% of the Short-Intermediate Fund's
assets will be invested in U.S. Government Securities. The dollar-weighted
average portfolio maturity of the Short-Intermediate Fund will be from two to
five years. The Intermediate Bond Fund will also invest primarily in U.S.
Government Securities, and at least 65% of its total assets will be invested in
bonds. Bonds for this purpose will include both bonds (maturities of ten years
or more) and notes (maturities of one to ten years) of the U.S. Government. The
dollar-weighted average portfolio maturity of the Intermediate Bond Fund will be
from five to ten years. CMOs will be considered bonds for this purpose if their
expected average life is comparable to the maturity of other bonds eligible for
purchase by the Fixed Income Funds. The Fixed Income Funds may also invest in
short-term obligations, commercial bonds and the shares of other investment
companies.
Bonds, notes and debentures in which the Fixed Income Funds may invest may
differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level
of current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of
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<PAGE> 140
the State of North Carolina and its political subdivisions, the interest on
which, in the opinion of the issuer's bond counsel at the time of issuance, is
exempt both from federal income tax and North Carolina personal income tax and
not treated as a preference item for purposes of the federal alternative minimum
tax for individuals ("North Carolina tax-exempt obligations"). The North
Carolina fund will maintain a dollar-weighted average portfolio maturity of
between three and ten years, and no obligations in which the Fund invests will
have remaining maturities in excess of 25 years.
The North Carolina fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the North Carolina fund would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans. Investors should consult a tax
or other financial adviser to determine whether investment in the North Carolina
Fund would be suitable for them.
THE SOUTH CAROLINA FUND
The South Carolina Fund's investment objective is to produce a high level
of current interest income that is exempt from both federal income tax and
South Carolina personal income tax. Under normal market conditions, the South
Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South 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
South Carolina personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("South
Carolina Tax-Exempt Obligations"). The South Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The South Carolina Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the South Carolina Fund would not be appropriate
for tax-deferred plans, such as IRA and Keogh plans. Investors should consult a
tax or other financial adviser to determine whether investment in the South
Carolina Fund would be suitable for them.
THE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to seek capital
growth, current income or both, primarily through investment in stocks. Under
normal market conditions, the Growth and Income Fund will invest at least 65% of
its total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
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<PAGE> 141
Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the Growth and Income Fund's investments, the net asset
value per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital
growth and to produce current income. The Balanced Fund seeks to achieve this
objective by investing in a broadly diversified portfolio of securities,
including common stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of
security will vary in accordance with economic conditions, the general level of
common stock prices, interest rates and other relevant considerations, including
the risks associated with each investment medium. Thus, although the Balanced
Fund seeks to reduce the risks associated with any one investment medium by
utilizing a variety of investments, performance will depend upon the additional
factors of timing and the ability of BB&T to judge and react to changing market
conditions. The Balanced Fund may invest in short-term obligations in order to
acquire interest income combined with liquidity. For temporary defensive
purposes, as determined by BB&T, these investments may constitute 100% of the
Balanced Fund's portfolio and, in such circumstances, will constitute a
temporary suspension of the Balanced Fund's attempt to achieve its investment
objective.
The Balanced Fund's equity securities will generally consist of common
stocks but may also consist of other equity-type securities such as warrants,
preferred stocks and convertible debt instruments. The Fund's equity investments
will be in companies with a favorable outlook and which are believed by BB&T to
be undervalued.
The Balanced Fund's debt securities will consist of securities such as
bonds, notes, debentures and money market instruments. The Balanced Fund may
also invest in CMOs. The average dollar-weighted maturity of debt securities
held by the Balanced Fund will vary according to market conditions and interest
rate cycles and will range between 1 year and 30 years under normal market
conditions.
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<PAGE> 142
It is a fundamental policy of the Balanced Fund that it will invest at
least 25% of its total assets in fixed-income senior securities. For this
purpose, fixed-income senior securities include debt securities, preferred stock
and that portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those securities.
THE LARGE COMPANY GROWTH FUND
The Large Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of large capitalization growth companies.
("Capitalization" is the total market value of all the outstanding shares of a
company.) The Large Company Growth Fund will invest in companies that are
considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's total assets will be
invested in companies whose weighted average capitalization is in excess of the
market median capitalization of the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index")(1). In making portfolio investments, the Large Company
Growth Fund will assess characteristics such as financial condition, revenue,
growth, profitability, earnings per share growth, and trading liquidity. The
remainder of the Fund's assets, if not invested in the securities of large
companies, will be invested in the instruments described below and under
"Specific Investment Policies."
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
invested in the instruments described below and under "Specific Investment
Policies."
Smaller, less seasoned companies may be subject to greater business risk
than larger, established companies. They may be more vulnerable to changes in
economic conditions,
- --------
1 "Standard & Poor's 500" is a registered service mark of Standard &
Poor's Corporation, which does not sponsor and is in no way affiliated with the
Fund.
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<PAGE> 143
specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.
THE FUNDS OF FUNDS
The investment objective of the Capital Manager Conservative Growth Fund
is to seek capital appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in equity and fixed income
securities.
The investment objective of the Capital Manager Moderate Growth Fund is to
seek capital appreciation and, secondarily, income by investing primarily in a
group of diversified BB&T mutual funds which invest primarily in equity and
fixed income securities.
The investment objective of the Capital Manager Growth Fund is to seek
capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.
Under normal market conditions, each Fund of Funds will invest at least
65% of its total assets in eight Underlying Funds of the Group. These assets
will be allocated within the ranges indicated below.
The Conservative Growth Fund will invest 25% to 55% of its assets in
Underlying Funds which invest primarily in equity securities, 45% to 75% of its
assets in Underlying Funds which invest primarily in fixed income securities and
up to 20% of its assets in the U.S.
Treasury Money Market Fund.
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
--------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Large Company Growth Fund 0%-55%
Fixed Income Funds
</TABLE>
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<PAGE> 144
<TABLE>
<S> <C>
Short-Intermediate Fund 0%-75%
Intermediate Bond Fund 0%-75%
</TABLE>
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<PAGE> 145
<TABLE>
<S> <C>
Money Market Fund
U.S. Treasury Fund 0%-20%
</TABLE>
CAPITAL MANAGER MODERATE GROWTH FUND
The Moderate Growth Fund will invest 45% to 75% of its assets in
Underlying Funds which invest primarily in equity securities, 25% to 55% of its
assets in Underlying Funds which invest primarily in fixed income securities and
up to 15% of its assets in the U.S.
Treasury Money Market Fund.
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
--------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Large Company Growth Fund 0%-75%
Fixed Income Funds
Short-Intermediate Fund 0%-55%
Intermediate Bond Fund 0%-55%
Money Market Fund
U.S. Treasury Fund 0%-15%
</TABLE>
The Growth Fund will invest 60% to 90% of its assets in Underlying Funds
which invest primarily in equity securities, 10% to 40% of its assets in
Underlying Funds which invest primarily in fixed income securities and up to 10%
of its assets in the U.S. Treasury Money Market Fund.
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<PAGE> 146
CAPITAL MANAGER GROWTH FUND
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percent of Fund Assets)
--------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Fixed Income Funds
Short-Intermediate Fund 0%-40%
Intermediate Bond Fund 0%-40%
Money Market Fund
U.S. Treasury Fund 0%-10%
</TABLE>
The allocation of each Fund of Funds' assets among the Underlying Funds
will be made by BB&T under the supervision of the Group's Board of Trustees
within the percentage ranges set forth in the table above. BB&T will make
allocation decisions according to its outlook for the economy, financial
markets, and relative market valuation of the Underlying Funds. BB&T may vary
the allocation within the above ranges. There is no assurance that the Funds of
Funds will achieve their stated objectives.
The Funds of Funds' net asset value will fluctuate with changes in the
equity markets and the value of the Underlying Funds in which they invest. Each
Fund of Funds' investment return is diversified by its investment in the
Underlying Funds, which invest in growth and income stocks, foreign securities,
debt securities, and cash and cash equivalents.
With their remaining assets, the Funds of Funds may make direct
investments in any domestic and foreign securities and other instruments which
the Underlying Funds may purchase, as described in this prospectus.
The Funds of Funds and the Underlying Funds are permitted for temporary
defensive purposes to invest up to 100% of their assets in short-term fixed
income securities. Such securities include obligations of the U.S. government
and its agencies and instrumentalities, commercial paper, bank certificates of
deposit, repurchase agreements, bankers' acceptances,
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<PAGE> 147
variable amount master demand notes, and bank money market deposit accounts. The
Funds of Funds and the Underlying Funds may also hold cash for liquidity
purposes.
To the extent the Funds of Funds or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Funds of Funds are concentrated in the Underlying
Funds, so each Fund of Funds' performance is directly related to the performance
of the Underlying Funds. In addition, as a matter of fundamental policy, each
Fund of Funds must allocate its investments among the Underlying Funds within
certain ranges. As a result, the Funds of Funds do not have the same flexibility
to invest as mutual funds without such constraints.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation through investment primarily in equity securities of
foreign issuers. During normal market conditions, the International Equity Fund
will normally invest at least 80%, and, in any event, at least 65%, of the value
of its total assets in equity securities. Equity securities include common stock
and preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; and depositary receipts
of companies.
During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks primarily in countries included in
the Morgan Stanley Capital International Europe, Australia and the Far East
Index ("EAFE"). The Fund may also invest its assets in countries with emerging
economies or securities markets. The Fund will be diversified across countries,
industry groups and companies with investment at all times in at least three
foreign countries.
When choosing securities, a value investment style is employed so that the
investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative economic
growth among certain foreign countries, expected levels of inflation, government
policies influencing business conditions, and the outlook for currency
relationships.
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<PAGE> 148
ALL FUNDS
The investment objective of each Fund is fundamental and may not be
changed without the vote of a majority of the outstanding Shares of the Fund (as
defined below under "GENERAL INFORMATION--Miscellaneous"). There can be, of
course, no assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of the
Short-Intermediate, Intermediate Bond, North Carolina, South Carolina, Growth
and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds (collectively, the "Variable NAV Funds"), the net
asset value per Share of each Variable NAV Fund will fluctuate. Correspondingly,
the net asset value of the Funds of Funds will fluctuate with changes in the
value of the Underlying Funds in which they invest.
SPECIFIC INVESTMENT POLICIES
The following is a description of certain of the permitted investments for
the Funds. As described above in "The Funds of Funds," each Fund of Funds may
also invest directly in certain of the following instruments which the
Underlying Funds may purchase. For a more detailed description, see the
Statement of Additional Information.
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. A
Fund will enter into repurchase agreements for the purposes of maintaining
liquidity and obtaining favorable yields. Under the terms of a repurchase
agreement, a Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Equity Advisors Company ("PEAC"), the
Small Company Growth Fund's investment sub-adviser, CastleInternational Asset
Management Limited ("CastleInternational"), the International Equity Fund's
investment sub-adviser, 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 Fund's total assets
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<PAGE> 149
that may be invested in instruments which are subject to repurchase agreements.
Repurchase agreements are considered to be loans by a Fund under the Investment
Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, each Fund
may borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.
WHEN-ISSUED SECURITIES
Each of the Funds except the U.S. Treasury Fund may purchase securities on
a when-issued or delayed-delivery basis. In addition, the Prime Money Market
Fund, the Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time. When a Fund
agrees to purchase securities on a when-issued basis, the Fund's custodian must
set aside cash or liquid Fund securities equal to the amount of that commitment
in a separate account and may be required to subsequently place additional
assets in the separate account to maintain equivalence with the Fund's
commitment. The ability to purchase when-issued securities will provide a Fund
with the flexibility of participating in new issues of government securities,
particularly mortgage-related securities. Prior to delivery of when-issued
securities, the securities are subject to fluctuations in value, and no income
accrues until their receipt. A Fund engages in when-issued and delayed-delivery
transactions only with the intent of acquiring Fund securities consistent with
its investment objective and policies, and not for investment leverage. In
when-issued and delayed-delivery transactions, the Funds rely on the seller to
complete the transaction; its failure to do so may cause a Fund to miss a price
or yield considered to be advantageous. A Fund expects that commitments by a
Fund to purchase when-issued securities will not exceed 25% of the value of its
assets under normal market conditions. The Prime Money Market Fund, the Large
Company Growth Fund's, the Small Company Growth Fund's and the International
Equity Fund's when-issued purchases and forward commitments are not expected to
exceed 25% of the value of their respective total assets absent unusual market
conditions.
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<PAGE> 150
SHORT-TERM OBLIGATIONS
The Fixed Income Funds, the North Carolina Fund, the South Carolina Fund,
the Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, and the International Equity Fund may invest in
high quality, short-term obligations (with maturities of 12 months or less) such
as domestic and foreign commercial paper (including variable-amount master
demand notes), bankers' acceptances, certificates of deposit and demand and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase agreements. Such investments will be limited to those obligations
which, at the time of purchase, (i) possess one of the two highest short-term
ratings from at least two nationally recognized statistical rating organizations
("NRSROs") (for example, commercial paper rated "A-1" or "A-2" by S&P and "P-1"
or "P-2" by Moody's), or (ii) do not possess a rating (i.e., are unrated) but
are determined by BB&T (or PEAC with respect to the Small Company Growth Fund
or CastleInternational with respect to the International Equity Fund), to be
of comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund,
the Large Company Growth Fund and the Small Company Growth Fund will limit its
investment in short-term obligations to 35% of its total assets.
Each of the Fixed Income Funds, the Growth and Income Fund, the Large
Company Growth Fund and the Small Company Growth Fund may invest in short-term
obligations in order to acquire interest income combined with liquidity. Pending
investments or to meet anticipated redemption requests, the International Equity
Fund may also invest in short-term obligations. For temporary defensive
purposes, as determined by BB&T (or, in the case of the Small Company Growth
Fund, PEAC or, in the case of the International Equity Fund,
CastleInternational), these investments may constitute 100% of such Funds'
portfolio and, in such circumstances, will constitute a temporary suspension of
such Funds' attempts to achieve their investment objectives.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities will constitute the primary investment of the
Short-Intermediate and Intermediate Bond Funds. The Prime Money Market Fund, the
Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund, the
Small Company Growth Fund, and the International Equity Fund may also invest in
U.S. Government Securities. The types of U.S. Government Securities in which
these Funds will invest include obligations issued or guaranteed as to payment
of principal and interest by the full faith and credit of the U.S. Government,
such as Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by the agencies or instrumentalities of the
U.S. Government, but not supported by such full faith and credit. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow
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<PAGE> 151
from the Treasury; others are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks, or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities. 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 such mortgage-backed pass-through
securities.
The Short-Intermediate, Intermediate Bond, Growth and Income, Balanced,
Large Company Growth and Small Company Growth Funds may also invest in "zero
coupon" U.S. Government Securities. These securities tend to be more volatile
than other types of U.S. Government Securities. Zero coupon securities are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price.
The U.S. Treasury Fund may invest in U.S. Government Securities to the
extent that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund and the South Carolina Fund may invest in U.S.
Government Securities in connection with the purchase of taxable obligations (as
described below).
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COLLATERALIZED MORTGAGE OBLIGATIONS
Each of the Fixed Income Funds, the Growth and Income Fund, the Balanced
Fund, the Large Company Growth Fund and the Small Company Growth Fund may also
invest in collateralized mortgage obligations ("CMOs"). 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 CMOS. CMOs
are mortgage-related securities which are structured pools of mortgage
pass-through certificates or mortgage loans. CMOs are issued with a number of
classes or series which have different maturities and which may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the mortgage pool are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to its
maturity. Thus, the early retirement of a particular class or series of CMO held
by a Fund would have the same effect as the prepayment of mortgages underlying a
mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs may include stripped mortgage securities. Such securities are
derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage security will have one class receiving all of the interest
from the mortgage assets (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
securities' yield to maturity. Generally, the market value of the PO class is
unusually volatile in response to changes in interest rates. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were
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only recently developed. As a result, established trading markets have not fully
developed. Stripped mortgage securities issued or guaranteed by the U.S.
Government and held by a Fund may be considered liquid securities pursuant to
guidelines established by the Group's Board of Trustees. The Funds will not
purchase a stripped mortgage security that is illiquid if, as a result thereof,
more than 15% of the value of the Fund's net assets would be invested in such
securities and other illiquid securities.
Unless stated otherwise, each Fund will limit its investment in CMOs to
25% of the value of its total assets.
COMMERCIAL BONDS
The Growth and Income Fund, the Large Company Growth Fund, the Small
Company Growth Fund, and the Fixed Income Funds may invest up to 35% of their
total assets, and the Balanced Fund also may invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on
real property or security interests in personal property.
Bonds, notes and debentures in which the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund and the Small Company Growth Fund
may invest may differ in interest rates, maturities and times of issuance and
may include CMOs (which are described above).
The Growth and Income Fund, the Balanced Fund, The Large Company Growth
Fund, the Small Company Growth Fund, and the Fixed Income Funds will invest only
in bonds, notes, and debentures which are rated at the time of purchase within
the three highest rating groups assigned by an NRSRO (for example, at least A by
Moody's or S&P), or, if unrated, which BB&T (or PEAC, with respect to the
Small Company Growth Fund) deems to be of comparable quality. The applicable
ratings are described in the Appendix to the Statement of Additional
Information. In the event that the rating of any debt securities falls below the
third highest rating category, these Funds will not be obligated to dispose of
such obligations and may continue to hold such obligations if, in the opinion of
BB&T (or PEAC, with respect to the Small Company Growth Fund), such investment
is considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
The Growth and Income Fund and the Balanced Fund may engage in writing
call options from time to time as BB&T deems to be appropriate. Options are
written solely as covered call options (options on securities owned by a Fund).
Such options must be listed on a national securities exchange and issued by the
Options Clearing Corporation. In order to close out an option position, a Fund
will enter into a "closing purchase transaction"--the purchase of a call option
on the same security with the same exercise price and expiration date
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as any call option which it may previously have written. Upon the sale of a
portfolio security upon which it has written a covered call option, a Fund must
effect a closing purchase transaction so as to avoid converting a covered call
into a "naked call," i.e., a call option on a security not owned by the Fund. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise. When writing a covered call option, a
Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price but retains
the risk of loss should the price of the security decline.
To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund and the International Equity Fund may
write covered call options, buy put options, buy call options and write secured
put options for the purpose of hedging or earning additional income, which may
be deemed speculative or, with respect to the International Equity Fund,
cross-hedging. These options may relate to particular securities, financial
instruments, foreign currencies, stock or bond indices or the yield differential
between two securities, and may or may not be listed on a securities exchange
and may or may not be issued by the Options Clearing Corporation. A Fund will
not purchase put and call options when the aggregate premiums on outstanding
options exceed 5% of its net assets at the time of purchase, and will not write
options on more than 25% of the value of its net assets (measured at the time an
option is written). Options trading is a highly specialized activity that
entails greater than ordinary investment risks. In addition, unlisted options
are not subject to the protections afforded purchasers of listed options issued
by the Options Clearing Corporation, which performs the obligations of its
members if they default. Cross hedging is the use of options or forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency based on a belief that there is a
pattern of correlation between the two currencies.
To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund and the International Equity Fund may
also invest in futures contracts and options on futures contracts to commit
funds awaiting investment in stocks or maintain cash liquidity or for other
hedging purposes. The value of a Fund's contracts may equal or exceed 100% of
the Fund's total assets, although a Fund will not purchase or sell a futures
contract unless immediately afterwards the aggregate amount of margin deposits
on its existing futures positions plus the amount of premiums paid for related
futures options entered into for other than bona fide hedging purposes is 5% or
less of its net assets.
Futures contracts obligate the Large Company Growth Fund, the Small
Company Growth Fund and the International Equity Fund, at maturity, to take or
make delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. A Fund may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange
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fluctuation. A Fund may do so either to hedge the value of its securities
portfolio as a whole, or to protect against declines occurring prior to sales of
securities in the value of the securities to be sold. In addition, a Fund may
utilize futures contracts in anticipation of changes in the composition of its
holdings or in currency exchange rates.
The Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When a Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or a seller of a futures contract at a specified exercise price during
the option period. When a Fund sells an option on a futures contract, it becomes
obligated to sell or buy a futures contract if the option is exercised. In
connection with a Fund's position in a futures contract or related option, a
Fund will create a segregated account of liquid assets or will otherwise cover
its position in accordance with applicable SEC requirements.
The risks related to the use of futures contracts include: (i) the
correlation between movements in the market price of the portfolio investments
(held or intended for purchase) being hedged and in the price of the futures
contract may be imperfect; (ii) possible lack of a liquid secondary market for
closing out futures positions; (iii) the need for additional portfolio
management skills and techniques; (iv) losses due to unanticipated market
movements; and (v) a sub-adviser's inability to predict correctly the direction
of securities prices, interest rates, currency exchange rates, and other
economic factors. Successful use of futures is subject to the ability correctly
to predict movements in the direction of the market. For example, if a Fund uses
futures contracts as a hedge against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased value of
its securities that it has hedged because the Fund will have approximately equal
offsetting losses in its future positions. The risk of loss in trading futures
contracts in some strategies can be substantial, due both to the low margin
deposits required, and the extremely high degree of leverage involved in future
pricing. As a result, a relatively small price movement in a futures contract
may result in immediate and substantial loss or gain to the investor. Thus, a
purchase or sale of a futures contract may result in losses or gains in excess
of the amount invested in the contract.
A Fund's ability to engage in options and futures transactions and to sell
related securities may be limited by tax considerations.
FOREIGN INVESTMENTS
The 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
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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.
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.
The Balanced Fund, the Growth and Income Fund, the Large Company Growth
Fund and the Small Company Growth Fund may invest in foreign securities through
the purchase of American Depository Receipts ("ADRs") or the purchase of
securities on the New York Stock Exchange. However, the Balanced Fund, the
Growth and Income Fund and the Large Company Growth Fund will not do so if
immediately after a purchase and as a result of the purchase the total value of
such foreign securities owned by such Fund would exceed 25% of the value of the
total assets of the Fund. A Fund may also invest in securities issued by foreign
branches of U.S. banks and foreign banks and in CCP and Europaper.
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During normal market conditions, the International Equity Fund will invest
at least 90% and, in any event, at least 65%, of its total assets in securities
of foreign issuers. The International Equity Fund invests primarily in equity
securities of issuers located in countries included in EAFE and may invest in
equity securities of issuers located in emerging markets. EAFE is an index
composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of all domestically listed stocks. Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan,
Netherlands, New Zealand, Norway, Singapore, Malaysia, Spain, Sweden,
Switzerland and the United Kingdom are currently included in EAFE.
From time to time the International Equity Fund may invest more than 25%
of its total assets in the securities of issuers located in Japan. Investments
of 25% or more of the Fund's total assets in this or any other country will make
the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. For example, in the past
events in the Japanese economy as well as social developments and natural
disasters have affected Japanese securities and currency markets, and have
periodically disrupted the relationship of the Japanese yen with other
currencies and with the U.S. dollar.
The International Equity Fund may invest in both sponsored and unsponsored
ADRs, European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs")
and other similar global instruments. ADRs typically are issued by an American
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic
underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR and
GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad
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could result in appreciation or depreciation of portfolio securities and could
favorably or adversely affect a Fund's operations. Special tax considerations
apply to foreign securities.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly, a
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
The expense ratio of the International Equity Fund can be expected to be
higher than that of funds investing primarily in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets, foreign income taxes withheld at the source, and additional costs
arising from delays in settlements of transactions involving foreign securities.
The International Equity Fund may invest its assets in countries with
emerging economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Greece,
Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco, Peru, The
Philippines, Poland, Romania, Russia, South Africa, South Korea, Taiwan,
Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in countries with emerging economies
or securities markets to 20% of its total assets.
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The International Equity Fund may (but is not required to) use forward
foreign currency exchange contracts to hedge against movements in the value of
foreign currencies (including the European Currency Unit (ECU)) relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time. The Funds
of Funds may not use forward foreign currency exchange contracts.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the Prime Money Market Fund and
the U.S. Treasury Fund may invest in money market funds. For a description of
the Funds of Funds' practices, see "Funds of Funds." Each other Fund except the
Prime Money Market Fund and the U.S. Treasury Fund may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund
(including Shares of the Prime Money Market Fund and the U.S. Treasury Fund,
pursuant to exemptive relief granted by the Securities and Exchange Commission)
and up to 10% of its total assets in more than one money market mutual fund. In
order to avoid the imposition of additional fees as a result of investments in
Shares of the Prime Money Market Fund and the U.S. Treasury Fund, BB&T and BISYS
Fund Services (the "Administrator") (see "MANAGEMENT OF BB&T MUTUAL FUNDS
GROUP"-"Investment Adviser" and "Administrator and Distributor") will reduce
that portion of their usual asset-based service fees from each investing Fund by
an amount equal to their service fees from the Prime Money Market Fund or the
U.S. Treasury Fund that are attributable to those Fund investments. BB&T and the
Administrator will promptly forward such fees to the investing Funds. The Funds,
except the Funds of Funds, will incur additional expenses due to the duplication
of expenses as a result of investing in securities of other unaffiliated money
market mutual funds. Additional restrictions on the Funds' investments in the
securities of an unaffiliated money market fund and/or the Prime Money Market
Fund or the U.S. Treasury Fund are contained in the Statement of Additional
Information.
In addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.
In order to generate additional income, each Fund except the North
Carolina Fund and the South Carolina Fund may, from time to time, lend its
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. While the lending of securities may subject a Fund to certain risks,
such as delays or the inability to regain the securities in
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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 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) and should the market value of the loaned securities
increase, the borrower will furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower will pay the Fund any
dividends or interest paid on such securities. Loans are subject to termination
by a Fund or the borrower at any time. While a Fund will not have the right to
vote securities on loan, the Funds intend to terminate the loan and regain the
right to vote if that is considered important with respect to the investment.
The Funds will only enter into loan arrangements with broker-dealers, banks or
other institutions which BB&T (or 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) has determined are creditworthy
under guidelines established by the Group's Board of Trustees. Each Fund will
restrict its securities lending to 30% (331/3% with respect to the Prime Money
Market Fund and the International Equity Fund) of its total assets.
In order to generate income, the Short-Intermediate, Intermediate Bond,
Growth and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/or income of the Funds in
order to take advantage of what BB&T (or PEAC, with respect to the Small Company
Growth Fund or CastleInternational, with respect to the International Equity
Fund) believes are changes in market, industry or individual company conditions
or outlook. Any such trading would increase the portfolio turnover rate of the
Funds and their transaction costs.
OTHER INVESTMENT POLICIES OF THE PRIME MONEY MARKET FUND
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.
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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.
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.
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
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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 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.
MUNICIPAL OBLIGATIONS
The Prime Money Market 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
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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. 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.
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.
OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND
TAX-EXEMPT OBLIGATIONS
In addition to their respective investments in North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund may invest in tax-exempt obligations issued by or on
behalf of states other than North Carolina or South Carolina, as the case may
be, 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, together with North Carolina Tax-Exempt Obligations and
South Carolina Tax-Exempt Obligations, are hereinafter collectively referred to
as "Tax-Exempt Obligations."
Up to 10% of the North Carolina Fund's total assets may be invested in
Tax-Exempt Obligations other than North Carolina Tax-Exempt Obligations. Up to
10% of the South Carolina Fund's total assets may be invested in Tax-Exempt
Obligations other than South Carolina Tax-Exempt Obligations. If deemed
appropriate for temporary defensive periods, as determined by BB&T, each of the
North Carolina Fund and the South Carolina Fund may suspend attempts to achieve
its investment objective and may increase its holdings in Tax-Exempt Obligations
other than North Carolina Tax-Exempt Obligations or South Carolina Tax-Exempt
Obligations, respectively, to over 10% of its total assets.
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Investments made for temporary defensive purposes will not be intended to
achieve either Fund's investment objective with respect to North Carolina or
South Carolina taxation, as the case may be, but rather will be intended to
preserve the value of the Fund's Shares.
The two principal classifications of Tax-Exempt Obligations which may be
held by the North Carolina Fund and the South Carolina Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by the Funds are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the private user of the facility involved.
Also included within the general category of Tax-Exempt Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a state or political subdivision to finance the acquisition or
construction of equipment, land, or facilities. In South Carolina, governmental
lease obligations are included in calculation of the general obligation debt
limit.
Among other types of Tax-Exempt Obligations, the North Carolina Fund and
the South Carolina Fund may purchase Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper and other forms
of short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
The North Carolina Fund and the South Carolina Fund may also invest in
"moral obligation" securities, which are normally issued by special purpose
public authorities. However, such investments by the North Carolina Fund are
expected to be limited by the fact that North Carolina issuers are currently
precluded by North Carolina State law from issuing such securities, and issuers
in South Carolina also currently do not have authority to issue moral obligation
securities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
The North Carolina Fund and the South Carolina Fund invest in Tax-Exempt
Obligations which are rated at the time of purchase in one of the three highest
categories by an NRSRO in the case of bonds; one of the two highest categories
by an NRSRO in the case of notes; rated "SP-1" or higher by S&P or "MIG-2" or
higher by Moody's or rated at a comparable level of quality by another NRSRO in
the case of tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's
or rated at a comparable level of quality by another
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NRSRO in the case of variable rate demand obligations. The North Carolina Fund
and the South Carolina Fund may also purchase Tax-Exempt Obligations which are
unrated at the time of purchase but are determined to be of comparable quality
by BB&T pursuant to guidelines approved by the Group's Board of Trustees. The
applicable ratings are described in the Appendix to the Statement of Additional
Information.
Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund, the South Carolina Fund, nor BB&T will review the
proceedings relating to the issuance of Tax-Exempt Obligations or the basis for
such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND
The North Carolina Fund and the South Carolina Fund each may invest up to
10% of its net assets in taxable obligations or debt securities, the interest
income from which may be subject to the federal alternative minimum tax for both
individual and corporate shareholders. There is no limit on the amount of
taxable obligations that may be held for temporary defensive purposes. Taxable
obligations may include U.S. Government Securities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
domestic banks and domestic branches of foreign banks, commercial paper meeting
the North Carolina and South Carolina Funds' quality standards (as described
above) for tax-exempt commercial paper, and shares issued by other open-end
registered investment companies issuing taxable dividends (as described above).
The North Carolina Fund and the South Carolina Fund may hold uninvested cash
reserves pending investment, during temporary defensive periods or if, in the
opinion of BB&T, suitable North Carolina Tax-Exempt Obligations or South
Carolina Tax-Exempt Obligations, respectively, are unavailable.
PUTS
The North Carolina Fund and the South Carolina Fund may acquire "puts"
with respect to securities held in their portfolios. Under a put, the Funds
would have the right to sell a specified security within a specified period of
time at a specified price. A put would be sold, transferred, or assigned only
with the underlying security. The North Carolina Fund and the South Carolina
Fund expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either separately in cash
or by paying a higher price for Fund securities which are acquired subject to
the puts (thus reducing the yield to maturity otherwise available for the same
securities). The North Carolina Fund and the South Carolina Fund will acquire
puts solely to facilitate Fund liquidity, shorten the maturity of the underlying
security, or permit the investment of THEIR funds at a more favorable rate of
return.
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RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
Because the North Carolina Fund will invest at least 90% of the value of
its total assets in North Carolina Tax-Exempt Obligations and because it seeks
to maximize income derived from North Carolina Tax-Exempt Obligations, it is
more susceptible to factors adversely affecting issuers of North Carolina
Tax-Exempt Obligations than are comparable municipal bond mutual funds that are
not concentrated in these issuers to this degree. Growth of North Carolina tax
revenues slowed considerably during fiscal years 1990-92, requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in timing of certain collections and payments, and
other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993-1996,
however, ended with a positive General Fund balance each year. By law, a portion
of such positive fund balance was required to be reserved in the General Fund of
North Carolina as part of a "Savings Reserve" (subject to a maximum reserve of
5% of the preceding fiscal year's operating appropriation). An additional
portion of such unreserved credit balance was reserved in the General Fund as
part of a "Reserve For Repair and Renovation of State Facilities" and certain
other required reserves, leaving the remaining unrestricted fund balance at the
end of each such year available for future appropriations. See "SPECIAL
CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT OBLIGATIONS" in
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Tax-Exempt Obligations.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE SOUTH CAROLINA FUND
Because the South Carolina Fund will invest at least 90% of the value of
its total assets in South Carolina Tax-Exempt Obligations and because it seeks
to maximize income derived from South Carolina Tax-Exempt Obligations, it is
more susceptible to factors adversely affecting issuers of South Carolina
Tax-Exempt Obligations than are comparable municipal bond mutual funds that are
not concentrated in these issuers to this degree. If any issuer of securities
held by the South Carolina Fund is unable to meet its financial obligations, the
Fund's income, capital, and liquidity may be adversely affected. The State of
South Carolina's economy has been dominated since the early 1920's by the
textile industry, with over one-third of the manufacturing workers directly or
indirectly related to the textile industry. The economic base of the state is
gradually becoming more diversified as the trade and service sectors and durable
goods manufacturing industries have developed. Currently, Moody's rates South
Carolina general obligation bonds "Aaa" and S&P rates such bonds "AA+." There
can be no assurance that the economic conditions on which the above ratings for
a specific state are based will continue or that particular bond issues may not
be adversely affected by changes in economic or political conditions. See
"SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN SOUTH CAROLINA TAX-EXEMPT
OBLIGATIONS" in the Statement of Additional
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Information for further discussion of investment considerations associated with
South Carolina Tax-Exempt Obligations.
DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund and the South Carolina Fund are non-diversified
funds under the Investment Company Act of 1940. This means they may concentrate
their investments in the securities of a limited number of issuers. Under the
Internal Revenue Code of 1986, as amended, at the end of each fiscal quarter
each of the North Carolina Fund and the South Carolina Fund must nevertheless
diversify its portfolio such that, with respect to 50% of its total assets, not
more than 25% of its assets is invested in the securities of any one issuer
(other than U.S. Government Securities or securities of other regulated
investment companies), and with respect to the remainder of its total assets, no
more than 5% of its assets is invested in the securities of any one issuer
(other than U.S. Government Securities or securities of other regulated
investment companies). Because of the relatively small number of issuers of
North Carolina Tax-Exempt Obligations and South Carolina Tax-Exempt Obligations,
the North Carolina Fund and the South Carolina Fund are more likely to invest a
higher percentage of their assets in the securities of a single issuer than is
an investment company that invests in a broad range of tax-exempt securities.
This concentration involves an increased risk of loss to the North Carolina Fund
and the South Carolina Fund if the issuer is unable to make interest or
principal payments or if the market value of such securities declines, and
consequently may cause greater fluctuation in the net asset value of the North
Carolina and South Carolina Funds' Shares.
VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina Fund
and South Carolina Tax-Exempt Obligations purchased by the South Carolina Fund
may include variable and floating rate tax-exempt notes with ratings that are
similar to those described above. There may be no active secondary market with
respect to a particular variable or floating rate note. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the North Carolina Fund and the South Carolina Fund will approximate their
par value. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other
securities which are not readily marketable, exceeds 15% of the North Carolina
Fund's total assets or of the South Carolina Fund's total assets only if such
notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days after demand by the Fund.
STAND-BY COMMITMENTS
In addition, the North Carolina Fund and the South Carolina Fund may
acquire "stand-by commitments" with respect to Tax-Exempt Obligations held in
either Fund. Under a stand-by commitment, a dealer would agree to purchase at
the Fund's option
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specified Tax-Exempt Obligations at a specified price. The Funds will acquire
stand-by commitments solely to facilitate Fund liquidity and do not intend to
exercise their rights thereunder for trading purposes. Stand-by commitments
acquired by the North Carolina Fund and the South Carolina Fund may also be
referred to as "put" options.
PORTFOLIO TURNOVER
The Portfolio turnover rate for the Short-Intermediate Fund is 54.82%, for
the Intermediate Bond Fund is 76.29%, for the Growth and Income Fund is 19.82%,
for the North Carolina Fund is 20.90%, for the Small Company Growth Fund is
71.62%, and is 15.01% for the equity portion and 4.86% for the fixed income
portion of the Balanced Fund. The portfolio turnover of each of the Funds
(except the Prime Money Market Fund and the U.S. Treasury Fund) may vary greatly
from year to year as well as within a particular year. It is presently
anticipated that the portfolio turnover rate of the Funds of Funds will not
exceed 50%. It is presently anticipated that the portfolio turnover rate of the
International Equity Fund will not exceed 200%. It is presently anticipated that
the portfolio turnover rate of the South Carolina Fund will not exceed 50% and
the portfolio turnover rate of the Large Company Growth Fund will not exceed
100%. High turnover rates will generally result in higher transaction costs to a
Fund and may result in higher levels of taxable realized gains to a Fund's
shareholders.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund (see "GENERAL INFORMATION--Miscellaneous").
The Prime Money Market Fund and the U.S. Treasury Fund may not:
1. Purchase securities of any issuer, other than obligations issued
or guaranteed by the U.S. Government if, as a result, with respect to 75%
of its portfolio, more than 5% of the value of the Fund's total assets
would be invested in such issuer. In addition, although not a fundamental
investment restriction (and therefore subject to change without
shareholder vote), to the extent required by rules of the Securities and
Exchange Commission the Prime Money Market Fund and the U.S. Treasury 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.
Each Fixed Income Fund may not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately
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after such purchase with respect to 75% of its portfolio, more than 5% of
the value of the Fund's total assets would be invested in such issuer.
There is no limit as to the percentage of assets that may be invested in
U.S. Treasury bills, notes, or other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
2. Purchase any securities that would cause 25% or more of the value
of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be
divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
Each of the Funds of Funds may not:
1. Purchase any securities that would cause 25% or more of the value
of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities or
securities issued by "regulated investment companies" as defined in the
Internal Revenue Code of 1986, as amended (the "Code"); (b) wholly-owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided according
to their services. For example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry.
2. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or "regulated investment companies" as defined in the
Code, if, immediately after such purchase, more than 5% of the value of
the Fund's total assets would be invested in such issuer, or the Fund
would hold more than 10% of any class of securities of the issuer or more
than 10% of the outstanding voting securities of the issuer, except that
up to 25% of the value of the Fund's total assets may be invested without
regard to such limitations. There is no limit to the percentage of assets
that may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
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The Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the value
of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be
divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
2. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, or the
Fund would hold more than 10% of any class of securities of the issuer or
more than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The International Equity Fund may not:
1. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities) if
more than 5% of the value of the Fund's total assets would (taken at
current value) be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may
(taken at current value) be invested without regard to these limitations.
