<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 27, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 15 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16
------------------
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:
Alan G. Priest, 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)
<TABLE>
<S> <C>
X immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(i)
---
on January 27, 1998 pursuant to paragraph (a)(i)
---
75 days after filing pursuant to paragraph (a)(ii)
---
on (date) pursuant to paragraph (a)(ii) of Rule 485
---
</TABLE>
If appropriate check the following box:
this post-effective amendment designates a new effective
--- date for a previously filed post-effective amendment
<PAGE> 2
[BB&T MUTUAL FUNDS LOGO]
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
CLASS A AND B SHARES
BRANCH BANKING AND TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED FEBRUARY 1, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 2
The Group................................................... 5
Fee Table................................................... 5
Financial Highlights........................................ 11
Investment Objectives and Policies.......................... 24
Investment Restrictions..................................... 44
Valuation of Shares......................................... 46
How to Purchase and Redeem Shares........................... 47
Dividends and Taxes......................................... 57
Management of BB&T Mutual Funds Group....................... 60
General Information......................................... 67
</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> 4
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public fourteen separate investment funds
(each a "Fund"). Each Fund of the Group offers multiple classes of units of
beneficial interest ("Shares"). Three of the Funds (the "Funds of Funds"), offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in the securities of issuers unrelated to the Group.
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 U.S.
Government Bond Fund") seeks current income consistent with the preservation of
capital through investment of at least 65% of its assets in bonds issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and North Carolina personal income tax. Normally,
the North Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE 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
FUNDS AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION PER ISSUER THAN
DIVERSIFIED FUNDS.
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.
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 Class A Shares of the Group (formerly the
Investor Shares) and Class B Shares of the Group, which are offered to the
general public. Through a separate prospectus, the Group also offers Trust
Shares to BB&T and its affiliates and other financial service providers approved
by the Distributor for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial or similar capacity. Additional
information about each of the Funds contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information and the prospectus relating to the Trust
Shares are available upon request without charge by writing to the Group or by
calling the Group at the telephone number shown above. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Group's
Class A and Class B Shares that a prospective investor ought to know before
investing. Investors should read this Prospectus and retain it for future
reference.
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY, BB&T
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 February 1, 1999.
<PAGE> 5
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 fourteen separately managed
portfolios (each a "Fund"). Three of the Funds
(the "Funds of Funds") offer Shareholders a
professionally-managed investment program by
purchasing shares of other Funds of the Group
(the "Underlying Funds"). The remaining eleven
Funds primarily invest in securities of issuers
unrelated to the Group. Each Fund is authorized
to offer three classes of Shares: Class A, Class
B and Trust Class. As of the date of this
prospectus, however, Class B Shares were not yet
being offered in the Short-Intermediate Fund, the
North Carolina Fund or the South Carolina Fund.
Shareholders investing directly in Class B Shares
of the U.S. Treasury Fund or the Prime Money
Market 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 will be withdrawn
from the U.S. Treasury Fund or the Prime Money
Market 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.
THE INTERMEDIATE U.S. GOVERNMENT 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.
2
<PAGE> 6
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 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.
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 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 Fund, the Intermediate
U.S. Government Bond Fund, 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, the
International Equity Fund, the Capital Manager
Conservative Growth Fund, the Capital Manager
Moderate Growth Fund, and the Capital Manager
Growth Fund 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
3
<PAGE> 7
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 ("BB&T" or the
"Adviser"), Raleigh, North Carolina.
Sub-Advisers................. BlackRock Institutional Management Corporation
("BIMC" or the "Sub-Adviser"), Wilmington,
Delaware, serves as the Sub-Adviser to the Prime
Money Market Fund. BlackRock Financial
Management, Inc. ("BFMI" or the "Sub-Adviser"),
Philadelphia, Pennsylvania, serves as the
Sub-Adviser to the Small Company Growth Fund.
BlackRock International, Ltd. ("BlackRock
International" or the "Sub-Adviser"), Edinburgh,
Scotland, serves as the Sub-Adviser to the
International Equity Fund.
Dividends.................... The Prime Money Market Fund, the U.S. Treasury
Fund, the North Carolina Fund, the South Carolina
Fund, the Short-Intermediate and the Intermediate
U.S. Government Bond Fund declare dividends daily
and pay such dividends monthly. The Growth and
Income Fund and the Balanced Fund declare and pay
dividends monthly. The Large Company Growth Fund,
the Small Company Growth Fund, the International
Equity Fund, the Capital Manager Conservative
Growth Fund, the Capital Manager Moderate Growth
Fund, and the Capital Manager Growth Fund declare
and pay dividends quarterly.
Distributor.................. BISYS Fund Services LP, Columbus, Ohio.
4
<PAGE> 8
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of fourteen series of units of beneficial interest
("Shares") offered to the public, each representing interests in one of fourteen
separate investment funds (each a "Fund"). Three of the Funds (the "Funds of
Funds") offer Shareholders a professionally-managed investment program by
purchasing shares of other Funds of the Group (the "Underlying Funds"). The
remaining eleven Funds primarily invest in securities of issuers unrelated to
the Group. Each Fund is authorized to offer three classes of Shares: Class A,
Class B and Trust Class. However, as of the date of this prospectus, Class B
Shares were not yet being offered in the Short-Intermediate Fund, the North
Carolina Fund and the South Carolina Fund.
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A 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
----------------- ----------------- -----------------
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)(3)...................... 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
12b-1 Fee (after voluntary fee
reductions)(4)...................... 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses (after voluntary fee
reductions)......................... 0.42% 0.42%(5) 0.41% 0.41%(5) 0.42% 0.42%(5)
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (after
voluntary fee reductions)(6)........ 0.72% 1.47% 0.71% 1.46% 0.72% 1.47%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Class A or Class B Shares
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. Such fee
is currently being waived. (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, 1999. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets would be
0.25%.
(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 0.50% for Class A Shares of each Fund. (See "MANAGEMENT
OF BB&T MUTUAL FUNDS GROUP -- Distributor.")
(5) "Other Expenses" are based on estimated amounts for the current fiscal year.
Absent voluntary fee reductions, "Other Expenses," for the Class B Shares,
as a percentage of average daily net assets would be 0.42% for the Capital
Manager Conservative Growth Fund and Capital Manager Growth Fund and 0.41%
for the Capital Manager Moderate Growth 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, distribution fees
and/or other expenses, total fund operating expenses for Class A Shares and
Class B Shares as a percentage of average daily net assets would be 1.29%
and 1.67%, respectively, for the Capital Manager Conservative Growth Fund,
1.39% and 1.66%, respectively, for the Capital Manager Moderate Growth Fund,
1.38% and 1.67%, respectively, for the Capital Manager Growth Fund.
5
<PAGE> 9
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>
Prime Money Market Fund..................................... 0.55%
U.S. Treasury Fund.......................................... 0.61%
Short-Intermediate Fund..................................... 0.81%
Intermediate U.S. Government Bond Fund...................... 0.84%
Growth and Income Fund...................................... 0.85%
Balanced Fund............................................... 0.92%
Small Company Growth Fund................................... 1.61%
International Equity Fund................................... 1.50%
Large Company Growth Fund................................... 1.06%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (including voluntary fee waivers), the estimated
average weighted expense ratio for the Class A Shares and Class B Shares of the
Capital Manager Conservative Growth Fund is 1.68% and 2.43%, respectively, for
the Capital Manager Moderate Growth Fund is 1.71% and 2.49%, respectively, and
for the Capital Manager Growth Fund is 1.80% and 2.55%, respectively.
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>
Prime Money Market Fund..................................... 0.91%
U.S. Treasury Fund.......................................... 0.76%
Short-Intermediate Fund..................................... 0.94%
Intermediate U.S. Government Bond Fund...................... 0.94%
Growth and Income Fund...................................... 1.09%
Balanced Fund............................................... 1.16%
Small Company Growth Fund................................... 1.61%
International Equity Fund................................... 1.51%
Large Company Growth Fund................................... 1.30%
</TABLE>
After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (with no fee waivers), the estimated average
weighted expense ratio for the Class A Shares and Class B Shares of the Capital
Manager Conservative Growth Fund is 2.28% and 2.78%, respectively, for the
Capital Manager Moderate Growth Fund is 2.32% and 2.87%, respectively, and for
the Capital Manager Growth Fund is 2.40% and 2.90%, respectively.
