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BB&T MUTUAL FUNDS
Small Company Growth Fund
TRUST SHARES
BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED JANUARY 2, 1997
AS REVISED JUNE 16, 1997
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TABLE OF CONTENTS
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Page
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Prospectus Summary.................................................................... 2
Fee Table............................................................................. 3
Financial Highlights.................................................................. 4
Investment Objective and Policies..................................................... 5
Investment Restrictions............................................................... 11
Valuation of Shares................................................................... 12
How to Purchase and Redeem Shares..................................................... 12
Dividends and Taxes................................................................... 15
Management of BB&T Mutual Funds Group................................................. 16
General Information................................................................... 19
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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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BB&T MUTUAL FUNDS GROUP
BB&T SMALL COMPANY GROWTH FUND
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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
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THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") is a
separate investment fund of the BB&T Mutual Funds Group (the "Group"), an
open-end management investment company offering to the public twelve separate
investment funds (each a "Fund"). The BB&T Small Company Growth Fund seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies.
This Prospectus relates to the Trust Shares of the Small Company Growth Fund,
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 of the
Small Company Growth Fund, 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 is dated April 30, 1997 and is incorporated by
reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Small Company
Growth Fund's Trust Shares that a prospective investor ought to know before
investing. Investors should read this Prospectus and retain it for future
reference.
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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.
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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.
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PROSPECTUS DATED JANUARY 2, 1997, AS REVISED JUNE 16, 1997.
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PROSPECTUS SUMMARY
The Small Company Growth
Fund..................... This prospectus relates to only the Trust Class
Shares of the Small Company Growth Fund, one class
of a separately managed portfolio of BB&T Mutual
Funds Group (the "Group"). The Group, a
Massachusetts business trust, is an open-end
management investment company which currently
consists of twelve separately managed portfolios
(each a "Fund"). Like most of the Group's Funds,
the Small Company Growth Fund offers to the public
three classes of Shares: Class A, Class B and Trust
Class.
Investment Objective and
Policies................. The Small Company Growth Fund seeks long-term
capital appreciation through investment primarily
in a diversified portfolio of equity and
equity-related securities of small capitalization
growth companies.
Investment Risks........... The Small Company Growth Fund's performance may
change daily based on many factors including
interest rate levels, the quality of the
obligations in the Fund's portfolio, and market
conditions.
Offering Price............. The public offering price of the Small Company
Growth Fund is equal to its 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.
Investment Sub-Adviser..... PNC Equity Advisors Company, Philadelphia,
Pennsylvania
Dividends.................. The Small Company Growth Fund declares and pays
dividends quarterly.
Distributor................ BISYS Fund Services, Columbus, Ohio.
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FEE TABLE
The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Trust Shares of the Small Company Growth Fund will bear,
either directly or indirectly.
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SMALL COMPANY
GROWTH FUND
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TRUST CLASS
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SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price)............................................................................ 0%
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable).......................................................... 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(2)................ 0%
Exchange Fee.......................................................................... $ 0
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees..................................................................... 1.00%
12b-1 Fees.......................................................................... 0%
Other Expenses...................................................................... .79%
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Total Fund Operating Expenses....................................................... 1.79%
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(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 the 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.")
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares of
the Small Company Growth Fund, assuming (1) 5% annual return and (2) redemption
at the end of each time period:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Small Company Growth Fund.............. $18 $56 $97 $211
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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 Fund
in understanding the various costs and expenses that an investor in the Trust
Shares of the Fund will bear directly or indirectly. See "MANAGEMENT OF BB&T
MUTUAL FUNDS GROUP" for a more complete discussion of annual operating expenses
of the 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.
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FINANCIAL HIGHLIGHTS
The table below sets forth financial highlights concerning the investment
results for the Small Company Growth Fund for the periods indicated. The
information has been audited by KPMG Peat Marwick LLP, independent accountants
for the Group, whose report thereon, insofar as it relates to each of the years
or periods indicated herein is included in the Statement of Additional
Information.
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.