For purposes of this limitation, a security is considered to be issued by
the entity (or entities) whose assets and revenues back the security. A
guarantee of a security shall not be deemed to be a security issued by the
guarantors when the value of all securities issued and guaranteed by the
grantor, and owned by the Fund, does not exceed 10% of the value of the
Fund's total assets.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to (i) instruments issued (as defined in Investment
Limitation No. 1 above) or guaranteed by the United States, any state,
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territory or possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or political
subdivisions, and (ii) repurchase agreements secured by the instruments
described in clause (i); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and (c)
utilities will be divided according to their services; for example, gas,
gas transmission, electric and gas, electric and telephone will each be
considered a separate industry.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% (one-third with respect to the
Prime Money Market Fund and the International Equity Fund) of the value of
its total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing and
in amounts not in excess of (one-third of the value of the Fund's total
assets at the time of such borrowing with respect to the Prime Money
Market Fund and the International Equity Fund) the lesser of the dollar
amounts borrowed or 10% of the value of a Fund's total assets at the time
of its borrowing. Each of the Funds (except the U.S. Treasury Fund) will
not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. The U.S.
Treasury Fund will not purchase securities while borrowings are
outstanding.
2. Make loans, except that each of the Funds may purchase or hold
debt securities and lend portfolio securities in accordance with its
investment objective and policies and may enter into repurchase
agreements.
The North Carolina Fund and the South Carolina Fund may not:
1. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Funds may acquire puts with respect to Tax-Exempt
Obligations in their portfolios and sell those puts in conjunction with a
sale of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities,
and (b) this limitation shall not apply to Tax-Exempt Obligations or
governmental guarantees of Tax-Exempt Obligations. For purposes of this
limitation, a security is considered to be issued by the government entity
(or entities) whose assets and
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revenues back the security, or, with respect to a private activity bond
that is backed only by the assets and revenues of a non-governmental user,
such nongovernmental user.
The following is a non-fundamental investment restriction of the Prime
Money Market Fund and the U.S. Treasury Fund and therefore subject to change
without shareholder vote.
The Prime Money Market Fund and the U.S. Treasury Fund may not:
1. Invest more than 10% of its assets in instruments which are not
readily marketable.
VALUATION OF SHARES
The net asset value of each of the Funds other than the Prime Money Market
Fund and the U.S. Treasury Fund is determined and its Shares are priced as of
the close of regular trading of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time) on each Business Day. The net asset value of the Prime Money
Market Fund and the U.S. Treasury 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
determining the value of the class's proportional interest in the securities and
other assets of a Fund, less (i) such class's proportional share of general
liabilities and (ii) the liabilities allocable only to such class, and dividing
such amount by the number of relevant class Shares outstanding.
The securities in each of the Funds, except the Prime Money Market Fund
and the U.S. Treasury Fund, will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees of the Group believes accurately reflects fair value.
The Funds of Funds value investments in mutual fund securities at their
redemption price, which is net asset value.
The assets in the Prime Money Market Fund and the U.S. Treasury Fund are
valued based upon the amortized cost method. This method values a security at
its cost on the date of
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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 Prime Money Market Fund's and the U.S. Treasury
Fund's net asset value per Share at $1.00, there can be no assurance that net
asset value will not vary.
Most securities held by the International Equity Fund are priced based on
their market value as determined by reported sales prices or the mean between
their bid and asked prices. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Trustees. The amortized cost method of
valuation will also be used with respect to debt obligations with sixty days or
less remaining to maturity unless the Fund's sub-adviser under the supervision
of the Board of Trustees determines such method does not represent fair value.
For further information about the valuation of investments, see the
Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS
Fund Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF TRUST SHARES
Trust Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency,
custodial and other similar accounts maintained by or on behalf of Customers of
Branch Banking & Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.
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Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of each of the Funds are sold at the net asset value per
Trust Share next determined after receipt by the Distributor of an order in good
form to purchase Trust Shares (see "VALUATION OF SHARES"). There is no sales
charge imposed by the Group in connection with the purchase of the Group's Trust
Shares.
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.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Trust Shares of the Funds will be effected only on a Business
Day (as defined in "VALUATION OF SHARES"). An order for the Prime Money Market
Fund or the U.S. Treasury Fund received prior to a Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the date of receipt.
An order for the Prime Money Market Fund or the U.S. Treasury Fund
received after the last Valuation Time on any Business Day will be executed at
net asset value determined as of the next Valuation Time on the next Business
Day. An order for a Variable NAV Fund or the Funds of Funds received prior to
the Valuation Time on any Business Day will be executed at the net asset value
determined as of the Valuation Time on the date of receipt. An order for a
Variable NAV Fund or the Funds of Funds received after the Valuation Time on any
Business Day will be executed at the net asset value determined as of the
Valuation Time on the next Business Day.
An order to purchase Trust Shares of the Prime Money Market Fund or the
U.S. Treasury Fund will be deemed to have been received by the Distributor only
when federal funds with respect thereto are available to the Group's custodian
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Shares of the Prime Money
Market Fund or the U.S. Treasury Fund which is transmitted by federal funds wire
will be available the same day for investment by the Group's custodian, if
received prior to the last Valuation Time (see "VALUATION OF SHARES"). It is
strongly recommended that investors of substantial amounts use federal funds to
purchase Shares of the Prime Money Market Fund or the U.S. Treasury Fund.
Shares of the Prime Money Market Fund or the U.S. Treasury Fund purchased
before 12:00 noon, Eastern Time, begin earning dividends on the same Business
Day. All
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Shares of the Prime Money Market Fund or the U.S. Treasury Fund continue to earn
dividends through the day before their redemption.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer account fees for services provided in
connection with investment in the Group. Information concerning this Prospectus
should be read in conjunction with any such information received from the
Participating Organizations or Banks.
The Group reserves the right to reject any order for the purchase of its
Trust Shares in whole or in part, including purchases made with foreign and
third party drafts or checks.
EXCHANGE PRIVILEGE
Trust Shares of each Fund and the Funds of Funds may be exchanged for
Trust Shares of the other Funds and the Funds of Funds, provided that the
Shareholder making the exchange is eligible on the date of the exchange to
purchase Trust Shares (with certain exceptions and subject to the terms and
conditions described in this prospectus). Trust Shares of each Fund may also be
exchanged for Class A Shares, if the Shareholder ceases to be eligible to
purchase Trust Shares. Trust Shares of each Fund may not be exchanged for Class
B Shares.
The Group does not impose a charge for processing exchanges of its Trust
Shares. However, the exchange of Trust Shares for Class A Shares will require
payment of the sales charge unless the sales charge is waived. Shareholders may
exchange their Trust Shares for Trust Shares of another Fund on the basis of the
relative net asset value of the Shares exchanged.
An exchange is considered a sale of Shares and will result in a capital
gain or loss for federal income tax purposes, which, in general, is calculated
by netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange.
A Shareholder wishing to exchange Trust Shares purchased through a
Participating Organization or Bank may do so by contacting the Participating
Organization or Bank. If an exchange request in good order is received by the
Distributor or the Transfer Agent by 12:00 noon (Eastern Time) on any Business
Day, the exchange usually will occur on that day. Any Shareholder who wishes to
make an exchange should obtain and review a prospectus describing the Fund and
class of Shares which he or she wishes to acquire before making the exchange.
The exchange privilege may be exercised only in those states where the class of
Shares of such other Fund may legally be sold. The Group reserves the right to
change the terms and conditions of the exchange privilege discussed herein upon
sixty days written notice.
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The Group's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
REDEMPTION OF SHARES
Shareholders may redeem their Trust Shares without charge on any day that
net asset value is calculated (see "VALUATION OF SHARES") and Shares may
ordinarily be redeemed by mail or by telephone. However, all or part of a
Customer's Shares may be required to be redeemed in accordance with instructions
and limitations pertaining to his or her account held by a Participating
Organization or Bank. For example, if a Customer has agreed to maintain a
minimum balance in his or her account, and the balance in that account falls
below that minimum, the Customer may be obliged to redeem, or the Participating
Organization or Bank may redeem for and on behalf of the Customer, all or part
of the Customer's Shares to the extent necessary to maintain the required
minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be 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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of a valid request for redemption. Such electronic redemption requests may be
made by the Shareholder by telephone to the Transfer Agent. The Transfer Agent
will reduce the amount of a wire redemption payment by its then-current wire
redemption charge. Such charge is presently $7.00 for each wire redemption.
There is no charge for having payment of redemption requests mailed or sent via
the Automated Clearing House to a designated bank account. For telephone
redemptions, call the Group at (800) 228-1872. If not selected on the Account
Registration form, the Shareholder will automatically receive telephone
redemption privileges. None of the Distributor, the Group's transfer agent, BB&T
or the Group will be liable for any losses, damages, expense or cost arising out
of any telephone transaction (including exchanges and redemptions) effected in
accordance with the Group's telephone transaction procedures, upon instructions
reasonably believed to be genuine. The Group will employ procedures designed to
provide reasonable assurance that instructions communicated by telephone are
genuine; if these procedures are not followed, the Group may be liable for any
losses due to unauthorized or fraudulent instructions. These procedures include
recording all phone conversations, sending confirmations to Shareholders within
72 hours of the telephone transaction, verifying the account name and a
shareholder's account number or tax identification number and sending redemption
proceeds only to the address of record or to a previously authorized bank
account. If, due to temporary adverse conditions, investors are unable to effect
telephone transactions, Shareholders may also mail the redemption request to the
Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last Valuation Time, to honor requests for payment within two Business
Days, unless it would be disadvantageous to the Group or the Shareholders of the
particular Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. The Prime Money
Market Fund and the U.S. Treasury Fund will attempt to honor requests from its
Shareholders for same day payment upon redemption of Shares if the request for
redemption is received by the Transfer Agent before 12:00 noon Eastern Time, on
a Business Day or, if the request for redemption is received after 12:00 noon
Eastern Time, to honor requests for payment on the next Business Day, unless it
would be disadvantageous to the 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
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take up to 15 days or more. To avoid delay in payment upon redemption shortly
after purchasing Shares, investors should purchase Shares by certified check or
by wire transfer. The Group intends to pay cash for all Shares redeemed, but
under abnormal conditions which may make payment in cash unwise, the Group may
make payment wholly or partly in portfolio securities at their then market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the
Statement of Additional Information for examples of when the Group may suspend
the right of redemption or redeem Shares involuntarily if it appears appropriate
to do so in light of the Group's responsibilities under the Investment Company
Act of 1940.
DIVIDENDS AND TAXES
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified, a Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute substantially all of their income on a timely
basis. Each Fund intends to avoid paying federal income and excise taxes by
timely distributing substantially all its net investment income and net realized
capital gains.
Dividends received by a Shareholder of a Fund that are derived from such
Fund's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.
Shareholders will be advised at least annually as to the amount and
federal income tax character of distributions made during the year.
The net investment income of the Shares of the Prime Money Market Fund and
the U.S. Treasury Fund is declared daily as a dividend to Shareholders at the
close of business on the day of declaration. Dividends will generally be paid
monthly. The Prime Money Market Fund and the U.S. Treasury Fund do not expect to
realize any long-term capital gains and, therefore, do not foresee paying any
"capital gain dividends" as described in the Code.
The amount of dividends payable with respect to the Trust Shares will
exceed dividends on Class A Shares, and the amount of dividends on Class A
Shares will exceed dividends on Class B Shares, as a result of the Distribution
and Shareholder Services Plan fee applicable to Class A and Class B Shares.
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A dividend on the Shares of the North Carolina, South Carolina,
Short-Intermediate, and Intermediate Bond Funds is declared daily, and a
dividend on the Shares of the Growth and Income and Balanced Funds is declared
monthly. Net realized capital gains, if any, are distributed at least annually
to Shareholders of record. Dividends for each of the Funds other than the Small
Company Growth Fund will generally be paid monthly. The Large Company Growth
Fund, the Small Company Growth Fund, the International Equity Fund, and the
Funds of Funds declare and pay dividends quarterly.
A Shareholder will automatically receive all income dividends and capital
gain distributions in additional full and fractional Shares at net asset value
as of the date of payment unless the Shareholder elects to receive such
dividends or distributions in cash. Such election, or any revocation thereof,
must be made in writing to the BB&T Mutual Funds Group, P.O. Box 182533,
Columbus, OH 43218-2533, and will become effective with respect to dividends and
distributions having record dates after its receipt by the transfer agent.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Dividends are paid in cash not later than seven Business Days after a
Shareholder's complete redemption of his or her Shares.
Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month and paid during the following January are treated for tax
purposes as if they were received by each Shareholder on December 31 of the year
in which the dividends were declared.
Dividends will generally be taxable to a Shareholder as ordinary income to
the extent of the Shareholder's ratable share of the earnings and profits of a
Fund as determined for tax purposes. Certain dividends paid by the Growth and
Income, Balanced, Large Company Growth, Small Company Growth, International
Equity and Funds of Funds, and so designated by the Funds, may qualify for the
dividends received deduction for corporate shareholders. Because all of the net
investment income of the remaining Funds is expected to be interest income, it
is anticipated that no distributions from such Funds will qualify for the
dividends received deduction. Distributions of net realized capital gains are
taxable to Shareholders as long-term capital gains regardless of how long the
Shareholder has held Shares in the Fund. Shareholders who are not subject to tax
on their income generally will not have to pay federal income tax on amounts
distributed to them.
Dividends that are derived from interest on a Fund's investments in U.S.
Government Securities and that are received by a Shareholder who is a North
Carolina or South Carolina resident are currently eligible for exemption from
those states' income taxes. Such dividends may be eligible for exemption from
the state and local taxes of other jurisdictions as well, although state and
local tax authorities may not agree with this view. However, in North Carolina
and South Carolina, as well as in other states, distributions of income derived
from repurchase agreements and securities lending transactions generally will
not qualify for exemption from state and local income taxes.
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The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.
TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND
Dividends and certain interest income earned by the International Equity
Fund from foreign securities may be subject to foreign withholding taxes or
other taxes. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that the
International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, or (b) if a shareholder
itemizes deductions, to deduct such proportionate amounts from U.S. Federal
taxable income.
Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA
FUND
The portions of dividends paid for each year that are exempt from federal
and North Carolina or South Carolina income tax, respectively, will be
designated within 60 days after the end of a Fund's taxable year and will be
based for each of the North Carolina Fund and the South Carolina Fund upon the
ratio of net tax-exempt income to total net income earned by the Fund during the
entire year. That ratio may be substantially different from the ratio of net
tax-exempt income to total net income earned during any portion of the year.
Thus, a Shareholder who holds Shares in either Fund for only a part of the year
may be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net income
actually earned by the Fund while he or she was a Shareholder of the Fund.
Distributions will not be subject to North Carolina income tax if made to
individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina
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income tax to the extent such distributions are either (i) exempt from federal
income tax and attributable to interest on obligations of North Carolina or its
political subdivisions, or Guam, Puerto Rico, or the United States Virgin
Islands, including the governments thereof and their agencies, instrumentalities
and authorities, or (ii) attributable to interest on direct obligations of the
United States.
Distributions will not be subject to South Carolina income tax if made to
individual Shareholders residing in South Carolina or to trusts or estates
subject to South Carolina income tax to the extent such distributions are either
(i) attributable to interest on obligations of South Carolina or its political
subdivisions, including any agencies, instrumentalities and authorities thereof,
or (ii) attributable to interest on direct obligations of the United States.
Distributions designated by the Funds as "exempt-interest dividends" are
not generally subject to federal income tax. However, if the Shareholder
receives Social Security or railroad retirement benefits, the Shareholder should
consult his or her tax adviser to determine what effect, if any, an investment
in a Fund may have on the taxation of such benefits.
Dividends derived from interest income from certain types of securities in
which the North Carolina Fund or the South Carolina Fund may invest may subject
individual and corporate investors to liability under the federal alternative
minimum tax. As a matter of policy, under normal market conditions, not more
than 10% of a Fund's total assets will be invested in securities the interest on
which is treated as a preference item for purposes of the federal alternative
minimum tax for individuals. To the extent the North Carolina Fund or the South
Carolina Fund invests in securities the interest on which is subject to federal
alternative minimum tax, Shareholders, depending on their tax status, may be
subject to alternative minimum tax on that part of the Fund's distributions
derived from those securities. Interest income on all Tax-Exempt Obligations is
included in "adjusted current earnings" for purposes of computing the
alternative minimum tax applicable to corporate Shareholders of the North
Carolina Fund or the South Carolina Fund.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina, South
Carolina and federal income tax purposes to the extent of the amount of such
exempt-interest dividend, even though, in the case of North Carolina or South
Carolina, some portion of such dividend actually may have been subject to North
Carolina or South Carolina income tax. Although the Treasury Department is
authorized to issue regulations reducing such period to as short as 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest, no such regulations have been issued as of the date of
this Prospectus.
The North Carolina Fund and the South Carolina Fund may at times purchase
Tax- Exempt Obligations at a discount from the price at which they were
originally issued. For
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federal income tax purposes, some or all of this market discount will be
included in a Fund's ordinary income and will be taxable to shareholders as such
when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable
income (for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund and the South Carolina Fund of the
excess of net long-term capital gain over net short-term capital loss are
taxable to Shareholders as long-term capital gain, regardless of how long the
Shareholder has held Shares in the North Carolina Fund or the South Carolina
Fund, except that distributions which are directly attributable to gains from
certain obligations of the State of North Carolina and its political
subdivisions that were issued before July 1, 1995 are exempt from North Carolina
State income tax. [ANY SIMILAR PROVISION FOR SOUTH CAROLINA?] Distributions will
be taxable as described above even if the net asset value of a Share in the
North Carolina Fund or the South Carolina Fund is reduced below the
Shareholder's cost of that Share by the distribution of income or gain realized
on the sale of securities and the distribution is, as an economic matter, a
return of capital. If a shareholder purchases mutual fund shares, receives a
capital gain dividend (or is credited with an undistributed capital gain) and
then sells the shares at a loss within 6 months after purchasing the shares, the
loss is treated as a long-term capital loss to the extent of the capital gain
dividend (or undistributed capital gain).
Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.
Part or all of the interest on indebtedness incurred by a Shareholder to
purchase or carry Shares of the North Carolina Fund or the South Carolina Fund
is not deductible for federal, North Carolina and South Carolina income tax
purposes. The portion of interest that is not deductible is equal to the total
interest multiplied by the percentage of the Fund's total distributions (not
including distributions from net long-term capital gains) paid to the
Shareholders that are exempt-interest dividends. It is anticipated that none of
the distributions from the North Carolina Fund or the South Carolina Fund will
be eligible for the dividends received deduction for corporations.
Additional information regarding federal taxes is contained in the
Statement of Additional Information under the heading "Additional Tax
Information Concerning the North Carolina Fund and the South Carolina Fund."
However, the foregoing and the material in the Statement of Additional
Information are only brief summaries of some of the important tax considerations
generally affecting the North Carolina Fund and the South Carolina Fund and
their Shareholders. Accordingly, potential investors in the North Carolina Fund
and the South Carolina Fund are urged to consult their tax advisers with
specific reference to their
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own tax situation and in particular regard to state and local tax consequences
of investment in the North Carolina Fund and the South Carolina Fund.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE GROUP DURING PAST 5 YEARS
- ---------------- -------------- -------------------
<S> <C> <C>
* Walter B. Grimm Chairman of From June, 1992 to present,
3435 Stelzer Road the Board employee of BISYS Fund
Columbus, OH 43219 Services; from 1987 to June,
1992, President of Leigh
Consulting/Investments
(investment firm).
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams; from
Fayetteville Street Mall 1985 to December, 1993, Vice
P.O. Box 109 Chairman, Carolina Power & Light
Raleigh, NC 27602 Company
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, NC 27106 Foundation
*W. Ray Long Trustee Executive Vice President, Branch
434 Fayetteville Street Mall Banking and Trust Company
Raleigh, NC 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>
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* 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. Walter B. Grimm is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.
INVESTMENT ADVISER
BB&T is the investment adviser of each Fund. BB&T is the oldest bank in
North Carolina and is the principal bank affiliate of BB&T Corporation
(formerly, Southern National Corporation), a bank holding company that is a
North Carolina corporation, headquartered in Winston-Salem, North Carolina. As
of December 31, 1996, BB&T Corporation had assets of approximately $25 billion.
Through its subsidiaries, BB&T Corporation operates over 425 banking offices in
North Carolina, South Carolina and Virginia, providing a broad range of
financial services to individuals and businesses.
In addition to general commercial, mortgage and retail banking services,
BB&T also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Small Company Growth Fund, PNC Bank and, with respect to the
International Equity Fund, CastleInternational) manages the Funds, makes
decisions with respect to, and places orders for, all purchases and sales of its
investment securities, and maintains its records relating to such purchases and
sales.
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Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by the Prime Money Market Fund and the U.S. Treasury Fund for
investment advisory services is the lesser of: (a) a fee computed daily and paid
monthly at the annual rate of forty one hundredths of one percent (.40%) of each
Fund's average daily net assets; sixty one-hundredths of one percent (.60%) of
each Fixed Income Funds' and the North Carolina and South Carolina Funds'
average daily net assets; seventy-four one-hundredths of one percent (.74%) of
the Large Company Growth Fund's, Growth and Income Fund's and Balanced Fund's
average daily net assets; (1.00%) of the Small Company Growth Fund's and
International Equity Fund's average daily net assets; and twenty-five
one-hundredths of one percent (.25%) of each Funds of the Funds' average daily
net assets, or (b) such fee as may from time to time be agreed upon in writing
by the Group and BB&T. A fee agreed to in writing from time to time by the Group
and BB&T may be significantly lower than the fee calculated at the annual rate
and the effect of such lower fee would be to lower a Fund's expenses and
increase the net income of the fund during the period when such lower fee is in
effect.
For the fiscal year ended September 30, 1996, the Funds paid the following
investment advisory fees: the U.S. Treasury Fund paid .40% of its average daily
net assets; each of the Short-Intermediate, Intermediate Bond, North Carolina,
Growth and Income, and Balanced Funds, after voluntary fee reductions, paid .50%
of its average daily net assets; and the Small Company Growth Fund paid 1.00% of
its average daily net assets. The Prime Money Market Fund, the Funds of Funds,
the International Equity Fund, the South Carolina Fund and the Large Company
Growth Fund had not commenced operations as of September 30, 1996.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the Group (other than the Small Company Growth and
International Equity Funds which are managed by sub-advisers, described below),
and the Funds of Funds as well as their previous business experience, are as
follows:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- -------------------
<S> <C>
Keith F. Karlawish Manager of the Intermediate Bond Fund and Short-Intermediate
Fund since September, 1994. From June, 1993 to September,
1994, Mr. Karlawish was Assistant Manager of the Intermediate
Bond Fund and the Short-Intermediate Fund. From September,
1991 to June, 1993, he was a Financial Analyst Team Leader for
Branch Banking and Trust Co. Mr. Karlawish earned a B.S. in
Business Administration from the University of Richmond, an
MBA from the University of North Carolina at Chapel Hill, and
is a Chartered Financial Analyst.
</TABLE>
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<TABLE>
<S> <C>
Richard B. Jones Manager of the Growth and Income Fund since
February 1, 1993. Since 1987, Mr. Jones has been a
portfolio manager in the BB&T Trust Division. He is a
Chartered Financial Analyst and holds a B.S. in
Business Administration from Miami (Ohio) University
and an MBA from Ohio State University.
Alice B. Flowers Manager of the North Carolina Fund since April, 1994 and co-
manager of the South Carolina Fund since its inception. From
February, 1993 to April, 1994, Ms. Flowers served as
co-manager of the North Carolina Fund. She has been a
securities trader and portfolio manager in the BB&T Trust
Division since 1985. She earned a B.S. degree in Business
Administration from Barton College, and an A.A.S. degree in
Accounting from Wilson Technical Community College.
David R. Ellis Manager of the Balanced Fund since its inception and Manager
of the Funds of Funds since inception. Since 1986, Mr. Ellis
has been a portfolio manager in the BB&T Trust Division. He
holds a B.S. degree in Business Administration from the
University of North Carolina at Chapel Hill. Mr. Ellis will
serve as the Manager of the Funds of Funds.
C. Steven Brennaman Co-manager of the South Carolina Fund since its inception. Mr.
Brennaman joined BB&T after its merger with United Carolina
Bank in July, 1997. He has been a Senior Portfolio Manager
with UCB since June, 1995. Mr. Brennaman holds a B.A.
degree in Political Science from Mercer University and a M.S.
degree in Management from Troy State University.
Daniel J. Rivera Manager of the Large Company Growth Fund
since its inception, Mr. Rivera joined the BB&T staff
in July, 1997, after BB&T's merger with United Carolina
Bank. He had been Director of Investments at UCB since
January, 1994. Mr. Rivera received a Bachelors degree
in Languages from the Virginia Military Institute, and
is a Chartered Financial Analyst.
</TABLE>
INVESTMENT SUB-ADVISERS
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
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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.
PEAC serves as the Investment Sub-Adviser to the Small Company Growth Fund
pursuant to a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory
Agreement, PEAC manages the Fund, selects investments and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of the Group's Board of Trustees and BB&T and in accordance with the Small
Company Growth Fund's investment objective, policies and restrictions.
The person primarily responsible for the management of the Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the
Small Company Growth Fund since its inception. Mr. Wykle has been an investment
manager with PEAC since 1995 and has been the portfolio manager of the Compass
Capital FundsSM Small Cap Growth Equity Portfolio since its inception. He has
also been Vice President and Small Cap Growth Equity Fund portfolio manager for
PNC Bank since 1992. He has been a portfolio manager at PNC Bank and its
predecessor, Provident National Bank, since 1986.
PEAC is an indirect wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), the former Sub-Adviser to the Small Company Growth
Fund, with offices located at 1600 Market Street, Philadelphia, Pennsylvania
19103. PNC BANK is a wholly owned indirect subsidiary of PNC Bank Corp. PNC
Bank Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania,
was the 13th largest bank holding company in the
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<PAGE> 189
United States based on total assets at March 31, 1997. PNC Bank Corp. operates
banking subsidiaries in Pennsylvania, Delaware, Florida, Indiana, Kentucky,
Massachusetts, New Jersey and Ohio and conducts certain non-banking operations
throughout the United States. Its major businesses include consumer banking,
corporate banking, real estate banking, mortgage banking and asset management.
With $114.9 billion in managed assets and $346.4 billion of assets under
administration at March 31, 1997, PNC Bank Corp. is one of the largest bank
money managers as well as one of the largest institutional mutual fund managers
in the United States. Of such amounts at March 31, 1997, PNC Bank had $104.5
billion in managed assets $148.2 billion in assets under administration. In
addition to asset management and trust services, PNC Bank also provides a wide
range of domestic and international commercial banking and consumer banking
services. PNC Bank's origins, and in particular its trust administration
services, date back to the mid-to-late 1800s.
For its services and expenses incurred under the Sub-Advisory Agreement,
PEAC is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the Small Company
Growth Fund's average daily net assets), which vary according to the level of
Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
----------- ----------
<S> <C>
Up to $50 million .50%
Next $50 million .45%
Over $100 million .40%
</TABLE>
CastleInternational Asset Management Limited ("CastleInternational")
serves as the Investment Sub-Adviser to the International Equity Fund pursuant
to a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement,
CastleInternational manages the Fund, selects investments and places all orders
for purchases and sales of the International Equity Fund's securities, subject
to the general supervision of the Group's Board of Trustees and BB&T and in
accordance with the International Equity Fund's investment objective, policies
and restrictions.
CastleInternational, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect wholly-owned subsidiary of
PNC Bank Corp. As of September 30, 1996, CastleInternational had approximately
$1.6 billion in discretionary assets under management, including three mutual
fund portfolios, one bank common trust fund and a tax exempt institutional
portfolio.
For its services and expenses incurred under the Sub-Advisory Agreement,
CastleInternational is entitled to a fee, payable by BB&T. The fee is computed
daily and paid quarterly at the following annual rates (as a percentage of the
International Equity Fund's average daily net assets), which vary according to
the level of Fund assets:
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<PAGE> 190
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ----------- ----------
<S> <C>
Up to $50 million .50%
Next $50 million .45%
Over $100 million .40%
</TABLE>
The person primarily responsible for the management of the International
Equity Fund is Gordon Anderson. Mr. Anderson has served as Managing and
Investment Director of CastleInternational Asset Management Limited since 1996.
Prior to joining CastleInternational, Mr. Anderson was the Investment Director
of Dunedin Fund Managers Ltd. Mr. Anderson has served as the Portfolio Manager
for the Compass Capital Funds(sm) International Equity Portfolio since 1996.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund and also acts as
the Group's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates) under agreements approved by the
Group's Board of Trustees. BISYS Fund Services is wholly owned by The BISYS
Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's
administration and operation. Under a management and administration agreement
between the Group and the Administrator, the fee payable by a Fund to the
Administrator for management administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (.20%) of a
Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon in writing by the Group and the Administrator. A fee agreed to in
writing from time to time by the Group and the Administrator may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase the net income
of the Fund during the period when such lower fee is in effect.
For the fiscal year ended September 30, 1996, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
.20% for each of the U.S. Treasury, the Short-Intermediate, the Intermediate
Bond, the Growth and Income, the Balanced and the Small Company Growth Funds and
.15% for the North Carolina Fund. No Administration fees were paid by the Prime
Money Market Fund, the Funds of Funds, the International Equity Fund, the
South Carolina Fund or the Large Company Growth Fund for that period, as they
had not commenced operations as of September 30, 1996.
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<PAGE> 191
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, each Fund's total operating
expenses for Trust Shares were as follows (as a percentage of average daily net
assets of each Fund): U.S. Treasury Fund: .75% Short-Intermediate Fund: .93%;
Intermediate Bond Fund: .87%; North Carolina Fund: .96%; Growth and Income Fund:
.86%; Balanced Fund: .95%; and 1.79%; for the Small Company Growth Fund. Absent
fee waivers by the Adviser and Administrator, these operating expenses would
have been: U.S. Treasury Fund: .75%; Short-Intermediate Fund: 1.03%;
Intermediate Bond Fund: .97%; North Carolina Fund: 1.11%; Growth and Income
Fund: 1.10%; and Balanced Fund: 1.19%.
The organizational expenses of the Prime Money Market Fund, the South
Carolina Fund, the Large Company Growth Fund, the Small Company Growth Fund, the
Funds of Funds, and the International Equity Fund have been capitalized and are
being amortized in the first two years of each such Funds' operations. Such
amortization will reduce the amount of income available for payment as
dividends.
BANKING LAWS
BB&T, PIMC, PEAC, and CastleInternational each believes that it possesses
the legal authority to perform the investment advisory and sub-advisory services
for the Group contemplated by its investment advisory agreement with the Group
and investment and sub-advisory agreement with BB&T and described in this
Prospectus without violation of applicable banking laws and regulations, and has
so represented to the Group. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank
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<PAGE> 192
holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which BB&T, PIMC, PEAC, and
CastleInternational could continue to perform such services for the Group. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass Steagall Act" in the Statement of
Additional Information for further discussion of applicable banking laws and
regulations.
DISTRIBUTION PLAN
The Distribution Plan contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on October 1,
1987 and commenced active operation on September 24, 1992. The Group has an
unlimited number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into eleven 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
South Carolina Intermediate Tax-Free Fund, the BB&T Prime Money Market Fund, the
BB&T U.S. Treasury Money Market Fund, the BB&T Balanced Fund, the BB&T Large
Company Growth Fund, the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund. The Group also offers three additional series of
Shares, one for each of the following Funds of Funds: the BB&T Capital Manager
Conservative Growth Fund, the BB&T Capital Manager Moderate Growth Fund, and the
BB&T Capital Manager Growth Fund. The Funds of Funds offer Trust Shares only.
Each Fund, except for the Funds of Funds, offers to the public three classes of
shares: Class A, Class B and Trust Shares. Currently, the Prime Money Market,
Short-Intermediate, North Carolina and South Carolina Funds are not offering
Class B Shares. Each Share represents an equal proportionate interest in a Fund
with other Shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per Share (with proportional voting
for fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment
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Company Act of 1940, Shares shall be voted by individual series, and (ii) when
the Trustees have determined that the matter affects only the interests of a
particular series or class.
As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Group or a particular
Fund means the affirmative vote, at a meeting of Shareholders duly called, of
the lesser of (a) 67% or more of the votes of Shareholders of the Group or such
Fund present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the
Board of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the
Group." Individual Trustees are elected by the Shareholders and may be removed
by the Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the Group's outstanding
Shares have the right to call a meeting to elect or remove one or more of the
Trustees of the Group. Shareholder inquiries should be directed to the Secretary
of the Group at 3435 Stelzer Road, Columbus, Ohio 43219.
As of June 5, 1997, BB&T owned of record substantially all of the Trust
Shares of each of the Funds and held voting or investment power with respect to
98.4%, 99.2%, 99.6%, 98.9%, 98.4%, 99.3%, 99.3%. and 100% of the Trust Shares of
the U.S. Treasury, Short-Intermediate, North Carolina, Growth and Income Stock,
Intermediate Bond, Balanced, Small Company Growth, and International Equity
Funds, respectively. BB&T may therefore be deemed to be a "controlling person"
of the Trust Shares of each of the Funds within the meaning of the Investment
Company Act of 1940. The Prime Money Market Fund, the Funds of Funds, the South
Carolina Fund, and the Large Company Growth Fund had not commenced operations as
of June 5, 1997.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for the Group. Bank of New York serves as the Custodian for the
International Equity Fund.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides
fund accounting services to the Group.
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<PAGE> 194
OTHER CLASSES OF SHARES
In addition to Trust Shares, the Group also offers Class A and Class B
Shares of each Fund, other than the Funds of Funds. Class A Shares are offered
to the general public at net asset value plus an applicable sales charge. Class
B shares are offered to the general public at net asset value without a sales
charge when purchased, but are subject to a sales charge if a Shareholder
redeems them prior to the sixth anniversary of purchase. Class A and Class B
Shares are also subject to a Distribution and Shareholder Services Plan fee. As
of the date of this Prospectus, however, Class B Shares were not yet being
offered in the Prime Money Market Fund, the Short-Intermediate Fund, the North
Carolina Fund or the South Carolina Fund.
PERFORMANCE INFORMATION
From time to time, the Prime Money Market Fund's and the U.S. Treasury
Fund's annualized "yield" and "effective yield" and total return for Trust
Shares may be presented in advertisements, sales literature and Shareholder
reports. The "yield" of the Prime Money Market Fund and the U.S. Treasury 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.
From time to time performance information of a Variable NAV Fund and the
Funds of Funds showing its average annual total return, aggregate total return,
and/or yield may be presented in advertisements, sales literature and
shareholder reports. Such performance figures are based on historical earnings
and are not intended to indicate future performance. In addition, tax equivalent
yield may be presented in advertisements, sales literature and shareholder
reports of the North Carolina Fund and the South Carolina Fund. Average annual
total return will be calculated for the period since the establishment of a Fund
and will, unless otherwise noted, reflect the imposition of the maximum sales
charge. Average annual total return is measured by comparing the value of an
investment in a Fund at the beginning of the relevant period to the redemption
value of an investment at the end of the period (assuming immediate reinvestment
of any dividends or capital gains distributions). Aggregate total return
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<PAGE> 195
is calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing the net investment income per Share for a Variable NAV
Fund or for a Fund of Funds earned during a recent 30-day period by the Fund's
per Share maximum offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last day of the period and
annualizing the results.
The North Carolina Fund and the South Carolina Fund may also advertise
their tax equivalent yield, which reflects the amount of income subject to
federal income taxation that a taxpayer would have to earn in order to obtain
the same after-tax income as that derived from the yield of the Funds. The tax
equivalent yield will be significantly higher than the yield of the North
Carolina Fund or the South Carolina Fund.
Each Fund may also present its average annual total return, aggregate
total return, yield and/or tax equivalent yield, as the case may be, excluding
the effect of a sales charge, if any.
The Variable NAV Funds and the Funds of Funds may also calculate a
distribution rate. Distribution rates will be computed by dividing the
distribution per Share of a class made by a Fund over a twelve-month period by
the maximum offering price per Share. The distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses. The
calculation of income in the distribution rate includes both income and capital
gain dividends and does not reflect unrealized gains or losses, although a Fund
may also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital items
which are often non-recurring in nature, and may include returns of principal,
whereas yield does not include such items. Each of the Funds do not intend to
publish distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Trust Shares are not
subject to Distribution and Shareholder Services Plan fees, the yield and total
return for Trust Shares will be higher than that of the Class A or Class B
Shares for the same period.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/Donoghue's MONEY
FUND REPORT and Ibbotson Associates, Inc. References may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger,
Pension and Investments, U.S.A. Today and local newspapers. In addition to
performance information, general information about the Funds that appears in a
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<PAGE> 196
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Information about the performance of a Fund is based on a Fund's record up
to a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to the Group at
the following address -- the BB&T Mutual Funds Group, P.O. Box 182533, Columbus,
OH 43218-2533 or by calling toll free (800) 228-1872.
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<PAGE> 197
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
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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- ----------------------------COMPARISON OF FOOTNOTES-----------------------------
- -FOOTNOTE 1-
"Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
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<PAGE> 199
CROSS REFERENCE SHEET
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
Part B Item Information Caption
- ----------- -------------------
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History Additional Information -
Description of Shares
Investment Objectives and Policies Investment objectives and policies
Management of BB&T Mutual Funds Group Management of BB&T Mutual
Funds Group
Control Persons and Principal
Holders of Securities Miscellaneous
Investment Advisory and Other Services Management of BB&T Mutual
Funds Group
Brokerage Allocation Management of the BB&T Mutual
Funds Group
Capital Stock and Other Securities Valuation; Additional Purchase
and Redemption Information;
Management of BB&T Mutual
Funds Group; Redemptions;
Additional Information
Purchase, Redemption and Pricing
of Securities Being Offered Valuation; Additional Purchase
and Redemption Information;
Management of BB&T Mutual
Funds Group
Tax Status Additional Purchase and
Redemption Information
<PAGE> 200
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
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<PAGE> 201
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
[____________, 1997]
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of the BB&T Prime Money Market 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 South Carolina Intermediate Tax-Free Fund, the BB&T Balanced
Fund, the BB&T Large Company Growth 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 [_____________] and the Prospectuses of the
BB&T U.S. Treasury Money Market Fund and the BB&T Prime Money Market Fund which
are dated [____________________]. 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.