6
<PAGE> 10
EXAMPLE:
On the basis of estimated expenses for the Funds of Funds, including
voluntary fee reductions, set forth on page 9, the following examples illustrate
the expenses you would pay on a $1,000 investment in Class A and Class B Shares
of the Funds of Funds, assuming (1) 5% annual return and (2) redemption at the
end of each time period:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Manager
Conservative Growth
Fund..................... $52 $67 $ 83 $130 $65 $76 $100 $159
Capital Manager Moderate
Growth Fund.............. $52 $67 $ 83 $129 $65 $76 $100 $160
Capital Manager Growth
Fund..................... $52 $67 $ 83 $130 $65 $76 $100 $160
</TABLE>
Absent voluntary fee reductions, the dollar amounts in the above example
would be as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Manager
Conservative Growth
Fund..................... $56 $80 $106 $181 $67 $83 $111 $188
Capital Manager Moderate
Growth Fund.............. $56 $80 $106 $180 $67 $82 $110 $189
Capital Manager Growth
Fund..................... $56 $80 $106 $181 $67 883 $111 $190
</TABLE>
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 Class A Shares or Class B Shares of each Fund of Funds will bear directly
or indirectly. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete
discussion of annual operating expenses of each Fund. THE FOREGOING EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 11
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>
INTERMEDIATE U.S.
PRIME MONEY U.S. TREASURY SHORT-INTERMEDIATE GOVERNMENT
MARKET FUND FUND FUND BOND FUND
------------------- ------------------- ------------------ ---------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<S> <C> <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% 0% 2.00% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage
of offering price)................... 0% 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% 0% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2)... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions).......................... 0.20%(3) 0.20%(3) 0.30% 0.30% 0.50%(3) 0.50%(3) 0.50%(3)
12b-1 Fees (after voluntary fee
reductions).......................... 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 0.25%(4) 1.00%
Other Expenses (after voluntary fee
reductions).......................... 0.38%(5) 0.44%(5) 0.31%(5) 0.31%(5) 0.31%(5) 0.34% 0.34%
---- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses (after
voluntary fee reductions)............ 0.83%(6) 1.64%(6) 0.86%(6) 1.61%(6) 1.06%(6) 1.09%(6) 1.84%(6)
==== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NORTH SOUTH
CAROLINA CAROLINA GROWTH AND SMALL COMPANY
FUND FUND INCOME FUND BALANCED FUND GROWTH FUND
-------- -------- ----------------- ----------------- -----------------
CLASS A CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)............... 2.00% 2.00% 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)........................ 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or redemption
proceeds, as applicable)...... 0% 0% 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(2)................ 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee.................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
fee reductions)............... 0.50%(3) 0.30%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)................... 0.15%(4) 0.15%(4) 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary
fee reductions)............... 0.31%(5) 0.59%(5) 0.35% 0.35% 0.42% 0.42% 0.61% 0.61%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(after voluntary fee
reductions)................... 0.96%(6) 1.04%(6) 1.10%(6) 1.85%(6) 1.17%(6) 1.92%(6) 1.86%(6) 2.61%
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
LARGE COMPANY INTERNATIONAL
GROWTH FUND EQUITY FUND
----------------- -----------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <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%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)........................ 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or redemption
proceeds, as applicable)...... 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage
of amount 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)............... 0.50%(3) 0.50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)................... 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary
fee reductions)............... 0.64% 0.64% 0.50%(5) 0.50%(5)
----- ----- ----- -----
Total Fund Operating Expenses
(after voluntary fee
reductions)................... 1.39%(6) 2.14%(6) 1.75%(6) 2.50%(6)
===== ===== ===== =====
</TABLE>
- ---------------
(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in 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. Such fee
is currently being waived. (See "HOW TO PURCHASE AND REDEEM
SHARES -- Redemption by Telephone.")
8
<PAGE> 12
(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, 1999. 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 0.40% for the Prime Money Market Fund and the
U.S. Treasury Money Market Fund, 0.60% for the Intermediate U.S. Government
Bond Fund, the Short-Intermediate Fund, the North Carolina Fund and the
South Carolina Fund and 0.74% for the Growth and Income Fund, the Balanced
Fund, and the Large Company Growth Fund.
(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 0.50% for Class A Shares for each Fund. (See "MANAGEMENT
OF BB&T MUTUAL FUNDS GROUP -- Distributor.")
(5) Absent voluntary fee reductions, "Other Expenses" for Class A Shares,
respectively, as a percentage of average daily net assets, would be 0.53%
for the Prime Money Market Fund; 0.36% for the U.S. Treasury Fund; 0.34% for
the Short-Intermediate U.S. Government Income Fund; 0.38% for the North
Carolina Intermediate Tax-Free Fund; 0.87% for the South Carolina Tax-Free
Fund; and 0.51% for the International Equity Fund. Absent voluntary
reduction of fees, "Other Expenses" for Class B Shares, respectively, as a
percentage of average daily net assets would be 0.59% for the Prime Money
Market Fund; 0.36% for the U.S. Treasury Fund; and 0.51% for the
International Equity 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, distribution fees
and/or other expenses, Total Fund Operating Expenses for Class A Shares, as
a percentage of average daily net assets would be 1.43% for the Prime Money
Market Fund, 1.26% for the U.S. Treasury Fund, 1.44% for the
Short-Intermediate Fund, 1.44% for the Intermediate U.S. Government Bond
Fund, 1.48% for the North Carolina Fund, 1.97% for the South Carolina Fund,
1.59% for the Growth and Income Fund, 1.66% for the Balanced Fund, 2.11% for
the Small Company Growth Fund, 2.01% for the International Equity Fund, and
1.87% for the Large Company Growth Fund. Absent the voluntary reduction of
investment advisory fees and/or other expenses, Total Fund Operating
Expenses for Class B Shares, as a percentage of average daily net assets,
would be 1.99% for the Prime Money Market Fund, 1.76% for the U.S. Treasury
Money Market Fund, 1.94% for the Intermediate U.S. Government Bond Fund,
2.09% for the Growth and Income Fund, 2.16% for the Balanced Fund, 2.51% for
the International Equity Fund, and 2.37% for the Large Company Growth Fund.
9
<PAGE> 13
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.................. $ 8 $ 26 $ 46 $103
U.S. Treasury Fund....................... $ 9 $ 27 $ 48 $106
Short-Intermediate Fund.................. $31 $ 53 $ 77 $147
Intermediate U.S. Government Bond Fund... $56 $ 78 $102 $172
North Carolina Fund...................... $30 $ 50 $ 72 $135
South Carolina Fund...................... $30 $ 52 $ 76 $145
Growth and Income Fund................... $56 $ 78 $103 $173
Balanced Fund............................ $56 $ 80 $106 $181
Small Company Growth Fund................ $63 $101 $141 $253
Large Company Growth Fund................ $59 $ 87 $118 $204
International Equity Fund................ $62 $ 98 $136 $242
</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>
Prime Money Market Fund
Assuming a complete redemption at end
of period............................ $67 $ 82 $109 $173
Assuming no redemption................. $17 $ 52 $ 89 $173
U.S. Treasury Fund
Assuming a complete redemption at end
of period............................ $66 $ 81 $108 $171
Assuming no redemption................. $16 $ 51 $ 88 $171
Intermediate U.S. Government Bond Fund
Assuming a complete redemption at end
of period............................ $69 $ 88 $120 $196
Assuming no redemption................. $19 $ 58 $100 $196
Growth and Income Fund
Assuming a complete redemption at end
of period............................ $69 $ 88 $120 $197
Assuming no redemption................. $19 $ 58 $100 $197
Balanced Fund
Assuming a complete redemption at end
of period............................ $69 $ 90 $124 $205
Assuming no redemption................. $19 $ 60 $104 $205
Small Company Growth Fund
Assuming a complete redemption at end
of period............................ $76 $111 $159 $276
Assuming no redemption................. $26 $ 81 $139 $276
Large Company Growth Fund
Assuming a complete redemption at end
of period............................ $72 $ 97 $135 $228
Assuming no redemption................. $22 $ 67 $115 $228
International Equity Fund
Assuming a complete redemption at end
of period............................ $75 $108 $153 $265
Assuming no redemption................. $25 $ 78 $133 $265
</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.
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.")
10
<PAGE> 14
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, 1998 has been audited by KPMG LLP, independent
auditors for the Group, whose report thereon, insofar as it relates to each of
the most recent five years or periods indicated herein is included in the
Statement of Additional Information.