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SMALL COMPANY GROWTH FUND
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FOR THE YEAR
ENDED DEC. 7. 1994 TO
SEPT. 30, 1996 SEPT. 30, 1995(a)
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TRUST CLASS TRUST CLASS
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NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 14.57 $ 10.00
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INVESTMENT ACTIVITIES
Net investment loss..................................... (0.17) (0.07)
Net realized and unrealized gains on investments........ 6.78 4.64
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Total from Investment Activities................... 6.61 4.57
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NET ASSET VALUE, END OF PERIOD............................ $ 21.18 $ 14.57
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Total Return.............................................. 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $36,373 $ 16,962
Ratio of expenses to average net assets................. 1.79% 2.33%(c)
Ratio of net investment loss to average net assets (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*................ 1.79% 2.42%(c)
Ratio of net investment loss to average net assets*..... (1.00)% (1.43)%(c)
Portfolio Turnover(d)..................................... 71.62% 46.97%
Average commission rate(e) $0.0562
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* 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
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 investment objective of the Fund is
fundamental and may not be changed without the vote of a majority of the
outstanding Shares of the Fund (as defined below under "GENERAL
INFORMATION--Miscellaneous"). There can be, of course, no assurance that the
Fund will achieve its investment objective.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
invested in the instruments described below and under "Specific Investment
Policies."
Smaller, less seasoned companies may be subject to greater business risk than
larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.
Depending upon the performance of the portfolio investments of the Small
Company Growth Fund the net asset value per Share of the Fund will fluctuate.
SPECIFIC INVESTMENT POLICIES
The following is a description of certain of the permitted investments for the
Small Company Growth Fund. For a more detailed description, see the Statement of
Additional Information.
REPURCHASE AGREEMENTS
Securities held by the Small Company Growth Fund may be subject to repurchase
agreements. The Fund will enter into repurchase agreements for the purposes of
maintaining liquidity and obtaining favorable yields. Under the terms of a
repurchase agreement, the 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, the 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
the Fund were delayed pending court action. Additionally, if the seller should
be involved in bankruptcy or insolvency proceedings, the Fund could incur delays
and costs in selling the underlying security or could suffer a loss of principal
and interest if the Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. The Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by the Fund's investment sub-adviser. Except as described in
the Statement of Additional Information, there is no aggregate limitation on the
amount of the 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.
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REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, the Small
Company Growth Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements. The Fund will enter into reverse repurchase
agreements for the purpose of meeting liquidity needs. Pursuant to such
agreements, the 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 the Fund may decline below the price
at which the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by the Fund under the Investment
Company Act of 1940.
WHEN-ISSUED SECURITIES
The Small Company Growth Fund may purchase securities on a when-issued or
delayed-delivery basis and may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid Fund securities equal to the amount of
that commitment in a separate account and may be required to subsequently place
additional assets in the separate account to maintain equivalence with the
Fund's commitment. The ability to purchase when-issued securities will provide
the Fund with the flexibility of participating in new issues of government
securities, particularly mortgage-related securities. Prior to delivery of
when-issued securities, the securities are subject to fluctuations in value, and
no income accrues until their receipt. The Fund engages in when-issued and
delayed-delivery transactions only with the intent of acquiring Fund securities
consistent with its investment objective and policies, and not for investment
leverage. In when-issued and delayed-delivery transactions, the Fund relies on
the seller to complete the transaction; its failure to do so may cause the Fund
to miss a price or yield considered to be advantageous. The Small Company Growth
Fund's when-issued purchases and forward commitments are not expected to exceed
25% of the value of its total assets absent unusual market conditions.
SHORT-TERM OBLIGATIONS
The Small Company Growth Fund may invest in high quality, short-term
obligations (with maturities of 12 months or less) such as domestic and foreign
commercial paper (including variable-amount master demand notes), bankers'
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
Such investments will be limited to those obligations which, at the time of
purchase, (i) possess one of the two highest short-term ratings from at least
two nationally recognized statistical rating organizations ("NRSROs") (for
example, commercial paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2" by
Moody's), or (ii) do not possess a rating (i.e., are unrated) but are determined
by PNC Equity Advisors Company ("PEAC") to be of comparable quality to rated
instruments eligible for purchase. Under normal market conditions, the Small
Company Growth Fund will limit its investment in short-term obligations to 35%.