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TABLE OF CONTENTS
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BB&T MUTUAL FUNDS GROUP .............................................................. B-1
INVESTMENT OBJECTIVES AND POLICIES ................................................... B-1
Additional Information on Portfolio Instruments .................................. B-1
Puts ............................................................................. B-13
Investment Restrictions .......................................................... B-15
Portfolio Turnover ............................................................... B-19
VALUATION ............................................................................ B-19
Valuation of the Money Market Funds .............................................. B-20
Valuation of the Growth and Income Fund, North Carolina Fund, South Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Large
Company Growth Fund, Small Company Growth Fund, and the Funds of Funds .. B-21
Valuation of the International Equity Fund ....................................... B-21
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 and South
Carolina Funds .......................................................... B-27
Special Considerations Regarding Investment in South Carolina Tax-Exempt
Obligations.............................................................. B-35
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
Distributor ...................................................................... B-45
Custodian ........................................................................ B-47
Independent Accountants .......................................................... B-47
Legal Counsel .................................................................... B-47
PERFORMANCE INFORMATION .............................................................. B-47
Yields of the Money Market Funds ................................................. B-47
Yields of the Other Funds of the Group ........................................... B-48
Calculation of Total Return ...................................................... B-50
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<TABLE>
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Performance Comparisons .......................................................... B-51
ADDITIONAL INFORMATION ............................................................... B-56
Organization and Description of Shares ........................................... B-56
Shareholder and Trustee Liability ................................................ B-57
Miscellaneous .................................................................... B-57
FINANCIAL STATEMENTS ................................................................. B-70
Independent Auditors Report ...................................................... B-70
Audited Financial Statements as of September 30, 1996 and Unaudited
Financial Statements as of March 31, 1997 ........................................ B-70
APPENDIX ............................................................................. B-71
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STATEMENT OF ADDITIONAL INFORMATION
BB&T MUTUAL FUNDS GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management
investment company. The Group consists of eleven series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one of
eleven 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 South Carolina Intermediate Tax-Free Fund (the "South Carolina Fund"),
the BB&T Balanced Fund (the "Balanced Fund"), the BB&T Large Company Growth Fund
(the "Large Company Growth 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.
As of the date of this Statement of Additional Information, Class B Shares were
not yet being offered in the Short-Intermediate, North Carolina and South
Carolina Funds. 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.
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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") (PEAC, CastleInternational and PIMC, each a "Sub-Adviser")
with regard to portfolio investments for the Funds and provides a description of
relevant ratings assigned by each such NRSRO. A rating by an NRSRO may be used
only where the NRSRO is neither controlling, controlled by, nor under common
control with the issuer of, or any issuer, guarantor, or provider of credit
support for, the instrument.
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.
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Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Prime Money Market Fund, Growth and Income Fund, Large
Company Growth Fund, Small Company Growth Fund, Short-Intermediate Fund,
Intermediate Bond Fund and Balanced Fund (the Short-Intermediate Fund and the
Intermediate Bond Fund are sometimes referred to collectively as the "Fixed
Income Funds") and the Funds of Funds may invest, are unsecured demand notes
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument. They
are also referred to as variable rate demand notes. Because these notes are
direct lending arrangements between the Fund and the issuer, they are not
normally traded. Although there may be no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time or during
specified periods not exceeding one year, depending upon the instrument
involved, and may resell the note at any time to a third party. 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 the Sub-Adviser 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, Large Company Growth 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.
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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
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,
Large Company Growth Fund, Small Company Growth Fund, and the Funds of Funds
will acquire such securities only when BB&T or the Sub-Adviser 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
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foreign currency. With respect to any forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by the contract
and the value of the securities involved due to the changes in the values of
such securities resulting from market movements between the date the forward
contract is entered into and the date it matures. In addition, while forward
contracts may offer protection from losses resulting from declines in the value
of a particular foreign currency, they also limit potential gains which might
result from increases in the value of such currency. The Fund will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars.
A separate account of a Fund consisting of liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the 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 or the Sub-Adviser
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 the Sub-Adviser 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
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Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. As discussed in the 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 the
Sub-Adviser believes that the credit risk with respect thereto is minimal.
Supranational Organizational Obligations. The Large Company Growth
Fund, 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 Large Company Growth Fund, 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
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Moody's or "BBB" by S&P) are considered to have some speculative characteristics
and are more sensitive to economic change than higher rated securities.
Rights Offerings and Warrants to Purchase. The Large Company Growth
Fund, 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 , the
North Carolina Fund and the South 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 and South Carolina Funds, (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 and South
Carolina Funds (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 , the
North Carolina Fund or the South 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
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the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit.
For purposes of the North Carolina Fund, the South Carolina Fund and
the Prime Money Market Fund, the maturities of the variable and floating rate
notes will be determined in accordance with Rule 2a-7 under the 1940 Act.
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"). Under normal market conditions, the South Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of South 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 South
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("South Carolina
Tax-Exempt Obligations"). In addition to North Carolina Tax-Exempt Obligations
and South Carolina Tax-Exempt Obligations, the North Carolina Fund and the South
Carolina Fund may invest in Tax-Exempt Obligations issued by or on behalf of
states other than North Carolina and South 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 , North
Carolina Tax-Exempt Obligations and South Carolina Tax-Exempt Obligations are
hereinafter collectively referred to as "Tax-Exempt Obligations."
Tax-Exempt Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Tax-Exempt Obligations if the interest paid thereon
is both exempt from federal income tax and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Tax-Exempt Obligations may also include General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term tax-exempt loans.
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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 and South Carolina Funds are permitted to invest in Tax-Exempt
Obligations and may also acquire "moral obligation" issues, which are normally
issued by special purpose authorities. Currently, neither North Carolina nor
South Carolina issuers have authority to issue moral obligation securities.
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 and South Carolina Funds, 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 or South 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 or South Carolina Funds.
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.
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Although lease obligations do not generally constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged (in South Carolina, governmental lease obligations are included in
calculation of the general obligation debt limit), 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 Large Company Growth Fund, 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 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
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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 Large Company Growth Fund, the
Small Company Growth Fund and the International Equity Fund will write call
options only if they are "covered" and may buy call options. In the case of a
call option on a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount as are held
in a segregated account by its custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if
the Fund maintains with its custodian cash or cash equivalents equal to the
contract value. A call option is also covered if the Fund holds a call on the
same security or index as the call written where the exercise price of the call
held is (i) equal to or less than the exercise price of the call written, or
(ii) greater than the exercise price of the call written provided the difference
is maintained by the Fund in cash or cash equivalents in a segregated account
with its custodian.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options which the Funds will not
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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 the Sub-Adviser, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for those options. The premium
received by a Fund for writing covered call options will be recorded as a
liability in a Fund's statement of assets and liabilities. This liability will
be readjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of a Fund
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price (or, with respect to the International Equity Fund,
the mean between the last bid and asked prices). The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in the closing transaction, or delivery of the underlying security upon the
exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
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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 and South Carolina Funds may acquire "puts"
with respect to Tax-Exempt Obligations held in their portfolios and the Funds of
Funds may acquire puts with respect to the securities in their portfolios. 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 and South Carolina Funds and
the Funds of Funds to facilitate the liquidity of their portfolio assets or to
shorten the maturity of underlying assets. Puts may also be used to facilitate
the reinvestment of assets at a rate of return more favorable than that of the
underlying security.
The North Carolina and South Carolina Funds 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 and South Carolina Funds 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.
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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 Large Company Growth Fund,
the Small Company Growth Fund, the International Equity Fund, and the Funds of
Funds may invest in futures contracts and options thereon (interest rate futures
contracts or index futures contracts, as applicable). Positions in futures
contracts may be closed out only on an exchange which provides a secondary
market for such futures. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Thus, it may not be possible to close a futures position. In the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by the Funds is also subject to an adviser's
or sub-adviser's ability to correctly predict movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, a Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have approximately
equal
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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 brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
to impossible to liquidate existing positions or to recover excess variation
margin payments.
Investment Restrictions
Except as provided otherwise, the following investment restrictions may
be changed with respect to a particular Fund only by a vote of a majority of the
outstanding Shares of that Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectus).
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None of the Funds of the Group (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 Large Company Growth Fund,
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,
South Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund, Balanced
Fund, Large Company Growth 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, South Carolina Fund, Short-Intermediate Fund,
Intermediate Bond Fund, Balanced Fund, Large Company Growth Fund, Small Company
Growth Fund, and the International Equity Fund may purchase securities of a
money market fund, including securities of the U.S. Treasury Fund and the Prime
Money Market Fund; (ii) the North Carolina and South Carolina Funds may purchase
securities of a money market fund which invests primarily in high quality
short-term obligations exempt from federal income tax, if, with respect to the
Fund, immediately after such purchase, the acquiring Fund does not own in the
aggregate (a) more than 3% of the acquired company's outstanding voting
securities, (b) securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the acquiring Fund, or
(c) securities issued by the acquired company and all other investment companies
(other than Treasury stock of the acquiring Fund) having an aggregate value in
excess of 10% of the value of the acquiring Fund's total assets; (iii) the Large
Company Growth Fund, 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 Large Company
Growth Fund, 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.
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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, South 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 and
South Carolina Funds 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.
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 financial services 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
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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:
None of the Funds may:
1. Enter into a repurchase agreement deemed to have 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:
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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 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.
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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 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
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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, South Carolina
Fund, Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Large
Company Growth Fund, Small Company Growth Fund, and the Funds of Funds
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair market value in BB&T's (or PNC Bank's, with respect to the
Small Company Growth Fund) best judgment under procedures established by, and
under the supervision of the Group's Board of Trustees. The Funds of Funds will
value their investments in mutual funds securities at the redemption price,
which is net asset value.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair market value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Group under the
general supervision of the Group's Board of Trustees. Several pricing services
are available, one or more of which may be used by BB&T, PNC Bank, and
CastleInternational from time to time.
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Investments in debt securities with remaining maturities of 60 days or
less may be valued based upon the amortized cost method.
Valuation of the International Equity Fund
Valuation of securities of foreign issuers and those held by the
International Equity Fund is as follows: to the extent sale prices are
available, securities which are traded on a recognized stock exchange, whether
U.S. or foreign, are valued at the latest sale price on that exchange prior to
the time when assets are valued or prior to the close of regular trading hours
on the NYSE. In the event that there are no sales, the means between the last
available bid and asked prices will be used. If a security is traded on more
than one exchange, the latest sale price on the exchange where the stock is
primarily traded is used. An option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time). In the event that application of these methods of valuation
results in a price for a security which is deemed not to be representative of
the market value of such security, the security will be valued by, under the
direction of or in accordance with a method specified by the Board of Trustees
as reflecting fair value. The amortized cost method of valuation will be used
with respect to debt obligations with sixty days or less remaining to maturity
unless the investment adviser and/or sub-adviser under the supervision of the
Board of Trustees determines such method does not represent fair value. All
other assets and securities held by the Fund (including restricted securities)
are valued at fair value as determined in good faith by the Board of Trustees or
by someone under its direction. Any assets which are denominated in a foreign
currency are translated into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
As discussed above, the International Equity Fund may use a pricing
service or market/dealer experienced in such matters to value the Fund's
securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares in each of the Group's Funds are sold on a
continuous basis by BISYS Fund Services ("BISYS"). In addition to purchasing
Shares directly from BISYS, Class A, Class B or Trust Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at BB&T, or BB&T's affiliated or
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correspondent banks. Customers purchasing Shares of the Group may include
officers, directors, or employees of BB&T or BB&T's affiliated or correspondent
banks.
Purchase of Class A and Class B Shares
As stated in the Class A and Class B Prospectus, the public offering
price of Class A Shares of the Growth and Income Fund, North Carolina Fund,
South Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund, Balanced
Fund, Large Company Growth 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 (other than the Prime Money Market ,
Short-Intermediate, North Carolina and South Carolina Funds) are sold at their
net asset value per share, as next computed after an order is received. However,
as discussed in the Class A and Class B Prospectus, the Class B Shares are
subject to a Contingent Deferred Sales Charge if they are redeemed prior to the
sixth anniversary of purchase. Shareholders obtaining Class B Shares of the U.S.
Treasury Fund upon an exchange of Class B Shares of any other Fund, will be
requested to participate in the Auto Exchange Program in such a way that their
Class B Shares have been withdrawn from the U.S. Treasury Fund within two years
of purchase.
Certain sales of Class A Shares are made without a sales charge, as
described in the Class A and Class B Prospectus under the caption "Sales Charge
Waivers," to promote goodwill with employees and others with whom BISYS, BB&T
and/or the Group have business relationships, and because the sales effort, if
any, involved in making such sales is negligible.
As the Group's principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the Group to dealers. BISYS re-allows the
applicable sales charge as dealer discounts and brokerage commissions. Dealer
allowances expressed as a percentage of offering price for all offering prices
are set forth in the Class A and Class B Prospectus (see "How to Purchase and
Redeem Shares"). From time to time, BISYS will make expense reimbursements for
special training of a dealer's registered representatives in group meetings or
to help pay the expenses of sales contests. Neither BISYS nor dealers are
permitted to delay the placement of orders to benefit themselves by a price
change.
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Matters Affecting Redemption
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists as
a result of which (i) disposal by the Group of securities owned by it is not
reasonably practical or (ii) it is not reasonably practical for the Company to
determine the fair market value of its total net assets.
The Group may redeem any class of Shares involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
See "Valuation of the Money Market Funds" above.
ADDITIONAL TAX INFORMATION
It is the policy of each of the Group's Funds to qualify for the
favorable tax treatment accorded regulated investment companies under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). By following
such policy, each of the Group's Funds expects to eliminate or reduce to a
nominal amount the federal income taxes to which such Fund may be subject.
In order to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, a Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale of stock,
securities, and foreign currencies, or other income (including but not limited
to gains from options, futures, or forward contracts) derived with respect to
its business of investing in such stock, securities, or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of certain
assets (including stocks and securities) held for less than three months; (c)
each year distribute at least 90% of its dividend, interest (including
tax-exempt interest), and certain other income and the excess, if any, of its
net short-term capital gains over its net long-term capital losses; and (d)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of its assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited in respect of any one issuer to a value not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the U.S. Government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses. The 30% of gross income test described above may
restrict a Fund's ability to sell certain assets held (or considered under Code
rules
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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 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.
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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" (a "RIC") and to be relieved of all or substantially all Federal income
taxes, depending upon the extent of their activities in states and localities in
which their offices are maintained, in which their agents or independent
contractors are located, or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or localities.
If for any taxable year a Fund does not qualify for the special Federal tax
treatment afforded a RIC, all of its taxable income will be subject to Federal
income tax at regular corporate rates at the Fund level (without any deduction
for distributions to its Shareholders). In addition, distributions to
Shareholders will be taxed as ordinary income even if the distributions are
attributable to capital gains or exempt interest earned by the Fund.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the Group's Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of a Fund or its Shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Additional Tax Information Concerning the International Equity Fund
Special rules govern the Federal income tax treatment of the portfolio
transactions of the International Equity Fund that are denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, certain preferred stock); (ii) the
accruing of certain trade receivables and payables; (iii) the entering into or
acquisition of any forward contract or similar financial instruments; and (iv)
the entering into or acquisition of any futures contract, option or similar
financial instrument, if such instrument is not marked-to-market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer also is
treated as a transaction subject to the special currency rules. With respect to
such transactions, foreign currency gain or loss is calculated separately from
any gain or loss on the underlying transaction and is normally taxable as
ordinary gain or loss. A taxpayer may elect to treat as
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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 "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. "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, any gain or loss with respect to the
contract shall be treated as short-term capital gain or loss, to the extent of
40% of such gain or loss, and long-term capital gain or loss, to the extent of
60% of such gain or loss. Otherwise, such gain or loss will be ordinary in
nature. To receive such Federal income tax treatment, a foreign currency
contract must meet the following conditions: (1) the contract must require
delivery of a foreign currency of a type in which regulated futures contracts
are traded or upon which the settlement value of the contract depends; (2) the
contract must be entered into at arm's length at a price determined by reference
to the price in the interbank market; and (3) the contract must be traded in the
interbank market. The Treasury Department has broad authority to issue
regulations under these provisions respecting foreign currency contracts. As of
the date of this Statement of Additional Information the Treasury has not issued
any such regulations. Forward foreign currency contracts entered into by the
International Equity Fund also may result in the creation of one or more
straddles for Federal income tax purposes, in which case certain loss deferral,
short sales, and wash sales rules and requirements to capitalize interest and
carrying charges may apply.
Additional Tax Information Concerning the North Carolina and South Carolina
Funds
As indicated in the Prospectuses, the North Carolina and South Carolina
Funds are designed to provide North Carolina and South Carolina Shareholders,
respectively, with current tax-exempt interest income. The Funds are not
intended to constitute a balanced investment program and are not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the North
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Carolina and South Carolina Funds 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 and South Carolina Funds being tax-exempt, and such dividends
would be ultimately taxable to the beneficiaries when distributed to them.
In addition, the North Carolina and South Carolina Funds may not be
appropriate investments for Shareholders who are "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business, and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds represent more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities, or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related person"
includes certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its shareholders. Each Shareholder who
may be considered a "substantial user" should consult a tax adviser with respect
to whether exempt-interest dividends would retain the exclusion under Section
103 of the Code if the Shareholder were treated as a "substantial user" or a
"related person."
The Code permits a RIC which invests at least 50% of its total assets
in Tax-Exempt Obligations to pass through to its investors, tax-free, net
Tax-Exempt Obligations interest income. The policy of the North Carolina and
South Carolina Funds 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 and South Carolina Funds 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 and
South Carolina Funds, respectively, during such year, regardless of the period
for which the Shares were held.
While the North Carolina and South Carolina Funds do not expect to
realize any significant amount of long-term capital gains, any net realized
long-term capital gains will be distributed annually. The North Carolina and
South Carolina Funds will have no tax liability with respect to such distributed
gains, and the distributions will be taxable to Shareholders as long-term
capital gains, regardless of how long a Shareholder has held the Shares of the
North Carolina or South Carolina Funds. Such distributions will be designated as
a capital gains dividend in a written notice mailed by the North Carolina and
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South Carolina Funds to their respective Shareholders within sixty days after
the close of each Fund's taxable year.
Distributions of exempt-interest dividends, to the extent attributable to
interest on North Carolina and South Carolina Tax-Exempt Obligations and to
interest on direct obligations of the United States (including territories
thereof), are not subject to North Carolina or South Carolina (respectively)
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 or
South 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.
Distributions of gains attributable to obligations of the State of South
Carolina are subject to South Carolina individual and corporate income tax.
While the North Carolina and South Carolina Funds do not expect to earn
any significant amount of investment company taxable income, taxable income
earned by the North Carolina and South Carolina Funds will be distributed to
their respective Shareholders. In general, the investment company taxable income
will be the taxable income of each 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 Funds may acquire puts with
respect to Tax-Exempt Obligations held in the portfolios. See "INVESTMENT
OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the North
Carolina and South Carolina Funds 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 and South Carolina Funds could acquire under the 1940 Act.
Therefore, although the North Carolina and South Carolina Funds will only
acquire a put after concluding that such put will have the tax consequences
described above, the Internal Revenue Service could reach a different conclusion
from that of the North Carolina and South Carolina Funds. If the North Carolina
or South Carolina Funds were not treated as the owners of the Tax-Exempt
Obligations, income from such securities would probably not be tax exempt.
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The foregoing is only a summary of some of the important Federal tax
considerations generally affecting purchasers of Shares of the North Carolina
and South Carolina Funds. No attempt has been made to present a detailed
explanation of the Federal or state income tax treatment of the North Carolina
and South Carolina Funds or their Shareholders and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
purchasers of Shares of the North Carolina and South Carolina Funds 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
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increases in the personal and corporate income tax rates, as well as increases
in the tax on cigarettes and alcohol, among other items.
Fiscal year 1992 ended with a positive fund balance of approximately
$164.8 million. By law, $41.2 million of such positive fund balance was required
to be reserved in the General Fund of North Carolina as part of a "Savings
Reserve," leaving an unrestricted General Fund balance at June 30, 1992 of
$123.6 million. Fiscal year 1993 ended with a positive General Fund balance of
approximately $537.3 million. Of this amount, $134.3 million was reserved in the
Savings Reserve and $57 million was reserved in a Reserve for Repair and
Renovation of State Facilities, leaving an unrestricted General Fund balance at
June 30, 1993 of $346 million. Fiscal year 1994 ended with a positive General
Fund balance of approximately $444.7 million. An additional $178 million was
available from a reserved fund balance. Of this aggregate amount, $155.7 million
was reserved in the Savings Reserve (bringing the total reserve to $210.6
million after prior withdrawals) and $60 million was reserved in the Reserve for
Repair and Renovation of State Facilities (bringing the total reserve to $60
million after prior withdrawals), leaving an unrestricted General Fund balance
at June 30, 1994 of $407 million.
Fiscal year 1995 ended with a positive General Fund balance of
approximately $343.4 million. An additional $269.9 million was available from a
reserved fund balance. Of this aggregate amount, $146.3 million was reserved in
the Savings Reserve (bringing the total reserve to $423.6 million after prior
contributions) and $146.3 million was reserved in the Reserve for Repair and
Renovation of State Facilities (bringing the total reserve to $146.3 million
after prior withdrawals), leaving an unrestricted General Fund balance at June
30, 1995 of $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.
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The 1995-97 biennium budget adopted by the General Assembly authorized
continuation funding from the General Fund of $9,512 million for fiscal 1996 and
$9,763 million for fiscal 1997. Expansion funds of $280 million for fiscal 1996
were approved, along with capital improvements of $114 million for such fiscal
year. For fiscal 1997, $267 million of expansion funds were approved, along with
$157 million of capital improvements. Tax reductions of approximately $363
million for fiscal 1996 and $400 million for fiscal 1997 were authorized,
principally through the repeal of North Carolina's intangible personal property
tax and reductions in North Carolina's unemployment and personal income taxes.
The General Assembly also took several measures that benefitted North Carolina's
Department of Corrections, including a reservation of $33 million to build new
prison beds. State workers generally received a 2% pay increase. The General
Assembly also passed a package of tort reform bills that included a cap on
punitive damage awards.
In the 1996 Special Session, the General Assembly reviewed and adjusted
the fiscal 1997 budget to take into account a General Fund surplus of over $700
million for the 1996 fiscal year. The General Assembly agreed to spend
approximately $415.4 million on new or expanded programs, apply approximately
$143 million to tax cuts and refunds, and reserve approximately $100 million in
various savings and other reserve accounts. Funding for education and salaries
for teachers and other state employees was increased. 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
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states in non-agricultural employment and eighth in manufacturing employment.
The Commission estimated North Carolina's seasonally adjusted unemployment rate
in August 1996 to be 4.1% of the labor force, as compared with an unemployment
rate of 5.1% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds - Federal
Retirees. In Davis v. Michigan (1989), the United States Supreme Court ruled
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
North Carolina law contained similar exemptions in favor of state and local
retirees. Those exemptions were repealed prospectively, beginning with the 1989
tax year. All public pension and retirement benefits are now entitled to a
$4,000 annual exclusion.
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
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Federal pensioners in the original Federal court case in Swanson. In the new
lawsuit, the plaintiffs allege that when the State granted an increase in
retirement benefits to State retirees in the same legislation that equalized tax
treatment between state and Federal retirees, the increased benefits to State
retirees constituted an indirect violation of Davis. The lawsuit seeks a refund
of taxes paid by Federal retirees on Federal retirement benefits received in the
years 1989 through 1993 and refunds or monetary relief sufficient to equalize
the alleged on-going discriminatory treatment for those years. Potential refunds
exceed $300 million. This case has been suspended pending final judgment in
Bailey (discussed below), and no court date has been set. The North Carolina
Attorney General believes that sound legal authority and arguments support the
denial of this claim.
2. Bailey v. State of North Carolina -- State Tax Refunds - State
Retirees. State and local governmental retirees filed a class action suit in
1990 as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the North
Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to comply
with state law requirements for challenging unconstitutional taxes and the
United States Supreme Court denied review. In 1992, many of the same plaintiffs
filed a new lawsuit alleging essentially the same claims, including breach of
contract, unconstitutional 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
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ruling was to increase collections by rendering all stock taxable on 100% of its
value. The North Carolina Supreme Court reversed the Court of Appeals and held
that the tax was valid and constitutional. The United States Supreme Court
reversed, ruled in the plaintiff's favor that the tax was discriminatory, and
ordered the case back to the State Court for a ruling on the appropriate remedy.
It is anticipated that the State Court will order the State of North Carolina to
pay refunds aggregating between $130 million and $140 million, including
interest, although other alternative remedies are possible. In April 1995, the
North Carolina General Assembly repealed North Carolina's intangible personal
property tax, effective for taxable years beginning on or after January 1, 1995.
On November 2, 1993, a total of $740 million general obligation bonds
(consisting of $310 million University Improvement Bonds, $250 million Community
College Bonds, $145 million Clean Water Bonds, and $35 million State Parks
Bonds) were approved by the voters of the State. Pursuant to this authorization,
the State issued $400 million general obligation bonds (Capital Improvement
Bonds) in January, 1994. The proceeds of these Capital Improvement Bonds may be
used for any purpose for which the proceeds of the University Improvement Bonds,
Community College Bonds, and State Parks Bonds may be used (none of such
proceeds may be used for Clean Water purposes). An additional $60 million
general 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.
Special Considerations Regarding Investment in South Carolina Tax-Exempt
Obligations
The concentration of investments in South Carolina Tax-Exempt
Obligations by the South Carolina Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
South Carolina and its political subdivisions, agencies, instrumentalities, and
authorities could adversely affect the value of the South Carolina Fund and it
portfolio securities. This section briefly describes current economic trends in
South Carolina. The information set forth below is derived from official
statements prepared in connection with the issuance of South Carolina Tax-Exempt
Obligations and other sources that are generally available to investors. The
Group has not independently verified this information.
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The South Carolina Constitution requires the General Assembly to
provide a balanced budget and requires that if a deficit arises, such deficit
must be provided for in the succeeding fiscal year. The State Constitution also
provides that the State Budget and Control Board may, if a deficit appears
likely, effect such reductions in appropriations as may be necessary to prevent
a deficit. In the November 1984 general election the electorate approved a
constitutional amendment providing that annual increases in State appropriations
may not exceed the average growth rate of the economy of the State and that the
annual increases in the number of State employees may not exceed the average
growth of the population of the State. The State Constitution also establishes a
General Reserve Fund to be maintained in an amount equal to 4% of General Fund
revenue for the latest fiscal year. Despite the efforts of the State Budget and
Control Board, deficits were experienced in the fiscal years ending June 30,
1981, 1982, 1985 and 1986. All such deficits have been funded out of the General
Reserve Fund. For the fiscal years ending June 30, 1983 and 1984, the State had
cash surpluses.
In the November 1988 general election the electorate approved a
constitutional amendment reducing from 4% to 3% the amount of General Fund
revenue which must be kept in the General Reserve Fund and removing the
provisions requiring a special vote to adjust this percentage. The amendment
also created a Capital Reserve Fund equal to 2% of General Fund revenue. Before
March 1 of each year, the Capital Reserve Fund must be used to offset mid-year
budget reductions before mandating cuts in operating appropriations, and after
March 1, the Capital Reserve Fund may be appropriated by a special vote in
separate legislation by the General Assembly to finance in cash previously
authorized capital improvement bond projects, retire bond principal or interest
on bonds previously issued, and for capital improvements or other nonrecurring
purposes which must be ranked in order of priority of expenditure. Monies in the
Capital Reserve Fund not appropriated or any appropriation for a particular
project or item which has been reduced due to application of the monies to
year-end deficit, must go back to the General Fund.
For the fiscal year ended June 30, 1989, the State had a surplus of
$129,788,135. At June 30, 1989, the balance in the General Fund was $87,999,428.
Because of anticipated revenue shortfalls for the fiscal year
1989-1990, the State Budget and Control Board committed $42.4 million of the
$58.7 million Capital Reserve Fund in April 1990. Lack of sufficient funding at
year-end resulted in an additional use of $4.5 million from the Capital Reserve
Fund. After the above reductions, the State had a fiscal year 1989-90 surplus of
$13,159,892 which was used to fund supplemental appropriations at $1,325,000 and
the Capital Reserve Fund at $11,834,892. At June 30, 1990, the balance in the
General Reserve Fund was $94,114,351.
During fiscal year 1990-1991, the State Budget and Control Board
approved mid-year budget changes in November 1990 and again in February 1991, to
offset lower
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revenue estimates. Those changes included committing the Capital Reserve Fund
appropriation and reducing agency appropriations in an additional amount
necessary to offset (together with automatic expenditure reductions that are
tied to revenue levels) what would otherwise be a projected deficit of
approximately $132.6 million. In May 1991, the Budget and Control Board,
responding to April revenue figures and unofficial estimates indicating an
additional shortfall of $30 to $50 million, ordered an immediate freeze on all
personnel activities, from hiring to promotions; a freeze on purchasing, with
limited exceptions; and an indefinite halt to new contracts and contract
renewals. The Board also asked the General Assembly for the power to furlough
government workers periodically during the next fiscal year.
In the past, the State's budgetary accounting principles allowed
revenue to be recorded only when the State received the related cash. On July
30, 1991, the Budget and Control Board approved a change in this principle for
sales tax revenue beginning with the fiscal year ended June 30, 1991. The
Board's resolution requires that sales taxes collected by merchants in June and
received by the State in July be reported as revenue in June rather than in
July. This change resulted in a $5.2 million decrease in reported 1990-1991
sales tax revenue and a one-time $83.1 million addition to fund balance. The
one-time adjustment increases the Fund balance to the level it would be if the
new principle had been in effect in years before 1990-1991. Following such
action, the year-end balance in the General Reserve Fund was $33.4 million.
On July 26, 1991, the Board of Economic Advisors advised the Budget and
Control Board that it projected a revenue shortfall of $148 million for the
fiscal year 1991-1992 budget of $3.581 billion. In response, the Budget and
Control Board eliminated the 2% Capital Reserve Fund appropriation of $65.9
million and reduced other expenditures across the board by 3%. On February 10,
1992, the Board of Economic Advisers advised the Budget and Control Board that
it had revised its estimate of revenues for the current fiscal year downward by
an additional $55 million. At its February 11, 1992 meeting, the Budget and
Control Board responded by imposing an additional 1% across the board reduction
of expenditures (except with respect to approximately $10 million for certain
agencies). At its February 13, 1992 meeting, the Budget and Control Board
restored a portion of the 1% reduction to four education-related agencies
totalling approximately $5.7 million. These expenditure reduction measures, when
coupled with revenue increases projected by the Budget and Control Board,
resulted in an estimated balance of approximately $1.4 million in the General
Fund for the fiscal year 1991-1992. Despite such actions, expenditures exceeded
revenues by $38.2 million and, as required by the South Carolina Constitution,
such amount was withdrawn from the General Reserve Fund to cover the shortfall.
On August 22, 1992, the Budget and Control Board adopted a plan to
reduce appropriations under the 1992 Appropriations Act because of revenue
shortfall projections of approximately $200 million for the 1992-1993 fiscal
year. These reductions
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were based on the rate of growth in each agency's budget over the past year. On
September 15, 1992, the Supreme Court of South Carolina enjoined the Budget and
Control Board from implementing its proposed plan for budget reductions on the
grounds that the Board had authority to make budget reductions only across the
board based on total appropriations. In response to this decision, the Board
instituted a 4% across the board reduction. On November 10, 1992, the Budget and
Control Board permanently reduced the $88.1 million in appropriations which were
set aside on September 15, 1992. This action along with improved actual revenue
collections created a budgetary surplus of approximately $101 million.
The State had budgetary surpluses for the fiscal years ended June 30,
1994 ($217.48 million), 1995 ($392.68 million) and 1996 ($316.7 million). During
those fiscal years, the General Assembly authorized supplemental appropriations
contingent upon the existence of sufficient year-end surpluses ($165.2 million
in 1993-94, $227.1 million in 1994-95 and $324.0 million in 1995-96). However,
in Fiscal Year ended June 30, 1996, the actual surplus fell short of projections
and $87.8 million of supplemental appropriations could not be funded. In Fiscal
Years when the actual surpluses exceeded the supplemental appropriations, the
surplus funds were applied to (i) fund items appropriated from Capital Reserve
monies, (ii) maintain full funding of the General Reserve; (iii) property
tax relief; and (iv) such other purposes as directed by the General Assembly.
The State of South Carolina has not defaulted on its bonded debt since
1879, as noted above. However, the State did experience certain budgeting
difficulties over several recent fiscal years through June 30, 1993, resulting
in mid-year cutbacks in funding of state agencies in those years. Such
difficulties have not to date impacted on the State's ability to pay its
indebtedness but did result in Standard & Poor's Rating Service lowering its
rating on South Carolina general obligation bonds from AAA to AA+ on January 29,
1993. South Carolina's general obligation bonds are rated Aaa by Moody's
Investor's Services, Inc. In addition, with the State's economy improving since
January 1993, the State regained its AAA rating from Standard & Poor's Rating
Service on July 9, 1996. Such ratings apply only to the general obligation
bonded indebtedness of the State, and do not apply to bonds issued by political
subdivisions or to revenue bonds not backed by the full faith and credit of the
State. There can be no assurance that the economic conditions on which the
above ratings are based will continue or that particular bond issues may not be
adversely affected by changes in economic or political conditions.
South Carolina is primarily a manufacturing state. In 1996, 21.8% of
all jobs in the State were in the manufacturing industry, compared to 15.3%
nationally. While the textile industry is still the major industrial employer in
the State, since 1950 the State's economy has undergone a gradual transition.
The economic base of the State has diversified as the trade and service sectors
developed and with the added development of the durable goods manufacturing
industries.
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Personal income in South Carolina grew four and seven-tenths percent
(4.7%) during 1996 compared to income growth of five and four-tenths percent
(5.4%) nationwide and five and six-tenths percent (5.6%) in the Southeast. Over
the last five (5) years (1991-1996) personal income in South Carolina rose at a
compounded annual rate of six and one-tenth percent (6.1%), falling short of
the annual income growth for the Southeast region, at six and eight-tenths
percent (6.80%), and outpacing the five and nine-tenths percent (5.90%) growth
in the United States in the same period.
Through May 1997, the State's economy has added 23,500 jobs compared to
31,800 jobs in the same period in 1996, employment in the State increased one
and four-tenths percent (1.4%) while the rate of employment growth in the United
States was two and one-tenth percent (2.1%). Except for January and February
when the unemployment rates in the State were lower than the national rates,
monthly unemployment rates in the State were above national rates during 1996.
The unemployment rate for May 1997, the latest month available for South
Carolina was [the same as] the nation's rate at four and eight-tenths percent
(4.8%).
Special Factors Affecting the South Carolina Tax-Exempt Series
The State of South Carolina has the power to issue general obligation
bonds based on the full faith and credit of the State. Political subdivisions
are also empowered to issue general obligation bonds, which are backed only by
the full faith and credit of that political subdivision, and not by the
resources of the State of South Carolina or any other political subdivision.
Political subdivisions are empowered to levy ad valorem property taxes on real
property and certain personal property to raise funds for the payment of general
obligation bonds. General obligation debt may be incurred only for a public
purpose which is also a corporate purpose of the applicable political
subdivision.
Under Article X of the Constitution of the State of South Carolina, the
State may issue general obligation debt without either a referendum or a
supermajority of the General Assembly, within limits defined by reference to
anticipated sources of revenue for bonds issued for particular purposes. A
referendum or supermajority of the General Assembly may authorize additional
general obligation debt. Article X further requires the levy and collection of
an ad valorem tax if debt service payments on general obligation debt are not
made. Under Article X of the Constitution of the State of South Carolina,
political subdivisions are empowered to issue aggregate general obligation
indebtedness up to 8% of the assessed value of all taxable property within the
political subdivision (exclusive of debt incurred before the effective date of
Article X with respect to such subdivisions) without a referendum. A referendum
may authorize additional general obligation debt. The ordinance or resolution
authorizing bonded debt of a political subdivision also directs the levy and
collection of ad valorem taxes to pay the debt. In addition, Article X of the
South Carolina Constitution provides for withholding by the State Treasurer of
any state appropriations to a political subdivision which has failed to make
punctual payment of general obligation bonds. Such withheld appropriations, to
the extent available, shall be
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applied to the bonded debt. Political subdivisions are not generally authorized
to assess income taxes, or to pledge any form of tax other than ad valorem
property taxes, for the payment of general obligation bonds. Certain political
subdivisions have been authorized to impose a limited-duration 1% sales tax to
defray the debt service on general obligation bonds.
Industrial development bonds and other forms of revenue bonds issued by
the State or a political subdivision are not secured by the full faith and
credit of the State or the issuing entity. Such bonds are payable only from
revenues derived from a specific facility or revenue source.
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>
George R. Landreth Treasurer From December, 1992 to present, employee of
BISYS Fund Services; from July, 1991 to
December, 1992, employee of PNC Financial
Corp.; from October, 1984 to July, 1991,
employee of The Central Trust Co., N.A.
Richard B. Ille President and From July 1990 to present, employee of BISYS
Secretary Fund Services; from May 1989 to July 1990,
employee of BISYS Fund Services Ohio, Inc.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee, BISYS
Fund Services; from May 1989 - June 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</TABLE>
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<PAGE> 244
<TABLE>
<S> <C> <C>
Steven G. Mintos Vice President From January, 1987 to present, employee and
Limited Partner of BISYS Fund Services; from
1988 to present, Vice President of BISYS
Fund Services Ohio, Inc., in 1986, Vice
President of BISYS Fund Services Ohio, Inc.
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.
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<PAGE> 245
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(2) 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 and Mr. Kelly
resigned from the Board on March 30, 1997.
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
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majority of the outstanding Shares of that Fund (as defined under "GENERAL
INFORMATION - Miscellaneous"). The Advisory Agreement is terminable as to a
particular Fund at any time upon 60 days written notice without penalty by the
Trustees, by vote of the holders of a majority of the outstanding Shares of that
Fund, or by BB&T. The Advisory Agreement also terminates automatically in the
event of any assignment, as defined in the 1940 Act.
For the fiscal year ended September 30, 1996, the Funds paid the
following investment advisory fees to BB&T: U.S. Treasury Fund: $731,113;
Short-Intermediate U.S. Government Fund: $288,263 (which is $57,944 less than
the maximum amount of advisory fees, if charged); Intermediate U.S. Government
Fund: $531,655 (which is $106,977 less than the maximum amount of advisory fees,
if charged); Growth and Income Stock Fund $1,005,731 (which is $484,272 less
than the maximum amount of advisory fees, if charged); North Carolina Tax-Free
Fund: $179,367 (which is $35,889 less than the maximum amount of advisory fees,
if charged); Balanced Fund: $371,267 (which is $178,695 less than the maximum
amount of advisory fees, if charged) and Small Company Growth Fund: $307,915
(which is $796 less than the maximum amount of advisory fees, if charged). The
Funds of Funds, the International Equity Fund, the South Carolina Fund, the
Large Company Growth 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 , the International Equity Fund, the South Carolina Fund, the
Large Company Growth Fund, and the Prime Money Market 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
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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).