The Class A Shares (formerly the Investor Shares) and Trust Shares of each
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, and the Growth and Income Stock Fund 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 commenced operating as multiple class funds and assessed Rule 12b-1 fees
to Class A Shares (and not to Trust 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.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
OCTOBER 1, 1997 TO
SEPTEMBER 30, 1998(a)
-----------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.048
Total from Investment Activities...................... 0.048
-------
DISTRIBUTIONS
Net investment income..................................... (0.048)
Total Distributions................................... (0.048)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return................................................ 4.93%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 3,262
Ratio of expenses to average net assets................... 0.83%(c)
Ratio of net investment income to average net assets...... 4.83%(c)
Ratio of expenses to average net assets*.................. 1.43%(c)
Ratio of net investment income to average net assets*..... 4.23%(c)
</TABLE>
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
SEPTEMBER 2, 1998 TO
SEPTEMBER 30, 1998(a)
-----------------------
CLASS B
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.003
Total from Investment Activities...................... 0.003
-------
DISTRIBUTIONS
Net investment income..................................... (0.003)
Total Distributions................................... (0.003)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return (excludes redemption charge)................. 0.32%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 300
Ratio of expenses to average net assets................... 1.64%(c)
Ratio of net investment income to average net assets...... 3.98%(c)
Ratio of expenses to average net assets*.................. 1.99%(c)
Ratio of net investment income to average net assets*..... 3.63%(c)
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced or reimbursed. If
such voluntary fee reductions or reimbursements had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
11
<PAGE> 15
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.046 0.044 0.044 0.047
Total from
Investment
Activities........ 0.046 0.044 0.044 0.047
------- ------- ------- -------
DISTRIBUTIONS
Net investment
income.............. (0.046) (0.044) (0.044) (0.047)
Total
Distributions..... (0.046) (0.044) (0.044) (0.047)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return............ 4.75% 4.50% 4.49% 4.81%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $41,478 $32,541 $27,931 $13,948
Ratio of expenses to
average net
assets.............. 0.86% 0.95% 0.99% 0.98%
Ratio of net
investment income to
average net
assets.............. 4.65% 4.41% 4.37% 4.81%
Ratio of expenses to
average net
assets*............. 1.26% 1.25% 1.25% 1.24%
Ratio of net
investment income to
average net
assets*............. 4.25% 4.11% 4.11% 4.55%
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
------------------------------------------
FOR THE YEAR OCTOBER 5, 1992
ENDED TO
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(A)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 1.00 $ 1.00
------- --------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.027 0.026
Total from
Investment
Activities........ 0.027 0.026
------- --------
DISTRIBUTIONS
Net investment
income.............. (0.027) (0.026)
Total
Distributions..... (0.027) (0.026)
------- --------
NET ASSET VALUE, END OF
PERIOD................ $ 1.00 $ 1.00
======= ========
Total Return............ 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $ 1,486 $ 279
Ratio of expenses to
average net
assets.............. 0.94% 0.51%(c)
Ratio of net
investment income to
average net
assets.............. 2.89% 2.58%(c)
Ratio of expenses to
average net
assets*............. 1.32% 1.32%(c)
Ratio of net
investment income to
average net
assets*............. 2.51% 1.77%(c)
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-----------------------------------------------------------------
FOR THE YEAR FOR THE YEAR JANUARY 1, 1996
ENDED ENDED TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(A)
------------------ ------------------ ---------------------
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.039 0.036 0.025
Total from Investment Activities........................ 0.039 0.036 0.025
------- ------- -------
DISTRIBUTIONS
Net investment income..................................... (0.039) (0.036) (0.025)
Total Distributions..................................... (0.039) (0.036) (0.025)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return (excludes redemption charge)................... 3.97% 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 1,255 $ 1,502 $ 1,305
Ratio of expenses to average net assets................... 1.61% 1.75% 1.75%(c)
Ratio of net investment income to average net assets...... 3.90% 3.61% 3.55%(c)
Ratio of expenses to average net assets*.................. 1.76% -- --
Ratio of net investment income to average net assets*..... 3.75% -- --
</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.
12
<PAGE> 16
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR NOVEMBER 30,
ENDED ENDED ENDED ENDED ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(A)
------------- ------------- ------------- ------------- ------------- -------------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.76 $ 9.73 $ 9.88 $ 9.60 $ 10.29 $ 10.00
------ ------ ------ ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.51 0.54 0.55 0.53 0.50 0.47
Net realized and unrealized
gains (losses) on
investments................... 0.30 0.03 (0.15) 0.29 (0.68) 0.30
------ ------ ------ ------ ------- -------
Total from Investment
Activities................ 0.81 0.57 0.40 0.82 (0.18) 0.77
------ ------ ------ ------ ------- -------
DISTRIBUTIONS
Net investment income........... (0.51) (0.54) (0.55) (0.54) (0.50) (0.48)
Net realized gains.............. -- -- -- -- (0.01) --
------ ------ ------ ------ ------- -------
Total Distributions......... (0.51) (0.54) (0.55) (0.54) (0.51) (0.48)
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD.... $10.06 $ 9.76 $ 9.73 $ 9.88 $ 9.60 $ 10.29
====== ====== ====== ====== ======= =======
Total Return (excludes sales
charge)......................... 8.50% 6.07% 4.09% 8.74% (1.86%) 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $4,476 $5,151 $6,356 $7,102 $10,345 $14,915
Ratio of expenses to average net
assets........................ 1.06% 1.11% 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income
to average net assets......... 5.15% 5.60% 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average net
assets*....................... 1.44% 1.46% 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income
to average net assets*........ 4.77% 5.25% 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover(d)........... 53.74% 87.99% 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.
13
<PAGE> 17
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR OCTOBER 9,
ENDED ENDED ENDED ENDED ENDED 1992 TO
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 30, 30, 30, 30, 30,
1998 1997 1996 1995 1994 1993(A)
------------ ------------ ------------ ------------ ------------ ----------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.84 $ 9.63 $ 9.88 $ 9.33 $10.39 $ 10.00
------ ------ ------ ------ ------ -------
INVESTMENT ACTIVITIES
Net investment income................. 0.51 0.53 0.56 0.59 0.59 0.63
Net realized and unrealized gains
(losses) on investments............. 0.74 0.21 (0.25) 0.55 (1.04) 0.39
------ ------ ------ ------ ------ -------
Total from Investment
Activities...................... 1.25 0.74 0.31 1.14 (0.45) 1.02
------ ------ ------ ------ ------ -------
DISTRIBUTIONS
Net investment income................. (0.52) (0.53) (0.56) (0.59) (0.59) (0.63)
Net realized gains.................... -- -- -- -- (0.02) --
------ ------ ------ ------ ------ -------
Total Distributions............... (0.52) (0.53) (0.56) (0.59) (0.61) (0.63)
------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD.......... $10.57 $ 9.84 $ 9.63 $ 9.88 $ 9.33 $ 10.39
====== ====== ====== ====== ====== =======
Total Return (excludes sales charge).... 13.07% 7.93% 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....... $4,562 $4,211 $3,659 $5,173 $6,772 $ 5,238
Ratio of expenses to average net
assets.............................. 1.09% 1.12% 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income to
average net assets.................. 5.10% 5.49% 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net
assets*............................. 1.44% 1.47% 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income to
average net assets*................. 4.75% 5.14% 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover(d)................. 60.98% 62.45% 76.29% 68.91% 0.38% 15.27%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(A)
------------------ ------------------ ----------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.81 $ 9.60 $ 10.17
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income...................................... 0.43 0.46 0.31
Net realized and unrealized gains (losses) on
investments.............................................. 0.74 0.21 (0.57)
------- ------- -------
Total from Investment Activities....................... 1.17 0.67 (0.26)
------- ------- -------
DISTRIBUTIONS
Net investment income...................................... (0.44) (0.46) (0.31)
Total Distributions.................................... (0.44) (0.46) (0.31)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.54 $ 9.81 $ 9.60
======= ======= =======
Total Return (excludes redemption charge)................... 12.26% 7.14% (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................ $ 1,314 $ 623 $ 353
Ratio of expenses to average net assets.................... 1.84% 1.87% 1.85%(c)
Ratio of net investment income to average net assets....... 4.35% 4.74% 5.01%(c)
Ratio of expenses to average net assets*................... 1.94% 1.97% 1.95%(c)
Ratio of net investment income to average net assets*...... 4.25% 4.64% 4.91%(c)
Portfolio turnover(d)...................................... 60.98% 62.45% 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.