The Small Company Growth Fund may invest in short-term obligations in order to
acquire interest income combined with liquidity. For temporary defensive
purposes, as determined by PEAC, these investments may constitute 100% of the
Fund's portfolio and, in such circumstances, will constitute a temporary
suspension of the Fund's attempts to achieve its investment objective.
U.S. GOVERNMENT SECURITIES
The Small Company Growth Fund may invest 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. The types
of U.S. Government Securities in which the Fund will invest include obligations
issued or guaranteed as to payment of principal and interest by the full faith
and credit of the U.S. Government, such as Treasury bills, notes, bonds and
certificates of indebtedness, and obligations issued or guaranteed by the
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agencies or instrumentalities of the U.S. Government, but not supported by such
full faith and credit. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association and
the Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks, or the Federal Home Loan Mortgage Corporation,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Fund would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities.
The Small Company Growth Fund 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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Small Company Growth Fund may also invest in collateralized mortgage
obligations ("CMOs"). CMOs are mortgage-related securities which are structured
pools of mortgage pass-through certificates or mortgage loans. CMOs are issued
with a number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by the 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 the 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 origi-
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nators 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 the Fund may be considered liquid
securities pursuant to guidelines established by the Group's Board of Trustees.
The Fund will not purchase a stripped mortgage security that is illiquid if, as
a result thereof, more than 15% of the value of its net assets would be invested
in such securities and other illiquid securities.
Unless stated otherwise, the Fund will limit its investment in CMOs to 25% of
the value of its total assets.
COMMERCIAL BONDS
The Small Company Growth Fund may invest up to 35% of its assets, 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 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 Small Company Growth Fund 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 PEAC 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, the Fund will not be obligated to dispose of such obligations
and may continue to hold such obligations if, in the opinion of PEAC such
investment is considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Small Company
Growth 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. These options may relate to particular
securities, financial instruments, foreign currencies, stock or bond indices or
the yield differential between two securities, and may or may not be listed on a
securities exchange and may or may not be issued by the Options Clearing
Corporation. The Fund will not purchase put and call options 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.
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To the extent consistent with its investment objective, the Small Company
Growth Fund may also invest in futures contracts and options on futures
contracts to commit funds awaiting investment in stocks or maintain cash
liquidity or for other hedging purposes. The value of the Fund's contracts may
equal or exceed 100% its total assets, although the Fund will not purchase or
sell a futures contract unless immediately afterwards the aggregate amount of
margin deposits on its existing futures positions plus the amount of premiums
paid for related futures options entered into for other than bona fide hedging
purposes is 5% or less of its net assets.
Futures contracts obligate the Small Company Growth Fund at maturity, to take
or make delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. The Fund may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. The
Fund may do so either to hedge the value of its securities portfolio as a whole,
or to protect against declines occurring prior to sales of securities in the
value of the securities to be sold. In addition, the Fund may utilize futures
contracts in anticipation of changes in the composition of its holdings or in
currency exchange rates.
The Small Company Growth Fund may purchase and sell call and put options on
futures contracts traded on an exchange or board of trade. When the Fund
purchases an option on a futures contract, it has the right to assume a position
as a purchaser or a seller of a futures contract at a specified exercise price
during the option period. When the Fund sells an option on a futures contract,
it becomes obligated to sell or buy a futures contract if the option is
exercised. In connection with the Fund's position in a futures contract or
related option, the Fund will create a segregated account of liquid 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) PEAC's
inability to predict correctly the direction of securities prices, interest
rates, currency exchange rates, and other economic factors. Successful use of
futures is subject to the ability correctly to predict movements in the
direction of the market. For example, if the Fund uses futures contracts as a
hedge against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will lose
part or all of the benefit of the increased value of its securities that it has
hedged because the Fund will have approximately equal offsetting losses in its
future positions. The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in future pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor. Thus, a purchase or sale of a
futures contract may result in losses or gains in excess of the amount invested
in the contract.
The Fund's ability to engage in options and futures transactions and to sell
related securities may be limited by tax considerations.