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
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INFORMATION - Miscellaneous"). The Sub-Advisory Agreement is terminable at any
time without penalty, on 60 days' written notice by the Trustees, by vote of the
holders of a majority of the outstanding Shares of the Fund, by
CastleInternational, or by BB&T. The Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
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 April 30, 1997 between BB&T and
PIMC.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September, 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 each Sub-Adviser
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, South Carolina Fund, Short-Intermediate Fund, Intermediate Bond
Fund, Large Company Growth 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-
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counter market are generally principal transactions with dealers. With respect
to the over-the-counter market, the Group, where possible, will deal directly
with dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere. While
BB&T and each Sub-Adviser generally seek 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 each Sub-Adviser 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 each
Sub-Adviser and does not reduce the advisory fees payable to BB&T or each
Sub-Adviser. Such information may be useful to BB&T or each Sub-Adviser in
serving both the Group and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to BB&T or each Sub-Adviser 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, neither BB&T nor the Sub-Advisers
will execute portfolio transactions on behalf of the Funds through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with BB&T, a Sub-Adviser, BISYS Fund
Services, or their affiliates, and will not give preference to BB&T's or PNC
Bank's correspondents with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
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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 or any Sub-Adviser. Any such other investment company or account
may also invest in the same securities as the Group. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund and
another Fund of the Group, investment company or account, the transaction will
be averaged as to price and available investments will be allocated as to amount
in a manner which BB&T or the Sub-Adviser 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 or the Sub-Adviser 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 or the Sub-Adviser 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 or a Sub-Adviser or their parents,
subsidiaries, or affiliates, and, in dealing with their customers, BB&T or a
Sub-Adviser 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 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.
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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
and the Sub-Adviser 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 or any Sub-Adviser 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, CastleInternational, 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 and the Prime Money Market
Fund, to maintain office facilities for the Group, to maintain the Group's
financial accounts and records, and to furnish the Group statistical and
research data and certain bookkeeping services, and certain other services
required by the Group. The Administrator prepares annual and semi-annual reports
to the Securities and Exchange Commission, prepares Federal and state tax
returns, prepares filings with state securities commissions, and generally
assists in supervising all aspects of the Group's operations (other than those
performed by BB&T under the Advisory
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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, the South
Carolina Fund, the Large Company Growth 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 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.
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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 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
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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 Re-Executed Distribution Plan was approved on
February 7, 1997. The Distribution Plan provides for fees only upon the Class A
and Class B Shares of each Fund.
On October 1, 1993, The Winsbury Company (now known as BISYS Fund
Services) and its affiliated companies, including The Winsbury Service
Corporation (now known as BISYS Fund Services Ohio, Inc.), were acquired by the
BISYS Group, Inc., a publicly held company which is a provider of information
processing, loan servicing and 401(k) administration and record-keeping services
to and through banking and other financial organizations.
The Distribution Agreement is the successor to the previous
distribution agreement, which terminated automatically by its terms upon
consummation of the acquisition of Winsbury by The BISYS Group, Inc. The
Distribution Agreement was unanimously approved by the Board of Trustees of the
Group, and is materially identical to the terminated distribution agreement.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plan may be amended by vote of the
Fund's Board of Trustees, including a majority of the Independent Trustees, cast
in person at a meeting called for such purpose, except that any change in the
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of the holders of that Fund's Class A
and Class B Shares. The Group's Board of Trustees will review on a quarterly and
annual basis written reports of the amounts received and expended under the
Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plan) indicating the purposes for which such expenditures
were made.
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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 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
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"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 March 31, 1997, the yield and effective yield of
the U.S. Treasury Fund calculated as described above was 4.41% and 4.54%,
respectively. With respect to Trust Shares, for the seven-day period ended March
31, 1997, the yield and effective yield of the U.S. Treasury Fund calculated as
described above was 4.64% and 4.75%, respectively. With respect to the Class B
Shares, for the seven-day period ended March 31, 1997, the yield and effective
yield of the U.S. Treasury Fund calculated as described above was 3.64% and
3.71%.
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, South
Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund,
Large Company Growth Fund, Small Company Growth Fund, International Equity Fund,
and the Funds of Funds will be computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by the maximum
offering price per share (reduced by any undeclared earned income expected to be
paid shortly as a dividend) on the last trading day of that period, according to
the following formula:
a-b
30-Day Yield = 2[( ----- +1)6-1]
cd
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
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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 and South Carolina Funds may also advertise a "tax
equivalent yield" and a "tax equivalent effective yield." Tax equivalent yield
will be computed by dividing that portion of the North Carolina and South
Carolina Funds' yield which is tax-exempt by the difference between one and a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt. The tax equivalent effective yield for
the North Carolina and South Carolina Funds is computed by dividing that portion
of the effective yield of the North Carolina and South Carolina Funds 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 March 31, 1997, the yields of the Funds were as
follows: Short-Intermediate Fund -- 5.16% (with maximum sales load) and 5.27%
(with no sales load); Intermediate Bond -- 5.39% (with maximum sales load) and
5.65% (with no sales load); North Carolina Fund -- 3.68% (with maximum sales
load) and 3.76% (with no sales load); and Balanced Fund -- 3.41% (with maximum
sales load) and 3.58% (with no sales load). With respect to Class A Shares, the
tax-equivalent yield for the North Carolina Fund for the same period was 6.09%
(with maximum sales load) and 6.23% (with no sales load).
With respect to Class B Shares for the 30-day period ended March 31,
1997, the yields of the Funds were as follows: Intermediate Bond -- 4.89% and
Balanced Fund -- 2.80%.
With respect to Trust Shares, for the 30-day period ended March 31,
1997, the yields of each of the Funds (with no sales load) were as follows:
Short-Intermediate Fund -- 5.16%; Intermediate Bond Fund -- 5.90%; North
Carolina Fund -- 3.91%; and Balanced Fund -- 3.83%. With respect to Trust
Shares, the tax-equivalent yield for the North Carolina Fund for the
same period was 6.47%.
There is no yield information available for the Funds of Funds , the
South Carolina Fund and the Large Company Growth Fund which had not commenced
operations as of the date of this Statement of Additional Information.
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Investors in the Growth and Income Fund, North Carolina Fund, South
Carolina Fund, Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund,
Large Company Growth 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 March 31, 1997, 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 1.55%, -1.78%, 13.26%, .66%, 5.40% and -11.77%, 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 3.62%,
2.85%, 18.56%, 2.75%, 4.39%, 10.39% and -7.61%, respectively.
With respect to Trust Shares, for the one-year period ended March 31,
1997, 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 3.88%, 3.22%, 18.81%, 2.90%, 4.62%, 10.78% and -7.29%,
respectively. The Funds of Funds, the South Carolina Fund and the Large Company
Growth Fund had not commenced operations as of March 31, 1997.
With respect to Class B Shares, for the one-year period ended March 31,
1997, average annual total returns (with maximum sales load) for the
Intermediate Bond, Growth and Income, Balanced, Small Company Growth and
U.S. Treasury Funds were -1.57%, 13.57%, 5.65%, -12.14%, and 3.58%
respectively. For the same period, average annual total returns (without sales
load) for the Intermediate Bond, Growth and Income,
B-55
<PAGE> 259
U.S. Treasury, Balanced and Small Company Growth Funds were 2.29%, 17.57%,
- -1.39%, 9.66% and -8,48%, 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
March 31, 1997, average annual total returns (with maximum sales load) for the
Short-Intermediate, Intermediate Bond, Growth and Income, North Carolina,
Balanced, Small Company Growth and International Equity Funds were 4.16%, 3.91%,
14.37%, 3.32%, 8.57%, 20.29% and -1.29%, 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,
Small Company Growth and International Equity Funds were 4.64%, 4.97%, 15.54%,
3.78%, 3.75%, 9.91%, 22.70%, and 3.35%, respectively.
With respect to Trust Shares, for the period since commencement of
operations of each of the Funds through March 31, 1997, 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 4.89%,
5.25%, 15.84%, 3.91%, 3.97%, 10.13% and 23.06%, respectively. The Funds of
Funds, the South Carolina Fund and the Large Company Growth Fund had not
commenced operations as of March 31, 1997.
With respect to Class B Shares, for the period since commencement of
operations of each of the Funds through March 31, 1997, average annual total
returns (with maximum sales load) for the Intermediate Bond, Growth and Income,
Balanced, Small Company Growth and International Equity Funds were -4.28%,
14.20%, 5.34%, .28%, .20%, and -1.74%, respectively. For the same period,
average annual total returns (without sales load) for the Intermediate Bond,
Growth and Income, U.S. Treasury, Balanced, Small Company Growth, and
International Equity Funds were -1.28%, 17.30%, 3.48%, 8.49%, 3.39%, and 3.27%
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 , the South Carolina Fund or the Large Company Growth 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-56
<PAGE> 260
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-57
<PAGE> 261
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 and South Carolina
Funds, 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 and South Carolina Funds, 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-58
<PAGE> 262
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ...... TAX-EXEMPT YIELDS ......
INCOME MARGINAL MARGINAL MARGINAL
(1997) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$12,751 TO
$24,650 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$24,651 TO
$59,750 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$59,751 TO
$60,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$60,001 TO
$124,650 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$124,651 TO
$271,050 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$271,050 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-59
<PAGE> 263
<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% 6.00% 6.50% 7.00%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$21,251 TO
$41,200 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$41,201 TO
$99,600 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$99,601 TO
$100,000 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$100,001 TO
$151,750 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$151,751 TO
$271,050 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$271,050 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-60
<PAGE> 264
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. ...... TAX-EXEMPT YIELDS ......
INCOME MARGINAL MARGINAL MARGINAL
(1997) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2250 15.00% 2.50% 17.12% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$225 TO
$4500 15.00% 3.00% 17.15% 3.62% 4.22% 4.83% 5.43% 6.04% 6.64% 7.24% 7.85% 8.45%
FROM
$4501 TO
$6750 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
FROM
$6751 TO
$9000 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$9000 TO
$11,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$11,251 TO
$24,650 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$24,651 TO
$59,750 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$59,751 TO
$60,000 31.00% 7.00% 35.83% 4.53% 5.29% 6.05% 6.80% 7.56% 8.31% 9.07% 9.82% 10.58%
FROM
$124,651 TO
$271,050 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.56% 8.40% 9.24% 10.08% 10.92% 11.76%
OVER
$271,050 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
</TABLE>
B-61
<PAGE> 265
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARRIED FILING JOINTLY COMBINED
SAMPLE SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. ...... TAX-EXEMPT YIELDS ......
INCOME MARGINAL MARGINAL MARGINAL
(1997) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2250 15.00% 2.50% 17.12% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$2251 TO
$4500 15.00% 3.00% 17.15% 3.62% 4.22% 4.83% 5.43% 6.04% 6.64% 7.24% 7.85% 8.45%
FROM
$4501 TO
$6750 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
FROM
$6751 TO
$9000 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$9000 TO
$11,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$11,251 TO
$41,200 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$41,201 TO
$99,600 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$99,601 TO
$151,750 31.00% 7.00% 35.83% 4.53% 5.29% 6.05% 6.80% 7.56% 8.31% 9.07% 9.82% 10.58%
FROM
$151,751 TO
$271,050 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.50% 8.40% 9.24% 10.08% 10.92% 11.76%
OVER
$271,050 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
</TABLE>
B-62
<PAGE> 266
The "combined Federal and N.C. Marginal Tax Rate" represents the
combined federal and North Carolina and South 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 and South
Carolina Funds. Actual performance of the Funds 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 eleven 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, South Carolina Fund,
Short-Intermediate Fund, Intermediate Bond Fund, Balanced Fund, Large Company
Growth 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.
B-63
<PAGE> 267
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the Group and its Shares," shares of the
Group are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, shares shall be voted by individual
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
B-64
<PAGE> 268
the financial services industry or the mutual fund industry, (3) describes past
or anticipated portfolio holdings for one or more of the Funds within the Group,
or (4) describes investment management strategies for such Funds. Such
information is provided to inform Shareholders of the activities of the Group
for the most recent fiscal year or half-year and to provide the 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 June 5, 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. 16,331,281.700 59.13%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
Joseph Riddle III and 2,005,531.720 7.26%
George Armstrong
Trust Joseph P. Riddle III
and Carolyn R. Armstrong
and Sharlene R. Williams
Revocable Insurance Trust
</TABLE>
B-65
<PAGE> 269
P.O. Box 53646
Fayetteville, N.C. 28305
U.S. Treasury Money Market Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch 155,343,454.320 79.93%
Cash
Attn: J. Michael Pollock
P.O. Box 2887
Wilson, NC 27894-1847
Benefit Service Corporation 14,669,311.230 7.62%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309-0000
Branch Banking & Trust Co. 27,070,517.680 13.41%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
<CAPTION>
U.S. Treasury Money Market Fund - Class B Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Branch Banking & Trust Co., 93,052.790 5.29%
Custodian
Robert A. Robertson
Rollover IRA
1001 Areheart St.
West Columbia, SC 29169
</TABLE>
B-66
<PAGE> 270
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. 74,639.014 13.10%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
Stephens, Inc. 74,177.028 13.02%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
<CAPTION>
Short Intermediate U.S. Government Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 7,977,379.158 78.47%
P.O. Box 2887
Wilson, NC 27894-2887
Hometown Bank Co. 545,593.860 5.37%
c/o BB&T
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 909,342.367 8.95%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
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<PAGE> 271
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. 78,413.380 17.13%
For the Exclusive Benefit of
Our Customers
111 Center Street
Little Rock, AR 72201
Federated Bank Trust Agent 53,806.089 11.75%
Agnt For BB&T Trustee
FBO World Acceptance Corp.
Attn: Trust OPS
P.O. Box 418
Pittsburgh, PA 15230-0418
<CAPTION>
Intermediate U.S. Government Bond Fund - Trust Shares
Percentage Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 6,736,134.689 48.56%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 4,136,095.138 29.82%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 774,139.764 5.58%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 744,774.983 5.37%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-68
<PAGE> 272
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>
Indiraben D. Patel 5,335.117 9.66%
P.O. Box 95
Siler City, NC 27344
NC Foundation Seed Producers 2,983.876 5.40%
8220 Riley Hill Rd.
Zebulon, NC 27597
L.J. Inc. 5,520.996 9.99%
Attn: Keith Coffer
220 Stoneridge Dr., Suite 405
Columbia, SC 29210
Branch Banking & Trust Co., 3,904.866 7.07%
Custodian
Eleanor G. Major
IRA Rollover
P.O. Box 125 105 S Academy
Varnville, SC 29944
Melvin Speight 4,315.679 7.81%
4607 Lauressie Ln
Grifton, NC 28530
<CAPTION>
Growth and Income Stock Fund - Class A Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 252,473.642 15.56%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
</TABLE>
B-69
<PAGE> 273
<TABLE>
<S> <C> <C> <C>
Federated Bank Trust Agent 91,809.411 5.66%
Agnt for BB&T Trustee
FBO World Acceptance Corp
Attn: Trust Ops.
P.O. Box 418
Pittsburgh, PA 15230-0418
<CAPTION>
Growth and Income Stock Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 5,772,820.293 38.52%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 5,693,239.278 37.99%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 1,049,284.372 7.00%
Agnt BB&T Savings and
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309
CAP Co. 961,269.536 6.41%
P.O. Box 2887
Wilson, NC 27894-2887
<CAPTION>
North Carolina Intermediate Tax-Free Fund - Class A Shares
Percent Owed
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Helen H. Hendricks 56,886.557 6.24%
277 Beechwood Dr.
Mocksville, NC 27028
</TABLE>
B-70
<PAGE> 274
<TABLE>
<S> <C> <C> <C>
Stephens, Inc. 187,151.556 20.53%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
<CAPTION>
North Carolina Intermediate Tax-Free Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch 6,167,119.650 100%
P.O. Box 2887
Wilson, NC 27894-2887
<CAPTION>
Balanced Fund - Class A Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 368,988.548 30.77%
For the Exclusive Benefit
of Our Customers
111 Center Street
Little Rock, AR 72201
<CAPTION>
Balanced Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 701,790.577 11.64%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 3,362,771.946 55.78%
P.O. Box 2887
</TABLE>
B-71
<PAGE> 275
<TABLE>
<S> <C> <C> <C>
Wilson, NC 27894-2887
</TABLE>
B-72
<PAGE> 276
<TABLE>
<S> <C> <C> <C>
Branch Banking & Trust Co. 879,541.653 14.59%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit Serv/
Ops Manager
434 Fayetteville St., 4th Floor
Raleigh, NC 27601-1767
<CAPTION>
Small Company Growth Fund - Class A Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens Inc. 56,260.100 11.28%
For The Exclusive Benefit
Of Our Customers
111 Center St.
Little Rock, AR 72201
<CAPTION>
Small Company Growth Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 746,393.955 33.27%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 548,966.274 26.47%
P.O. Box 2887
Wilson, NC 27894-2887
Benefit Service Corporation 250,632.847 11.17%
Agnt BB & T Savings &
</TABLE>
B-73
<PAGE> 277
<TABLE>
<S> <C> <C> <C>
Thrift Plan
1375 Peachtree St., Suite 300
Atlanta, GA 30309-0000
</TABLE>
B-74
<PAGE> 278
<TABLE>
<S> <C> <C> <C>
Branch Banking & Trust Co. 200,376.952 8.93%
FBO Daily Recordkeeping Plans
Attn: Corp Employee Benefit
Serv/Ops Mgr
434 Fayetteville St., 4th Floor
Raleigh, N.C. 27601-1767
CAP Co. 268,888.864 11.98%
P.O. Box 2887
Wilson, NC 27894-2887
<CAPTION>
International Equity Fund - Class A Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Stephens, Inc. 3,056.212 10.06%
For The Exclusive Benefit
of Our Customers
P.O. Box 34127
Little Rock, AR 72203
<CAPTION>
International Equity Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Wilbranch Co. 2,112,269.335 49.64%
P.O. Box 2887
Wilson, NC 27894-2887
CAP Co. 283,212.971 6.66%
P.O. Box 2887
Wilson, NC 27894-2887
Wilbranch Co. 1,730,048.338 40.66%
P.O. Box 2887
Wilson, NC 27894-2887
</TABLE>
B-75
<PAGE> 279
International Equity Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
Danny E. Evans 2,718.327 5.89%
201 Muriel Hooks Dr.
Goldsboro, NC 27530
Lloyde C. Holman 2,477.701 5.37%
and Brenda B. Holman
JTWROS
1006 Cardinal Drive
Wilson, NC 27893
<CAPTION>
Prime Money Market Fund - Class A Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
BISYS Fund Services 10.000 100%
Ohio, Inc.
Attn: Fund Admin and Regulatory
Services
3435 Stelzer Road
Columbus, Ohio 43219
<CAPTION>
Prime Money Market - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
BISYS Fund Services 10.000 100%
Ohio, Inc.
Attn: Fund Admin and Regulatory
Services
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
B-76
<PAGE> 280
Capital Management Conservative Growth - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
BISYS Fund Services 100.000 100%
Ohio, Inc.
Attn: Fund Admin and Regulatory
Services
3435 Stelzer Road
Columbus, Ohio 43219
<CAPTION>
Capital Management Moderate Growth Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
BISYS Fund Services 100.000 100%
Ohio, Inc.
Attn: Fund Admin and Regulatory
Services
3435 Stelzer Road
Columbus, Ohio 43219
<CAPTION>
Capital Management Growth Fund - Trust Shares
Percent Owned
Name and Address Total Shares Record Only Beneficially
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
BISYS Fund Services 100.000 100%
Ohio, Inc.
Attn: Fund Admin and Regulatory
Services
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
B-77
<PAGE> 281
As of June 5, 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 98.4%, 99.2%, 99.6%, 98.9%, 98.4%, 99.3%, 99.3%, and 100%
of the Trust Shares of the U.S. Treasury, Short-Intermediate, North Carolina,
Growth and Income, Intermediate Bond, Balanced, Small Company Growth and
International Equity 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 June 5, 1997, Stephens Inc., For the Exclusive Benefit of Our
Customers, 111 Center Street, Little Rock, AR 72201: record owner with respect
to 59.13% and 30.77% 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 these Funds.
The Prospectuses of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee.
The Prospectuses of the Funds and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectuses of the Funds and this Statement of
Additional Information.
B-78
<PAGE> 282
FINANCIAL STATEMENTS
Independent Auditors Report
Audited Financial Statements as of September 30, 1996, and unaudited financial
statements as of March 31, 1997 are incorporated by reference to the Annual and
Semi-Annual Reports to Shareholders, dated as of such dates, which have been
previously sent to Shareholders of each Fund pursuant to the 1940 Act and
previously filed with the Securities and Exchange Commission. A copy of each
such report may be obtained without charge by contacting the Distributor at 3435
Stelzer Road, Columbus, Ohio 43219 or by telephoning toll-free at (800)
228-1872.
B-79
<PAGE> 283
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-80
<PAGE> 284
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-81
<PAGE> 285
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-82
<PAGE> 286
-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-83
<PAGE> 287
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):
Duff1+ 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-84
<PAGE> 288
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-85
<PAGE> 289
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-86
<PAGE> 290
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-87
<PAGE> 291
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-INTERMEDIATE INTERMEDIATE NORTH CAROLINA
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT INTERMEDIATE
FUND INCOME FUND BOND FUND TAX-FREE FUND
------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value ................................... $ 126,872,282 $ 100,617,426 $ 130,604,369 $ 72,387,046
Repurchase agreements, at cost .......................... 99,365,617 -- -- --
------------- ------------- ------------- -------------
Total Investments (Amortized cost $226,237,899;
cost $102,434,473; $134,149,391; and
$71,656,694, respectively)............................ 226,237,899 100,617,426 130,604,369 72,387,046
Cash .................................................... 500 -- -- --
Interest receivable ..................................... 36,481 1,572,273 1,940,902 1,027,341
Receivable for capital shares issued .................... 9,857 -- 3,457 --
Prepaid expenses and other .............................. 42,647 5,794 13,940 3,977
------------- ------------- ------------- -------------
Total Assets ................................. 226,327,384 102,195,493 132,562,668 73,418,364
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable ....................................... 846,380 514,133 652,395 258,350
Payable for capital shares redeemed ..................... 58,733 1,102 269 1,018
Payable for investments purchased ....................... -- -- -- 966,650
Accrued expenses and other payables:
Investment advisory fees .......................... 75,933 43,314 56,506 30,703
Administration fees ............................... 7,384 3,341 4,344 1,772
Distribution fees--Class A ........................ 4,793 1,206 951 1,154
Distribution fees--Class B ........................ 1,275 -- 409 --
Accounting and transfer agent fees ................ 9,588 9,652 12,811 9,015
Other ............................................. 24,618 7,537 14,310 19,536
------------- ------------- ------------- -------------
Total Liabilities ............................ 1,028,704 580,285 741,995 1,288,198
------------- ------------- ------------- -------------
NET ASSETS:
Capital ................................................. 225,298,431 104,683,152 137,238,927 71,518,210
Undistributed net investment income ..................... -- -- 5,718 --
Net unrealized appreciation (depreciation) on
investments .......................................... -- (1,817,047) (3,545,022) 730,352
Accumulated undistributed net realized gains
(losses) on investment transactions .................. 249 (1,250,897) (1,878,950) (118,396)
------------- ------------- ------------- -------------
Net Assets ................................... $ 225,298,680 $ 101,615,208 $ 131,820,673 $ 72,130,166
============= ============= ============= =============
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 292
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-INTERMEDIATE INTERMEDIATE NORTH CAROLINA
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT INTERMEDIATE
FUND INCOME FUND BOND FUND TAX-FREE FUND
------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Net Assets
Class A ........................................... $ 27,959,484 $ 5,595,207 $ 4,455,686 $ 9,084,646
Class B ........................................... 1,450,043 -- 493,631 --
Trust Class ....................................... 195,889,153 96,020,001 126,871,356 63,045,520
------------ ------------ ------------ ------------
Total ........................................ $225,298,680 $101,615,208 $131,820,673 $ 72,130,166
============ ============ ============ ============
Outstanding units of beneficial interest (shares)
Class A ........................................... 27,959,539 581,477 469,300 906,759
Class B ........................................... 1,450,042 -- 52,155 --
Trust Class ....................................... 195,888,937 9,972,312 13,345,503 6,290,619
------------ ------------ ------------ ------------
Total ........................................ 225,298,518 10,553,789 13,866,958 7,197,378
============ ============ ============ ============
Net asset value
Class A--redemption price per share ............... $ 1.00 $ 9.62 $ 9.49 $ 10.02
Class B--offering price per share* ................ $ 1.00 -- $ 9.46 --
Trust Class--offering and redemption price
per share ....................................... $ 1.00 $ 9.63 $ 9.51 $ 10.02
============ ============ ============ ============
Maximum Sales Charge (Class A) .......................... 2.00% 4.50% 2.00%
============ ============ ============
Maximum Offering Price (100%/(100%-Maximum
Sales Charge) of net asset value adjusted to
nearest cent) per share--Class A $ 1.00(a) $ 9.82 $ 9.94 $ 10.22
============ ============ ============ ============
</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
[LOGO OF BB&T APPEARS HERE]
<PAGE> 293
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND SMALL COMPANY INTERNATIONAL
INCOME STOCK BALANCED GROWTH EQUITY
FUND FUND FUND FUND
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value ..................................... $ 277,846,665 $ 88,350,047 $ 48,128,276 $ 39,791,496
--------------- -------------- -------------- --------------
Total Investments (Cost $211,195,679; $78,066,246;
$45,120,976; and $39,199,981, respectively) ............ 277,846,665 88,350,047 48,128,276 39,791,496
Cash ...................................................... -- -- 3,739 499,866
Interest and dividends receivable ......................... 495,177 777,383 1,769 70,055
Receivable for capital shares issued ...................... 5,894 -- 7,368 --
Receivable for investments sold ........................... -- -- 204,761 --
Foreign currency (Cost $1,396,665) ........................ -- -- -- 1,409,541
Prepaid expense and other ................................. 21,092 9,356 5,793 2,119
--------------- -------------- -------------- --------------
Total Assets ................................... 278,368,828 89,136,786 48,351,706 41,773,077
--------------- -------------- -------------- --------------
LIABILITIES:
Dividends payable ......................................... 324,055 290,748 -- 109,170
Payable for capital shares redeemed ....................... 3,197 5,991 21,961 --
Payable for investments purchased ......................... 149,040 -- 2,073,326 1,486,735
Accrued expenses and other payables:
Investment advisory fees ............................ 122,963 38,890 40,832 32,130
Administration fees ................................. 9,376 2,975 1,555 1,303
Distribution fees--Class A .......................... 5,496 3,023 1,711 34
Distribution fees--Class B .......................... 6,976 3,351 3,996 169
Accounting and transfer agent fees .................. 19,849 22,889 20,273 17,621
Other ............................................... 17,493 8,939 11,615 34,195
--------------- -------------- -------------- --------------
Total Liabilities .............................. 658,445 376,806 2,175,269 1,681,357
--------------- -------------- -------------- --------------
NET ASSETS:
Capital ................................................... 199,775,237 78,323,316 44,365,327 39,262,712
Undistributed net investment loss ......................... -- -- (685,092) (117,516)
Net unrealized appreciation (depreciation) on investments . 66,650,986 10,283,801 3,007,300 587,997
Accumulated undistributed net realized gains (losses)
on investment transactions and from foreign currency
transactions ........................................... 11,284,160 152,863 (511,098) 358,527
--------------- -------------- -------------- --------------
Net Assets ..................................... $ 277,710,383 $ 88,759,980 $ 46,176,437 $ 40,091,720
=============== ============== ============== ==============
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 294
STATEMENTS OF ASSETS AND LIABILITIES, Continued
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND SMALL COMPANY INTERNATIONAL
INCOME STOCK BALANCED GROWTH EQUITY
FUND FUND FUND FUND
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Assets
Class A .................................................. $ 25,289,683 $ 13,920,771 $ 7,672,591 $ 184,071
Class B .................................................. 8,355,832 4,006,670 4,630,952 237,329
Trust Class .............................................. 244,064,868 70,832,539 33,872,894 39,670,320
------------ ------------ ------------ ------------
Total ............................................... $277,710,383 $ 88,759,980 $ 46,176,437 $ 40,091,720
============ ============ ============ ============
Outstanding units of beneficial interest (shares)
Class A .................................................. 1,582,072 1,162,856 478,084 17,851
Class B .................................................. 524,090 336,073 291,756 23,023
Trust Class .............................................. 15,239,246 5,928,831 2,096,294 3,844,622
------------ ------------ ------------ ------------
Total ............................................... 17,345,408 7,427,760 2,866,134 3,885,496
============ ============ ============ ============
Net asset value
Class A--redemption price per share ...................... $ 15.99 $ 11.97 $ 16.05 $ 10.31
Class B--offering price per share* ....................... $ 15.94 $ 11.92 $ 15.87 $ 10.31
Trust Class--offering and redemption price per share ..... $ 16.02 $ 11.95 $ 16.16 $ 10.32
============ ============ ============ ============
Maximum Sales Charge (Class A) ................................. 4.50% 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 .......................................... $ 16.74 $ 12.53 $ 16.81 $ 10.80
============ ============ ============ ============
</TABLE>
- -------------
* Redemption price per share (Class B) varies by length of time shares are
held.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 295
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-INTERMEDIATE INTERMEDIATE NORTH CAROLINA
MONEY MARKET U.S. GOVERNMENT U.S. GOVERNMENT INTERMEDIATE
FUND INCOME FUND BOND FUND TAX-FREE FUND
------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income ............................................. $ 6,067,466 $ 2,757,726 $ 4,290,735 $ 1,225,419
----------- ----------- ----------- -----------
Total Income ..................................... 6,067,466 2,757,726 4,290,735 1,225,419
----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees .................................... 460,072 246,765 387,994 149,605
Administration fees ......................................... 230,036 82,074 129,354 49,868
Distribution fees--Class A .................................. 71,063 15,226 10,546 22,829
Distribution fees--Class B .................................. 7,226 -- 2,092 --
Custodian and accounting fees ............................... 51,797 24,961 37,806 18,430
Legal and audit fees ........................................ 18,663 7,830 9,439 10,512
Trustees' fees and expenses ................................. 4,310 1,268 2,340 932
Transfer agent fees ......................................... 43,148 25,068 37,104 23,208
Registration and filing fees ................................ 18,561 5,580 8,910 2,599
Printing costs .............................................. 19,614 2,547 4,607 1,372
Other ....................................................... 5,312 1,611 2,953 968
----------- ----------- ----------- -----------
Gross Expenses ................................... 929,802 412,930 633,145 280,323
Expenses voluntarily reduced ................................ (42,638) (49,187) (69,801) (53,997)
----------- ----------- ----------- -----------
Total Expenses ................................... 887,164 363,743 563,344 226,326
----------- ----------- ----------- -----------
Net Investment Income ....................................... 5,180,302 2,393,983 3,727,391 999,093
----------- ----------- ----------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment transactions ............... 249 229,586 63,142 6,626
Net change in unrealized appreciation (depreciation) on
investments .............................................. -- (1,271,909) (2,010,742) 624,529
----------- ----------- ----------- -----------
Net realized/unrealized gains (losses) on investments ....... 249 (1,042,323) (1,947,600) 631,155
----------- ----------- ----------- -----------
Change in net assets resulting from operations .............. $ 5,180,551 $ 1,351,660 $ 1,779,791 $ 1,630,248
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 296
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND SMALL COMPANY INTERNATIONAL
INCOME STOCK BALANCED GROWTH EQUITY
FUND FUND FUND FUND
--------------- ------------ -------------- ----------------
FOR THE FOR THE FOR THE FOR THE PERIOD
SIX MONTHS SIX MONTHS SIX MONTHS JANUARY 2, 1997
ENDED ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997 (A)
--------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income ............................................ $ 59,466 $ 1,632,990 $ 185,300 $ --
Dividend income ............................................ 3,447,818 623,996 5,923 161,066
Foreign tax withholding .................................... -- -- -- (14,437)
------------ ------------ ------------ ------------
Total Income .................................... 3,507,284 2,256,986 191,223 146,629
------------ ------------ ------------ ------------
EXPENSES:
Investment advisory fees ................................... 961,066 334,689 249,960 77,218
Administration fees ........................................ 259,479 90,429 49,992 15,443
Distribution fees--Class A ................................. 58,143 33,642 20,416 117
Distribution fees--Class B ................................. 29,763 15,829 21,235 291
Custodian and accounting fees .............................. 56,319 31,218 36,980 37,952
Legal and audit fees ....................................... 20,153 9,388 4,957 3,366
Organization costs ......................................... -- -- 5,402 2,846
Trustees' fees and expenses ................................ 4,322 1,653 986 299
Transfer agent fees ........................................ 73,992 58,074 67,252 17,637
Registration and filing fees ............................... 14,585 5,162 5,302 3,700
Printing costs ............................................. 9,592 3,457 1,776 468
Other ...................................................... 5,226 1,902 1,185 173
------------ ------------ ------------ ------------
Gross expenses .................................. 1,492,640 585,443 465,443 159,510
Expenses voluntarily reduced ............................... (341,488) (125,447) (10,210) (4,535)
------------ ------------ ------------ ------------
Total expenses .................................. 1,151,152 459,996 455,233 154,975
------------ ------------ ------------ ------------
Net Investment Income (Loss) ............................... 2,356,132 1,796,990 (264,010) (8,346)
------------ ------------ ------------ ------------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions ..... 11,763,826 1,038,908 (283,379) 244,479
Net realized gains from foreign currency transactions ...... -- -- -- 114,048
Net change in unrealized appreciation (depreciation)
on investments........................................... 19,084,547 1,734,681 (12,922,647) 591,515
Net change in unrealized (depreciation) from foreign
currency transactions ................................... -- -- -- (3,518)
------------ ------------ ------------ ------------
Net realized/unrealized gains (losses) on investments ...... 30,848,373 2,773,589 (13,206,026) 946,524
------------ ------------ ------------ ------------
Change in net assets resulting from operations ............. $ 33,204,505 $ 4,570,579 $(13,470,036) $ 938,178
============ ============ ============ ============
</TABLE>
- -------------
(a) Period from commencement of operations.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 297
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
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
--------------- ---------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income ............................. $ 5,180,302 $ 8,394,161 $ 2,393,983 $ 3,335,263
Net realized gains (losses) on investment
transactions ...................................... 249 -- 229,586 (162,759)
Net change in unrealized depreciation
on investments .................................... -- -- (1,271,909) (686,269)
--------------- ---------------- --------------- ---------------
Change in net assets resulting from operations ....... 5,180,551 8,394,161 1,351,660 2,486,235
--------------- ---------------- --------------- ---------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income ........................ (616,018) (948,869) (169,839) (371,250)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income ........................ (25,531) (19,543)(a) -- --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income ........................ (4,538,753) (7,425,749) (2,224,144) (2,964,013)
--------------- ---------------- --------------- ---------------
Change in net assets from shareholder distributions .. (5,180,302) (8,394,161) (2,393,983) (3,335,263)
--------------- ---------------- --------------- ---------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ....................... 170,221,410 449,946,776 40,514,247 32,001,311
Dividends reinvested .............................. 1,273,602 1,721,604 747,221 1,448,084
Cost of shares redeemed ........................... (181,407,176) (350,488,723) (7,581,423) (15,729,346)
--------------- ---------------- --------------- ---------------
Change in net assets from share transactions ......... (9,912,164) 101,179,657 33,680,045 17,720,049
--------------- ---------------- --------------- ---------------
Change in net assets ................................. (9,911,915) 101,179,657 32,637,722 16,871,021
NET ASSETS:
Beginning of period ............................... 235,210,595 134,030,938 68,977,486 52,106,465
--------------- ---------------- --------------- ---------------
End of period ..................................... $ 225,298,680 $ 235,210,595 $ 101,615,208 $ 68,977,486
=============== ================ =============== ===============
SHARE TRANSACTIONS:
Issued ............................................ 170,221,410 449,946,776 4,158,711 3,264,121
Reinvested ........................................ 1,273,602 1,721,604 76,343 146,965
Redeemed .......................................... (181,407,089) (350,488,723) (764,883) (1,597,468)
--------------- ---------------- --------------- ---------------
Change in shares ..................................... (9,912,077) 101,179,657 3,470,171 1,813,618
=============== ================ =============== ===============
</TABLE>
- -------------
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 298
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
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
--------------- --------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income .................................. $ 3,727,391 $ 6,313,924 $ 999,093 $ 1,322,554
Net realized gains (losses) on investment transactions.. 63,142 (725,469) 6,626 (47,072)
Net change in unrealized appreciation (depreciation)
on investments ....................................... (2,010,742) (2,757,133) 624,529 (302,527)
--------------- --------------- ------------- -------------
Change in net assets resulting from operations ............ 1,779,791 2,831,322 1,630,248 972,955
--------------- --------------- ------------- -------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income ............................. (118,362) (247,352) (174,273) (322,468)
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income ............................. (10,002) (6,966)(a) -- --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income ............................. (3,599,027) (6,059,606) (824,820) (1,000,086)
--------------- --------------- ------------- -------------
Change in net assets from shareholder distributions ....... (3,727,391) (6,313,924) (999,093) (1,322,554)
--------------- --------------- ------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ............................ 20,868,198 66,845,451 39,948,023 11,820,669
Dividends reinvested ................................... 2,355,848 4,689,472 140,304 268,478
Cost of shares redeemed ................................ (13,100,884) (28,159,031) (6,293,570) (10,843,225)
--------------- --------------- ------------- -------------
Change in net assets from share transactions .............. 10,123,162 43,375,892 33,794,757 1,245,922
--------------- --------------- ------------- -------------
Change in net assets ...................................... 8,175,562 39,893,290 34,425,912 896,323
NET ASSETS:
Beginning of period .................................... 123,645,111 83,751,821 37,704,254 36,807,931
--------------- --------------- ------------- -------------
End of period .......................................... $ 131,820,673 $ 123,645,111 $ 72,130,166 $ 37,704,254
=============== =============== ============= =============
SHARE TRANSACTIONS:
Issued ................................................. 2,143,529 6,757,431 3,950,741 1,171,335
Reinvested ............................................. 241,390 478,491 13,842 26,506
Redeemed ............................................... (1,346,047) (2,876,321) (519,896) (1,071,579)
--------------- --------------- ------------- -------------
Change in shares .......................................... 1,038,872 4,359,601 3,444,687 126,262
=============== =============== ============= =============
</TABLE>
- -------------
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 299
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK BALANCED
FUND FUND
------------------------------------ -------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
-------------- --------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income ................................. $ 2,356,132 $ 4,118,150 $ 1,796,990 $ 2,956,768
Net realized gains on investment transactions ......... 11,763,826 9,428,482 1,038,908 2,206,261
Net change in unrealized appreciation on investments .. 19,084,547 24,542,390 1,734,681 3,503,931
-------------- -------------- ------------- --------------
Change in net assets resulting from operations ........... 33,204,505 38,089,022 4,570,579 8,666,960
-------------- -------------- ------------- --------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income ............................ (186,237) (270,458) (257,440) (421,901)
From net realized gains from investment transactions .. (886,255) (76,748) (398,078) --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income ............................ (28,175) (19,098)(a) (51,419) (39,026)(a)
From net realized gains from investment transactions .. (206,225) -- (88,738) --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income ............................ (2,141,720) (3,828,594) (1,488,131) (2,495,841)
From net realized gains from investment transactions .. (8,604,815) (1,044,981) (2,213,599) --
-------------- -------------- ------------- --------------
Change in net assets from shareholder distributions ...... (12,053,427) (5,239,879) (4,497,405) (2,956,768)
-------------- -------------- ------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ........................... 72,866,830 78,886,812 17,370,756 30,350,061
Dividends reinvested .................................. 7,948,401 3,546,244 3,943,255 2,471,085
Cost of shares redeemed ............................... (53,743,915) (42,239,195) (16,795,800) (13,413,504)
-------------- -------------- ------------- --------------
Change in net assets from share transactions ............. 27,071,316 40,193,861 4,518,211 19,407,642
-------------- -------------- ------------- --------------
Change in net assets ..................................... 48,222,394 73,043,004 4,591,385 25,117,834
NET ASSETS:
Beginning of period ................................... 229,487,989 156,444,985 84,168,595 59,050,761
-------------- -------------- ------------- --------------
End of period ......................................... $ 277,710,383 $ 229,487,989 $ 88,759,980 $ 84,168,595
============== ============== ============= ==============
SHARE TRANSACTIONS:
Issued ................................................ 4,527,570 5,587,933 1,426,573 2,636,434
Reinvested ............................................ 502,752 252,319 326,131 214,800
Redeemed .............................................. (2,644,838) (2,926,808) (1,375,704) (1,159,914)
-------------- -------------- ------------- --------------
Change in shares ......................................... 2,385,484 2,913,444 377,000 1,691,320
============== ============== ============= ==============
</TABLE>
- -------------
(a) From January 1, 1996 (commencement of operations) through September 30,
1996.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 300
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL COMPANY INTERNATIONAL
GROWTH FUND EQUITY FUND
------------------------------ ----------------
FOR THE FOR THE FOR THE PERIOD
SIX MONTHS YEAR JANUARY 2, 1997
ENDED ENDED TO
MARCH 31, SEPTEMBER 30, MARCH 31,
1997 1996 1997(A)
------------ ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss ....................................................... $ (264,010) $ (328,819) $ (8,346)
Net realized gains (losses) on investment transactions .................... (283,379) 90,971 244,479
Net realized gains from foreign currency transactions ..................... -- -- 114,048
Net change in unrealized appreciation (depreciation) on investments ....... (12,922,647) 12,148,737 591,515
Net change in unrealized appreciation from foreign currency transactions... -- -- (3,518)
------------ ------------ ------------
Change in net assets resulting from operations ............................... (13,470,036) 11,910,889 938,178
------------ ------------ ------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net investment income ................................................ -- -- (449)
From net realized gains from investment transactions ...................... (8,888) -- --
DISTRIBUTIONS TO CLASS B SHAREHOLDERS:
From net investment income ................................................ -- -- (381)
From net realized gains from investment transactions ...................... (40,857) -- --
DISTRIBUTIONS TO TRUST CLASS SHAREHOLDERS:
From net investment income ................................................ -- -- (108,340)
From net realized gains from investment transactions ...................... (4,428) -- --
------------ ------------ ------------
Change in net assets from shareholder distributions .......................... (54,173) -- (109,170)
------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ............................................... 25,350,764 22,938,972 39,669,549
Dividends reinvested ...................................................... 40,219 -- --
Cost of shares redeemed ................................................... (12,675,737) (5,922,093) (406,837)
------------ ------------ ------------
Change in net assets from share transactions ................................. 12,715,246 17,016,879 39,262,712
------------ ------------ ------------
Change in net assets ......................................................... (808,963) 28,927,768 40,091,720
NET ASSETS:
Beginning of period ....................................................... 46,985,400 18,057,632 --
------------ ------------ ------------
End of period ............................................................. $ 46,176,437 $ 46,985,400 $ 40,091,720
============ ============ ============
SHARE TRANSACTIONS:
Issued .................................................................... 1,296,974 1,298,090 3,924,919
Reinvested ................................................................ 2,037 -- --
Redeemed .................................................................. (655,209) (315,568) (39,423)
------------ ------------ ------------
Change in shares ............................................................. 643,802 982,522 3,885,496
============ ============ ============
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 301
U.S. TREASURY MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------------- -------------------------------------- ---------------
<S> <C>
U.S. TREASURY BILLS (56.3%):
$ 8,000,000 4/3/97............................... $ 7,997,756
8,000,000 4/10/97.............................. 7,989,940
8,000,000 4/17/97.............................. 7,982,044
8,000,000 5/1/97............................... 7,966,800
8,000,000 5/8/97............................... 7,959,053
8,000,000 5/15/97.............................. 7,951,013
8,000,000 5/22/97.............................. 7,942,823
16,000,000 5/29/97.............................. 15,869,629
8,000,000 6/5/97............................... 7,927,128
8,000,000 6/12/97.............................. 7,919,040
8,000,000 6/26/97.............................. 7,903,011
8,000,000 7/3/97............................... 7,896,048
8,000,000 7/24/97.............................. 7,872,193
8,000,000 8/7/97............................... 7,858,631
8,000,000 8/21/97.............................. 7,837,173
---------------
Total U.S. Treasury Bills 126,872,282
---------------
REPURCHASE AGREEMENTS (44.1%):
$ 40,000,000 FirstBoston, 6.40%, 4/1/97
(Collateralized by 40,000,000
U.S. Treasury Bills, 5.36%,
4/1/97, market value --
$40,803,189)...................... $ 40,000,000
25,000,000 Lehman Brothers, 5.45%, 4/1/97
(Collateralized by 24,910,000
U.S. Treasury Bonds, 7.25%,
8/15/22, market value --
$25,510,945)...................... 25,000,000
34,365,617 NationsBank, 6.38%, 4/1/97
(Collateralized by 24,750,000
U.S. Treasury Bonds, 11.25%,
2/15/15, market value --
$35,158,589)...................... 34,365,617
---------------
Total Repurchase Agreements 99,365,617
---------------
Total (Cost--$226,237,899)(a) $ 226,237,899
===============
</TABLE>
- -----------------
Percentages indicated are based on net assets of $225,298,680.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 302
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- -------------------------------- --------------
<S> <C> <C>
CORPORATE BONDS (4.9%):
Automotive (1.9%):
$ 2,000,000 Ford Motor Credit, 6.38%,
10/6/00..................... $ 1,960,000
Banking (3.0%):
3,000,000 Suntrust Banks, 7.33%, 7/1/02.. 3,022,500
--------------
Total Corporate Bonds 4,982,500
--------------
PASS-THROUGH MORTGAGE SECURITIES (17.7%):
Federal Home Loan Mortgage Corp.:
2,806,310 5.50%, 8/1/00, Pool # M80285... 2,697,566
2,909,695 6.00%, 10/1/00, Pool # G40018.. 2,824,209
3,156,260 6.00%, 11/1/00, Pool # G40168.. 3,026,065
Federal National Mortgage Assoc.:
2,002,666 7.00%, 6/1/08, Pool # 50751.... 1,976,371
2,871,612 7.50%, 12/1/08, Pool # 190611.. 2,891,340
2,510,765 6.00%, 4/1/09, Pool # 190759... 2,373,452
2,295,874 6.50%, 4/1/09, Pool # 250009... 2,220,523
--------------
Total Pass-through Mortgage Securities 18,009,526
--------------
U.S. GOVERNMENT AGENCIES (2.9%):
Federal Home Loan Bank:
$ 3,000,000 6.17%, 3/8/01 ................. $ 2,922,390
--------------
Total U.S. Government Agencies 2,922,390
--------------
U.S. TREASURY NOTES (72.3%):
7,250,000 8.88%, 11/15/97................ 7,378,035
10,000,000 7.25%, 2/15/98................. 10,098,500
8,000,000 8.25%, 7/15/98................. 8,196,880
10,500,000 5.75%, 12/31/98................ 10,394,160
10,500,000 6.50%, 4/30/99................. 10,511,339
8,000,000 8.00%, 8/15/99................. 8,251,760
7,000,000 6.75%, 4/30/00................. 7,020,580
8,000,000 6.38%, 8/15/02................. 7,857,200
4,000,000 5.88%, 11/15/05................ 3,726,520
--------------
Total U.S. Treasury Notes 73,434,974
--------------
INVESTMENT COMPANIES (1.2%):
1,268,036 Provident Federal Fund......... 1,268,036
--------------
Total Investment Companies 1,268,036
--------------
Total (Cost--$102,434,473)(a) $ 100,617,426
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $101,615,208.