14
<PAGE> 18
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
---------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS B CLASS B CLASS B CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 10.27 $10.05 $10.15 $ 9.78
------- ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income........... 0.42 0.40 0.36 0.36
Net realized and unrealized
gains (losses) on
investments................... 0.25 0.22 (0.10) 0.37
------- ------ ------ ------
Total from Investment
Activities.................. 0.67 0.62 0.26 0.73
------- ------ ------ ------
DISTRIBUTIONS
Net investment income........... (0.42) (0.40) (0.36) (0.36)
Net realized gains.............. -- -- -- --
------- ------ ------ ------
Total Distributions........... (0.42) (0.40) (0.36) (0.36)
------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD... $ 10.52 $10.27 $10.05 $10.15
======= ====== ====== ======
Total Return (excludes sales
charge)......................... 6.63% 6.28% 2.61% 7.61%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $11,592 $9,419 $9,261 $8,717
Ratio of expenses to average net
assets 0.96% 1.00% 1.11% 1.05%
Ratio of net investment income
to average net assets......... 4.03% 3.94% 3.58% 3.63%
Ratio of expenses to average net
assets*....................... 1.48% 1.50% 1.61% 1.63%
Ratio of net investment income
to average net assets*........ 3.51% 3.44% 3.08% 3.05%
Portfolio turnover(d)........... 32.63% 16.98% 20.90% 9.38%
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
------------------------------------------
OCTOBER 16, 1992
FOR THE YEAR ENDED TO
SEPTEMBER 30, 1994 September 30, 1993(a)
------------------ ---------------------
CLASS B CLASS B
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 10.29 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.36 0.36
Net realized and unrealized
gains (losses) on
investments................... (0.50) 0.29
------- -------
Total from Investment
Activities.................. (0.14) 0.65
------- -------
DISTRIBUTIONS
Net investment income........... (0.36) (0.36)
Net realized gains.............. (0.01) --
------- -------
Total Distributions........... (0.37) (0.36)
------- -------
NET ASSET VALUE, END OF PERIOD... $ 9.78 $ 10.29
======= =======
Total Return (excludes sales
charge)......................... (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $11,083 $13,695
Ratio of expenses to average net
assets 0.75% 0.43%(c)
Ratio of net investment income
to average net assets......... 3.63% 3.80%(c)
Ratio of expenses to average net
assets*....................... 1.66% 1.77%(c)
Ratio of net investment income
to average net assets*........ 2.72% 2.45%(c)
Portfolio turnover(d)........... 0.56% 5.92%
</TABLE>
<TABLE>
<CAPTION>
SOUTH CAROLINA
INTERMEDIATE TAX-FREE FUND
--------------------------
OCTOBER 20, 1997 TO
September 30, 1998(a)
--------------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.31
Net realized and unrealized gains (losses) on
investments............................................. 0.47
------
Total from Investment Activities...................... 0.78
------
DISTRIBUTIONS
Net investment income..................................... (0.31)
------
Total Distributions................................... (0.31)
------
NET ASSET VALUE, END OF PERIOD.............................. $10.47
======
Total Return (excludes sales charge)........................ 7.91%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 297
Ratio of expenses to average net assets................... 1.04%(c)
Ratio of net investment income to average net assets...... 3.71%(c)
Ratio of expenses to average net assets*.................. 1.97%(c)
Ratio of net investment income to average net assets*..... 2.78%(c)
Portfolio turnover(d)..................................... 58.80%
</TABLE>
- ---------
* During the period, certain fees were voluntarily reduced and reimbursed. If
such voluntary fee reductions and reimbursements had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
15
<PAGE> 19
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 19.98 $ 15.31 $ 12.97 $ 11.26
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........ 0.23 0.26 0.26 0.25
Net realized and unrealized
gains (losses) on
investments................ (0.17) 5.30 2.43 1.98
------- ------- ------- -------
Total from Investment
Activities............. 0.06 5.56 2.69 2.23
------- ------- ------- -------
DISTRIBUTIONS
Net investment income........ (0.23) (0.26) (0.26) (0.25)
Net realized gains........... (1.33) (0.63) (0.09) (0.12)
In excess of net realized
gains...................... -- -- -- (0.15)
------- ------- ------- -------
Total Distributions...... (1.56) (0.89) (0.35) (0.52)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 18.48 $ 19.98 $ 15.31 $ 12.97
======= ======= ======= =======
Total Return (excludes sales
charge)...................... 0.10% 37.80% 20.97% 20.62%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)...................... $39,817 $34,679 $18,949 $10,842
Ratio of expenses to average
net assets................. 1.10% 1.09% 1.11% 1.07%
Ratio of net investment
income to average net
assets..................... 1.18% 1.52% 1.82% 2.15%
Ratio of expenses to average
net assets*................ 1.59% 1.58% 1.60% 1.60%
Ratio of net investment
income to average net
assets*.................... 0.69% 1.03% 1.33% 1.62%
Portfolio turnover(d)........ 13.17% 22.66% 19.82% 8.73%
<CAPTION>
GROWTH AND INCOME STOCK FUND
------------------------------------------
FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1994 September 30, 1993(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $11.26 $10.00
------ ------
INVESTMENT ACTIVITIES
Net investment income........ 0.25 0.28
Net realized and unrealized
gains (losses) on
investments................ 0.12 1.27
------ ------
Total from Investment
Activities............. 0.37 1.55
------ ------
DISTRIBUTIONS
Net investment income........ (0.26) (0.29)
Net realized gains........... (0.11) --
In excess of net realized
gains...................... -- --
------ ------
Total Distributions...... (0.37) (0.29)
------ ------
NET ASSET VALUE, END OF
PERIOD....................... $11.26 $11.26
====== ======
Total Return (excludes sales
charge)...................... 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)...................... $7,973 $6,009
Ratio of expenses to average
net assets................. 0.92% 0.63%(c)
Ratio of net investment
income to average net
assets..................... 2.26% 2.85%(c)
Ratio of expenses to average
net assets*................ 1.65% 1.68%(c)
Ratio of net investment
income to average net
assets*.................... 1.52% 1.81%(c)
Portfolio turnover(d)........ 21.30% 27.17%
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.93 $ 15.29 $13.78
------- ------- ------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.09 0.13 0.13
Net realized and unrealized gains (losses) on
investments............................................. (0.18) 5.28 1.52
------- ------- ------
Total from Investment Activities...................... (0.09) 5.41 1.65
------- ------- ------
DISTRIBUTIONS
Net investment income..................................... (0.09) (0.14) (0.14)
Net realized gains........................................ (1.33) (0.63) --
------- ------- ------
Total Distributions................................... (1.42) (0.77) (0.14)
------- ------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 18.42 $ 19.93 $15.29
======= ======= ======
Total Return (excludes redemption charge)................... (0.67%) 36.70% 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $32,455 $16,690 $3,880
Ratio of expenses to average net assets................... 1.85% 1.84% 1.85%(c)
Ratio of net investment income to average net assets...... 0.43% 0.77% 1.13%(c)
Ratio of expenses to average net assets*.................. 2.09% 2.08% 2.09%(c)
Ratio of net investment income to average net assets*..... 0.19% 0.53% 0.89%(c)
Portfolio turnover(d)....................................... 13.17% 22.66% 19.82%
</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.
16
<PAGE> 20
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 13.63 $ 11.96 $ 11.04 $ 9.76 $10.20
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.39 0.45 0.43 0.44 0.38
Net realized and
unrealized gains
(losses) on
investments......... 0.54 2.04 0.92 1.27 (0.44)
------- ------- ------- ------ ------
Total from
Investment
Activities...... 0.93 2.49 1.35 1.71 (0.06)
------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment
income.............. (0.39) (0.45) (0.43) (0.43) (0.38)
Net realized gains.... (0.35) (0.37) -- -- --
------- ------- ------- ------ ------
Total
Distributions... (0.74) (0.82) (0.43) (0.43) (0.38)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD................ $ 13.82 $ 13.63 $ 11.96 $11.04 $ 9.76
======= ======= ======= ====== ======
Total Return (excludes
sales charge)......... 6.89% 21.76% 12.43% 18.00% (0.64)%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $21,948 $17,234 $12,456 $9,257 $8,560
Ratio of expenses to
average net
assets.............. 1.17% 1.18% 1.20% 1.17% 0.98%
Ratio of net
investment income to
average net
assets.............. 2.75% 3.63% 3.78% 4.27% 4.02%
Ratio of expenses to
average net
assets*............. 1.66% 1.67% 1.69% 1.71% 1.75%
Ratio of net
investment income to
average net
assets*............. 2.26% 3.14% 3.29% 3.73% 3.25%
Portfolio
turnover(d)......... 31.85% 27.07% 19.87% 23.68% 12.91%
<CAPTION>
BALANCED FUND
---------------------
OCTOBER 5, 1992 TO
September 30, 1993(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $10.00
------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.08
Net realized and
unrealized gains
(losses) on
investments......... 0.21
------
Total from
Investment
Activities...... 0.29
------
DISTRIBUTIONS
Net investment
income.............. (0.09)
Net realized gains.... --
------
Total
Distributions... (0.09)
------
NET ASSET VALUE, END OF
PERIOD................ $10.20
======
Total Return (excludes
sales charge)......... 2.88%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $2,569
Ratio of expenses to
average net
assets.............. 0.50%(c)
Ratio of net
investment income to
average net
assets.............. 4.39%(c)
Ratio of expenses to
average net
assets*............. 2.00%(c)
Ratio of net
investment income to
average net
assets*............. 2.89%(c)
Portfolio
turnover(d)......... 8.32%
</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.