FOREIGN INVESTMENTS
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. The Fund may also invest in securities issued by
foreign branches of U.S. banks and foreign banks and in Canadian Commercial
Paper and Europaper. ADRs typically are issued by an American bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. Unsponsored ADR 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, and the prices of unsponsored
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ADRs 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. The 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 the 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,
the 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.
OTHER INVESTMENT PRACTICES
For liquidity purposes, the Small Company Growth Fund may invest in money
market funds. The Fund may invest up to 5% of the value of its total assets in
the securities of any one money market mutual fund (including Shares of the U.S.
Treasury Fund pursuant to exemptive relief granted by the Securities and
Exchange Commission and up to 10% of its total assets in more than one money
market mutual fund. In order to avoid the imposition of additional fees as a
result of investments in Shares of the U.S. Treasury Fund, BB&T and BISYS Fund
Services (the "Administrator") (see "MANAGEMENT OF BB&T MUTUAL FUNDS
GROUP"--"Investment Adviser" and "Administrator and Distributor") will reduce
that portion of their usual asset-based service fees from the Fund by an amount
equal to their service fees from the U.S. Treasury Fund that are attributable to
the Fund investments. BB&T and the Administrator will promptly forward such fees
to the Fund. The Fund 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 Fund's investments in the
securities of an unaffiliated money market fund and/or the U.S. Treasury Fund
are contained in the Statement of Additional Information.
In order to generate additional income, the Small Company Growth 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 the 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 PEAC 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 the Fund or the borrower at
any time. While the Fund will not have the right to vote securities on loan, the
Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. The Fund will only enter
into loan arrangements with broker-dealers, banks or other institutions which
PEAC has determined are creditworthy under guidelines established by the Group's
Board of Trustees. The Fund will restrict its securities lending to 30% of its
total assets.
10
<PAGE> 13
In order to generate income, the Small Company Growth Fund 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 Fund in order to take advantage of what PEAC
believes are changes in market, industry or individual company conditions or
outlook. Any such trading would increase the portfolio turnover rate of the Fund
and its transaction costs.
PORTFOLIO TURNOVER
The Portfolio turnover rate for the Small Company Growth Fund was 71.62% in
the fiscal year ended September 30, 1996. The portfolio turnover of the Fund may
vary greatly from year to year as well as within a particular year. High
turnover rates will generally result in higher transaction costs to the Fund and
may result in higher levels of taxable realized gains to the Fund's
shareholders.
INVESTMENT RESTRICTIONS
The Small Company Growth Fund is subject to a number of investment
restrictions that may be changed only by a vote of a majority of the outstanding
shares of the Fund (see "GENERAL INFORMATION--Miscellaneous").
The Small Company Growth Fund may not:
1. Purchase any securities that 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; (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.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of the Fund's total assets
at the time of its borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Make loans, except that the Fund may purchase or hold debt securities and
lend portfolio securities in accordance with its investment objective and
policies and may enter into repurchase agreements.
11
<PAGE> 14
VALUATION OF SHARES
The net asset value of the Small Company Growth Fund is determined and its
Shares are priced as of the close of regular trading of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on each Business Day ("Valuation
Time"). 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 the
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 the 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 the Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees of the Group believes accurately reflects fair value. For
further information about the valuation of investments, see the Statement of
Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF TRUST SHARES
Trust Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency,
custodial and other similar accounts maintained by or on behalf of Customers of
Branch Banking & Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.
Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of the Fund 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 Fund in connection with the purchase of the Trust Shares.
Purchases of Trust Shares of the Fund will be effected only on a Business Day
(as defined in "VALUATION OF SHARES"). An order for the Fund received prior to
the last Valuation Time on any Business Day will be executed at the net asset
value determined as of the last Valuation Time on the date of receipt. An order
for the Fund received after the last 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.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in
12
<PAGE> 15
the Fund. 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 the Small Company Growth Fund may be exchanged for Trust
Shares of the other Funds, provided that the Shareholder making the exchange is
eligible on the date of the exchange to purchase Trust Shares (with certain
exceptions and subject to the terms and conditions described in this
prospectus). Trust Shares may also be exchanged for Class A Shares, if the
Shareholder ceases to be eligible to purchase Trust Shares. Trust Shares may not
be exchanged for Class B Shares.