(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 .............. $ 119,831
Unrealized depreciation .............. (1,936,878)
------------
Net unrealized depreciation .......... $(1,817,047)
============
</TABLE>
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 303
INTERMEDIATE U.S. GOVERNMENT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- -------------------------------- --------------
<S> <C> <C>
CORPORATE BONDS (6.8%):
Automotive (3.0%):
$ 4,000,000 Ford Motor Credit, 6.38%,
10/6/00..................... $ 3,920,000
Banking (3.8%):
5,000,000 Suntrust Banks, 7.33%, 7/1/02.. 5,037,500
--------------
Total Corporate Bonds 8,957,500
--------------
PASS-THROUGH MORTGAGE SECURITIES (16.5%):
Federal Home Loan Mortgage Corp.:
2,520,418 7.50%, 7/1/07, Pool # E00108... 2,534,583
Federal National Mortgage Assoc.:
5,008,972 6.00%, 6/1/08, Pool # 124885... 4,763,182
3,719,237 7.00%, 6/1/08, Pool # 50751.... 3,670,403
3,511,465 7.00%, 4/1/24, Pool # 250005... 3,369,883
Government National Mortgage Assoc.:
3,546,187 7.50%, 3/15/23, Pool # 342553.. 3,491,859
4,161,452 7.00%, 8/15/23, Pool # 354627.. 3,989,792
--------------
Total Pass-through Mortgage Securities 21,819,702
--------------
U.S. GOVERNMENT AGENCIES (3.9%):
Federal Home Loan Bank:
2,000,000 8.38%, 10/25/99 ............... 2,084,780
3,000,000 7.36%, 7/1/04 ................. 3,051,210
--------------
Total U.S. Government Agencies 5,135,990
--------------
U.S. TREASURY BONDS (7.7%):
$ 3,000,000 12.00%, 5/15/05................ $ 3,932,430
6,000,000 7.50%, 11/15/16................ 6,176,580
--------------
Total U.S. Treasury Bonds 10,109,010
--------------
U.S. TREASURY NOTES (63.1%):
11,000,000 5.00%, 1/31/99................. 10,740,180
10,000,000 6.88%, 7/31/99................. 10,074,300
7,000,000 7.88%, 8/15/01................. 7,293,860
8,000,000 6.38%, 8/15/02................. 7,857,200
12,000,000 6.25%, 2/15/03................. 11,681,520
12,500,000 7.25%, 8/15/04................. 12,754,500
14,000,000 5.88%, 11/15/05................ 13,042,820
10,000,000 6.50%, 10/15/06................ 9,690,100
--------------
Total U.S. Treasury Notes 83,134,480
--------------
INVESTMENT COMPANIES (1.1%):
1,447,687 Provident Federal Fund......... 1,447,687
--------------
Total Investment Companies 1,447,687
--------------
Total (Cost--$134,149,391)(a) $ 130,604,369
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $131,820,673.
(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 ................ $ 312,958
Unrealized depreciation ................ (3,857,980)
------------
Net unrealized depreciation ............ $(3,545,022)
============
</TABLE>
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 304
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ ---------------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
MUNICIPAL BONDS (97.4%):
General Obligation Bonds (87.1%):
$ 1,200,000 Asheville, North Carolina, 6.00%, 3/1/01 .......................................................... $ 1,256,999
500,000 Asheville, North Carolina, 4.80%, 6/1/06 .......................................................... 481,875
470,000 Buncombe County, North Carolina, 5.00%, 3/1/00 .................................................... 477,050
500,000 Buncombe County, North Carolina, 5.00%, 3/1/01 .................................................... 506,875
300,000 Buncombe County, North Carolina, 5.00%, 3/1/02 .................................................... 304,125
500,000 Buncombe County, North Carolina, 5.00%, 3/1/03 .................................................... 504,375
850,000 Buncombe County, North Carolina, 5.10%, 3/1/04 .................................................... 860,625
500,000 Buncombe County, North Carolina, 5.80%, 2/1/05, Callable 2/1/04 @ 100.5*........................... 524,375
1,000,000 Buncombe County, North Carolina, 5.10%, 3/1/07 .................................................... 1,002,500
750,000 Burke County, North Carolina, 6.25%, 3/1/99 ....................................................... 775,313
500,000 Burke County, North Carolina, 6.30%, 3/1/01 ....................................................... 525,625
1,500,000 Cabarus County, North Carolina, 5.30%, 2/1/13, Callable 2/1/07 @ 102*.............................. 1,454,999
500,000 Cary, North Carolina, 5.50%, 2/1/99 ............................................................... 510,625
1,000,000 Cary, North Carolina, 5.50%, 2/1/01 ............................................................... 1,027,500
500,000 Catawba County, North Carolina, 5.70%, 6/1/06, Callable 6/1/04 @ 101*.............................. 521,875
825,000 Charlotte, North Carolina, 6.40%, 2/1/99 .......................................................... 853,875
1,000,000 Charlotte, North Carolina, 6.20%, 6/1/01 .......................................................... 1,054,999
395,000 Charlotte, North Carolina, 5.20%, 7/1/01 .......................................................... 403,888
250,000 Charlotte, North Carolina, 5.25%, 7/1/03, Callable 7/1/02 @ 100.5*................................. 256,875
600,000 Charlotte, North Carolina, 5.70%, 2/1/06, Callable 2/1/04 @ 101*................................... 629,250
1,000,000 Charlotte, North Carolina, 5.30%, 4/1/10, Callable 4/1/05 @ 102*................................... 998,750
500,000 Chatham County, North Carolina, 5.40%, 4/1/11, Callable 4/1/06 @ 102*.............................. 490,000
275,000 Cleveland County, North Carolina, 7.10%, 6/1/99 ................................................... 289,781
600,000 Cleveland County, North Carolina, 5.10%, 6/1/03 ................................................... 602,250
400,000 Concord, North Carolina, 5.10%, 12/1/01 ........................................................... 406,000
1,000,000 Craven County, North Carolina, 5.50%, 6/1/07, Callable 6/1/06 @ 100.5*............................. 1,025,000
500,000 Craven County, North Carolina, 5.50%, 6/1/09, Callable 6/1/06 @ 102................................ 505,625
500,000 Durham & Wake Counties, 5.75%, 4/1/02 ............................................................. 523,750
400,000 Durham County, North Carolina, 5.20%, 3/1/01 ...................................................... 408,000
500,000 Durham County, North Carolina, 5.40%, 2/1/02 ...................................................... 514,375
250,000 Durham County, North Carolina, 5.20%, 3/1/03, Callable 3/1/02 @ 100.5*............................. 255,313
340,000 Durham County, North Carolina, 5.20%, 3/1/05, Callable 3/1/02 @101.50*............................. 345,100
1,000,000 Durham, North Carolina, 4.90%, 2/1/04 ............................................................. 993,750
500,000 Durham, North Carolina, 5.00%, 2/1/05 ............................................................. 496,875
1,000,000 Fayetteville, North Carolina, 4.80%, 5/1/05, Callable 5/1/03 @ 101................................. 972,500
500,000 Fayetteville, North Carolina, 6.50%, 3/1/14, Callable 3/1/00 @ 102*................................ 533,750
1,000,000 Forsyth County, North Carolina, 5.20%, 6/1/02 ..................................................... 1,022,500
500,000 Forsyth County, North Carolina, 5.60%, 8/1/03, Callable 8/1/02 @ 100.5*............................ 521,875
500,000 Forsyth County, North Carolina, 6.20%, 3/1/04, Callable 3/1/01 @ 101.5*............................ 531,875
265,000 Forsyth County, North Carolina, 5.40%, 6/1/04, Callable 6/1/02 @ 101*.............................. 271,956
500,000 Gaston County, North Carolina, 5.00%, 3/1/08, Callable 3/1/06 @ 101................................ 486,250
450,000 Goldsboro, North Carolina, 4.90%, 6/1/99 .......................................................... 453,938
500,000 Goldsboro, North Carolina, 4.90%, 6/1/01 .......................................................... 500,000
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 305
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ ---------------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
General Obligation Bonds, continued:
$ 550,000 Greensboro, North Carolina, 6.00%, 3/1/98 ......................................................... $ 560,313
500,000 Greensboro, North Carolina, 5.40%, 4/1/02 ......................................................... 512,500
1,000,000 Guilford County, North Carolina, 4.80%, 4/1/99 .................................................... 1,007,500
890,000 Henderson County, North Carolina, 6.50%, 6/1/01 ................................................... 942,288
555,000 Hickory, North Carolina, 6.50%, 5/1/99 ............................................................ 577,894
600,000 Hickory, North Carolina, 6.50%, 5/1/01 ............................................................ 635,250
680,000 High Point, North Carolina, 4.40%, 4/1/02 ......................................................... 661,300
500,000 Lee County, North Carolina, 5.50%, 2/1/00 ......................................................... 512,500
250,000 Lee County, North Carolina, 5.60%, 2/1/03, Callable 2/1/01 @ 100.5*................................ 256,875
1,000,000 Lincoln County, North Carolina, 4.70%, 6/1/01 ..................................................... 1,001,250
1,000,000 Lincoln County, North Carolina, 4.80%, 6/1/04 ..................................................... 988,750
700,000 Mecklenburg County, North Carolina, 5.75%, 3/1/03, Callable 3/1/02 @ 100.50*....................... 733,250
1,000,000 Mecklenburg County, North Carolina, 5.40%, 4/1/03 ................................................. 1,034,999
800,000 Mecklenburg County, North Carolina, 4.80%, 3/1/07, Callable 3/1/06 @ 100.5*........................ 784,000
1,000,000 Mecklenburg County, North Carolina, 5.00%, 4/1/08 ................................................. 991,250
1,500,000 Mecklenburg County, North Carolina, 5.50%, 4/1/11, Callable 4/1/04 @ 102*.......................... 1,520,624
500,000 Moore County, North Carolina, 4.75%, 6/1/03 ....................................................... 493,750
500,000 New Hanover County, North Carolina, 4.30%, 1/1/02 ................................................. 488,125
1,000,000 New Hanover County, North Carolina, 4.50%, 9/1/03 ................................................. 972,500
625,000 New Hanover County, North Carolina, 5.30%, 5/1/09, Callable 5/1/06 @ 101.5*........................ 620,313
1,500,000 North Carolina State, 5.75%, 3/1/98 ............................................................... 1,526,969
815,000 North Carolina State, 5.60%, 4/1/00 ............................................................... 840,469
1,000,000 North Carolina State, 4.70%, 2/1/01 ............................................................... 1,001,250
250,000 North Carolina State, 6.10%, 3/1/03, Callable 3/1/02 @ 100.5*...................................... 264,688
1,000,000 North Carolina State, 4.70%, 2/1/06, Callable 2/1/04 @ 101*........................................ 965,000
1,000,000 North Carolina State, 5.10%, 6/1/09, Callable 6/1/06 @ 101.50...................................... 983,750
670,000 Orange County, North Carolina, 5.10%, 6/1/00 ...................................................... 681,725
500,000 Orange County, North Carolina, 5.10%, 6/1/06, Callable 6/1/03 @ 101.5*............................. 498,125
500,000 Orange County, North Carolina, 5.10%, 6/1/07, Callable 6/1/03 @ 102*............................... 496,250
1,000,000 Pitt County, North Carolina, 4.80%, 2/1/00 ........................................................ 1,005,000
965,000 Raleigh, North Carolina, 6.30%, 3/1/99 ............................................................ 1,001,188
500,000 Raleigh, North Carolina, 5.00%, 2/1/08, Callable 2/1/00 @ 102*..................................... 492,500
250,000 Robeson County, North Carolina, 6.25%, 3/1/01, Callable 3/1/98 @ 101.5*............................ 256,703
500,000 Rocky Mount, North Carolina, 6.10%, 5/1/03, Callable 5/1/02 @ 100.5*............................... 525,000
625,000 Rowan County, North Carolina, 5.50%, 4/1/04 ....................................................... 645,313
700,000 Rowan County, North Carolina, 5.50%, 4/1/05 ....................................................... 721,000
225,000 Rowan County, North Carolina, 5.50%, 2/1/07, Callable 2/1/06 @ 100.5*.............................. 231,188
1,000,000 Surry County, North Carolina, 6.25%, 4/1/00 ....................................................... 1,042,499
500,000 Surry County, North Carolina, 6.25%, 4/1/01 ....................................................... 525,000
200,000 Union County, North Carolina, 5.80%, 3/1/05, Callable 3/1/02 @ 101.5*.............................. 207,500
200,000 Wake County, North Carolina, 6.50%, 2/1/00, Callable 2/1/99 @ 100.5*............................... 208,250
500,000 Wake County, North Carolina, 4.40%, 4/1/01 ........................................................ 496,875
1,000,000 Wake County, North Carolina, 4.50%, 4/1/03 ........................................................ 987,500
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 306
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ --------------------------------------------------------------------------------------------------------- ------------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
General Obligation Bonds, continued:
$ 510,000 Wayne County, North Carolina, 4.80%, 4/1/02 ............................................................ $ 504,263
1,000,000 Wayne County, North Carolina, 4.80%, 4/1/03 ............................................................ 991,250
500,000 Wilkes County, North Carolina, 5.00%, 6/1/01 ........................................................... 501,875
500,000 Wilkes County, North Carolina, 5.00%, 6/1/02 ........................................................... 500,000
1,000,000 Wilmington, North Carolina, 4.60%, 3/1/02 .............................................................. 985,000
250,000 Winston Salem, North Carolina, 6.50%, 6/1/98 ........................................................... 256,875
505,000 Winston Salem, North Carolina, 6.50%, 6/1/99 ........................................................... 527,725
200,000 Winston Salem, North Carolina, 6.40%, 6/1/02, Callable 6/1/01 @ 102*.................................... 215,250
350,000 Winston Salem, North Carolina, 6.25%, 4/1/07 , Callable 4/1/02 @ 102*................................... 372,313
------------
62,836,360
------------
Health Care Bonds (9.0%):
650,000 Charlotte Mecklenburg Hospital Revenue, 5.70%, 1/1/01 .................................................. 674,375
500,000 Charlotte Mecklenburg Hospital Revenue, 5.90%, 1/1/02 .................................................. 523,125
300,000 Charlotte-Mecklenburg Hospital Revenue, 6.00%, 1/1/03, Callable 1/1/02 @ 102*........................... 315,750
550,000 North Carolina Medical Care Commission, Presbyterian Health Service Project, 4.90%, 10/1/01 ............ 550,000
250,000 North Carolina Medical Care Commission, Presbyterian Hospital Project, 6.80%, 10/1/99 .................. 263,438
400,000 North Carolina Medical Care Commission, Presbyterian Hospital Services, 5.70%, 10/1/04, Callable
10/01/02 @ 102*...................................................................................... 414,000
600,000 North Carolina Medical Care Commission, Rex Hospital, 4.70%, 6/1/98 .................................... 601,500
1,000,000 North Carolina Medical Care Community Hospital, Wake County Hospital System, 5.00%, 10/1/10 , Callable
10/1/07 @ 102*....................................................................................... 943,750
250,000 North Carolina Medical Care, Carolina Medicorp Project, 5.10%, 5/1/01 .................................. 252,188
1,000,000 Pitt County North Carolina Revenue, Memorial Hospital, 5.50%, 12/1/15 , Callable @ 12/1/05*............. 956,250
1,000,000 University of North Carolina, University Hospital Revenue, 4.75%, 2/15/06 .............................. 966,250
------------
6,460,626
------------
Housing Bonds (0.6%):
280,000 North Carolina Finance Agency, 5.65%, 9/1/02 ........................................................... 289,450
160,000 North Carolina Housing Finance Agency, 6.35%, 9/1/04 , Callable 9/1/02 @ 102*........................... 166,000
------------
455,450
------------
Utility Bonds (0.7%):
500,000 Asheville, North Carolina Water and Sewer Revenue, 5.30%, 8/1/09, Callable 8/1/06 @ 102*................ 500,000
------------
Total Municipal Bonds 70,252,436
------------
INVESTMENT COMPANIES (3.0%):
2,134,611 Compass Capital Funds North Carolina Municipal Money Market Portfolio................................... 2,134,610
------------
Total Investment Companies 2,134,610
------------
Total (Cost--$71,656,694)(a) $ 72,387,046
============
</TABLE>
- ------------
Percentages indicated are based on net assets of $72,130,166.
(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 ................. $ 1,128,214
Unrealized depreciation ................. (397,862)
------------
Net unrealized appreciation ............. $ 730,352
============
</TABLE>
* 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.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 307
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ ---------------------------------- -------------
<S> <C> <C>
COMMON STOCKS (96.2%):
Apparel (1.1%):
46,600 V.F. Corp........................ $ 3,116,375
-------------
Banks (5.8%):
91,800 Barnett Banks, Inc............... 4,268,700
48,350 J. P. Morgan & Co................ 4,750,388
59,500 Old Kent Financial Corp.......... 2,803,938
79,400 Wachovia Corp.................... 4,327,300
-------------
16,150,326
-------------
Beverages (2.0%):
133,400 Anheuser-Busch Co................ 5,619,474
-------------
Business Equipment & Services (2.7%):
86,400 John H. Harland Co............... 2,052,000
91,800 Pitney Bowes, Inc................ 5,393,250
-------------
7,445,250
-------------
Chemicals (3.9%):
77,700 Air Products & Chemicals, Inc.... 5,273,888
22,100 Great Lakes Chemical Corp........ 1,016,600
72,100 Vulcan Materials Co.............. 4,677,488
-------------
10,967,976
-------------
Communications Equipment (2.9%):
96,200 Harris Corp...................... 7,395,374
2,430 Lucent Technologies, Inc......... 562,368
-------------
7,957,742
-------------
Computers (3.4%):
103,000 Hewlett Packard Co............... 5,484,750
17,100 Honeywell, Inc................... 1,160,663
20,700 IBM Corp......................... 2,843,663
-------------
9,489,076
-------------
Construction Materials (0.7%):
38,400 PPG Industries................... 2,073,600
-------------
Containers (1.6%):
123,100 Ball Corp........................ 3,262,150
40,750 Sonoco Products Co............... 1,100,250
-------------
4,362,400
-------------
Defense (1.9%):
62,800 Lockheed Martin Corp............. 5,275,200
-------------
Electrical Equipment (1.7%):
106,800 Emerson Electric................. 4,806,000
-------------
COMMON STOCKS, CONTINUED:
Electronic Components (1.5%):
72,500 Avnet, Inc....................... 4,087,188
-------------
Electronic Instruments (1.1%):
59,300 Tektronix, Inc.(b)............... $ 2,994,650
-------------
Food & Related (3.7%):
138,400 Dean Foods Co.................... 4,792,100
188,700 SUPERVALU, Inc................... 5,613,824
-------------
10,405,924
-------------
Forest & Paper Products (1.8%):
110,900 Weyerhaeuser Co.................. 4,948,913
-------------
Health Care (2.8%):
62,000 Abbott Laboratories.............. 3,479,750
47,900 Glaxo Holdings ADR............... 1,694,463
47,000 Johnson & Johnson................ 2,485,125
-------------
7,659,338
-------------
Household Products (1.8%):
27,250 Unilever NV, New York Shares..... 5,075,313
-------------
Household--Major Appliances (0.8%):
49,200 Whirlpool Corp................... 2,343,150
-------------
Insurance (2.9%):
55,650 Aon Corp......................... 3,408,563
88,300 Lincoln National Corp............ 4,724,050
-------------
8,132,613
-------------
Insurance--Property & Casualty (3.4%):
192,200 SAFECO Corp...................... 7,687,999
27,000 Saint Paul Companies, Inc........ 1,751,625
-------------
9,439,624
-------------
Leisure Time Industry (1.3%):
136,350 Hasbro, Inc...................... 3,732,581
-------------
Manufacturing (1.1%):
69,000 Parker Hannifin Corp............. 2,949,750
-------------
Medical Equipment & Supplies (1.3%):
87,400 Mallinckrodt Inc................. 3,594,325
-------------
Metal Fabrication (1.4%):
123,500 Trinity Industries............... 3,751,313
-------------
Metals (0.9%):
33,500 Phelps Dodge Corp................ 2,449,688
-------------
Motor Vehicles (1.2%):
108,900 Ford Motor Co.................... 3,416,738
-------------
Multiple Industry (1.4%):
84,900 Corning Glass.................... 3,767,438
-------------
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 308
GROWTH AND INCOME STOCK FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------ ---------------------------------- --------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Petroleum (8.7%):
74,200 Ashland, Inc..................... $ 2,986,550
78,200 Chevron Corp., Inc............... 5,444,675
30,600 Mobil Corp....................... 3,997,125
155,200 Phillips Petroleum Co............ 6,343,799
30,650 Royal Dutch Petroleum Co......... 5,363,750
--------------
24,135,899
--------------
Pharmaceuticals (6.2%):
111,600 Bristol Myers Squibb Co.......... 6,584,399
74,100 Rhone-Poulenc Rorer.............. 5,483,400
70,100 Schering Plough Corp............. 5,099,775
--------------
17,167,574
--------------
Photographic Equipment (0.4%):
14,000 Eastman Kodak Co................. 1,062,250
--------------
Publishing (3.6%):
68,000 American Greetings............... 2,171,750
55,000 Houghton Mifflin Co.............. 2,970,000
88,400 Lee Enterprises.................. 2,143,700
93,700 Media General, Inc............... 2,658,738
--------------
9,944,188
--------------
Railroad (0.6%):
33,000 CSX Corp......................... 1,534,500
--------------
Restaurants (0.6%):
130,000 Bob Evans Farms.................. 1,787,500
--------------
Retail (3.7%):
124,000 American Stores Co............... 5,518,000
106,281 Limited, Inc..................... 1,952,913
59,500 May Department Stores Co......... 2,707,250
--------------
10,178,163
--------------
Securities Brokers & Dealers (1.6%):
140,175 AG Edwards....................... 4,310,381
--------------
COMMON STOCKS, CONTINUED:
Tobacco (2.1%):
25,200 Philip Morris Cos., Inc.......... $ 2,875,950
110,600 U.S.T. Inc....................... 3,082,975
--------------
5,958,925
--------------
Trucking & Shipping (0.9%):
91,500 Alexander & Baldwin.............. 2,367,563
--------------
Utilities--Electric (4.4%):
92,700 FPL Group, Inc................... 4,090,388
68,000 Public Service Co. of Colorado... 2,635,000
186,000 Western Resources, Inc........... 5,580,000
--------------
12,305,388
--------------
Utilities--Gas (2.5%):
52,400 Consolidated Natural Gas Co...... 2,639,650
136,800 NICOR, Inc....................... 4,377,600
--------------
7,017,250
--------------
Utilities--Telephone (4.8%):
62,500 AT&T Corp........................ 2,171,875
107,200 SBC Communications Inc........... 5,641,399
123,200 Sprint Corp...................... 5,605,600
--------------
13,418,874
--------------
Total Common Stocks 267,200,420
--------------
U.S. GOVERNMENT AGENCIES (1.8%):
Federal Home Loan Banks:
$ 5,000,000 0.00%, 4/14/97................... 4,989,450
--------------
Total U.S. Government Agencies 4,989,450
--------------
INVESTMENT COMPANIES (2.0%):
5,656,796 Provident Federal Fund........... 5,656,795
--------------
Total Investment Companies 5,656,795
--------------
Total (Cost--$211,195,679)(a) $ 277,846,665
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $277,710,383.
(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 ................ $ 69,489,357
Unrealized depreciation ................ (2,838,371)
-------------
Net unrealized appreciation ............ $ 66,650,986
=============
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 309
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ---------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS (47.5%):
Apparel (0.8%):
10,000 V.F. Corp. ............................ $ 668,750
--------------
Banks (2.7%):
19,000 Banc One Corp. ........................ 755,250
8,000 J. P. Morgan & Co. .................... 786,000
15,400 Wachovia Corp. ........................ 839,300
--------------
2,380,550
--------------
Beverages (1.7%):
20,000 Anheuser-Busch Co. .................... 842,500
20,000 Grand Metropolitan..................... 637,500
--------------
1,480,000
--------------
Business Equipment & Services (1.1%):
10,000 John H. Harland Co. ................... 237,500
13,000 Pitney Bowes, Inc. .................... 763,750
--------------
1,001,250
--------------
Chemicals (1.9%):
8,000 Air Products & Chemicals, Inc. ........ 543,000
7,500 E. I. Dupont de Nemours Co. ........... 795,000
10,000 Monsanto Co. .......................... 382,500
--------------
1,720,500
--------------
Chemicals--Specialty (0.5%):
6,500 Vulcan Materials Co. .................. 421,688
--------------
Communications Equipment (1.3%):
15,000 Harris Corp. .......................... 1,153,125
--------------
Computers (1.9%):
15,000 Hewlett Packard Co. ................... 798,750
15,000 Xerox Corp. ........................... 853,125
--------------
1,651,875
--------------
Construction Materials (0.7%):
12,000 PPG Industries......................... 648,000
--------------
Construction--Engineering (0.5%):
10,000 Ingersol-Rand Co. ..................... 436,250
--------------
Containers (0.3%):
9,000 Sonoco Products Co. ................... 243,000
--------------
Defense (0.9%):
6,700 Lockheed Martin Corp. ................. 562,800
6,000 Raytheon Co. .......................... 270,750
--------------
833,550
--------------
Electrical Equipment (0.5%):
9,000 Emerson Electric....................... 405,000
--------------
COMMON STOCKS, CONTINUED:
Electronic Components (0.9%):
14,200 Avnet, Inc. ........................... $ 800,525
--------------
Electronic Instruments (0.6%):
10,000 Tektronix, Inc.(b)..................... 505,000
--------------
Food & Related (2.5%):
25,000 Dean Foods Co. ........................ 865,625
22,500 Sara Lee Corp. ........................ 911,250
15,000 SUPERVALU, Inc. ....................... 446,250
--------------
2,223,125
--------------
Forest & Paper Products (0.7%):
13,000 Weyerhaeuser Co. ...................... 580,125
--------------
Health Care (2.0%):
20,000 Abbott Laboratories.................... 1,122,500
13,000 Johnson & Johnson...................... 687,375
--------------
1,809,875
--------------
Household Products (0.5%):
2,500 Unilever New York Shares............... 465,625
--------------
Household--Major Appliances (0.5%):
9,000 Whirlpool Corp. ....................... 428,625
--------------
Insurance (3.4%):
14,000 American General Corp. ................ 570,500
18,500 Lincoln National Corp. ................ 989,750
28,000 SAFECO Corp. .......................... 1,120,000
7,500 USLIFE Corp. .......................... 350,625
--------------
3,030,875
--------------
Insurance--Multiline (0.5%):
3,000 Cigna Corp. ........................... 438,375
--------------
Manufacturing (0.5%):
11,000 Parker-Hannifin Corp. ................. 470,250
--------------
Medical Equipment & Supplies (0.6%):
13,000 Mallinckrodt Inc. ..................... 534,625
--------------
Metal Fabrication (0.5%):
15,000 Trinity Industries..................... 455,625
--------------
Motor Vehicles (0.4%):
11,000 Ford Motor Co. ........................ 345,125
--------------
Multiple Industry (0.6%):
12,500 Corning Glass.......................... 554,688
--------------
Petroleum (4.2%):
6,000 Ashland, Inc. ......................... 241,500
4,400 Atlantic Richfield Co. ................ 594,000
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 310
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ---------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Petroleum, continued:
8,000 Chevron Corp. ......................... $ 557,000
5,500 Mobil Corp. ........................... 718,438
28,000 Phillips Petroleum Co. ................ 1,144,500
2,500 Royal Dutch Petroleum Co. ............. 437,500
--------------
3,692,938
--------------
Pharmaceuticals (2.6%):
20,000 Bristol-Myers Squibb Co. .............. 1,180,000
16,000 Schering Plough Corp. ................. 1,164,000
--------------
2,344,000
--------------
Publishing (1.4%):
4,000 Gannett Co., Inc. ..................... 343,500
10,000 Media General, Inc. ................... 283,750
16,000 Tribune Co. ........................... 648,000
--------------
1,275,250
--------------
Railroad (0.5%):
5,500 Norfolk Southern Corp. ................ 468,875
--------------
Retail (2.0%):
15,000 Dayton Hudson Corp. ................... 626,250
7,500 J.C. Penney, Inc. ..................... 357,188
7,000 May Department Stores Co. ............. 318,500
11,300 Rite-Aid(b)............................ 474,600
--------------
1,776,538
--------------
Retail--Apparel (0.6%):
11,000 CVS Corp. ............................. 507,375
--------------
Securities Brokers & Dealers (0.4%):
11,000 AG Edwards............................. 338,250
--------------
Tobacco (0.9%):
7,000 Philip Morris Cos., Inc. .............. 798,875
--------------
Trucking & Shipping (0.2%):
5,500 Alexander & Baldwin.................... 142,313
--------------
Utilities--Electric (1.8%):
11,000 FPL Group, Inc. ....................... 485,375
16,000 Scana Corp. ........................... 406,000
25,000 Western Resources, Inc. ............... 750,000
--------------
1,641,375
--------------
Utilities--Gas (2.2%):
25,000 NICOR, Inc. ........................... 800,000
25,000 Williams Cos., Inc. ................... 1,112,500
--------------
1,912,500
--------------
COMMON STOCKS, CONTINUED:
Utilities--Telephone (1.7%):
6,600 Ameritech Corp. ....................... $ 405,900
4,000 AT&T Corp. ............................ 139,000
22,000 Sprint Corp. .......................... 1,001,000
--------------
1,545,900
--------------
Total Common Stocks 42,130,190
--------------
PASS-THROUGH MORTGAGE SECURITIES (6.8%):
Federal Home Loan Mortgage Corp.:
$ 889,177 7.50%, 7/1/07, Pool # E00108 894,174
Federal National Mortgage Assoc.:
1,339,515 6.50%, 1/1/09, Pool # 50974 .......... 1,295,552
1,530,582 6.50%, 4/1/09, Pool # 250009 .......... 1,480,349
1,414,505 7.00%, 5/1/09, Pool # 250055 .......... 1,395,933
1,019,146 7.00%, 4/1/24, Pool # 250005 .......... 978,054
--------------
Total Pass-through Mortgage Securities 6,044,062
--------------
U.S. GOVERNMENT AGENCIES (2.4%):
Federal National Mortgage Assoc.:
2,221,287 7.50%, 8/1/24, Pool # 250126 .......... 2,183,792
--------------
Total U.S. Government Agencies 2,183,792
--------------
U.S. TREASURY BONDS (6.0%):
1,500,000 11.13%, 8/15/03 ....................... 1,827,180
3,000,000 9.38%, 2/15/06 ....................... 3,484,230
--------------
Total U.S. Treasury Bonds 5,311,410
--------------
U.S. TREASURY NOTES (33.6%):
1,500,000 8.50%, 11/15/00 ....................... 1,586,355
3,500,000 7.75%, 2/15/01 ....................... 3,623,094
2,500,000 7.50%, 11/15/01 ....................... 2,571,550
2,500,000 7.50%, 5/15/02 ....................... 2,578,175
2,500,000 6.38%, 8/15/02 ....................... 2,455,375
2,500,000 6.25%, 2/15/03 ....................... 2,433,650
4,500,000 7.25%, 5/15/04 ....................... 4,594,274
3,000,000 7.88%, 11/15/04 ....................... 3,168,840
4,000,000 7.50%, 2/15/05 ....................... 4,138,399
1,000,000 6.50%, 8/15/05 ....................... 972,280
1,750,000 6.50%, 10/15/06 ....................... 1,695,768
--------------
Total U.S. Treasury Notes 29,817,760
--------------
INVESTMENT COMPANIES (3.2%):
2,862,833 Provident Federal Fund ................ 2,862,833
--------------
Total Investment Companies 2,862,833
--------------
Total (Cost--$78,066,246)(a) $ 88,350,047
==============
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 311
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
- -------------
Percentages indicated are based on net assets of $88,759,980.