17
<PAGE> 21
<TABLE>
<CAPTION>
BALANCED FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 13.57 $11.91 $11.54
------- ------ ------
INVESTMENT ACTIVITIES
Net investment income........................ 0.28 0.36 0.27
Net realized and unrealized gains (losses) on
investments............................... 0.55 2.04 0.37
------- ------ ------
Total from Investment Activities........ 0.83 2.40 0.64
------- ------ ------
DISTRIBUTIONS
Net investment income........................ (0.29) (0.37) (0.27)
Net realized gains........................... (0.35) (0.37) --
------- ------ ------
Total Distributions..................... (0.64) (0.74) (0.27)
------- ------ ------
NET ASSET VALUE, END OF PERIOD................. $ 13.76 $13.57 $11.91
======= ====== ======
Total Return (excludes redemption charge)...... 6.16% 20.90% 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).............. $15,183 $6,360 $2,339
Ratio of expenses to average net assets...... 1.92% 1.93% 1.95%(c)
Ratio of net investment income to average net
assets.................................... 1.98% 2.88% 3.13%(c)
Ratio of expenses to average net assets*..... 2.16% 2.17% 2.18%(c)
Ratio of net investment income to average net
assets*................................... 1.74% 2.64% 2.90%(c)
Portfolio turnover(d)........................ 31.85% 27.07% 19.87%
</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> 22
<TABLE>
<CAPTION>
LARGE COMPANY
GROWTH FUND
---------------------
OCTOBER 3, 1997 TO
September 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment Income (loss).............................. --
Net realized and unrealized gains (losses) on
investments............................................. (0.25)
------
Total from Investment Activities...................... (0.25)
------
DISTRIBUTIONS
Net investment income..................................... (0.03)
Net realized gains........................................ (0.10)
------
Total Distributions................................... (0.13)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.62
======
Total Return (excludes sales charge)...................... (2.54%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $1,938
Ratio of expenses to average net assets................... 1.39%(c)
Ratio of net investment income to average net assets...... (0.04%)(c)
Ratio of expenses to average net assets*.................. 1.87%(c)
Ratio of net investment income (loss) to average net
assets*................................................. (0.52%)(c)
Portfolio turnover(d)..................................... 108.36%
</TABLE>
<TABLE>
<CAPTION>
LARGE COMPANY
GROWTH FUND
---------------------
OCTOBER 3, 1997 TO
September 30, 1998(a)
---------------------
CLASS B
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.02)
Net realized and unrealized gains (losses) on
investments............................................. (0.29)
------
Total from Investment Activities........................ (0.31)
------
DISTRIBUTIONS
Net investment income..................................... (0.01)
Net realized gains........................................ (0.10)
------
Total Distributions..................................... (0.11)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.58
======
Total Return (excludes redemption charge)................... (3.13%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $3,985
Ratio of expenses to average net assets................... 2.14%(c)
Ratio of net investment income to average net assets...... (0.78%)(c)
Ratio of expenses to average net assets*.................. 2.37%(c)
Ratio of net investment income (loss) to average net
assets*................................................. (1.01%)(c)
Portfolio turnover(d)..................................... 108.36%
</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> 23
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 7, 1994 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 September 30, 1995(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 23.33 $ 21.06 $14.53 $10.00
------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss)............. (0.29) (0.15) (0.20) (0.08)
Net realized and unrealized gains
(losses) on investments................ (5.23) 2.44 6.73 4.61
------- ------- ------ ------
Total from Investment Activities......... (5.52) 2.29 6.53 4.53
------- ------- ------ ------
DISTRIBUTIONS
In excess of net realized gains.......... (0.31) (0.02) -- --
Total Distributions...................... (0.31) (0.02) -- --
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD............. $ 17.50 $ 23.33 $21.06 $14.53
======= ======= ====== ======
Total Return (excludes sales charge)..... (23.81%) 10.90% 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $ 9,456 $12,676 $7,413 $1,096
Ratio of expenses to average net
assets................................. 1.86% 1.89% 2.01% 2.50%(c)
Ratio of net investment income (loss) to
average net assets..................... (1.36%) (1.29)% (1.26)% (1.56)%(c)
Ratio of expenses to average net
assets*................................ 2.11% 2.14% 2.26% 2.84%(c)
Ratio of net investment income (loss) to
average net assets*.................... (1.61%) (1.54)% (1.51)% (1.90%)(c)
Portfolio turnover(d).................... 157.44% 80.66% 71.62% 46.97%
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(A)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 23.02 $20.92 $15.24
------- ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.39) (0.20) (0.21)
Net realized and unrealized gains (losses) on
investments............................................. (5.19) 2.32 5.89
------- ------ ------
Total from Investment Activities........................ (5.58) 2.12 5.68
------- ------ ------
DISTRIBUTIONS
In excess of net realized gains........................... (0.31) (0.02) --
Total Distributions..................................... (0.31) (0.02) --
------- ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 17.13 $23.02 $20.92
======= ====== ======
Total Return (excludes redemption charge)............... (24.40%) 10.16% 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 8,609 $8,869 $3,200
Ratio of expenses to average net assets................... 2.61% 2.64% 2.72%(c)
Ratio of net investment income (loss) to average net
assets.................................................. (2.11%) (2.04)% (2.01)%(c)
Portfolio Turnover(d)..................................... 157.44% 80.66% 71.62%
</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> 24
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------
FOR THE YEAR ENDED JANUARY 2, 1997 TO
SEPTEMBER 30, 1998 September 30, 1997(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.24 $10.00
INVESTMENT ACTIVITIES
Net investment income..................................... 0.03 0.03
Net realized and unrealized gains (losses) on investments
and foreign currency transactions....................... (1.09) 1.25
------ ------
Total from Investment Activities...................... (1.06) 1.28
------ ------
DISTRIBUTIONS
Net investment income..................................... (0.03) (0.02)
In excess of net investment income........................ (0.01) (0.02)
------ ------
Net realized gains........................................ (0.23) --
------ ------
Total Distributions................................... (0.27) (0.04)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.91 $11.24
====== ======
Total Return (excludes sales charge)........................ (9.60%) 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $1,314 $ 833
Ratio of expenses to average net assets................... 1.75% 1.97%(c)
Ratio of net investment income (loss) to average net
assets.................................................. 0.26% 0.14%(c)
Ratio of expenses to average net assets*.................. 2.01% 2.24%(c)
Ratio of net investment income (loss) to average net
assets*................................................. 0.00% (0.13)%(c)
Portfolio turnover(d)..................................... 53.27% 41.45%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------
FOR THE YEAR ENDED JANUARY 2, 1997 TO
SEPTEMBER 30, 1998 September 30, 1997(a)
------------------ ---------------------
CLASS B CLASS B
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.23 $10.00
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.04) (0.01)
Net realized and unrealized gains (losses) on
investments............................................. (1.10) 1.26
------ ------
Total from Investment Activities...................... (1.14) 1.25
DISTRIBUTIONS
In excess of net Investment income........................ (0.01) (0.02)
Net Realized Gains........................................ (0.23) --
------ ------
Total Distributions................................... (0.24) (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85 $11.23
====== ======
Total Return (excludes redemption charge)................... (10.29%) 12.51%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $1,923 $1,179
Ratio of expenses to average net assets................. 2.50% 2.69%(c)
Ratio of net investment income (loss) to average net
assets................................................ (0.50%) (0.62%)(c)
Ratio of expenses to average net assets*................ 2.51% 2.74%(c)
Ratio of net investment income (loss) to average net
assets*............................................... (0.51%) (0.66%)(c)
Portfolio Turnover(d)................................... 53.27% 41.45%
</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> 25
<TABLE>
<CAPTION>
CAPITAL MANAGER
CONSERVATIVE GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
------------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.09
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.19
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.01)
------
Total from Investment Activities........................ 0.18
------
DISTRIBUTIONS
Net investment income..................................... (0.22)
Total Distributions..................................... (0.22)
------
NET ASSET VALUE, END OF PERIOD.............................. $10.05
======
Total Return (excludes sales charge)........................ 1.89%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 119
Ratio of expenses to average net assets................... 0.83%(c)
Ratio of net investment income to average net assets...... 2.91%(c)
Ratio of expenses to average net assets*.................. 1.33%(c)
Ratio of net investment income to average net assets*..... 2.41%(c)
Portfolio turnover(d)..................................... 4.28%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL MANAGER
MODERATE GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.01
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.15
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.15)
-------
Total from Investment Activities........................ --
-------
DISTRIBUTIONS
Net investment income..................................... (0.16)
Total Distributions..................................... (0.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85
=======
Total Return (excludes sales charge)........................ 0.10%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 1,146
Ratio of expenses to average net assets................... 0.93%(c)
Ratio of net investment income to average net assets...... 1.93%(c)
Ratio of expenses to average net assets*.................. 1.39%(c)
Ratio of net investment income to average net assets*..... 1.47%(c)
Portfolio turnover(d)..................................... 4.85%
</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.
22
<PAGE> 26
<TABLE>
<CAPTION>
CAPITAL MANAGER
GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.93
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.10
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.26)
------
Total from Investment Activities........................ (0.16)
------
DISTRIBUTIONS
Net investment income..................................... (0.10)
Total Distributions..................................... (0.10)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.67
======
Total Return (excludes sales charge)........................ (1.45%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 276
Ratio of expenses to average net assets................... 0.90%(c)
Ratio of net investment income to average net assets...... 1.16%(c)
Ratio of expenses to average net assets*.................. 1.38%(c)
Ratio of net investment income to average net assets*..... 0.68%(c)
Portfolio turnover(d)..................................... 7.69%
</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.
23
<PAGE> 27
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.
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 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 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 ("S&P") and "P-1" by Moody's
Investors Services, Inc. ("Moody's)); 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.