The Group does not impose a charge for processing exchanges of its Trust
Shares. However, the exchange of Trust Shares for Class A Shares will require
payment of the sales charge unless the sales charge is waived. Shareholders may
exchange their Trust Shares for Trust Shares of another Fund on the basis of the
relative net asset value of the Shares exchanged.
An exchange is considered a sale of Shares and will result in a capital gain
or loss for federal income tax purposes, which, in general, is calculated by
netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange.
A Shareholder wishing to exchange Trust Shares purchased through a
Participating Organization or Bank may do so by contacting the Participating
Organization or Bank. If an exchange request in good order is received by the
Distributor or the Transfer Agent by 12:00 noon (Eastern Time) on any Business
Day, the exchange usually will occur on that day. Any Shareholder who wishes to
make an exchange should obtain and review a prospectus describing the Fund and
class of Shares which he or she wishes to acquire before making the exchange.
The exchange privilege may be exercised only in those states where the class of
Shares of such other Fund may legally be sold. The Group reserves the right to
change the terms and conditions of the exchange privilege discussed herein upon
sixty days written notice.
The Group's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the Group has 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
13
<PAGE> 16
an address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of record or sent electronically or mailed to a previously
designated bank account without a signature guarantee. See "Redemption by
Telephone" for further discussion on sending proceeds to your bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Registration Form. A Shareholder may have the proceeds mailed to the
address of record or sent electronically or mailed directly to a domestic
commercial bank account previously designated by the Shareholder on the Account
Registration Form. Under most circumstances, such payments will be transmitted
on the next Business Day following receipt of a valid request for redemption.
Such electronic redemption requests may be made by the Shareholder by telephone
to the Transfer Agent. The Transfer Agent will reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
presently $7.00 for each wire redemption. There is no charge for having payment
of redemption requests mailed or sent via the Automated Clearing House to a
designated bank account. For telephone redemptions, call the Group at (800)
228-1872. If not selected on the Account Registration form, the Shareholder will
automatically receive telephone redemption privileges. None of the Distributor,
the Group's transfer agent, BB&T or the Group will be liable for any losses,
damages, expense or cost arising out of any telephone transaction (including
exchanges and redemptions) effected in accordance with the Group's telephone
transaction procedures, upon instructions reasonably believed to be genuine. The
Group will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine; if these procedures are not
followed, the Group may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures include recording all phone
conversations, sending confirmations to Shareholders within 72 hours of the
telephone transaction, verifying the account name and a shareholder's account
number or tax identification number and sending redemption proceeds only to the
address of record or to a previously authorized bank account. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption request to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last Valuation Time, to honor requests for payment within two Business
Days, unless it would be disadvantageous to the Group or the Shareholders of the
particular Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times, the 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
14
<PAGE> 17
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
The Small Company Growth Fund will be treated as a separate entity for federal
income tax purposes. The Fund intends to qualify for treatment as a "regulated
investment company" under the Code. If qualified, the 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. The 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 the Fund that are derived from such
portfolio's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from the Fund. Shareholders will be
advised at least annually as to the amount and federal income tax character of
distributions made during the year.
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. Net
realized capital gains, if any, are distributed at least annually to
Shareholders of record. The Small Company Growth Fund declares and pays
dividends quarterly.
A Shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional Shares at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the BB&T Mutual Funds Group, 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 the
Fund as determined for tax purposes. Certain dividends paid by the Small Company
Growth Fund, and so-designated by the Fund may qualify for the dividends
received deduction for corporate shareholders. 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 the 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
15
<PAGE> 18
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 the Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in the Fund with
specific reference to their own tax situation.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE GROUP PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June, 1992 to present, employee of
3435 Stelzer Road BISYS Fund Services; from 1987 to June,
Columbus, OH 43219 1992, President of Leigh Consulting/
Investments (investment firm)
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
</TABLE>
- ------------
* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the Group for acting as
a Trustee. The officers of the Group (see the Statement of Additional
Information) receive no compensation directly from the Group for performing the
duties of their offices. BISYS Fund Services receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from
the Group for acting as Transfer Agent and for providing fund accounting
services to the Group. Mr. Grimm is an employee of BISYS Fund Services and W.