(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 ............... $ 11,435,481
Unrealized depreciation ............... (1,151,680)
--------------
Net unrealized appreciation ........... $ 10,283,801
==============
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 312
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------------- --------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS (74.4%):
Advertising (0.1%):
7,400 Leap Group, Inc....................... $ 31,450
--------------
Air Transportation (0.8%):
6,900 Eagle USA Airfreight, Inc............. 212,175
5,900 Expeditor International Washington,
Inc................................ 141,600
--------------
353,775
--------------
Automotive Distribution Services (0.7%):
20,000 Keystone Automotive Industries, Inc... 310,000
--------------
Business Services (3.1%):
10,000 Accustaff, Inc........................ 167,500
16,600 Norrell Corp.......................... 408,775
13,000 Robert Half International, Inc........ 453,375
30,600 Sitel Corp............................ 409,275
--------------
1,438,925
--------------
Commercial Goods & Services (1.6%):
11,450 Apollo Group, Inc..................... 280,525
19,800 Cambridge Technology Partners, Inc.... 457,875
--------------
738,400
--------------
Computer Hardware (2.2%):
14,000 Advanced Digital...................... 178,500
8,400 Apex PC Solutions, Inc................ 71,400
12,700 BTG Inc............................... 222,250
17,280 Network Appliance, Inc................ 561,600
--------------
1,033,750
--------------
Computer Software (11.3%):
20,800 Aspen Technologies, Inc............... 566,800
3,000 Baan Co. NV........................... 133,875
17,000 CBT Group PLC ADR..................... 847,874
9,000 Ciber, Inc............................ 227,250
12,000 Electronics for Imaging, Inc.......... 478,500
8,500 Imnet Systems, Inc.................... 127,500
17,100 Infinity Financial Technology, Inc.... 294,975
13,900 JDA Software Group, Inc............... 283,213
7,900 Manugistics Group, Inc................ 288,350
11,500 National Techteam, Inc.(b)............ 178,250
12,500 Pegasystems, Inc...................... 251,563
18,100 Saville Systems ADR................... 520,375
12,100 Scopus Technology, Inc................ 363,000
COMMON STOCKS, CONTINUED:
Computer Software, continued:
7,800 Smallworldwide PLC-ADR................ $ 126,750
6,700 Template Software, Inc................ 61,138
9,900 Vantive Corp.......................... 202,950
3,100 Veritas Software Corp................. 91,838
13,500 Xionics Document Technologies, Inc.... 170,438
--------------
5,214,639
--------------
Computers (2.5%):
24,400 Comverse Technology, Inc.............. 963,799
7,800 Daou Systems, Inc..................... 52,650
8,000 Ontrack Data International............ 120,000
--------------
1,136,449
--------------
Electrical Equipment (0.2%):
3,900 Kent Electronics Corp................. 89,700
--------------
Electronic Components (2.9%):
15,000 Cyrix Corp............................ 285,000
15,400 Jabil Circuit......................... 693,962
12,300 Sipex Corp............................ 359,775
--------------
1,338,737
--------------
Electronic Instruments (0.1%):
2,100 CFM Technologies, Inc................. 62,213
--------------
Electronics (2.9%):
12,200 Sawtek, Inc........................... 350,750
17,200 Ultrak, Inc........................... 309,600
24,900 Vitesse Semiconductor Corp............ 687,862
--------------
1,348,212
--------------
Entertainment (2.4%):
16,725 Regal Cinemas, Inc.................... 451,575
20,000 Speedway Motorsports, Inc............. 475,000
17,500 Vistana Inc........................... 196,875
--------------
1,123,450
--------------
Environmental Services (3.2%):
16,600 Superior Services, Inc................ 369,350
16,800 United Waste Systems, Inc............. 625,800
13,090 USA Waste Services, Inc............... 464,695
--------------
1,459,845
--------------
Financial Services (4.6%):
11,250 Aames Financial Corp.................. 227,813
18,500 Amresco, Inc.......................... 309,875
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 313
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------------- --------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
6,300 E*trade Group, Inc.................... $ 113,400
7,900 Firstplus Financial Group............. 237,988
26,400 IMC Mortgage Co....................... 389,400
15,000 Oxford Resources Corp., Class A....... 628,125
9,250 The Money Store, Inc.................. 194,250
--------------
2,100,851
--------------
Health Care--General (0.6%):
7,300 CRA Managed Care, Inc................. 273,750
--------------
Homebuilders--Mobile Homes (1.0%):
14,000 Oakwood Homes......................... 246,750
22,500 Southern Energy Homes, Inc............ 233,438
--------------
480,188
--------------
Hospital Supply & Management (0.9%):
22,000 FPA Medical Management, Inc........... 423,500
--------------
Hotel Management & Related Services (0.2%):
4,000 Capstar Hotel Co...................... 112,000
--------------
Hotels & Gaming (1.5%):
15,000 Doubletree Corp....................... 532,500
7,000 Signature Resorts, Inc................ 164,500
--------------
697,000
--------------
Insurance (0.8%):
15,000 HCC Insurance Holdings, Inc........... 367,500
--------------
Medical (1.0%):
19,400 Parexel International Corp............ 446,200
--------------
Medical Equipment & Supplies (2.6%):
11,200 Biopsys Medical, Inc.................. 277,200
11,600 National Surgery Centers, Inc......... 336,400
4,200 Premier Research Worldwide............ 69,300
8,800 Sabratek Corp......................... 176,000
11,000 Safeskin Corp......................... 199,375
11,500 Ventana Medical Systems............... 161,000
--------------
1,219,275
--------------
Medical--Biotechnology (1.7%):
9,700 Clintrials Research................... 82,450
3,900 Qiagen N.V............................ 129,675
6,400 Quintiles Transnational Corp.......... 344,800
15,000 Serologicals Corp..................... 225,000
--------------
781,925
--------------
COMMON STOCKS, CONTINUED:
Medical--Hospital Management & Services (3.0%):
16,000 NCS Healthcare, Inc., Class A......... $ 362,000
11,300 Occusystems, Inc...................... 254,250
5,200 Omnicare, Inc......................... 122,200
12,700 Pediatrix Medical Group, Inc.......... 417,513
8,025 Phycor, Inc........................... 218,681
--------------
1,374,644
--------------
Oil & Gas (4.1%):
7,800 Core Laboratories N.V................. 138,450
8,600 Global Industries Limited............. 183,825
33,300 Marine Drilling Co., Inc.............. 591,075
5,600 Patterson Energy, Inc................. 154,700
9,200 Petroleum Geo-svcs-spon American
Depository Receipts................ 395,600
5,000 Reading & Bates Corp.................. 113,125
6,800 Trico Marine Services, Inc............ 323,000
--------------
1,899,775
--------------
Pharmaceuticals (4.3%):
26,000 Dura Pharmaceuticals, Inc............. 929,499
23,250 Jones Medical Industries, Inc......... 558,000
16,875 Medicis Pharmaceutical Corp........... 502,031
--------------
1,989,530
--------------
Restaurants (3.5%):
8,100 CKE Restaurants, Inc.................. 179,213
16,000 Einstein/Noah Bagel Corp.............. 402,000
17,000 Landry's Seafood Restaurants(b)....... 269,875
16,050 Logan Roadhouse, Inc.................. 337,050
16,425 Papa John's International, Inc........ 433,209
--------------
1,621,347
--------------
Retail (3.1%):
8,000 Gadzooks, Inc......................... 252,000
13,600 Pacific Sunwear of California......... 445,400
8,200 Rexall Sundown, Inc................... 210,125
23,000 The Finish Line, Inc.................. 511,750
--------------
1,419,275
--------------
Retail--Apparel (0.5%):
1,400 Coldwater Creek, Inc.................. 19,425
7,700 Stein Mart Inc........................ 219,450
--------------
238,875
--------------
Retail--General Merchandise (0.3%):
1,400 Burlington Coat Factory Wholesale..... 25,200
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 314
SMALL COMPANY GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------------- --------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Retail--General Merchandise, continued:
10,500 Maxim Group Inc. (The)................ $ 139,125
--------------
164,325
--------------
Retail--Specialty Stores (0.2%):
3,800 Insight Enterprises................... 94,050
---------------
Technology--Software (1.1%):
7,900 Radiant Systems, Inc.................. 71,100
11,100 Visio Corp............................ 432,900
--------------
504,000
--------------
Telecommunications (3.2%):
19,100 Natural Microsystems Corp............. 379,613
75,000 Tel-Save Holdings, Inc................ 1,087,499
--------------
1,467,112
--------------
Telecommunications--Equipment (0.6%):
14,700 Boston Technology, Inc................ 277,463
--------------
COMMON STOCKS, CONTINUED:
Textile (1.0%):
4,500 Nautica Enterprises, Inc.............. $ 113,063
7,600 St. John Knits, Inc................... 328,700
--------------
441,763
--------------
Transportation (0.6%):
9,200 Rural/Metro Corp...................... 280,600
--------------
Total Common Stocks 34,354,493
--------------
PREFERRED STOCKS (0.5%):
12,200 Qlogic Corp........................... 240,950
--------------
Total Preferred Stocks 240,950
--------------
U.S. GOVERNMENT AGENCIES (29.3%):
Federal Home Loan Bank:
$13,535,000 0.00%, 4/1/97......................... 13,532,833
--------------
Total U.S. Government Agencies 13,532,833
--------------
Total (Cost--$45,120,976)(a) $ 48,128,276
==============
</TABLE>
- -------------
Percentages indicated are based on net assets of $46,176,437.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation ....................... $ 3,007,300
Unrealized depreciation ....................... --
------------
Net unrealized appreciation ................... $ 3,007,300
============
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 315
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ----------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS (92.5%):
AUSTRALIA (2.9%):
Broadcasting (0.6%):
50,000 News Corp. Limited..................... $ 233,194
---------------
Insurance--Multiline (0.8%):
210,000 National Mutual Holdings, Ltd.......... 319,339
---------------
Metals--Diversified (1.5%):
200,000 M.I.M. Holdings, Ltd................... 268,075
175,000 QNI Limited............................ 333,330
---------------
601,405
---------------
Total Australia 1,153,938
---------------
CHILE (1.4%):
Metals--Diversified (1.4%):
26,300 Cristalerias De Chile (ADR)............ 555,588
---------------
Total Chile 555,588
---------------
FINLAND (1.9%):
Food & Related (0.9%):
4,000 Raison Tehtaat OY...................... 371,507
---------------
Machinery & Equipment (1.0%):
10,000 KCI Konecranes International........... 393,717
---------------
Total Finland 765,224
---------------
FRANCE (8.8%):
Consumer Goods & Services (0.7%):
8,000 Guy Degrenne SA........................ 273,607
---------------
Diversified Products (1.3%):
4,000 Generale Des Eaux...................... 543,662
---------------
Electronic Components (0.8%):
4,500 Thompson Microelectronics.............. 315,803
---------------
Household Products (1.4%):
24,000 Moulinex............................... 550,058
---------------
Insurance--Multiline (1.3%):
8,000 AXA.................................... 529,164
---------------
Multiple Industry (0.7%):
95,000 Chemunex SA............................ 295,372
---------------
Photographic Equipment (0.4%):
1,000 Grand Optical-Photoservice............. 155,281
---------------
Retail--General Merchandise (0.7%):
625 Pinault-Printemps-Redoute SA........... 268,722
---------------
Tires & Rubber Products (1.5%):
10,000 Michelin (CGDE)-B...................... 594,297
---------------
Total France 3,525,966
---------------
COMMON STOCKS, CONTINUED:
GERMANY (9.6%):
Automobiles & Trucks (1.4%):
2,000 MAN AG................................. $ 571,808
---------------
Banks (1.5%):
20,000 Commerzbank AG......................... 579,001
---------------
Diversified Products (1.2%):
8,500 Veba AG................................ 488,075
---------------
Machine - Diversified (1.6%):
20,000 Boewe Systec AG........................ 641,336
---------------
Machinery & Equipment (2.6%):
800 GEA AG................................. 306,882
800 GEA AG -prf............................ 304,485
1,130 Mannesmann AG.......................... 431,778
---------------
1,043,145
---------------
Medical--Biotechnology (1.3%):
13,600 Biotest AG-Vorzugsaktien............... 521,700
---------------
Total Germany 3,845,065
---------------
GREAT BRITAIN (16.3%):
Auto Parts (1.2%):
200,000 Mayflower Corp. PLC.................... 500,810
---------------
Coal (0.5%):
35,000 RJB Mining PLC......................... 208,329
---------------
Computer Hardware (1.5%):
30,000 Micro Focus Group PLC.................. 616,982
---------------
Diversified Products (1.8%):
25,000 Bodycote International PLC............. 297,613
65,000 Cowie Group PLC........................ 418,916
---------------
716,529
---------------
Food & Related (0.9%):
125,000 Somerfield PLC......................... 365,345
---------------
Hotel Management & Related Services (1.3%):
175,000 Jarvis Hotels PLC...................... 505,736
---------------
Household Products (0.6%):
175,000 Limelight Group PLC.................... 222,696
---------------
Manufacturing (1.1%):
65,000 Blue Circle Industries PLC............. 443,997
---------------
Oil--Field Services (1.0%):
100,000 KBC Advanced Technologies.............. 394,080
---------------
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 316
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ----------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
GREAT BRITAIN, CONTINUED:
Paper & Related Products (0.7%):
50,000 Waddington PLC......................... $ 265,594
---------------
Professional Sports (0.5%):
100,000 Newcastle United....................... 221,670
---------------
Retail--Specialty Stores (0.9%):
80,000 Allied Carpets Group PLC............... 371,749
---------------
Telecom Equipment (3.2%):
80,000 British Telecom PLC.................... 585,209
240,000 IMS Group.............................. 695,551
---------------
1,280,760
---------------
Transportation--Misc. (1.1%):
160,000 NFC PLC................................ 434,802
---------------
Total Great Britain 6,549,079
---------------
HONG KONG (3.9%):
Banks (0.9%):
16,000 HSBC Holdings PLC...................... 371,660
---------------
Diversified Products (0.8%):
54,000 Jardine Matheson Holdings (ADR)........ 313,200
---------------
Real Estate (1.3%):
32,000 Cheung Kong............................ 281,842
48,000 New World Developement................. 258,923
---------------
540,765
---------------
Utilities--Electric (0.9%):
100,000 HongKong Electric Holdings............. 352,948
---------------
Total Hong Kong 1,578,573
---------------
INDIA (1.1%):
Banks (1.1%):
20,000 State Bank of India (ADR).............. 449,000
---------------
Total India 449,000
---------------
INDONESIA (1.1%):
Retail--General Merchandise (0.8%):
140,000 Part Ramayana Lestari Sent-frg......... 326,531
---------------
Unclassified (0.3%):
125,000 Putra Surya Multidana.................. 113,050
---------------
Total Indonesia 439,581
---------------
ITALY (2.6%):
Electronics (1.3%):
120,000 Stet ORD............................... 524,382
---------------
COMMON STOCKS, CONTINUED:
ITALY, CONTINUED:
Oil--Field Services (1.3%):
100,000 Eni SPA................................ $ 508,017
---------------
Total Italy 1,032,399
---------------
JAPAN (20.0%):
Automobiles & Trucks (2.9%):
12,000 Honda Motor Co., Ltd................... 357,645
48,000 Ricoh Company Limited.................. 546,644
27,000 Suzuki Motor Co., Ltd.................. 261,691
---------------
1,165,980
---------------
Banks (2.1%):
58,000 Eighteenth Bank........................ 348,534
45,000 Sanwa Bank, Ltd........................ 483,402
---------------
831,936
---------------
Chemicals--Petroleum & Inorganic (2.4%):
43,000 Sekisui Chemical Co.................... 423,714
28,000 Shin-Etsu Chemical Co.................. 531,459
---------------
955,173
---------------
Chemicals--Specialty (1.2%):
105,000 Mitsui Petrochemical IND............... 491,883
---------------
Defense (1.2%):
72,000 Mitsubishi Heavy Industries, Ltd....... 468,136
---------------
Electronic Components (1.3%):
60,000 Hitachi, Limited....................... 533,075
---------------
Electronics (1.3%):
34,000 Matsushita Electric Industrial Co.,
Ltd................................. 530,005
---------------
Financial Services (0.9%):
52,000 Daiwa Securities Co., Ltd.............. 374,638
---------------
Leisure Time Industry (1.1%):
70,000 Sumitomo Marine & Fire................. 424,037
---------------
Photographic Equipment (1.2%):
14,000 Fuji Photo Film-Ord.................... 460,221
---------------
Retail--Food Stores (1.4%):
13,000 ITO-Yokado Co., Ltd.................... 577,498
---------------
Steel (1.2%):
230,000 NKK Corporation........................ 482,998
---------------
Telecom Equipment (0.7%):
50,000 C-Cube Corporation...................... 283,903
---------------
</TABLE>
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 317
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ----------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Tires & Rubber Products (1.1%):
24,000 Bridgestone Corp....................... $ 449,721
--------------
Total Japan 8,029,204
--------------
MALAYSIA (0.6%):
Real Estate (0.6%):
160,000 Hong Leong Properties BHD.............. 252,975
--------------
Total Malaysia 252,975
--------------
MEXICO (1.6%):
Building & Construction (1.6%):
170,000 CEMEX, S.A. DE C.V..................... 621,612
--------------
Total Mexico 621,612
--------------
NETHERLANDS (4.4%):
Banks (0.7%):
7,000 ING Grouep N.V......................... 275,781
--------------
Electronic Components (1.1%):
9,000 Philips Electronics.................... 419,830
--------------
Retail--General Merchandise (1.4%):
12,000 Vendex International N.V............... 568,089
--------------
Transportation--Misc. (1.2%):
11,000 Koninklijke Van Ommeren NV............. 480,872
--------------
Total Netherlands 1,744,572
--------------
PERU (1.5%):
Telecom Equipment (1.5%):
26,200 Telefonica del Peru-ADR................ 582,950
--------------
Total Peru 582,950
--------------
PHILIPPINES (1.1%):
Banks (1.1%):
30,000 Equitable Banking Corp................. 128,921
25,000 Philippine National Bank............... 298,691
--------------
Total Philippines 427,612
--------------
SINGAPORE (2.6%):
Banks (0.7%):
27,000 United Overseas Bank, Ltd.............. 276,480
--------------
Electrical Equipment (0.7%):
100,000 GP Batteries International (ADR)....... 273,000
--------------
COMMON STOCKS, CONTINUED:
SINGAPORE, CONTINUED:
Publishing (0.7%):
15,000 Singapore Press Holdings............... $ 272,952
--------------
Real Estate (0.5%):
67,000 DBS Land, Ltd.......................... 229,003
--------------
Total Singapore 1,051,435
--------------
SOUTH AFRICA (3.3%):
Building & Construction (1.7%):
280,000 Murray & Roberts Holdings, Ltd......... 677,747
--------------
Manufacturing (1.6%):
115,000 AECI, Ltd.............................. 663,382
--------------
Total South Africa 1,341,129
--------------
SPAIN (2.9%):
Banks (1.7%):
9,700 Banco Santander SA..................... 667,100
--------------
Telecom Equipment (1.2%):
20,200 Telefonica De Espana................... 486,584
--------------
Total Spain 1,153,684
--------------
SWITZERLAND (4.9%):
Banks (1.5%):
5,000 Credit Suisse Group-Reg................ 599,568
--------------
Chemicals--Specialty (0.0%):
250 CIBA Specialty Chemicals............... 20,651
--------------
Medical Equipment & Supplies (0.8%):
250 Novartis AG-REG Shs.................... 309,936
--------------
Pharmaceuticals (1.5%):
70 RocheAG-Genussshein.................... 604,705
--------------
Transportation--Misc. (1.1%):
450 Danzas Holdings AG-REG................. 440,747
--------------
Total Switzerland 1,975,607
--------------
Total Common Stocks 37,075,193
--------------
SHORT TERM INVESTMENT FUNDS (6.8%):
$2,716,303 Bank Of New York, 4.7%, 1/1/80......... 2,716,303
--------------
Total Short Term Investment Funds 2,716,303
--------------
Total (Cost--$39,199,981)(a) $ 39,791,496
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $40,091,720.
(a) Represents cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation ..................... $ 1,919,064
Unrealized depreciation ..................... (1,327,549)
--------------
Net unrealized appreciation ................... $ 591,515
==============
</TABLE>
See notes to financial statements
[LOGO OF BB&T APPEARS HERE]
<PAGE> 318
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. ORGANIZATION:
The BB&T Mutual Funds Group ("The Group") commenced operations on October
5, 1992 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, the Small Company Growth
Fund and the International Equity Fund (January 2, 1997) (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, the Small Company Growth
Fund and the International Equity 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 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. The International Equity
Fund Series long-term capital appreciation through investments primarily
in equity securities of foreign issuers.
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 assumptions 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.
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 319
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
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 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
securities 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.
FOREIGN CURRENCY TRANSLATION:
Investment valuations, other assets and liabilities initially expressed in
foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investments
and income and expenses are converted into U.S. dollars based upon
exchange rates prevailing on the respective dates of such transactions.
That portion of realized gains or losses and unrealized appreciation or
depreciation from investments due to fluctuations in foreign currency
exchange rates is not separately disclosed. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
FORWARD FOREIGN CURRENCY CONTRACTS:
Forward foreign currency contracts are valued at the daily exchange rate
of the underlying currency. Purchases and sales of forward foreign
currency contracts having the same settlement date and broker are
presented net on the Statement of Assets and Liabilities. The forward
foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized appreciation or depreciation
until the contract settlement date. Gains or losses from the purchase or
sale of forward foreign currency contracts having the same settlement date
and broker are recorded as realized on the date of offset; otherwise gains
or losses are recorded as realized on settlement date.
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.
Continued
[LOGO OF BB&T APPEARS HERE]
<PAGE> 320
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
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 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 and the International
Equity 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.
Continued
-40-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 321
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
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 six months ended March 31, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Short-Intermediate U.S. Government Income Fund............ $80,499,170 $57,124,877
Intermediate U.S. Government Bond Fund.................... $56,987,877 $47,165,727
North Carolina Intermediate Tax-Free Fund................. $35,092,857 $ 956,281
Growth and Income Stock Fund.............................. $48,702,444 $33,929,139
Balanced Fund............................................. $16,931,652 $13,327,330
Small Company Growth Fund................................. $24,380,066 $20,486,831
International Equity Fund (a).............................. $38,013,907 $ 1,774,708
</TABLE>
(a) For the period from January 2, 1997 (commencement of operations) to
March 31, 1997.
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 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.
Continued
-41-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 322
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
(UNAUDITED)
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 six months ended March 31, 1997, 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 six months
ended March 31, 1997.
<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% -- -- $ 42,638 $ 86,446
Short-Intermediate U.S. Government
Income Fund ................................ 0.60% $ 41,579 -- $ 7,608 $ 45,758
Intermediate U.S. Government
Bond Fund .................................. 0.60% $ 64,610 -- $ 5,191 $ 70,549
North Carolina Intermediate Tax-
Free Fund .................................. 0.60% $ 25,409 $ 12,609 $ 15,979 $ 37,618
Growth and Income Stock Fund .................. 0.74% $312,372 -- $ 29,116 $123,699
Balanced Fund ................................. 0.74% $108,616 -- $ 16,831 $ 84,484
Small Company Growth Fund ..................... 1.00% $ 796 -- $ 10,210 $ 93,633
International Equity Fund ..................... 1.00% $ 3,713 $ 743 $ 79 $ 31,600
</TABLE>
Continued
-42-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 323
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
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
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
----------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued ....... $ 24,436,501 $ 61,519,685 $ 368,889 $ 780,331
Dividends reinvested .............. 602,702 893,083 135,366 292,456
Shares redeemed ................... (25,011,105) (48,429,306) (1,202,762) (1,717,615)
------------- ------------- ----------- ------------
Change in net assets from
Investor A share transactions ... $ 28,098 $ 13,983,462 $ (698,507) $ (644,828)
============= ============= =========== ============
CLASS B SHARES:
Proceeds from shares issued ....... $ 1,319,918 $ 1,957,034 (a)
Dividends reinvested .............. 23,813 16,070 (a)
Shares redeemed ................... (1,198,474) (668,319)(a)
------------- -------------
Change in net assets from
Investor B share transactions ... $ 145,257 $ 1,304,785 (a)
============= =============
TRUST SHARES:
Proceeds from shares issued ....... $ 144,464,991 $ 386,470,057 $40,145,358 $ 31,220,980
Dividends reinvested .............. 647,087 812,451 611,855 1,155,628
Shares redeemed ................... (155,197,597) (301,391,098) (6,378,661) (14,011,731)
------------- ------------- ----------- ------------
Change in net assets from
Trust share transactions ........ $ (10,085,519) $ 85,891,410 $34,378,552 $ 18,364,877
============= ============= =========== ============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued ............................ 24,436,501 61,519,685 37,863 79,521
Reinvested ........................ 602,702 893,083 13,849 29,675
Redeemed .......................... (25,011,018) (48,429,306) (123,274) (174,736)
------------- ------------- ----------- ------------
Change in Investor A Shares ....... 28,185 13,983,462 (71,562) (65,540)
============= ============= =========== ============
CLASS B SHARES:
Issued ............................ 1,319,918 1,957,034 (a)
Reinvested ........................ 23,813 16,070 (a)
Redeemed .......................... (1,198,474) (668,319)(a)
------------- -------------
Change in Investor B Shares ....... 145,257 1,304,785 (a)
============= =============
TRUST SHARES:
Issued ............................ 144,464,991 386,470,057 4,120,848 3,184,600
Reinvested ........................ 647,087 812,451 62,494 117,290
Redeemed .......................... (155,197,597) (301,391,098) (641,609) (1,422,732)
------------- ------------- ----------- ------------
Change in Trust Shares ............ (10,085,519) 85,891,410 3,541,733 1,879,158
============= ============= =========== ============
</TABLE>
- -------------
(a) The fund commenced offering Class B Shares January 1, 1996.
Continued
-43-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 324
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE U.S. NORTH CAROLINA INTERMEDIATE
GOVERNMENT BOND FUND TAX-FREE FUND
------------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
---------------- ----------------- ---------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued ................. $ 1,147,087 $ 923,832 $ 612,307 $ 1,510,448
Dividends reinvested ........................ 88,262 207,800 140,304 268,478
Shares redeemed ............................. (365,476) (2,521,905) (905,493) (1,143,115)
-------------- ---------------- --------------- ---------------
Change in net assets from
Investor A share transactions ............... $ 869,873 $ (1,390,273) $ (152,882) $ 635,811
============== =============== ============== ==============
CLASS B SHARES:
Proceeds from shares issued ................. $ 144,879 $ 359,519 (a)
Dividends reinvested ........................ 8,848 5,665 (a)
Shares redeemed ............................. (5,556) (8,010)(a)
-------------- ----------------
Change in net assets from
Investor B share transactions ............... $ 148,171 $ 357,174 (a)
============== ===============
TRUST SHARES:
Proceeds from shares issued ................. $ 19,576,232 $ 65,562,100 $ 39,335,716 $ 10,310,221
Dividends reinvested ........................ 2,258,738 4,476,007 -- --
Shares redeemed ............................. (12,729,852) (25,629,116) (5,388,077) (9,700,110)
-------------- --------------- -------------- --------------
Change in net assets from Trust
share transactions .......................... $ 9,105,118 $ 44,408,991 $ 33,947,639 $ 610,111
============== =============== ============== ==============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued ...................................... 117,682 93,847 60,420 149,219
Reinvested .................................. 9,058 21,069 13,842 26,506
Redeemed .................................... (37,511) (258,458) (89,401) (112,758)
-------------- --------------- -------------- --------------
Change in Investor A Shares ................. 89,229 (143,542) (15,139) 62,967
============== =============== ============== ==============
CLASS B SHARES:
Issued ...................................... 15,028 37,041 (a)
Reinvested .................................. 911 591 (a)
Redeemed .................................... (575) (841)(a)
-------------- ---------------
Change in Investor B Shares ................. 15,364 36,791 (a)
============== ===============
TRUST SHARES:
Issued ...................................... 2,010,819 6,626,543 3,890,321 1,022,116
Reinvested .................................. 231,421 456,831 -- --
Redeemed .................................... (1,307,961) (2,617,022) (430,495) (958,821)
-------------- --------------- -------------- --------------
Change in Trust Shares ...................... 934,279 4,466,352 3,459,826 63,295
============== =============== ============== ==============
</TABLE>
- -------------
(a) The fund commenced offering Class B Shares January 1, 1996.
Continued
-44-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 325
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH AND INCOME
STOCK FUND BALANCED FUND
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996
-------------- --------------- -------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued ...... $ 5,741,406 $ 6,811,567 $ 1,771,296 $ 3,871,025
Dividends reinvested ............. 1,062,574 338,523 642,661 402,738
Shares redeemed .................. (1,324,622) (1,427,065) (936,482) (1,928,670)
-------------- --------------- -------------- ---------------
Change in net assets from
Investor A share transactions .. $ 5,479,358 $ 5,723,025 $ 1,477,475 $ 2,345,093
============== =============== ============== ===============
CLASS B SHARES:
Proceeds from shares issued ...... $ 4,308,241 $ 3,738,136 (a) $ 1,657,767 $ 2,332,596 (a)
Dividends reinvested ............. 229,771 17,476 (a) 135,505 33,079 (a)
Shares redeemed .................. (173,802) (82,260)(a) (92,309) (77,715)(a)
-------------- --------------- -------------- ---------------
Change in net assets from
Investor B share transactions .. $ 4,364,210 $ 3,673,352 (a) $ 1,700,963 $ 2,287,960 (a)
============== =============== ============== ===============
TRUST SHARES:
Proceeds from shares issued ...... $ 62,817,183 $ 68,337,109 $ 13,941,693 $ 24,146,440
Dividends reinvested ............. 6,656,056 3,190,245 3,165,089 2,035,268
Shares redeemed .................. (52,245,491) (40,729,870) (15,767,009) (11,407,119)
-------------- --------------- -------------- ---------------
Change in net assets from
Trust share transactions ....... $ 17,227,748 $ 30,797,484 $ 1,339,773 $ 14,774,589
============== =============== ============== ===============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued ........................... 359,194 477,889 144,437 334,248
Reinvested ....................... 67,301 24,085 53,051 34,933
Redeemed ......................... (81,701) (100,847) (76,280) (166,329)
-------------- --------------- -------------- ---------------
Change in Investor A Shares ...... 344,794 401,127 121,208 202,852
============== =============== ============== ===============
CLASS B SHARES:
Issued ........................... 266,507 258,055 (a) 136,088 200,160 (a)
Reinvested ....................... 14,590 1,200 (a) 11,234 2,850 (a)
Redeemed ......................... (10,694) (5,567)(a) (7,547) (6,712)(a)
-------------- --------------- -------------- ---------------
Change in Investor B Shares ...... 270,403 253,688 (a) 139,775 196,298 (a)
============== =============== ============== ===============
TRUST SHARES:
Issued ........................... 3,901,869 4,851,989 1,146,048 2,102,026
Reinvested ....................... 420,861 227,034 261,846 177,017
Redeemed ......................... (2,552,443) (2,820,394) (1,291,877) (986,873)
-------------- --------------- -------------- ---------------
Change in Trust Shares ........... 1,770,287 2,258,629 116,017 1,292,170
============== =============== ============== ===============
</TABLE>
- -------------
(a) The fund commenced offering Class B Shares January 1, 1996.
Continued
-45-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 326
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1997
<TABLE>
<CAPTION>
SMALL COMPANY INTERNATIONAL
GROWTH FUND EQUITY FUND
------------------------------------- --------------------
FOR THE FOR THE FOR THE PERIOD
SIX MONTHS YEAR JANUARY 2, 1997
ENDED ENDED TO
MARCH 31, SEPTEMBER 30, MARCH 31,
1997 1996 1997(b)
---------------- ------------------ --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued .............................. $ 6,303,743 $ 5,198,893 $ 192,720
Dividends reinvested ..................................... 8,876 -- --
Shares redeemed .......................................... (3,839,977) (321,183) (10,336)
--------------- ------------- ---------------
Change in net assets from Investor A
share transactions ....................................... $ 2,472,642 $ 4,877,710 $ 182,384
=============== ============= ===============
CLASS B SHARES:
Proceeds from shares issued .............................. $ 2,924,176 $ 2,870,037 (a) $ 235,358
Dividends reinvested ..................................... 4,427 -- (a) --
Shares redeemed .......................................... (250,418) (41,375)(a) --
--------------- ------------- ---------------
Change in net assets from Investor B
share transactions ....................................... $ 2,678,185 $ 2,828,662 (a) $ 235,358
=============== ============= ===============
TRUST SHARES:
Proceeds from shares issued .............................. $ 16,122,845 $ 14,870,042 $ 39,241,471
Dividends reinvested ..................................... 26,916 -- --
Shares redeemed .......................................... (8,585,342) (5,559,535) (396,501)
--------------- ------------- ---------------
Change in net assets from Trust share transactions ....... $ 7,564,419 $ 9,310,507 $ 38,844,970
=============== ============= ===============
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued ................................................... 322,347 294,124 18,851
Reinvested ............................................... 451 -- --
Redeemed ................................................. (196,685) (17,579) (1,000)
--------------- ------------- ---------------
Change in Investor A Shares .............................. 126,113 276,545 17,851
=============== ============= ===============
CLASS B SHARES:
Issued ................................................... 152,373 155,105 (a) 23,023
Reinvested ............................................... 227 -- (a) --
Redeemed ................................................. (13,807) (2,142)(a) --
--------------- ------------- ---------------
Change in Investor B Shares .............................. 138,793 152,963 (a) 23,023
=============== ============= ===============
TRUST SHARES:
Issued ................................................... 822,254 848,861 3,883,045
Reinvested ............................................... 1,359 -- --
Redeemed ................................................. (444,717) (295,847) (38,423)
--------------- ------------- ---------------
Change in Trust Shares ................................... 378,896 553,014 3,844,622
=============== ============= ===============
</TABLE>
- -------------
(a) The fund commenced offering Class B Shares January 1, 1996.
(b) Period from commencement of operations.