The Prime Money Market Fund may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as government, bank,
commercial and other obligations, that are available in the money markets. In
particular, the Fund may invest in:
(A) U.S. dollar-denominated obligations issued or supported by the
credit of U.S. or foreign banks or savings institutions with total
assets in excess of $1 billion (including obligations of foreign
branches of such banks);
(B) high quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers;
(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 interests of
Shareholders, the Fund will not maintain this concentration. Money market
instruments of companies in the
24
<PAGE> 28
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
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 U.S. Government 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 U.S. Government 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 U.S. Government 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 U.S.
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 or AAA by S&P), or, if not
rated, are of comparable quality as determined by BB&T. The applicable ratings
are described in the Appendix to the Statement of Additional Information.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level
of current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and
25
<PAGE> 29
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.
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
26
<PAGE> 30
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").(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, 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 those 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 nine Underlying Funds of the Group. These assets will be
allocated within the ranges indicated below.
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
The Capital Manager Conservative Growth Fund will invest 25% to 55% of its
assets in Underlying
- ---------------
(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.
27
<PAGE> 31
Funds which invest primarily in equity securities including the equity portion
of the Balanced Fund, 45% to 75% of its assets in Underlying Funds which invest
primarily in fixed income securities including the fixed income portion of the
Balanced Fund and up to 20% of its assets in Underlying Funds which are money
market funds.
<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
Short-Intermediate Fund............... 0%-75%
Intermediate U.S. Government Bond
Fund................................. 0%-75%
Money Market Funds
U.S. Treasury Fund 0%-20%
Prime Money Market Fund............... 0%-20%
</TABLE>
CAPITAL MANAGER MODERATE GROWTH FUND
The Capital Manager Moderate Growth Fund will invest 45% to 75% of its
assets in Underlying Funds which invest primarily in equity securities including
the equity portion of the Balanced Fund, 25% to 55% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 15% of its assets in Underlying
Funds which are money market funds.
<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 U.S. Government Bond
Fund................................. 0%-55%
Money Market Funds
U.S. Treasury Fund.................... 0%-15%
Prime Money Market Fund............... 0%-15%
</TABLE>
CAPITAL MANAGER GROWTH FUND
The Capital Manager Growth Fund will invest 60% to 90% of its assets in
Underlying Funds which invest primarily in equity securities including the
equity portion of the Balanced Fund, 10% to 40% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 10% of its assets in Underlying
Funds which are money market funds.
<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 U.S. Government Bond
Fund................................. 0%-40%
Money Market Funds
U.S. Treasury Fund.................... 0%-10%
Prime Money Market Fund............... 0%-10%
</TABLE>
The allocation of each Fund of Funds' assets among the Underlying Funds
will be made by BB&T under the supervision of the Group's Board of Trustees
within the percentage ranges set forth in the table above. BB&T will make
allocation decisions according to its outlook for the economy, financial
markets, and relative market valuation of the Underlying Funds. BB&T may vary
the allocation within the above ranges. There is no assurance that the Funds of
Funds will achieve their stated objectives.
The Funds of Funds' net asset value will fluctuate with changes in the
equity markets and the value of the Underlying Funds in which they invest. Each
Fund of Funds' investment return is diversified by its investment in the
Underlying Funds, which invest in growth and income stocks, foreign securities,
debt securities, and cash and cash equivalents.
With their remaining assets, the Funds of Funds may make direct investments
in any domestic and foreign securities and other instruments which the
Underlying Funds may purchase, as described in this prospectus.
The Funds of Funds and the Underlying Funds are permitted for temporary
defensive purposes to invest up to 100% of their assets in short-term fixed
income securities. Such securities include obligations of the U.S. government
and its agencies and instrumentalities, commercial paper, bank certificates of
deposit, repurchase agreements, bankers' acceptances, variable amount master
demand notes, and bank money market deposit accounts. The Funds of Funds and the
Underlying Funds may also hold cash for liquidity purposes.
To the extent the Funds of Funds or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Funds of Funds are concentrated in the Underlying
Funds, so each Fund
28
<PAGE> 32
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 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
Sub-Adviser targets equity securities that are believed to be undervalued. The
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 Sub-
Adviser will also consider macroeconomic factors such as the prospects for
relative economic growth among certain foreign countries, expected levels of
inflation, government policies influencing business conditions, and the outlook
for currency relationships.
ALL FUNDS
The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION -- Miscellaneous.") There can be, of course, no
assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, 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, the
International Equity Fund, the Capital Manager Conservative Growth Fund, the
Capital Manager Moderate Growth Fund, and the Capital Manager Growth Fund
(collectively, the "Variable NAV Funds"), the net asset value per Share of each
Variable NAV Fund will fluctuate.
SPECIFIC INVESTMENT POLICIES
The following is a description of certain 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 pro-
29
<PAGE> 33
ceedings, 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 by BFMI
(formerly PNC Equity Advisors Company) for the Small Company Growth Fund or by
BlackRock International (formerly CastleInternational Asset Management Limited)
for the International Equity Fund or by BIMC (formerly PNC Institutional
Management Corporation) for the Prime Money Market Fund. Except as described in
the Statement of Additional Information, there is no aggregate limitation on the
amount of a Fund's total assets that may be invested in instruments which are
subject to repurchase agreements. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
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 1940 Act.
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 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 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 BFMI, with respect to the
Small Company Growth Fund, or BlackRock International, 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
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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 in short-term obligations. For temporary
defensive purposes, as determined by BB&T (or, in the case of the Small Company
Growth Fund, BFMI or, in the case of the International Equity Fund, BlackRock
International), 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 Fund and the Intermediate U.S. Government Bond Fund. 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 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 Fund, the Intermediate U.S. Government Bond Fund,
the Growth and Income, the Balanced Fund, the Large Company Growth Fund, and 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. Even
though such securities do not pay current interest in cash, a Fund nonetheless
is required to accrue interest income on these investments and to distribute the
interest income on a
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current basis. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
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 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% (10% in the case of the Prime
Money Market Fund) 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
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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 BFMI, 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 BFMI, with respect to the Small Company Growth Fund), such investment is
considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund, the International Equity Fund, the
Growth and Income Fund, and the Balanced Fund may engage in writing call
options. Options are written solely as covered call options (options on
securities owned by a Fund). Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. In order to
close out an option position, a Fund will enter into a "closing purchase
transaction" -- the purchase of a call option on the same security with the same
exercise price and expiration date as any call option which it may previously
have written. Upon the sale of a portfolio security upon which it has written a
covered call option, a Fund must effect a closing purchase transaction so as to
avoid converting a covered call into a "naked call," i.e., a call option on a
security not owned by the Fund. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. When
writing a covered call option, a Fund, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security above
the exercise price but retains the risk of loss should the price of the security
decline.
To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund and the International Equity Fund may
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, each Fund of the
Group (other than the U.S. Treasury Money Market Fund and the Prime Money Market
Fund) may also invest in futures contracts and options on futures contracts to
commit funds awaiting investment to 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.
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Futures contracts obligate a 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.
Each Fund of the Group (other than the U.S. Treasury Money Market Fund and
the Prime Money Market 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 purchaser'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.
FOREIGN INVESTMENTS
The Prime Money Market Fund may invest in debt obligations of foreign
corporations and banks. The Prime Money Market Fund may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank;
Canadian Time Deposits ("CTDs") which are essentially the same as ETDs except
they are issued by Canadian offices of major Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Prime Money Market Fund will not invest in excess of 10% of its net
assets in time deposits, including ETDs and CTDs but not including certificates
of deposit, with maturities in excess of seven days which are subject to
penalties upon early withdrawal.
The Prime Money Market Fund may invest in commercial paper (including
variable amount master demand notes) issued by U.S. or foreign corporations. The
Prime Money Market Fund may also invest in Canadian Commercial Paper ("CCP"),
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
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
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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 21
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of securities listed on the stock exchanges of
such countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Singapore, 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 countries such as
France, Germany, Japan, and the United Kingdom. Investments of 25% or more of
the Fund's total assets in those or any other countries 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.
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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 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.
On January 1, 1999, the European Monetary Market Union ("EMU") introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. Those countries are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. A new European Central Bank ("ECB") will be created to manage the
monetary policy of the new unified region. On the same day, exchange rates will
be irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by coins and bank notes by the
middle of 2002.
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions are adequate; whether exchange rates for
existing currencies and the euro are adequately established; and whether
suitable clearing and settlement systems for the euro are in operation. These
and other factors may cause market disruptions before or after January 1, 1999
and could adversely affect the value of certain foreign securities held by a
Fund.
The introduction of the euro is expected to impact European capital markets
in ways that are impossible to quantify at this time. For example, investors may
begin to view EMU countries as a single market, and that may impact future
investment decisions for a Fund. As the euro is implemented, there may be
changes in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro transition by
EMU countries -- present and future -- may impact the fiscal and monetary
policies of those participating countries. There may be increased levels of
price competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in increased
volatility for all financial markets.
The expense ratio of the International Equity Fund is expected to be higher
than that of Funds of the Group 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, Egypt,
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
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with emerging economies or securities markets to 20% of its total assets.