Ray
16
<PAGE> 19
Long is an employee of the investment adviser, BB&T.
INVESTMENT ADVISER
BB&T is the investment adviser of the Small Company Growth Fund. BB&T is the
oldest bank in North Carolina and is the principal bank affiliate of Southern
National Corporation ("SNC"), a bank holding company that is a North Carolina
corporation, headquartered in Winston-Salem, North Carolina. As of September 30,
1996, SNC had assets in excess of $21.1 billion. Through its subsidiaries, SNC
operates over 425 banking offices in North Carolina, South Carolina and
Virginia, providing a broad range of financial services to individuals and
businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.
Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by the Fund for investment advisory services is the lesser of:
(a) a fee computed daily and paid monthly at the annual rate of one percent
(1.00%) of the Small Company Growth Fund's average daily net assets; or (b) such
fee as may from time to time be agreed upon in writing by the Group and BB&T. A
fee agreed to in writing from time to time by the Group and BB&T may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower the 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 Small Company Growth Fund
paid as investment advisory fees 1.00% of its average daily net assets.
INVESTMENT SUB-ADVISER
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 Funds(SM) 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 man-
17
<PAGE> 20
agement. 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>
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for the Small Company Growth 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 the 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 the 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 the 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 Small Company Growth Fund
paid administration fees of .20% of its average daily net assets.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Small Company Growth Fund. The 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 the Fund, certain insurance premiums, costs of
maintenance of the 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 the 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.
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For the fiscal year ended September 30, 1996, the Small Company Growth Fund's
total operating expenses for Trust Shares were 1.79% of its average daily net
assets.
The organizational expenses of the Small Company Growth Fund have been
capitalized and are being amortized in the first two years of the Funds'
operations. Such amortization will reduce the amount of income available for
payment as dividends.
BANKING LAWS
BB&T and PEAC each believes that it possesses the legal authority to perform
the investment advisory and sub-advisory services for the Group contemplated by
its investment advisory agreement with the Group and investment and sub-advisory
agreement with BB&T and described in this Prospectus without violation of
applicable banking laws and regulations, and has so represented to the Group.
Future changes in federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies and their subsidiaries
and affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which BB&T and PEAC 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 Fund 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 twelve series of Shares, one for
each of the following Funds: the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T
U.S. Treasury Money Market Fund, the BB&T Prime Money Market Fund, the BB&T
Balanced Fund, 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. The
Capital Manager Funds offer Trust Shares only. Each other Fund generally offers
to the public three classes of shares: Class A, Class B and Trust Shares.
Currently, the Short-Intermediate and the North Carolina Funds are not offering
Class B Shares. Each Share represents an equal proportionate interest in a Fund
with other Shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment Company Act of 1940, Shares shall be
voted by individual series, and (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class.
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As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of December 9, 1996, BB&T owned of record substantially all of the Trust
Shares of the Fund and held voting or investment power with respect to 99.3% of
the Trust Shares of the Small Company Growth Funds. BB&T may therefore be deemed
to be a "controlling person" of the Trust Shares of the Fund within the meaning
of the Investment Company Act of 1940.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for the Group.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Group.
OTHER CLASSES OF SHARES
In addition to Trust Shares, the Small Company Growth Fund also offers Class A
and Class B Shares. 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.
PERFORMANCE INFORMATION
From time to time performance information of the 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. Average annual total return will be calculated for the period since
the establishment of the 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 the 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 the Fund earned during a recent 30-day period by
its 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 Fund may also present its average annual total return, aggregate total
return, yield and/or tax
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equivalent yield, as the case may be, excluding the effect of a sales charge, if
any.
The Fund may also calculate a distribution rate. Distribution rates will be
computed by dividing the distribution per Share of a class made by the 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 the 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. The Fund does 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 the 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 the Fund is based on its 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 the Fund are not reflected in
the Group's performance information.
Further information about the performance of the Fund 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 the Small Company Growth Fund and annual financial
statements audited by independent public accountants.
Inquiries regarding the Fund 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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INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
INVESTMENT SUB-ADVISER
PNC Equity Advisors Company
1600 Market Street, 27th Floor
Philadelphia, PA 19103
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
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