Continued
-46-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 327
U.S. TREASURY MONEY MARKET FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
FOR THE SIX MONTHS ----------------------------------
ENDED OCTOBER 5, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------------ -------- -------- --------- ---------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------
INVESTMENT ACTIVITIES
Net investment income ........................ 0.022 0.044 0.047 0.027 0.026
---------- ---------- ---------- ---------- ---------
Total from Investment Activities ........ 0.022 0.044 0.047 0.027 0.026
---------- ---------- ---------- ---------- ---------
DISTRIBUTIONS
Net investment income ........................ (0.022) (0.044) (0.047) (0.027) (0.026)
---------- ---------- ---------- ---------- ---------
Total Distributions ..................... (0.022) (0.044) (0.047) (0.027) (0.026)
---------- ---------- ---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== =========
Total Return .................................... 2.18%(b) 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .............. $ 27,959 $ 27,931 $ 13,948 $ 1,486 $ 279
Ratio of expenses to average net assets ...... 0.94%(c) 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net investment income to average net
assets ..................................... 4.33%(c) 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to average net assets* ..... 1.24%(c) 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net investment income to average net
assets* .................................... 4.03%(c) 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
-47-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 328
U.S. TREASURY MONEY MARKET FUND
Class B Shares
Financial Highlights
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 1, 1996 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 (a)
---------------------- ---------------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................... $ 1.00 $ 1.00
---------- ----------
INVESTMENT ACTIVITIES
Net investment income ....................................... 0.018 0.025
---------- ----------
Total from Investment Activities ....................... 0.018 0.025
---------- ----------
DISTRIBUTIONS
Net investment income ....................................... (0.018) (0.025)
---------- ----------
Total Distributions .................................... (0.018) (0.025)
---------- ----------
NET ASSET VALUE, END OF PERIOD ................................. $ 1.00 $ 1.00
========== ==========
Total Return (excludes redemption charge) ...................... 1.78%(b) 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............................. $ 1,450 $ 1,305
Ratio of expenses to average net assets ..................... 1.74%(c) 1.75%(c)
Ratio of net investment income to average net assets ........ 3.53%(c) 3.55%(c)
</TABLE>
- -------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements
-48-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 329
U.S. TREASURY MONEY MARKET FUND
Trust Shares
Financial Highlights
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ----------------------------------------- OCTOBER 5, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
---------------------- ----------- ----------- ---------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- --------- ---------
INVESTMENT ACTIVITIES
Net investment income .............. 0.023 0.046 0.050 0.030 0.027
---------- ---------- ---------- --------- ---------
Total from Investment Activities . 0.023 0.046 0.050 0.030 0.027
---------- ---------- ---------- --------- ---------
DISTRIBUTIONS
Net investment income .............. (0.023) (0.046) (0.050) (0.030) (0.027)
---------- ---------- ---------- --------- ---------
Total Distributions .............. (0.023) (0.046) (0.050) (0.030) (0.027)
---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF PERIOD ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========= =========
Total Return .......................... 2.28%(b) 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .... $ 195,889 $ 205,974 $ 120,083 $ 77,464 $ 74,962
Ratio of expenses to average net
assets ........................... 0.74%(c) 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment income to
average net assets ............... 4.53%(c) 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average net
assets* .......................... 0.74%(c) 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment income to
average net assets* .............. 4.53%(c) 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
-49-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 330
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Class A Shares
Financial Highlights
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED -------------------------------- NOVEMBER 30, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------------ -------- ---------- ---------- -------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 9.73 $ 9.88 $ 9.60 $ 10.29 $ 10.00
--------- -------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income ......................... 0.27 0.55 0.53 0.50 0.47
Net realized and unrealized gains (losses) on
investments ................................. (0.11) (0.15) 0.29 (0.68) 0.30
--------- -------- ---------- ---------- ----------
Total from Investment Activities ......... 0.16 0.40 0.82 (0.18) 0.77
--------- -------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income ......................... (0.27) (0.55) (0.54) (0.50) (0.48)
Net realized gains ............................ -- -- -- (0.01) --
--------- -------- ---------- ---------- ----------
Total Distributions ...................... (0.27) (0.55) (0.54) (0.51) (0.48)
--------- -------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ................... $ 9.62 $ 9.73 $ 9.88 $ 9.60 $ 10.29
========= ======== ========== ========== ==========
Total Return (excludes sales charge) ............. 1.65%(b) 4.09% 8.74% (1.86)% 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............... $ 5,595 $ 6,356 $ 7,102 $ 10,345 $ 14,915
Ratio of expenses to average net assets ....... 1.12%(c) 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income to average net
assets ...................................... 5.58%(c) 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average net assets* ...... 1.47%(c) 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income to average net
assets* ..................................... 5.23%(c) 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover(d) ......................... 71.02% 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
-50-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 331
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------- NOVEMBER 30, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
---------------------- ---------- ---------- ---------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 9.74 $ 9.89 $ 9.61 $ 10.30 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income ....................... 0.28 0.57 0.56 0.52 0.49
Net realized and unrealized gains (losses)
on investments ............................ (0.11) (0.15) 0.28 (0.68) 0.30
---------- ---------- ---------- ---------- ----------
Total from Investment Activities ....... 0.17 0.42 0.84 (0.16) 0.79
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income ....................... (0.28) (0.57) (0.56) (0.52) (0.49)
Net realized gains .......................... -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions .................... (0.28) (0.57) (0.56) (0.53) (0.49)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ................. $ 9.63 $ 9.74 $ 9.89 $ 9.61 $ 10.30
========== ========== ========== ========== ==========
Total Return ................................... 1.78%(b) 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............. $ 96,020 $ 62,621 $ 45,005 $ 38,208 $ 34,646
Ratio of expenses to average net assets ..... 0.87%(c) 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net investment income to average
net assets ................................ 5.84%(c) 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to average net assets* .... 0.97%(c) 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net investment income to average
net assets* ............................... 5.74%(c) 5.71% 5.64% 4.83% 4.94%(c)
Portfolio turnover(d) ....................... 71.02% 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
-51-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 332
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS SEPTEMBER 30,
ENDED ----------------------------- OCTOBER 9, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------------- ------ ------- ------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 9.63 $ 9.88 $ 9.33 $ 10.39 $ 10.00
---------- --------- --------- --------- --------
INVESTMENT ACTIVITIES
Net investment income ............................. 0.27 0.56 0.59 0.59 0.63
Net realized and unrealized gains (losses) on
investments ..................................... (0.14) (0.25) 0.55 (1.04) 0.39
--------- -------- --------- --------- --------
Total from Investment Activities ............. 0.13 0.31 1.14 (0.45) 1.02
--------- -------- --------- --------- --------
DISTRIBUTIONS
Net investment income ............................. (0.27) (0.56) (0.59) (0.59) (0.63)
Net realized gains ................................ -- -- -- (0.02) --
--------- -------- --------- --------- --------
Total Distributions .......................... (0.27) (0.56) (0.59) (0.61) (0.63)
--------- -------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD ....................... $ 9.49 $ 9.63 $ 9.88 $ 9.33 $ 10.39
========= ======== ======== ========= ========
Total Return (excludes sales charge) ................. 1.30%(b) 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 4,456 $ 3,659 $ 5,173 $ 6,772 $ 5,238
Ratio of expenses to average net assets ........... 1.13%(c) 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income to average net
assets .......................................... 5.61%(c) 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net assets* .......... 1.47%(c) 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income to average net
assets* ......................................... 5.27%(c) 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover(d) ............................. 37.25% 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
-52-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 333
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 1, 1996 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 (a)
----------------------- ---------------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................... $ 9.60 $ 10.17
------- --------
INVESTMENT ACTIVITIES
Net investment income ............................................... 0.23 0.31
Net realized and unrealized losses on investments ................... (0.14) (0.57)
------- --------
Total from Investment Activities ............................... 0.09 (0.26)
------- --------
DISTRIBUTIONS
Net investment income ............................................... (0.23) (0.31)
------- --------
Total Distributions ............................................ (0.23) (0.31)
------- --------
NET ASSET VALUE, END OF PERIOD ......................................... $ 9.46 $ 9.60
======= ========
Total Return (excludes redemption charge) .............................. 0.92%(b) (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ..................................... $ 494 $ 353
Ratio of expenses to average net assets ............................. 1.86%(c) 1.85%(c)
Ratio of net investment income to average net assets ................ 4.77%(c) 5.01%(c)
Ratio of expenses to average net assets* ............................ 1.96%(c) 1.95%(c)
Ratio of net investment income to average net assets* ............... 4.67%(c) 4.91%(c)
Portfolio turnover(d) ............................................... 37.25% 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
-53-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 334
INTERMEDIATE U.S. GOVERNMENT BOND FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ------------------------------------ OCTOBER 9, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
-------------------- ----------- ---------- ---------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......... $ 9.64 $ 9.89 $ 9.34 $ 10.40 $ 10.00
----------- ---------- --------- --------- ----------
INVESTMENT ACTIVITIES
Net investment income .................... 0.28 0.58 0.61 0.62 0.64
Net realized and unrealized gains
(losses) on investments ................ (0.13) (0.25) 0.55 (1.04) 0.40
----------- ----------- ---------- ---------- ----------
Total from Investment Activities .... 0.15 0.33 1.16 (0.42) 1.04
----------- ----------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income .................... (0.28) (0.58) (0.61) (0.62) (0.64)
Net realized gains ....................... -- -- -- (0.02) --
----------- ----------- ---------- ---------- ----------
Total Distributions ................. (0.28) (0.58) (0.61) (0.64) (0.64)
----------- ----------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD .............. $ 9.51 $ 9.64 $ 9.89 $ 9.34 $ 10.40
=========== =========== ========== ========== ==========
Total Return ................................ 1.53%(b) 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .......... $ 126,871 $ 119,633 $ 78,578 $ 68,451 $ 59,816
Ratio of expenses to average net assets .. 0.86%(c) 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income to average
net assets ............................. 5.77%(c) 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net assets* . 0.96%(c) 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income to average
net assets* ............................ 5.67%(c) 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d) .................... 37.25% 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
-54-
[LOGO OF BB&T APPEARS]
<PAGE> 335
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED -------------------------------- OCTOBER 16, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
--------------------- --------- -------- ---------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
-------- ------- ------- --------- ---------
INVESTMENT ACTIVITIES
Net investment income ........................... 0.19 0.36 0.36 0.36 0.36
Net realized and unrealized gains (losses) on
investments ................................... (0.03) (0.10) 0.37 (0.50) 0.29
-------- ------- ------- --------- ---------
Total from Investment Activities ........... 0.16 0.26 0.73 (0.14) 0.65
-------- ------- ------- --------- ---------
DISTRIBUTIONS
Net investment income ........................... (0.19) (0.36) (0.36) (0.36) (0.36)
Net realized gains .............................. -- -- -- (0.01) --
-------- ------- ------- --------- ---------
Total Distributions ........................ (0.19) (0.36) (0.36) (0.37) (0.36)
-------- ------- ------- --------- ---------
NET ASSET VALUE, END OF PERIOD ..................... $ 10.02 $ 10.05 $ 10.15 $ 9.78 $ 10.29
======== ======= ======= ========= =========
Total Return (excludes sales charge) ............... 1.62%(b) 2.61% 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................. $ 9,085 $ 9,261 $ 8,717 $ 11,083 $ 13,695
Ratio of expenses to average net assets ......... 1.06%(c) 1.11% 1.05% 0.75% 0.43%(c)
Ratio of net investment income to average net
assets ........................................ 3.82%(c) 3.58% 3.63% 3.63% 3.80%(c)
Ratio of expenses to average net assets* ........ 1.56%(c) 1.61% 1.63% 1.66% 1.77%(c)
Ratio of net investment income to average net
assets* ....................................... 3.32%(c) 3.08% 3.05% 2.72% 2.45%(c)
Portfolio turnover(d) ........................... 1.89% 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
-55-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 336
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------- OCTOBER 16, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
--------------------- ---------- ---------- ---------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .......... $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income ...................... 0.20 0.38 0.37 0.38 0.36
Net realized and unrealized gains (losses)
on investments ........................... (0.03) (0.10) 0.37 (0.50) 0.29
---------- ---------- ---------- ---------- ----------
Total from Investment Activities ...... 0.17 0.28 0.74 (0.12) 0.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income ...................... (0.20) (0.38) (0.37) (0.38) (0.36)
Net realized gains ......................... -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions ................... (0.20) (0.38) (0.37) (0.39) (0.36)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ................ $ 10.02 $ 10.05 $ 10.15 $ 9.78 $ 10.29
========== ========== ========== ========== ==========
Total Return .................................. 1.68%(b) 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............ $ 63,046 $ 28,443 $ 28,091 $ 27,770 $ 20,128
Ratio of expenses to average net assets .... 0.87%(c) 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment income to average
net assets ............................... 4.05%(c) 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average net assets* ... 1.03%(c) 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment income to average
net assets* .............................. 3.89%(c) 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover(d) ...................... 1.89% 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
-56-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 337
GROWTH AND INCOME STOCK FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------- OCTOBER 9, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
------------------ ---------- ---------- --------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 15.31 $ 12.97 $ 11.26 $ 11.26 $ 10.00
---------- ---------- ---------- --------- --------
INVESTMENT ACTIVITIES
Net investment income ......................... 0.13 0.26 0.25 0.25 0.28
Net realized and unrealized gains on
investments ................................. 1.31 2.43 1.98 0.12 1.27
---------- ---------- ---------- --------- --------
Total from Investment Activities ......... 1.44 2.69 2.23 0.37 1.55
---------- ---------- ---------- --------- --------
DISTRIBUTIONS
Net investment income ......................... (0.13) (0.26) (0.25) (0.26) (0.29)
Net realized gains ............................ (0.63) (0.09) (0.12) (0.11) --
In excess of net realized gains ............... -- -- (0.15) -- --
---------- ---------- ---------- --------- --------
Total Distributions ...................... (0.76) (0.35) (0.52) (0.37) (0.29)
---------- ---------- ---------- --------- --------
NET ASSET VALUE, END OF PERIOD ................... $ 15.99 $ 15.31 $ 12.97 $ 11.26 $ 11.26
========== ========== ========== ========= ========
Total Return (excludes sales charge) ............. 9.49%(b) 20.97% 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............... $ 25,290 $ 18,949 $ 10,842 $ 7,973 $ 6,009
Ratio of expenses to average net assets ....... 1.09%(c) 1.11% 1.07% 0.92% 0.63%(c)
Ratio of net investment income to average net
assets ...................................... 1.60%(c) 1.82% 2.15% 2.26% 2.85%(c)
Ratio of expenses to average net assets* ...... 1.58%(c) 1.60% 1.60% 1.65% 1.68%(c)
Ratio of net investment income to average net
assets* ..................................... 1.11%(c) 1.33% 1.62% 1.52% 1.81%(c)
Portfolio turnover(d) ......................... 13.58% 19.82% 8.73% 21.30% 27.17%
Average commission rate(e) .................... $ 0.0649 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-57-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 338
GROWTH AND INCOME STOCK FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 1, 1996 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 (a)
------------------ ----------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 15.29 $ 13.78
------- -------
INVESTMENT ACTIVITIES
Net investment income ........................................ 0.07 0.13
Net realized and unrealized gains on investments ............. 1.28 1.52
------- -------
Total from Investment Activities ........................ 1.35 1.65
------- -------
DISTRIBUTIONS
Net investment income ........................................ (0.07) (0.14)
Net realized gains ........................................... (0.63) --
------- -------
Total Distributions ..................................... (0.70) (0.14)
------- -------
NET ASSET VALUE, END OF PERIOD .................................. $ 15.94 $ 15.29
======= =======
Total Return (excludes redemption charge) ....................... 8.92%(b) 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .............................. $ 8,356 $ 3,880
Ratio of expenses to average net assets ...................... 1.84%(c) 1.85%(c)
Ratio of net investment income to average net assets ......... 0.87%(c) 1.13%(c)
Ratio of expenses to average net assets* ..................... 2.08%(c) 2.09%(c)
Ratio of net investment income to average net assets* ........ 1.63%(c) 0.89%(c)
Portfolio turnover(d) ........................................ 13.58% 19.82%
Average commission rate(e) ................................... $0.0649 $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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-58-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 339
GROWTH AND INCOME STOCK FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED -------------------------------------- OCTOBER 9, 1992 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
--------------------- ----------- ----------- ---------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... $ 15.34 $ 12.99 $ 11.28 $ 11.28 $ 10.00
---------- ---------- ---------- --------- ---------
INVESTMENT ACTIVITIES
Net investment income ................... 0.15 0.29 0.28 0.28 0.30
Net realized and unrealized gains on
investments ........................... 1.31 2.44 1.98 0.11 1.28
---------- ---------- ---------- --------- ---------
Total from Investment Activities ... 1.46 2.73 2.26 0.39 1.58
---------- ---------- ---------- --------- ---------
DISTRIBUTIONS
Net investment income ................... (0.15) (0.29) (0.28) (0.28) (0.30)
Net realized gains ...................... (0.63) (0.09) (0.12) (0.11) --
In excess of net realized gains ......... -- -- (0.15) -- --
---------- ---------- ---------- --------- ---------
Total Distributions ................ (0.78) (0.38) (0.55) (0.39) (0.30)
---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF PERIOD ............. $ 16.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28
========== ========== ========== ========= =========
Total Return ............................... 9.61%(b) 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ......... $ 244,065 $ 206,659 $ 145,603 $ 89,355 $ 82,358
Ratio of expenses to average net assets . 0.84%(c) 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income to
average net assets .................... 1.86%(c) 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average net assets* 1.08%(c) 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income to
average net assets* ................... 1.62%(c) 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d) ................... 13.58% 19.82% 8.73% 21.30% 27.17%
Average commission rate(e) .............. $ 0.0649 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-59-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 340
BALANCED FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS SEPTEMBER 30,
ENDED ---------------------------------- JULY 1, 1993 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
-------------------- ---------- --------- --------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 11.96 $ 11.04 $ 9.76 $ 10.20 $ 10.00
---------- ---------- --------- --------- --------
INVESTMENT ACTIVITIES
Net investment income .......................... 0.23 0.43 0.44 0.38 0.08
Net realized and unrealized gains (losses) on
investments .................................. 0.38 0.92 1.27 (0.44) 0.21
---------- ---------- --------- --------- --------
Total from Investment Activities .......... 0.61 1.35 1.71 (0.06) 0.29
---------- ---------- --------- --------- --------
DISTRIBUTIONS
Net investment income .......................... (0.23) (0.43) (0.43) (0.38) (0.09)
Net realized gains ............................. (0.37) -- -- -- --
---------- ---------- --------- --------- --------
Total Distributions ....................... (0.60) (0.43) (0.43) (0.38) (0.09)
---------- ---------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD .................... $ 11.97 $ 11.96 $ 11.04 $ 9.76 $ 10.20
========== ========== ========= ========= ========
Total Return (excludes sales charge) .............. 5.11%(b) 12.43% 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 13,921 $ 12,456 $ 9,257 $ 8,560 $ 2,569
Ratio of expenses to average net assets ........ 1.19%(c) 1.20% 1.17% 0.98% 0.50%(c)
Ratio of net investment income to average net
assets ....................................... 3.80%(c) 3.78% 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net assets* ....... 1.68%(c) 1.69% 1.71% 1.75% 2.00%(c)
Ratio of net investment income to average net
assets* ...................................... 3.31%(c) 3.29% 3.73% 3.25% 2.89%(c)
Portfolio turnover(d) .......................... 15.68% 19.87% 23.68% 12.91% 8.32%
Average commission rate(e) ..................... $ 0.0626 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-60-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 341
BALANCED FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 1, 1996 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 (a)
-------------------- ------------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 11.91 $ 11.54
-------- --------
INVESTMENT ACTIVITIES
Net investment income ........................................ 0.18 0.27
Net realized and unrealized gains on investments ............. 0.39 0.37
-------- --------
Total from Investment Activities ........................ 0.57 0.64
-------- --------
DISTRIBUTIONS
Net investment income ........................................ (0.19) (0.27)
Net realized gains ........................................... (0.37) --
-------- --------
Total Distributions ..................................... (0.56) (0.27)
-------- --------
NET ASSET VALUE, END OF PERIOD .................................. $ 11.92 $ 11.91
======== ========
Total Return (excludes redemption charge) ....................... 4.76%(b) 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .............................. $ 4,007 $ 2,339
Ratio of expenses to average net assets ...................... 1.94%(c) 1.95%(c)
Ratio of net investment income to average net assets ......... 3.05%(c) 3.13%(c)
Ratio of expenses to average net assets* ..................... 2.18%(c) 2.18%(c)
Ratio of net investment income to average net assets* ........ 2.81%(c) 2.90%(c)
Portfolio turnover(d) ........................................ 15.68% 19.87%
Average commission rate(e) ................................... $0.0626 $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
portfolio transactions divided by total number of portfolio shares
purchased and sold for which commissions were charged.
See notes to financial statements
-61-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 342
BALANCED FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
ENDED ------------------------------------ JULY 1, 1993 TO
MARCH 31, 1997 1996 1995 1994 SEPTEMBER 30, 1993 (a)
-------------------- ---------- ---------- ---------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 11.93 $ 11.01 $ 9.74 $ 10.18 $ 10.00
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income ....................... 0.25 0.46 0.46 0.40 0.09
Net realized and unrealized gains (losses)
on investments ............................ 0.39 0.92 1.27 (0.44) 0.18
---------- ---------- ---------- ---------- ----------
Total from Investment Activities ....... 0.64 1.38 1.73 (0.04) 0.27
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net investment income ....................... (0.25) (0.46) (0.46) (0.40) (0.09)
Net realized gains .......................... (0.37) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions .................... (0.62) (0.46) (0.46) (0.40) (0.09)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ................. $ 11.95 $ 11.93 $ 11.01 $ 9.74 $ 10.18
========== ========== ========== ========== ==========
Total Return ................................... 5.34%(b) 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............. $ 70,833 $ 69,374 $ 49,794 $ 39,715 $ 20,374
Ratio of expenses to average net assets ..... 0.95%(c) 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income to average
net assets ................................ 4.04%(c) 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average net assets* .... 1.19%(c) 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income to average
net assets* ............................... 3.80%(c) 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d) ....................... 15.68% 19.87% 23.68% 12.91% 8.32%
Average commission rate(e) .................. $ 0.0626 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-62-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 343
SMALL COMPANY GROWTH FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED DECEMBER 7, 1994 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 (a)
---------------- -------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 21.06 $ 14.53 $ 10.00
---------- ---------- ---------
INVESTMENT ACTIVITIES
Net investment loss ....................................... (0.05) (0.20) (0.08)
Net realized and unrealized gains (losses) on investments . (4.94) 6.73 4.61
---------- ---------- ---------
Total from Investment Activities ..................... (4.99) 6.53 4.53
---------- ---------- ---------
DISTRIBUTIONS
Net realized gains ........................................ (0.02) -- --
---------- ---------- ---------
Total Distributions .................................. (0.02) -- --
---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD ............................... $ 16.05 $ 21.06 $ 14.53
========== ========== =========
Total Return (excludes sales charge) ......................... (23.71)%(b) 44.94% 45.30% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........................... $ 7,673 $ 7,413 $ 1,096
Ratio of expenses to average net assets ................... 1.94% (c) 2.01% 2.50% (c)
Ratio of net investment loss to average net assets ........ (1.18)%(c) (1.26)% (1.56)%(c)
Ratio of expenses to average net assets* .................. 2.19% (c) 2.26% 2.84% (c)
Ratio of net investment loss to average net assets* ....... (1.43)%(c) (1.51)% (1.90)%(c)
Portfolio turnover(d) ..................................... 48.44% 71.62% 46.97%
Average commission rate(e) ................................ $ 0.0538 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-63-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 344
SMALL COMPANY GROWTH FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 1, 1996 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 (a)
--------------------- ---------------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 20.92 $ 15.24
--------- ---------
INVESTMENT ACTIVITIES
Net investment loss ............................................ (0.05) (0.21)
Net realized and unrealized gains (losses) on investments ...... (4.98) 5.89
--------- ---------
Total from Investment Activities .......................... (5.03) 5.68
--------- ---------
DISTRIBUTIONS
Net realized gains ............................................. (0.02) --
--------- ---------
Total Distributions ....................................... (0.02) --
--------- ---------
NET ASSET VALUE, END OF PERIOD .................................... $ 15.87 $ 20.92
========= =========
Total Return (excludes redemption charge) ......................... (24.06)%(b) 37.27% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................................ $ 4,631 $ 3,200
Ratio of expenses to average net assets ........................ 2.69% (c) 2.72% (c)
Ratio of net investment loss to average net assets ............. (1.90)%(c) (2.01)%(c)
Portfolio turnover(d) .......................................... 48.44% 71.62%
Average commission rate(e) ..................................... $ 0.0538 $ 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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-64-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 345
SMALL COMPANY GROWTH FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED DECEMBER 7, 1994 TO
MARCH 31, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 (a)
------------------ ------------------ ----------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 21.18 $ 14.57 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment loss .......................................... (0.05) (0.17) (0.07)
Net realized and unrealized gains (losses) on investments .... (4.95) 6.78 4.64
------- ------- -------
Total from Investment Activities ........................ (5.00) 6.61 4.57
------- ------- -------
DISTRIBUTIONS
Net realized gains ........................................... (0.02) -- --
------- ------- -------
Total Distributions ..................................... (0.02) -- --
------- ------- -------
NET ASSET VALUE, END OF PERIOD .................................. $ 16.16 $ 21.18 $ 14.57
======= ======= =======
Total Return .................................................... (23.62)%(b) 45.37% 45.70% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .............................. $33,873 $36,373 $16,962
Ratio of expenses to average net assets ...................... 1.70% (c) 1.79% 2.33% (c)
Ratio of net investment loss to average net assets ........... (0.93)%(c) (1.00)% (1.34)%(c)
Ratio of expenses to average net assets* ..................... 1.70% (c) 1.79% 2.42% (c)
Ratio of net investment loss to average net assets* .......... (0.93)%(c) (1.00)% (1.43)%(c)
Portfolio turnover(d) ........................................ 48.44% 71.62% 46.97%
Average commission rate(e) ................................... $0.0538 $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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-65-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 346
INTERNATIONAL EQUITY FUND
Class A Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 2, 1997
TO
MARCH 31, 1997(a)
-----------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................................................ $ 10.00
---------
INVESTMENT ACTIVITIES
Net realized and unrealized gains on investments ......................................... 0.34
---------
Total from Investment Activities .................................................... 0.34
---------
DISTRIBUTIONS
Net investment income .................................................................... (0.03)
---------
Total Distributions ................................................................. (0.03)
---------
NET ASSET VALUE, END OF PERIOD .............................................................. $ 10.31
=========
Total Return (excludes sales charge) ........................................................ 3.35% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .......................................................... $ 184
Ratio of expenses to average net assets .................................................. 2.14% (c)
Ratio of net investment income to average net assets ..................................... 0.03% (c)
Ratio of expenses to average net assets* ................................................. 2.41% (c)
Ratio of net investment loss to average net assets* ...................................... (0.24)%(c)
Portfolio turnover(d) .................................................................... 5.61%
Average commission rate(e) ............................................................... $ 0.0555
</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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-66-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 347
INTERNATIONAL EQUITY FUND
Class B Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 2, 1997
TO
MARCH 31, 1997(a)
-----------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................................... $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment loss .................................................... (0.01)
Net realized and unrealized gains on investments ....................... 0.34
-------
Total from Investment Activities .................................. 0.33
-------
DISTRIBUTIONS
Net investment income .................................................. (0.02)
-------
Total Distributions ............................................... (0.02)
-------
NET ASSET VALUE, END OF PERIOD ............................................ $ 10.31
=======
Total Return (excludes redemption charge) ................................. 3.27% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........................................ $ 237
Ratio of expenses to average net assets ................................ 2.86% (c)
Ratio of net investment loss to average net assets ..................... (0.49)%(c)
Portfolio turnover(d) .................................................. 5.61%
Average commission rate(e) ............................................. $0.0555
</TABLE>
- -------------
(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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-67-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 348
INTERNATIONAL EQUITY FUND
Trust Shares
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 2, 1997
TO
MARCH 31, 1997(a)
----------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................................... $ 10.00
----------
INVESTMENT ACTIVITIES
Net realized and unrealized gains on investments ............................ 0.35
----------
Total from Investment Activities ....................................... 0.35
----------
DISTRIBUTIONS
Net investment income ....................................................... (0.03)
----------
Total Distributions .................................................... (0.03)
----------
NET ASSET VALUE, END OF PERIOD ................................................. $ 10.32
==========
Total Return ................................................................... 3.48%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............................................. $ 39,670
Ratio of expenses to average net assets ..................................... 2.00%(c)
Ratio of net investment income to average net assets ........................ 0.08%(c)
Ratio of expenses to average net assets* .................................... 2.06%(c)
Ratio of net investment income to average net assets* ....................... 0.02%(c)
Portfolio turnover(d) ....................................................... 5.61%
Average commission rate(e) .................................................. $ 0.0555
</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 portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements
-68-
[LOGO OF BB&T APPEARS HERE]
<PAGE> 349
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:
The following financial statements have been incorporated into the
Statement of Additional Information by reference to BB&T Mutual
Funds Annual Report to Shareholders, dated September 30, 1996 and
BB&T Mutual Funds Semi-Annual Report to Shareholders, dated
March 31, 1997:
- Independent Auditors' Report, dated November 8, 1996.
- Statements of Assets and Liabilities as of September 30, 1996
(audited).
- Statement of Assets and Liabilities as of March 31, 1997
(unaudited).
- Statements of Operations for the year ended September 30, 1996
(audited).
- Statements of Operations for the six months ended March 31,
1997 (unaudited).
C-1
<PAGE> 350
- Statements of Changes in Net Assets for the years or
period ended September 30, 1996 and September 30,
1995 (audited).
- Statements of Changes in Net Assets for the six
months ended March 31, 1997 and for the years or
periods ended September 30, 1996 (unaudited).
- Schedules of Portfolio Investments as of September
30, 1996 (audited).
- Schedule of Portfolio Investments as of March 31,
1997 (unaudited).
- Notes to Financial Statements for the year ended
September 30, 1996 (audited).
- Notes to Financial Statements for the six months
ended March 31, 1997 (unaudited).
- Financial Highlights for the six month period ended
March 31, 1997 (unaudited) and for the years or
periods ended September 30, 1996, September 30, 1995,
September 30, 1994 and the periods ended September
30, 1993 (audited).
(b) Exhibits:
(1) 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
incorporated by reference to Exhibit (2) to Post
Effective Amendment No. 11 to the Registration
Statement of the Registrant on Form N-1A (filed
February 14, 1997).
(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
C-2
<PAGE> 351
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 CastleInternational Asset
Management Limited is incorporated by reference to
Exhibit 5(f) to Post- Effective Amendment No. 11 to
the Registration Statement of the Registrant on Form
N-1A (filed February 14, 1997).
(e) Sub-Advisory Agreement between Branch Banking and
Trust Company and PNC Equity Advisors Company is
incorporated by reference to Exhibit 5(g) to
Post-Effective Amendment No. 11 to the Registration
Statement of the Registrant on Form N-1A (filed
February 14, 1997).
(f) 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 LP as re-executed February 7,
1997 is incorporated by reference to Exhibit 6(a) to
Post-Effective
C-3
<PAGE> 352
Amendment No. 11 to the Registration Statement of the
Registrant on Form N-1A (filed February 14, 1997).
(b) Form of Schedules A-D to the Distribution Agreement
between the Registrant and BISYS Fund Services LP are
filed herewith.
(7) None.
(8) (a) Custody Agreement between the Registrant and Star
Bank, N.A. is incorporated by reference to Exhibit
8(a)to Post- Effective Amendment No. 11 to the
Registration Statement of the Registrant on Form N-1A
(filed February 14, 1997).
(b) Amended Appendix B to the Custody Agreement between
the Registrant and Star Bank, N.A. is filed herewith.
(c) Form of Amended Appendix B to the Custody Agreement
between the Registrant and Star Bank, N.A. is filed
herewith.
(d) Custody Agreement between the Registrant and Bank of
New York is incorporated by reference to Exhibit 8(c)
to Post- Effective Amendment No. 11 to the
Registration Statement of the Registrant on Form N-1A
(filed February 14, 1997).
(9) (a) Management and Administration Agreement between
the Registrant and BISYS Fund Services LP (formerly
The Winsbury Company Limited Partnership) is
incorporated by reference to Exhibit 9(a) to
Post-Effective Amendment No. 1 to the Registration
Statement of the Registrant on Form N-1A (filed March
24, 1993).
(b) Transfer Agency Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly The Winsbury
Service Corporation) is incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A
(filed March 24, 1993).
C-4
<PAGE> 353
(c) Fund Accounting Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly 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 Limited Partnership (formerly The
Winsbury Company Limited Partnership) is filed
herewith.
(f) Form of Revised Schedule A to the Management and
Administration Agreement between the Registrant and
BISYS Fund Services Limited Partnership (formerly The
Winsbury Company Limited Partnership) is filed
herewith.
(g) Amended Schedule A to the Transfer Agency Agreement
between the Registrant and BISYS Fund Services Ohio,
Inc. (formerly The Winsbury Service Corporation) is
filed herewith.
(h) Form of Amended Schedule A to the Transfer Agency
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly The Winsbury Service
Corporation) is filed herewith.
(i) Revised Schedule A to the Fund Accounting Agreement
between the Registrant and BISYS Fund Services Ohio,
Inc. (formerly The Winsbury Service Corporation) is
filed herewith.
(j) Form of Revised Schedule A to the Fund Accounting
Agreement between the Registrant and BISYS Fund
Services
C-5
<PAGE> 354
Ohio, Inc. (formerly The Winsbury Service
Corporation) is filed herewith.
(10) Opinion of Ropes & Gray is filed herewith.
(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 Limited
Partnership is incorporated by reference to Exhibit
15(a) to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N1-A
(filed February 14, 1997).
(b) Form of Revised Schedule A to the Amended and
Restated Distribution and Shareholder Services Plan
as re-executed February 7, 1997 between the
Registrant and BISYS Fund Services Limited
Partnership is filed herewith.
(c) Servicing Agreement with respect to Shareholder
Services between Branch Banking and Trust Company and
BISYS Fund Services Limited Partnership (formerly The
Winsbury Company Limited Partnership) is incorporated
by reference to Exhibit 15(b) to Post-Effective
Amendment No. 1 to the Registration Statement of the
Registrant on Form N-1A (filed March 24, 1993).
(d) Revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund
Services
C-6
<PAGE> 355
Limited Partnership (formerly The Winsbury Company
Limited Partnership) is filed herewith.
(e) Form of Revised Schedule A to the Servicing Agreement
with Branch Banking and Trust Company and BISYS Fund
Services Limited Partnership (formerly The Winsbury
Company Limited Partnership) is filed herewith.
(16) (a) Performance Calculation Schedules relating to
period ended September 30, 1993 for each Fund other
than the Small Company Growth Fund are incorporated
by reference to 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)
(c) Performance Calculation Schedules relating to the
period ended March 31, 1997 for the International
Equity Fund are filed herewith.
(17) Financial Data Schedules
(a) U.S. Treasury Money Market (Class A)
(b) U.S. Treasury Money Market (Trust Class)
(c) U.S. Treasury Money Market (Class B)
(d) Short Intermediate U.S. Government Income Fund
(Class A)
(e) Short Intermediate U.S. Government Income Fund
(Trust Class)
(f) Intermediate U.S. Government Bond Fund (Class A)
(g) Intermediate U.S. Government Bond Fund (Trust
Class)
(h) Intermediate U.S. Government Bond Fund (Class B)
(i) N.C. Intermediate Tax Free Fund (Class A)
(j) N.C. Intermediate Tax Free Fund (Trust Class)
(k) Growth & Income Stock (Class A)
(l) Growth & Income Stock (Trust Class)
C-7
<PAGE> 356
(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)
(t) International Equity Fund (Class A)
(u) International Equity Fund (Trust Class)
(v) International Equity Fund (Class B)
(18) Multiple Class Plan for BB&T Mutual Funds Group
adopted by the Board of Trustees on September 21,
1995 is incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 7 to the Registration
Statement of the Registrant on Form N-1A (filed
October 18, 1995).
Item 25. Persons Controlled By or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of May 31, 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 12
North Carolina Fund 1
Growth and Income Fund 10
Balanced Fund 12
</TABLE>
C-8
<PAGE> 357
<TABLE>
<S> <C>
Small Company Growth Fund 14
International Equity Fund 6
Capital Manager Conservative Growth Fund 0
Capital Manager Moderate Growth Fund 0
Capital Manager Growth Fund 0
Prime Money Market Fund 0
</TABLE>
As of May 31, 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 550
Short-Intermediate Fund 186
Intermediate Bond Fund 166
North Carolina Fund 159
Growth and Income Fund 1833
Balanced Fund 775
Small Company Growth Fund 1633
International Equity Fund 95
Prime Money Market Fund 0
</TABLE>
As of May 31, 1997, the number of recordholders of Class
B Shares of the Registrant's respective series of Class B
Shares were as follows:
C-9
<PAGE> 358
<TABLE>
<CAPTION>
Number of Record Holders
Title of Series of Class B Shares
--------------- -----------------
<S> <C>
U.S. Treasury Fund 222
Intermediate Bond Fund 45
Growth and Income Fund 1341
Balanced Fund 509
Small Company Growth Fund 1211
International Equity Fund 137
</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
C-10
<PAGE> 359
Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties),
shall be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf
of such Covered Person to repay amounts so paid to the
Trust if it is ultimately determined that indemnification
of such expenses is not authorized under this Article,
provided, however, that either (a) such Covered Person
shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses
arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested
Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed
to a full trial type inquiry) that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any
other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith
in the reasonable belief that his action was in the best
interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in
the best interests of the Trust, after notice that it
involves such indemnification, by at least a majority of
the disinterested Trustees acting on 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
C-11
<PAGE> 360
acted in good faith in the reasonable belief that his
action was in the best interests of the Trust and that
such indemnification would not protect such Person against
any liability to the Trust to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in
accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in
the reasonable belief that such Covered Person's action
was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct
of such Covered Person's office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding)
is asserted by such trustee, officer, or controlling
person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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.
C-12
<PAGE> 361
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 BB&T Corporation (formerly, Southern National
Corporation), a bank and savings and loan holding
company. As of December 31, 1996, BB&T Corporation had
assets of approximately $25 billion. Through its
subsidiaries, BB&T Corporation operates over 425 banking
offices in North Carolina, South
Carolina and Virginia, providing a broad range of
financial services to individuals and businesses.
In addition to general commercial, mortgage and retail
banking services, BB&T also provides trust, investment,
insurance and travel services. BB&T has provided
investment management services through its Trust and
Investment Services Division since 1912. BB&T employs an
experienced staff of professional portfolio managers and
traders who use a disciplined investment process that
focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment
funds for its fiduciary accounts for more than 15 years
and currently manages assets of more than $4.5 billion.
Set forth below is information as to any other business,
vocation or employment of a substantial nature (other than
service in wholly-owned subsidiaries or the parent
corporation of BB&T) in which each director or senior
officer of the Registrant's investment adviser is, or at
any time during the past two fiscal years has been,
engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
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.
C-13
<PAGE> 362
<TABLE>
<S> <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.
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.
</TABLE>
C-14
<PAGE> 363
<TABLE>
<S> <C>
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc., McCauley
Moving & Storage of Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
Charles E. Nichols Attorney at Law, North Carolina Trust Center
Director Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
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.
</TABLE>
C-15
<PAGE> 364
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).
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:
C-16
<PAGE> 365
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are as follows:
(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)
C-17
<PAGE> 366
(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-Adviser 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)
(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)
C-18
<PAGE> 367
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 Large
Company Growth Fund and BB&T South Carolina Intermediate
Tax-Free Fund to file a post-effective amendment,
including financial statements which need not be
certified, within four to six months from the commencement
of operations of each of the Large Company Growth Fund
and BB&T South Carolina Intermediate Tax-Free Fund.