The International Equity Fund may (but is not required to) use forward
foreign currency exchange contracts to hedge against movements in the value of
foreign currencies (including the European Currency Unit (ECU)) relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the 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
which BB&T and/or a Fund's respective sub-adviser has determined are
creditworthy under guidelines established by the Group's Board of Trustees. The
Group will employ one or more securities lending agents to initiate and affect
securities lending transactions for the Group. While the lending of securities
may be 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 lend only on a fully
collateralized basis in order to reduce such risk. During the time portfolio
securities are on loan, the Fund is entitled to receive any dividends or
interest paid on such securities. Additionally, cash collateral received will be
invested on behalf of the Fund exclusively in money market instruments. While a
Fund will not have the right to vote securities on loan, the Funds intend to
terminate the loan and retain the right to vote if that is considered important
with respect to the investment. Each Fund will restrict its securities lending
to 33 1/3% of its total assets.
In order to generate income, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond 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 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 BFMI, with respect to the Small Company Growth
Fund or BlackRock International, 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.
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
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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
Each Fund of the Group (other than the U.S. Treasury 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.
Each Fund of the Group (other than the U.S. Treasury 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
Adviser or 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 a 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 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
ad-
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justed 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 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. BIMC 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.
MONEY MARKET FUNDS
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
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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 bears directly in connection with its own
operations.
CLOSED-END INVESTMENT COMPANIES
The Balanced Fund may invest in closed-end investment companies that invest
a significant portion of their assets in convertible securities. Convertible
securities are fixed income-securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. As a shareholder of a closed-end investment company
holding such convertible securities, 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 bears directly in connection with its own
operations.
STANDARD & POOR'S DEPOSITORY RECEIPTS
Each of the Growth and Income Stock Fund, Balanced Fund, Large Company
Growth Fund, and Small Company Growth Fund may invest in Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs represent interests in trust sponsored by a
subsidiary of the American Stock Exchange, Inc. and structured to provide
investors proportionate undivided interests in a securities portfolio consisting
of substantially all of the common stocks (in substantially the same weighting)
as the component common stocks of a particular Standard & Poor's Index, e.g.,
the S&P 500 Index. SPDRs are generally not redeemable, but are exchange traded.
SPDRs are issued by a trust that is a unit investment trust, a type of
registered investment company. SPDRs, therefore, will be acquired by a fund only
within the limits prescribed under the 1940 Act.
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. Gen-
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eral 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, assessment, fee 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.
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
individual shareholders. All tax-exempt dividends will be included in
determining the federal alternative minimum taxable income for 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.
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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 bond mutual fund that is
not concentrated in these issuers to this degree. North Carolina experienced a
positive General Fund balance for each of its last five fiscal years. 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 for many years by 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 1940 Act. 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
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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.
PORTFOLIO TURNOVER
For the fiscal year ended September 30, 1998, the Portfolio turnover rate
for each of the Funds with a full year of operations (other than Money Market
Funds) was as follows: Short-Intermediate Fund 53.74%, Intermediate U.S.
Government Bond Fund 60.98%, North Carolina Fund 32.63%, Growth and Income Fund
13.17%, Small Company Growth Fund 157.44%, equity portion of the Balanced Fund
11.88% and fixed income portion of the Balanced Fund 61.41% and the
International Equity Fund 53.27%. The portfolio turnover of each of the Funds
(except the Money Market Funds) may vary greatly from year to year as well as
within a particular year. It is presently anticipated that the annual portfolio
turnover rates of the Funds of Funds will not exceed 50%, the annual portfolio
turnover rate of the South Carolina Fund will not exceed 75% and the annual
portfolio turnover rate of the Large Company Growth Fund will not exceed 150%.
High turnover rates will generally result in higher transaction costs to a Fund
and may result in higher levels of taxable realized gains (including short-term
capital gains which are generally taxed at ordinary income tax rates) to a
Fund's shareholders. See "DIVIDENDS AND TAXES."
It is presently anticipated that the portfolio turnover rate of the South
Carolina Fund and the Funds of Funds will not exceed 50% and the portfolio
turnover rate of the Large Company Growth Fund will not exceed 150%. High
turnover rates will generally result in higher transaction costs to a Fund and
may result in higher levels of taxable realized gains (including short-term
capital gains which are generally taxed at ordinary income tax rates) to a
Fund's shareholders.
YEAR 2000
The investment services industry is evaluating the capability of existing
application software programs and operating systems to accommodate the date
value for the year 2000. Many existing application software products in the
marketplace were designed to accommodate only a two-digit date position, which
represents the year (e.g., "95" is stored on the system and represents the year
1995). If the year 1999 is the maximum date value these systems are able to
accurately process, the improper identification of the year 2000 could result in
a computer system failure or miscalculations causing a disruption of operations.
The Group's principal service providers are taking steps the Group believes are
reasonably designed to address the year 2000 issues with respect to the computer
systems those providers operate. However, this is an ongoing process and testing
and other steps are scheduled to be completed in 1999. Nevertheless, the
inability of service providers to successfully address year 2000 issues could
result in interruptions in the Group's business and have a material adverse
impact on the Group's operations. In addition, year 2000 issues could have a
negative affect on the portfolio securities in which the Funds invest, thereby
affecting the performance of the Funds.
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INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund (see "GENERAL INFORMATION -- Miscellaneous").
The 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.
2. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
Each of the Funds of Funds may not:
1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities or securities issued by
"regulated investment companies" as defined in the Internal Revenue Code of
1986, as amended (the "Code"); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
"regulated investment companies" as defined in the Code, if, immediately after
such purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, or the Fund would hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding voting securities
of the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
The Growth and Income Fund, the Balanced Fund, 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,
44
<PAGE> 48
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 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.
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 Obliga-
45
<PAGE> 49
tions 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 (the "NYSE")
(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
NYSE (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 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, Martin Luther King, Jr. 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 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 clos-
46
<PAGE> 50
ing 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 LP. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.
PURCHASES OF CLASS A AND CLASS B SHARES
Class A and Class B Shares may be purchased through procedures established
by the Distributor in connection with the requirements of qualified accounts
maintained by or on behalf of certain persons ("Customers") by Participating
Organizations under the Group's Distribution and Shareholder Services Plan (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP -- Distribution Plan").
As of the date of this Prospectus, however, Class B Shares were not yet
being offered in the Short-Intermediate Fund, the North Carolina Fund, or the
South Carolina Fund. Investors purchasing Shares of the U.S. Treasury Fund or
Prime Money Market 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 or Prime Money Market Fund, as
opposed to Shareholders obtaining Class B Shares of the U.S. Treasury Money
Market Fund or Prime 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 or Prime 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 Plan").
Shares of the Group sold to Participating Organizations acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of Customers
will normally be held of record by the Participating Organizations. With respect
to Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers.
Investors may purchase Class A and Class B Shares of a Fund by completing
and signing an Account Registration Form and mailing it, together with a check
(or other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the Group, to BB&T Mutual Funds Group, P.O. Box
182533, Columbus, OH 43218-2533. Investors may obtain an Account Registration
Form and additional information regarding the Group by contacting their local
BB&T office. Subsequent purchases of Class A and Class B Shares of a Fund may be
made at any time by mailing a check (or other negotiable bank draft or money
order) to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the Group at (800)
228-1872. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by sending funds electronically to the Group's transfer agent.
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
47
<PAGE> 51
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, automatic investment plans
or payroll deduction plans.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Class A Shares that may be purchased.
Every Shareholder will be mailed a confirmation of each new transaction in
the Shareholder's account. In the case of Class A and Class B Shares held of
record by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A and Class B
Shares by a Participating Organization will be sent to the Customer by the
Participating Organization. Certificates representing Shares will not be issued.
SALES CHARGE -- CLASS A
The public offering price of a Class A Share of each of the North Carolina,
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% 2.00%
$100,000 but less than
$250,000................. 1.52% 1.50% 1.50%
$250,000 but less than
$500,000................. 1.01% 1.00% 1.00%
$500,000 but less than
$1,000,000............... 0.50% 0.50% 0.50%
$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
U.S. Government Bond, Growth and Income, Balanced, Large Company Growth, Small
Company Growth, and International Equity Funds and the Funds of Funds equals its
net asset value plus a sales charge in accordance with the table below.
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- -------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000........ 4.71% 4.50% 4.50%
$100,000 but less than
$250,000................. 3.63% 3.50% 3.50%
$250,000 but less than
$500,000................. 2.56% 2.50% 2.50%
$500,000 but less than
$1,000,000............... 1.52% 1.50% 1.50%
$1,000,000 or more........ 0.00% 0.00% 0.00%
</TABLE>
BISYS Fund Services LP (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 1933 Act.
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.