C-19
<PAGE> 368
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-20
<PAGE> 369
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. 12 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 2nd day of July, 1997.
THE BB&T MUTUAL FUNDS
GROUP
Registrant
/S/ Walter B. Grimm
------------------------
Walter B. Grimm
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 12 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ Walter B. Grimm Chairman July 2, 1997
- ----------------------
*Walter B. Grimm
/S/ William E. Graham Trustee July 2, 1997
- ----------------------
*William E. Graham
/S/ Thomas W. Lambeth Trustee July 2, 1997
- ----------------------
*Thomas W. Lambeth
/S/ George Landreth Treasurer July 2, 1997
- ----------------------
*George Landreth
/S/ W. Ray Long Trustee July 2, 1997
- ----------------------
*W. Ray Long
/S/ Robert W. Stewart Trustee July 2, 1997
- ----------------------
*Robert W. Stewart
*By:/S/ Alan G. Priest
- ----------------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
</TABLE>
C-21
<PAGE> 370
POWER OF ATTORNEY
Walter B. Grimm whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Maryellen M.
Lundquist, 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 "Trust"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any
and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: 6-18-97 /s/ Walter B. Grimm
--------------------
Walter B. Grimm
<PAGE> 371
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> 372
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> 373
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> 374
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> 375
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> 376
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(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 PNC Institutional Management
Corporation.
(6)(b) Form of Revised Schedules A-D to the Re-executed
Distribution Agreement between the Registrant and BISYS
Fund Services LP
(8)(b) Amended Appendix B to the Custody Agreement between
the Registrant and Star Bank, N.A.
(8)(c) Form of Amended Appendix B to the Custody Agreement
between the Registrant and Star Bank, N.A.
9)(e) Revised Schedule A to the Management and
Administration Agreement between the Registrant and
BISYS Fund Services LP.
(9)(f) Form of Revised Schedule A to the Management and
Administration Agreement between the Registrant and
BISYS Fund Services LP.
(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.
</TABLE>
<PAGE> 377
<TABLE>
<S> <C>
(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.
(10) Opinion of Ropes & Gray.
(11)(a) Consent of KPMG Peat Marwick LLP.
(11)(b) Consent of Ropes & Gray.
(15)(b) Form of Amended Schedule A to the Re-executed
Amended and Restated Distribution and Shareholder
Services Plan between the Registrant and BISYS Fund
Services.
(15)(d) Revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund
Services LP.
(15)(e) Form of Revised Schedule A to the Servicing Agreement
with Branch Banking and Trust Company and BISYS Fund
Services LP.
(16)(c) Performance Calculation Schedule relating to the period
ended March 31, 1997 for the International Equity Fund.
(27) Financial Data Schedules:
(a) U.S. Treasury Money Market (Class A)
(b) U.S. Treasury Money Market (Trust Class)
(c) U.S. Treasury Money Market (Class B)
(d) Short Intermediate U.S. Government Income Fund
(Class A)
(e) Short Intermediate U.S. Government Income Fund
(Trust Class)
(f) Intermediate U.S. Government Bond Fund (Class A)
(g) Intermediate U.S. Government Bond Fund
(Trust Class)
(h) Intermediate U.S. Government Bond Fund (Class B)
(i) N.C. Intermediate Tax Free Fund (Class A)
</TABLE>
<PAGE> 378
<TABLE>
<S> <C>
(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)
(t) International Equity Fund (Class A)
(u) International Equity Fund (Trust Class)
(v) International Equity Fund (Class B)
</TABLE>
<PAGE> 1
EXHIBIT 5(b)
Schedule A to the
Investment Advisory Agreement between BB&T Mutual Funds Group
and Branch Banking & Trust
<PAGE> 2
Dated: April 30, 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
Government Income Fund one percent (.60%) of the BB&T Short-
Intermediate U.S. Government Income
Fund's average daily net assets.
The BB&T Intermediate U.S. Government Annual rate of sixty one-hundredths of
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 Stock Fund Annual rate of seventy-four
one-hundredths of one percent (.74%) of
the BB&T Growth and Income Stock Fund's
average daily net assets.
The BB&T North Carolina Intermediate Annual rate of sixty one-hundredths of
Tax-Free Fund one percent (.60%) of the BB&T North
Carolina Intermediate Tax-Free Fund's
average daily net assets.
The BB&T Balanced Fund Annual rate of seventy-four
one-hundredths of one percent (.74%) of
the BB&T Balanced Fund's average daily
net assets.
The BB&T Small Company Growth Fund Annual rate of one percent (1.00%) of
the BB&T Small Company Growth Fund's
average daily net assets.
</TABLE>
<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
Growth Fund one-hundredths of 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
Growth Fund one-hundredths of one percent (.25%) of
the BB&T Capital Manager Moderate Growth
Fund's average daily net assets.
he BB&T Capital Manager Annual rate of twenty-five
Growth Fund one-hundredths of 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-hundredths of
one percent (.40%) of the BB&T Prime
Money Market 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.
<PAGE> 1
EXHIBIT 5(c)
Form of Revised Schedule A to the
Investment Advisory Agreement between BB&T Mutual Funds Group
and Branch Banking & Trust
<PAGE> 2
Dated: ____________, 1997
Form of
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
Fund one 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
Government Income Fund one percent (.60%) of the BB&T Short-
Intermediate U.S. Government Income
Fund's average daily net assets.
The BB&T Intermediate U.S. Government Annual rate of sixty one-hundredths of
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 Stock Fund Annual rate of seventy-four
one-hundredths of one percent (.74%) of
the BB&T Growth and Income Stock Fund's
average daily net assets.
The BB&T North Carolina Intermediate Annual rate of sixty one-hundredths of
Tax-Free Fund one percent (.60%) of the BB&T North
Carolina Intermediate Tax-Free Fund's
average daily net assets.
The BB&T Balanced Fund Annual rate of seventy-four
one-hundredths of one percent (.74%) of
the BB&T Balanced Fund's average daily
net assets.
The BB&T Small Company Growth Fund Annual rate of one percent (1.00%) of
the BB&T Small Company Growth Fund's
average daily net assets.
</TABLE>
<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
Growth Fund one-hundredths of 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
Growth Fund one-hundredths of 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
Growth Fund one-hundredths of 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-hundredths of
one percent (.40%) of the BB&T Prime
Money Market Fund's average daily net
assets.
The BB&T Large Company Growth Fund Annual rate of one percent (1.00%) of
the BB&T Large Company Growth Fund's
average daily net assets.
The BB&T South Carolina Intermediate Annual rate of sixty one-hundredths of
Tax-Free Fund one percent (.60%) of the BB&T South
Carolina Intermediate Tax-Free Fund's
average daily net assets.
</TABLE>
BB&T MUTUAL FUNDS GROUP
By:
------------------------------
BRANCH BANKING AND TRUST COMPANY
By:
------------------------------
<PAGE> 4
- -------------
* All fees are computed daily and paid monthly.
<PAGE> 1
EXHIBIT 5(f)
Sub-Advisory Agreement between
Branch Banking and Trust Company
and PNC Institutional Management Corporation
<PAGE> 2
SUB-ADVISORY AGREEMENT
AGREEMENT dated as of April 30, 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 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.
(a) Subject to the supervision of the Investment Adviser, the
Sub-Adviser
<PAGE> 3
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 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-
<PAGE> 4
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-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.
<PAGE> 5
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.
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
<PAGE> 6
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, 1998. 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.)
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.
<PAGE> 7
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:
<PAGE> 8
SCHEDULE A
To Sub-Advisory Agreement
Dated as of April 30, 1997
Between Branch Banking and Trust Company
and PNC Institutional Management Corporation
<TABLE>
<CAPTION>
Name of Fund Compensation
- ------------ ------------
<S> <C>
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: _______________________________
</TABLE>
<PAGE> 1
EXHIBIT 6(B)
Form of Revised Schedules A-D to the Re-executed
Distribution Agreement between the Registrant
and BISYS Fund Services
<PAGE> 2
Dated: [_______________]
Form of Revised
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> 3
The BB&T Prime Money Market
Fund
The BB&T South Carolina Intermediate
Tax-Free Fund
The BB&T Large Company Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
-------------------------
Name:
-------------------------
Title:
-------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/
-------------------------
Names:
-------------------------
Title:
-------------------------
A-2
<PAGE> 4
Dated: [_______________]
Form of Revised
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
The BB&T Capital Manager Class B Shares of
Conservative Growth Fund The BB&T Capital Manager
Conservative Growth Fund
Class A Shares of
The BB&T Capital Manager Class B Shares of
Moderate Growth Fund The BB&T Capital Manager
Moderate Growth Fund
B-1
<PAGE> 5
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
Class A Shares of Class B Shares of
The BB&T South Carolina The BB&T South Carolina
Intermediate Tax-Free Fund Intermediate Tax-Free Fund
Class A Shares of Class B Shares of
The BB&T Large Company The BB&T Large Company
Growth Fund Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/
-----------------------------
Names:
-----------------------------
Title:
-----------------------------
B-2
<PAGE> 6
Dated: [______________]
Form of Revised
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> 7
Class A Shares of
The BB&T Capital Manager
Growth Fund
Class A Shares of
The BB&T South Carolina
Intermediate Tax-Free Fund
Class A Shares of
The BB&T Large Company
Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
------------------------------------
Name:
------------------------------------
Title
------------------------------------
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/
------------------------------------
Names:
------------------------------------
Title
------------------------------------
C-2
<PAGE> 8
Dated: [______________]
Form of Revised
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> 9
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
Class B Shares of
The BB&T South Carolina
Intermediate Tax-Free Fund
Class B Shares of
The BB&T Large Company
Growth Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
-------------------------
Name:
-------------------------
Title:
-------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/
-------------------------
Name:
-------------------------
Title:
-------------------------
D-2
<PAGE> 1
EXHIBIT 8(b)
Amended Appendix B to the Custody Agreement
between the Registrant and Star Bank, N.A.
D-3
<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 Balanced Fund
The BB&T Small Company Growth 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: /s/
------------------
Richard B. Ille
Date: 2/22/97
Star Bank, N.A.
By: /s/
------------------
Marsha A. Croxton
Date: 2/20/97
D-4
<PAGE> 1
EXHIBIT 8(c)
Form of Amended Appendix B to the
Custody Agreement between the Registrant
and Star Bank, N.A.
D-5
<PAGE> 2
FORM OF AMENDED
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 Balanced Fund
The BB&T Small Company Growth 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
The BB&T South Carolina Intermediate Tax-Free Fund
The BB&T Large Company Growth Fund
BB&T Mutual Funds Group
By:
----------------------
Date:
----------------------
Star Bank, N.A.
By:
----------------------
Date:
----------------------
D-6
<PAGE> 1
EXHIBIT 9(e)
Schedule A to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
D-7
<PAGE> 2
Dated: As of April 30, 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-hundredths of
Fund one percent (.20%) of each such Fund's
average daily assets
The BB&T Short-Intermediate U.S. Annual Rate of twenty one-hundredths of
Government Income Fund one percent (.20%) of each such Fund's
average daily assets
The BB&T Intermediate U.S. Government Annual Rate of twenty one-hundredths of
Bond Fund one percent (.20%) of each such Fund's
average daily assets
The BB&T Growth and Income Stock Fund Annual Rate of twenty one-hundredths of
one percent (.20%) of each such Fund's
average daily assets
The BB&T North Carolina Intermediate Annual Rate of twenty one-hundredths of
Tax-Free Fund 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
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 one
Growth Fund percent (.05%) of each such Fund's
average daily assets
</TABLE>
D-1
<PAGE> 3
<TABLE>
<S> <C>
The BB&T Capital Manager Moderate Annual Rate of five one-hundredths of one
Growth Fund percent (.05%) of each such Fund's
average daily assets
The BB&T Capital Manager Growth Fund Annual Rate of five one-hundredths of 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: /s/ Richard B. Ille
-----------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
(formerly The Winsbury Company Limited Partnership)
By: BISYS Fund Services, Inc.
General Partner
By: /s/ Stephen G. Mintos
-----------------------------
- -----------------------
*All fees are computed daily and paid periodically.
D-2
<PAGE> 1
EXHIBIT 9(f)
Form of Revised Schedule A to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services Limited Partnership
D-3
<PAGE> 2
Dated: As of ________, 1997
Form of
Schedule A
to the
Management and Administration Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services Limited Partnership
(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-hundredths of one
Fund percent (.20%) of each such Fund's average
daily assets
The BB&T Short-Intermediate U.S. Annual Rate of twenty one-hundredths of one
Government Income Fund percent (.20%) of each such Fund's average
daily assets
The BB&T Intermediate U.S. Government Annual Rate of twenty one-hundredths of one
Bond Fund percent (.20%) of each such Fund's average
daily assets
The BB&T Growth and Income Stock Fund Annual Rate of twenty one-hundredths of one
percent (.20%) of each such Fund's average
daily assets
The BB&T North Carolina Intermediate Annual Rate of twenty one-hundredths of one
Tax-Free Fund 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
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 one
Growth Fund percent (.05%) of each such Fund's average
daily assets
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
The BB&T Capital Manager Moderate Annual Rate of five one-hundredths of one
Growth Fund percent (.05%) of each such Fund's average
daily assets
The BB&T Capital Manager Growth Fund Annual Rate of five one-hundredths of 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
The BB&T South Carolina Intermediate Annual Rate of twenty one-hundredths of one
Tax-Free Fund percent (.20%) of each such Fund's average
daily assets
The BB&T Large Company Growth 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.
By:
----------------------------
- -------------------
*All fees are computed daily and paid periodically.
D-5
<PAGE> 1
EXHIBIT 9(g)
Schedule A to the Transfer Agency Agreement
between BB&T Mutual Funds Group
and BISYS Fund Services Ohio, Inc.
D-6
<PAGE> 2
Dated: April 30, 1997
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly 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: /s/ Richard B. Ille
-----------------------
Title:
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /s/ Stephen G. Mintos
-----------------------
Title:
D-1
<PAGE> 1
EXHIBIT 9(h)
Form of Schedule A
to the Transfer Agency Agreement between
BB&T Mutual Funds Group and BISYS Fund Services Ohio, Inc.
D-2
<PAGE> 2
Dated: _________, 1997
FORM OF
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
South Carolina Intermediate Tax-Free Fund
Large Company Growth Fund
BB&T MUTUAL FUNDS GROUP
By:
---------------------------
Title:
BISYS FUND SERVICES OHIO, INC.
By:
---------------------------
Title:
D-3
<PAGE> 1
EXHIBIT 9(i)
Schedule A to the
Fund Accounting Agreement
between BB&T Mutual Funds Group and
BISYS Fund Services Ohio, Inc.
D-4
<PAGE> 2
Dated: April 30, 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: /s/ Richard B. Ille
--------------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /s/ Stephen G. Mintos
--------------------------------
<PAGE> 1
EXHIBIT 9(j)
Form of Schedule A to the
Fund Accounting Agreement between
BB&T Mutual Funds Group and
BISYS Fund Services Ohio, Inc.
D-6
<PAGE> 2
Dated: _________, 1997
FORM OF
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
The BB&T South Carolina Intermediate Tax-Free Fund
The BB&T Large Company Growth Fund
BB&T MUTUAL FUNDS GROUP
By:
--------------------------------
BISYS FUND SERVICES OHIO, INC.
By:
--------------------------------
D-7
<PAGE> 1
EXHIBIT 10
Opinion of Ropes & Gray
D-8
<PAGE> 2
WRITER'S DIRECT DIAL NUMBER: (202) 626-3913
July 2, 1997
BB&T Mutual Funds Group
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest ("Shares") of
the BB&T Mutual Funds Group ("Trust"), as permitted by Rule 24f-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). You propose to file
a post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) of the 1933 Act and the
Rules thereunder and Section 8(b) of the 1940 Act and the rules thereunder. The
purpose of this filing is to add two new Funds to the Trust ("series").
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clerk of
the City of Boston. We have also examined a copy of your Bylaws and such other
documents, receipts and records as we have deemed necessary for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that the issue and sale
of the authorized but unissued shares of the Series have been duly authorized
under Massachusetts law. Upon the original issue and sale of your authorized but
unissued shares of the Series and upon receipt of the authorized consideration
therefor in an amount not less than the net asset value of the shares of the
Series established and in force at the time of their sale (plus any applicable
sales charge), the shares of the Series issued will be validly issued, fully
paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and
<PAGE> 3
BB&T Mutual Funds Group
July 2, 1997
Page Two
Declaration of Trust provides for indemnification out of the property of a
particular series of Shares for all loss and expenses of any shareholder of that
series held personally liable solely by reason of his being or having been a
shareholder. Thus, the risk of shareholder liability is limited to circumstances
in which that series of Shares itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this opinion
with and as part of your Post-Effective Amendment.
Sincerely,
Ropes & Gray
<PAGE> 1
EXHIBIT 11(a)
Consent of KPMG Peat Marwick LLP.
<PAGE> 2
EXHIBIT 11(a)
Auditors' Consent
The Board of Trustees of
BB&T Mutual Funds Group:
We consent to the use of our report incorporated by reference and 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 Prospectuses and
"Independent Accountants" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
July 2, 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. 12 to the Registration Statement of the BB&T Mutual Funds Group on
Form N-1A under the Securities Act of 1933, as amended.
ROPES & GRAY
Washington, D.C.
July 2, 1997
<PAGE> 1
EXHIBIT 15(b)
Form of Amended Schedule A to the
Re-Executed Amended and Restated Distribution
and Shareholder Services Plan between the Registrant
and BISYS Fund Services
<PAGE> 2
Dated: [_______________]
Form of Amended
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
Name of Funds Compensation*
The BB&T U.S. Treasury Money Market Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T U.S.
Treasury Money Market Fund.
The BB&T Short-Intermediate U.S. Annual rate of fifty one-hundredths
Government Income Fund -- A Shares of one 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
Bond Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T
Intermediate U.S. Government Bond
Fund.
The BB&T Growth and Income Stock Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Growth
and Income Stock Fund.
The BB&T North Carolina Intermediate Annual rate of fifty one-hundredths
Tax-Free Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T North
Carolina Intermediate Tax-Free Fund.
The BB&T Balanced Fund -- A Shares Annual rate of fifty one-hundredths
of one percent (.50%) of the average
daily net assets of the BB&T Balanced
Fund.
The BB&T Small Company Growth Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Small
Company Growth Fund.
The BB&T International Equity Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T
International Equity Fund.
A-1
<PAGE> 3
The BB&T Capital Manager Annual rate of fifty one-hundredths
Conservative Growth Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Capital
Manager Conservative Growth Fund.
The BB&T Capital Manager Annual rate of fifty one-hundredths
Moderate Growth Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Capital
Manager Moderate Growth Fund.
The BB&T Capital Manager Annual rate of fifty one-hundredths
Growth Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Capital
Manager Growth Fund.
The BB&T Prime Money Market Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Prime
Money Market Fund.
The BB&T South Carolina Intermediate Annual rate of fifty one-hundredths
Tax-Free Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T South
Carolina Intermediate Tax-Free Fund.
The BB&T Large Company Growth Annual rate of fifty one-hundredths
Fund -- A Shares of one percent (.50%) of the average
daily net assets of the BB&T Large
Company Growth Fund.
The BB&T U.S. Treasury Money Market Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T U.S. Treasury Money Market Fund.
The BB&T Short-Intermediate U.S. Annual rate of one percent (1.00%) of
Government Fund -- B Shares the average daily net assets of the
BB&T Short-Intermediate U.S.
Government Fund.
The BB&T Intermediate U.S. Government Annual rate of one percent (1.00%) of
Bond Fund -- B Shares the average daily net assets of the
BB&T Intermediate U.S. Government
Bond Fund.
The BB&T Growth and Income Stock Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T Growth and Income Stock Fund.
The BB&T North Carolina Intermediate Annual rate of one percent (1.00%) of
Tax-Free Fund -- B Shares the average daily net assets of the
BB&T North Carolina Tax-Free Fund.
A-2
<PAGE> 4
The BB&T Balanced Fund -- B Shares Annual rate of one percent (1.00%) of
the average daily net assets of the
BB&T Balanced Fund.
The BB&T Small Company Growth Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T Small Company Growth Fund.
The BB&T International Annual rate of one percent (1.00%) of
Equity Fund -- B Shares the average daily net assets of the
BB&T International Equity Fund.
The BB&T Capital Manager Annual rate of one percent (1.00%) of
Conservative Growth Fund -- B Shares the average daily net assets of the
BB&T Capital Manager Conservative
Growth Fund.
The BB&T Capital Manager Annual rate of one percent (1.00%) of
Moderate Growth Fund -- B Shares the average daily net assets of the
BB&T Capital Manager Moderate Growth
Fund.
The BB&T Capital Manager Annual rate of one percent (1.00%) of
Growth Fund -- B Shares the average daily net assets of the
BB&T Capital Manager Growth Fund.
The BB&T Prime Money Market Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T Prime Money Market Fund.
The BB&T South Carolina Intermediate Annual rate of one percent (1.00%) of
Tax-Free Fund -- B Shares the average daily net assets of the
BB&T South Carolina Intermediate
Tax-Free Fund.
The BB&T Large Company Growth Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the
BB&T Large Company Growth Fund.
[SEAL] BB&T MUTUAL FUNDS GROUP
By:____________________
BISYS FUND SERVICES
By:____________________
___________
* All fees are computed and paid monthly.
A-3
<PAGE> 1
EXHIBIT 15(d)
Schedule A to the Servicing Agreement with Respect to
Distribution Assistance and Shareholder Services
between BISYS Fund Services, Inc.
and Branch Banking and Trust Company
<PAGE> 2
Dated: April 30, 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
Name of the Fund Compensation*
The BB&T U.S. Treasury Money Market Annual rate of twenty-five
Fund one-hundredths 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
Government Income Fund one-hundredths 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
Bond Fund one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Intermediate U.S.
Government Bond Fund's Class A Shares
held of record by the Participating
Organization from time to time on
behalf of Customers.
The BB&T Growth and Income Stock Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Growth and Income Stock
Fund's Class A Shares held of record
by the Participating Organization
from time to time on behalf of
Customers.
The BB&T North Carolina Intermediate Annual rate of twenty-five
Tax-Free Fund one-hundredths of 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.
<PAGE> 3
The BB&T Balanced Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Balanced Fund's Class A
Shares held of record by the
Participating Organization from time
to time on behalf of the Customers.
The BB&T Small Company Growth Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Small Company Growth
Fund's Class A Shares held of record
by the Participating Organization
from time to time on behalf of
Customers.
The BB&T International Annual rate of twenty-five
Equity Fund 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 Annual rate of twenty-five
Conservative Growth Fund one-hundredths of 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 Annual rate of twenty-five
Moderate Growth Fund one-hundredths of 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.
The BB&T Capital Manager Annual rate of twenty-five
Growth Fund one-hundredths of 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.
A-2
<PAGE> 4
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.
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
(formerly The Winsbury Company
Limited Partnership) BRANCH BANKING AND TRUST
COMPANY
By: BISYS FUND SERVICES
GENERAL PARTNER
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(e)
Form of Schedule A to the Servicing Agreement with Respect to
Distribution Assistance and Shareholder Services
between BISYS Fund Services, Inc.
and Branch Banking and Trust Company
A-4
<PAGE> 2
Dated: _________, 1997
Form of
Schedule A
to the
Servicing Agreement With Respect To
Distribution Assistance and Shareholder Services
between BISYS Fund Services Limited Partnership
(formerly The Winsbury Company Limited Partnership)
and Branch Banking and Trust Company
Name of the Fund Compensation*
The BB&T U.S. Treasury Money Market Annual rate of twenty-five
Fund one-hundredths 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
Government Income Fund one-hundredths 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
Bond Fund one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Intermediate U.S.
Government Bond Fund's Class A Shares
held of record by the Participating
Organization from time to time on
behalf of Customers.
The BB&T Growth and Income Stock Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Growth and Income Stock
Fund's Class A Shares held of record
by the Participating Organization
from time to time on behalf of
Customers.
A-5
<PAGE> 3
The BB&T North Carolina Intermediate Annual rate of twenty-five
Tax-Free Fund one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T North Carolina
Intermediate Tax-Free Fund's Class A
Shares held of record by the
Participating Organization from time
to time on behalf of Customers.
The BB&T Balanced Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Balanced Fund's Class A
Shares held of record by the
Participating Organization from time
to time on behalf of the Customers.
The BB&T Small Company Growth Fund Annual rate of twenty-five
one-hundredths of one percent (.25%)
of the average daily net asset value
of the BB&T Small Company Growth
Fund's Class A Shares held of record
by the Participating Organization
from time to time on behalf of
Customers.
The BB&T International Annual rate of twenty-five
Equity Fund 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 Annual rate of twenty-five
Conservative Growth Fund one-hundredths of 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 Annual rate of twenty-five
Moderate Growth Fund one-hundredths of 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.
A-6
<PAGE> 4
The BB&T Capital Manager Annual rate of twenty-five
Growth Fund one-hundredths of 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.
The BB&T South Carolina Intermediate Annual rate of twenty-five
Tax-Free Fund 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.
The BB&T Large 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 Prime Money Market Fund's
Class A Shares held of record by the
Participating Organization from time
to time on behalf of Customers.
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
BRANCH BANKING AND TRUST
By: BISYS FUND SERVICES, INC. COMPANY
GENERAL PARTNER
By: By:
-------------------------------- ---------------------------------
- ----------------
* All fees are computed daily and paid monthly.
A-7
<PAGE> 1
EXHIBIT 16(c)
Performance Calculation Schedule relating to
the period ended March 31, 1997 for the
International Equity Fund
A-8
<PAGE> 2
EXHIBIT 16(c)
Total Return
Variable Funds
No Load Calculations
Class A Shares
International Equity Funds
AGGREGATE TOTAL RETURN WITH SALES LOAD OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF
$1,000.
EXAMPLE:
SINCE INCEPTION: (01/02/97 TO 03/31/97):
(1,033.5 / 1,000) -1 = 3.35%
YEAR TO DATE: (01/02/97 TO 03/31/97):
(1,033.5 / 1,000) - 1 = 3.35%
QUARTERLY (01/02/97 TO 03/31/97):
(1,033.5 / 1,000) - 1 = 3.35%
MONTHLY: (03/01/97 TO 03/31/97):
(994.7 / 1,000) - 1 = -0.53%
<PAGE> 3
EXHIBIT 16(c)
Total Return
Variable Funds
No Load Calculations
Class A Shares
International Equity Funds
AGGREGATE TOTAL RETURN WITH SALES LOAD OF: 4.50%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000 INVESTMENT
MADE AT THE BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF 1,000
EXAMPLE:
SINCE INCEPTION: (01/02/97 TO 03/31/97):
(987.1 / 1,000) - 1 = -1.29%
YEAR TO DATE: (01/02/97 TO 03/31/97):
(987.1 / 1,000) - 1 = -1.29%
QUARTERLY: (01/02/97 TO 03/31/97):
(987.1 / 1,000) - 1 = -1.29%
MONTHLY: (03/01/97 TO 03/31/97):
(949.9 / 1,000) - 1 = -5.01%
<PAGE> 4
EXHIBIT 16(c)
Total Return
Variable Funds
No Load Calculations
Trust Shares
International Equity Fund
AGGREGATE TOTAL RETURN WITH SALES LOAD OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000 INVESTMENT
MADE AT THE BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: (01/02/97 TO 03/31/97):
(1,034.8 / 1,000) - 1 = 3.48%
YEAR TO DATE: (01/02/97 TO 03/31/97):
(1,034.8 / 1,000) - 1 = 3.48%
QUARTERLY: (01/02/97 TO 03/31/97):
(1,034.8 / 1,000) - 1 = 3.48%
MONTHLY: (03/01/97 TO 03/31/97):
(995.0 / 1,000) - 1 = -0.50%
-3-
<PAGE> 5
EXHIBIT 16(c)
Total Return
Variable Funds
CDSC Calculations
Class B Shares
International Equity Fund
AGGREGATE TOTAL RETURN WITH CDSC OF: 5.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD
OF A HYPOTHETICAL $1,000 INVESTMENT MADE AT
THE BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: (01/02/97 TO 03/31/97):
(982.7 / 1,000) - 1 = -1.73%
YEAR TO DATE: (01/02/97 TO 03/31/97):
(982.7 / 1,000) - 1 = -1.73%
QUARTERLY: (01/02/97 TO 03/31/97):
(982.7 / 1,000) - 1 = -1.73%
MONTHLY: (03/01/97 TO 03/31/97):
(944.3 / 1,000) - 1 = -5.57%
-4-
<PAGE> 6
EXHIBIT 16(c)
Total Return
Variable Funds
No CDSC Calculations
Class B Shares
International Equity Fund
AGGREGATE TOTAL RETURN WITH SALES LOAD OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD
OF A HYPOTHETICAL $1,000 INVESTMENT MADE AT
THE BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: (01/02/97 TO 03/31/97):
(1,032.7 / 1,000) - 1 = 3.26%
YEAR TO DATE: (01/02/97 TO 03/31/97):
(1,032.7 / 1,000) - 1 = 3.26%
QUARTERLY: (01/02/97 TO 03/31/97):
(1,032.7 / 1,000) - 1 = 3.26%
MONTHLY: (03/01/97 TO 03/31/97):
(993.9 / 1,000) - 1 = -0.61%
-5-
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 011
<NAME> U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 226,237,899
<INVESTMENTS-AT-VALUE> 226,237,899
<RECEIVABLES> 46,338
<ASSETS-OTHER> 43,147
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,327,384
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,028,704
<TOTAL-LIABILITIES> 1,028,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 225,298,431
<SHARES-COMMON-STOCK> 27,959,539<F1>
<SHARES-COMMON-PRIOR> 27,931,354<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 249
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 225,298,680
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,067,466
<OTHER-INCOME> 0
<EXPENSES-NET> 887,164
<NET-INVESTMENT-INCOME> 5,180,302
<REALIZED-GAINS-CURRENT> 249
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,180,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 616,018<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 24,436,501<F1>
<NUMBER-OF-SHARES-REDEEMED> 25,011,015<F1>
<SHARES-REINVESTED> 602,702<F1>
<NET-CHANGE-IN-ASSETS> (9,911,915)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 460,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 929,802
<AVERAGE-NET-ASSETS> 28,502,742<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .022<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .022<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .94<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 012
<NAME> U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 226,237,899
<INVESTMENTS-AT-VALUE> 226,237,899
<RECEIVABLES> 46,338
<ASSETS-OTHER> 43,147
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,327,384
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,028,704
<TOTAL-LIABILITIES> 1,028,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 225,298,431
<SHARES-COMMON-STOCK> 195,888,937<F1>
<SHARES-COMMON-PRIOR> 205,974,456<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 249
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 225,298,680
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,067,466
<OTHER-INCOME> 0
<EXPENSES-NET> 887,164
<NET-INVESTMENT-INCOME> 5,180,302
<REALIZED-GAINS-CURRENT> 249
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,180,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,538,753<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 144,464,991<F1>
<NUMBER-OF-SHARES-REDEEMED> 155,197,597<F1>
<SHARES-REINVESTED> 647,087<F1>
<NET-CHANGE-IN-ASSETS> (9,911,915)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 460,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 929,802
<AVERAGE-NET-ASSETS> 200,716,523<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .023<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .023<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .74<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 013
<NAME> U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 226,237,899
<INVESTMENTS-AT-VALUE> 226,237,899
<RECEIVABLES> 46,338
<ASSETS-OTHER> 43,147
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,324,384
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,028,704
<TOTAL-LIABILITIES> 1,028,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 225,298,431
<SHARES-COMMON-STOCK> 1,450,042<F1>
<SHARES-COMMON-PRIOR> 1,304,785<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 249
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 225,298,680
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,067,466
<OTHER-INCOME> 0
<EXPENSES-NET> 887,164
<NET-INVESTMENT-INCOME> 5,180,302
<REALIZED-GAINS-CURRENT> 249
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,180,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,531<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,319,918<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,198,474<F1>
<SHARES-REINVESTED> 23,813<F1>
<NET-CHANGE-IN-ASSETS> (9,911,915)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 460,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 929,802
<AVERAGE-NET-ASSETS> 1,449,158<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .018<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .018<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 1.74<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 021
<NAME> SHORT-INTERMEDIATE U S GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 10,434,473
<INVESTMENTS-AT-VALUE> 100,617,426
<RECEIVABLES> 1,572,273
<ASSETS-OTHER> 5,794
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,195,493
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 580,285
<TOTAL-LIABILITIES> 580,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,683,152
<SHARES-COMMON-STOCK> 581,477<F1>
<SHARES-COMMON-PRIOR> 653,039<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,250,897
<ACCUM-APPREC-OR-DEPREC> (1,817,047)
<NET-ASSETS> 101,615,208
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,757,726
<OTHER-INCOME> 0
<EXPENSES-NET> 363,743
<NET-INVESTMENT-INCOME> 2,393,983
<REALIZED-GAINS-CURRENT> 229,586
<APPREC-INCREASE-CURRENT> (1,271,909)
<NET-CHANGE-FROM-OPS> 1,351,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 169,839<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 37,863<F1>
<NUMBER-OF-SHARES-REDEEMED> 123,274<F1>
<SHARES-REINVESTED> 13,849<F1>
<NET-CHANGE-IN-ASSETS> 32,637,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 545,138
<GROSS-ADVISORY-FEES> 246,765
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412,930
<AVERAGE-NET-ASSETS> 6,107,012<F1>
<PER-SHARE-NAV-BEGIN> 9.73<F1>
<PER-SHARE-NII> .27<F1>
<PER-SHARE-GAIN-APPREC> (.11)<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> .27<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.62<F1>
<EXPENSE-RATIO> 1.12<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 022
<NAME> SHORT-INTERMEDIATE U S GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 10,434,473
<INVESTMENTS-AT-VALUE> 100,617,426
<RECEIVABLES> 1,572,273
<ASSETS-OTHER> 5,794
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,195,493
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 580,285
<TOTAL-LIABILITIES> 580,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,683,152
<SHARES-COMMON-STOCK> 9,972,312<F1>
<SHARES-COMMON-PRIOR> 6,430,579<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,250,897
<ACCUM-APPREC-OR-DEPREC> (1,817,047)
<NET-ASSETS> 101,615,208
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,757,726
<OTHER-INCOME> 0
<EXPENSES-NET> 363,743
<NET-INVESTMENT-INCOME> 2,393,983
<REALIZED-GAINS-CURRENT> 229,586
<APPREC-INCREASE-CURRENT> (1,271,909)
<NET-CHANGE-FROM-OPS> 1,351,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,224,144<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4,120,848<F1>
<NUMBER-OF-SHARES-REDEEMED> 641,609<F1>
<SHARES-REINVESTED> 62,494<F1>
<NET-CHANGE-IN-ASSETS> 32,637,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 545,138
<GROSS-ADVISORY-FEES> 246,765
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412,930
<AVERAGE-NET-ASSETS> 76,372,174<F1>
<PER-SHARE-NAV-BEGIN> 9.74<F1>
<PER-SHARE-NII> .28<F1>
<PER-SHARE-GAIN-APPREC> (.11)<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> .28<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.63<F1>
<EXPENSE-RATIO> .87<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> TRUST CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 031
<NAME> INTERMEDIATE U S GOVERNMENT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 134,149,391
<INVESTMENTS-AT-VALUE> 130,604,369
<RECEIVABLES> 1,944,359
<ASSETS-OTHER> 13,940
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,562,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 741,995
<TOTAL-LIABILITIES> 741,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137,238,927
<SHARES-COMMON-STOCK> 469,300<F1>
<SHARES-COMMON-PRIOR> 380,071<F1>
<ACCUMULATED-NII-CURRENT> 5,718
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,878,950
<ACCUM-APPREC-OR-DEPREC> (3,545,022)
<NET-ASSETS> 131,820,673
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,290,735
<OTHER-INCOME> 0
<EXPENSES-NET> 563,344
<NET-INVESTMENT-INCOME> 3,727,391
<REALIZED-GAINS-CURRENT> 63,142
<APPREC-INCREASE-CURRENT> (2,010,742)
<NET-CHANGE-FROM-OPS> 1,779,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 118,362<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 117,682<F1>
<NUMBER-OF-SHARES-REDEEMED> 37,511<F1>
<SHARES-REINVESTED> 9,058<F1>
<NET-CHANGE-IN-ASSETS> 8,175,562
<ACCUMULATED-NII-PRIOR> 5,718
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,942,092
<GROSS-ADVISORY-FEES> 387,994
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 633,145
<AVERAGE-NET-ASSETS> 4,229,815<F1>
<PER-SHARE-NAV-BEGIN> 9.63<F1>
<PER-SHARE-NII> .27<F1>
<PER-SHARE-GAIN-APPREC> .14<F1>
<PER-SHARE-DIVIDEND> .27<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.49<F1>
<EXPENSE-RATIO> 1.13<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 032
<NAME> INTERMEDIATE U S GOVERNMENT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
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<F1> TRUST CLASS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 033
<NAME> INTERMEDIATE U S GOVERNMENT BOND FUND
<S> <C>
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<FN>
<F1> CLASS B
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 041
<NAME> NORTH CAROLINA INTERMEDIATE TAX FREE FUND
<S> <C>
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<FISCAL-YEAR-END> SEP-30-1997
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<FN>
<F1> CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 042
<NAME> NORTH CAROLINA INTERMEDIATE TAX FREE
<S> <C>
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<FN>
<F1>TRUST CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 051
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
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<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 052
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<FN>
<F1>TRUST CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 053
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<FN>
<F1> CLASS B
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
<SERIES>
<NUMBER> 061
<NAME> BALANCED FUND
<S> <C>
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<F1> Class B
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS
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<NAME> SMALL COMPANY GROWTH
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<TABLE> <S> <C>
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<NAME> BB&T MUTUAL FUNDS
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<TABLE> <S> <C>
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<NAME> SMALL COMPANY GROWTH FUND
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<TABLE> <S> <C>
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<NAME> BB&T MUTUAL FUNDS
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<NUMBER> 081
<NAME> INTERNATIONAL EQUITY FUND
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<NAME> BB&T MUTUAL FUNDS
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<F1> Trust Class
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<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 40,091,720
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,218
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159,510
<AVERAGE-NET-ASSETS> 120,636<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> (.01)<F1>
<PER-SHARE-GAIN-APPREC> .34<F1>
<PER-SHARE-DIVIDEND> .02<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.31<F1>
<EXPENSE-RATIO> 2.86<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> Class B
</FN>
</TABLE>