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, the Distributor pays broker-dealers out of its own assets, a
fee of up to 1% of the offering price of such shares up to $2.5 million, 0.5% of
the offering price from $2.5 million to $5 million, and 0.25% of the offering
price over $5 million. If these shares are redeemed within 12 months, the
redemption proceeds will be reduced by 1.00%. For additional information,
48
<PAGE> 52
see "How to Purchase and Redeem Shares -- Contingent Deferred 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. 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 Sub-Advisers
(and spouses, children and parents of each of the foregoing);
(3) Investors for whom a BB&T correspondent bank or other financial
institution acts in a fiduciary, advisory, custodial, agency, or
similar capacity;
(4) BB&T Fund shares purchased with the proceeds from a distribution
from BB&T or an affiliate trust or agency account (this waiver
applies only to the initial purchase of a BB&T Fund subject to a
sales load);
(5) Investors who beneficially hold Trust Shares of any Fund of the
Group;
(6) Investors who purchase Shares of a Fund through a payroll
deduction plan, a 401(k) plan or a 403(b) plan which by its terms
permits purchases of Shares;
(7) Investors whose shares are held of record by, and purchases made
on behalf of, other investment companies distributed by the
Distributor or its affiliated companies; and
In addition, the Distributor may waive the sales charge for the purchase of
a Fund's shares with the proceeds from the recent redemption of shares of
another non-money market mutual fund that imposes a sales charge. The purchase
must be made within 60 days of the redemption, and the Distributor must be
notified in writing by the investor or by his or her financial institution at
the time the purchase is made. A copy of the investor's account statement
showing such redemption must accompany such notice. The
49
<PAGE> 53
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.
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
50
<PAGE> 54
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 4.30% 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.
CONTINGENT DEFERRED SALES CHARGE
CLASS A SHARES
Each Fund imposes a Contingent Deferred Sales Charge on Class A shares in
certain circumstances. Under the Contingent Deferred Sales Charge arrangement,
for sales of shares of $1,000,000 or more (including right of accumulation and
Letters of Intent (see "How to Purchase and Redeem Shares")), the front-end
sales charge will not be imposed (although the Distributor intends to pay its
registered representatives and other dealers that sell Fund shares, out of its
own assets, a fee of up to 1% of the offering price of such sales except on
purchases exempt from the front end sales charge. However, if such shares are
redeemed within twelve months after their purchase date, the redemption proceeds
will be reduced by the 1.00% Contingent Deferred Sales Charge.
CLASS B SHARES
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 $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; (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; (iii) provided that the Shareholder with-
51
<PAGE> 55
draws no more than 12% of the account value annually using the Auto Withdrawal
Plan Feature; (iv) for Investors who purchased Class B Shares of the Prime Money
Market Fund or Class B Shares of the U.S. Treasury Fund through the Cash Sweep
Program at BB&T Treasury Services Division; and (v) for Investors who purchased
through a participant directed defined contribution plan. 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; and (ii) exchanges for Class B
Shares of other Funds of the Group as described under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Class A Shares and will be subject to the lower distribution and Shareholder
service fees charged to Class A Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in a Shareholder's Fund account
will be considered to be held in a separate sub-account. Each time any Class B
Shares in a Shareholder's Fund account (other than those in the sub-account)
convert to Class A Shares, a pro-rata portion of the Class B Shares in the
sub-account will also convert to Class A Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Group during the eight-year period, the Group will aggregate the
holding periods for the shares of each Fund of the Group for purposes of
calculating that eight-year period. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same.
AUTO INVEST PLAN
BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make
regular purchases of Class A and Class B Shares through automatic deduction from
their bank accounts. With Shareholder authorization, the Group's transfer agent
will deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $25 per Fund; the minimum amount for subsequent automatic
investments in a Fund is $25. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or supplemental sign-up form that can be acquired by calling the
Distributor and attach a voided check and (for new Shareholders only) send a
check for the initial $25 Fund Share purchase. 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 and Taxpayer Relief Act of 1997, 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.
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<PAGE> 56
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 and the South
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 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's account fees for services provided
in connection with investment in the Group. Information concerning this
Prospectus should be read in conjunction with any such information received from
the Participating Organizations or Banks.
The Group reserves the right to reject any order for the purchase of its
Class A or Class B Shares in whole or in part, including purchases made with
foreign and third party drafts or checks.
EXCHANGE PRIVILEGE
CLASS A
Class A Shares of each Fund may be exchanged for Class A Shares of the
other Funds, provided that the Shareholder making the exchange is eligible on
the date of the exchange to purchase Class A Shares (with certain exceptions and
subject to the terms and conditions described in this prospectus). Class A
Shares may not be exchanged for Class B Shares of the other Funds, and may be
exchanged for Trust Shares of the other Funds only if the Shareholder becomes
eligible to purchase Trust Shares. Only residents of North Carolina may exchange
their Class A Shares of the other Funds for Class A Shares of the North Carolina
Fund. 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
53
<PAGE> 57
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 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 three Funds. For purposes of computing the
Contingent Deferred Sales Charge that may be payable upon a disposition of the
newly acquired Class B Shares, the holding period for outstanding Class B Shares
of the Fund from which the exchange was made is "tacked" to the holding period
of the newly acquired Class B Shares. For purposes of calculating the holding
period applicable to the newly acquired Class B Shares, the newly acquired Class
B Shares shall be deemed to have been issued on the date of receipt of the
Shareholder's order to purchase the outstanding Class B Shares of the Fund from
which the exchange was made.
Class B Shares may not be exchanged for Class A Shares of the other Funds,
and may be exchanged for Trust Shares of the other Funds only if the Shareholder
becomes eligible to purchase Trust Shares. A Contingent Deferred Sales Charge
will apply as described in "How To Purchase and Redeem Shares" -- "Class B
Shares" to exchanges of Class B Shares for Trust Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
An exchange is considered a sale of Shares and will result in a capital
gain or loss for federal income tax purposes, which, in general, is calculated
by netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange. If a Shareholder exchanges
Class A Shares within 90 days of acquiring them and if a sales charge is waived
on the exchange, for purposes of measuring the capital gain or loss on the
exchange, the Shareholder's basis in the surrendered Shares is reduced by the
lesser of (i) the sales charge paid for the surrendered shares or (ii) the
amount of the sales charge that is waived on the exchange.
A Shareholder wishing to exchange Class A or Class B Shares purchased
directly from the Group may do so by contacting the Group at (800) 228-1872 or
by providing instructions to the Transfer Agent. If not selected on the Account
Registration form, the Shareholder will automatically receive Exchange
privileges. A Shareholder wishing to exchange Class A or Class B Shares
purchased through a Participating Organization or Bank may do so by contacting
the Participating Organization or Bank. If an exchange request in good order is
received by the Distributor or the Transfer Agent by 12:00 noon (Eastern Time)
on any Business Day, the exchange usually will occur on that day. Any
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be exercised only in those
states where the class of Shares of such other Fund may legally be sold. The
Group reserves the right to 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 PLAN (CLASS B SHARES ONLY)
BB&T Mutual Funds Group Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Class B Shares of a BB&T Mutual 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
54
<PAGE> 58
withdraw the amount specified (subject to the applicable minimums) from the
shareholder's account and will automatically invest that amount in Class B
Shares of the BB&T Mutual Fund designated by the Shareholder at the public
offering price on the date of such deduction. The Auto Exchange feature can only
be used within the same class of shares. When the balance of the Fund you wish
to transfer from becomes less than the requested Automatic Exchange amount,
Automatic Exchange will be discontinued. In order to participate in the Auto
Exchange, Shareholders must have a minimum initial purchase of $10,000 in their
BB&T Mutual Fund account. The Auto Exchange feature can only be used within the
same Class of Shares.
Shareholders investing directly in Class B Shares of the U.S. Treasury Fund
or Prime Money Market Fund, as opposed to Shareholders obtaining Class B Shares
of the U.S. Treasury Fund or Prime 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 Fund or Prime Money Market Fund within two years of purchase.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the BB&T
Mutual Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Exchange
may be amended or terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Class A Shares without charge, and their
Class B Shares subject to the applicable Contingent Deferred Sales Charge, on
any day that net asset value is calculated (see "VALUATION OF SHARES") and
Shares may ordinarily be redeemed by mail or by telephone. However, all or part
of a Customer's Shares may be required to be redeemed in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization or Bank. For example, if a Customer has agreed to
maintain a minimum balance in his or her account, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Participating Organization or Bank may redeem for and on behalf of the Customer,
all or part of the Customer's Shares to the extent necessary to maintain the
required minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of 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 may reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
currently being waived. There is no charge for having payment of redemption
requests mailed or sent via the Automated Clearing House to a
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<PAGE> 59
designated bank account. For telephone redemptions, call the Group at (800)
228-1872. If not selected on the Account Registration form, the Shareholder will
automatically receive telephone redemption privileges. None of the Distributor,
the Group's transfer agent, BB&T or the Group will be liable for any losses,
damages, expense or cost arising out of any telephone transaction (including
exchanges and redemptions) effected in accordance with the Group's telephone
transaction procedures, upon instructions reasonably believed to be genuine. The
Group will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine; if these procedures are not
followed, the Group may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures include recording all phone
conversations, sending confirmations to Shareholders within 72 hours of the
telephone transaction, verifying the account name and a shareholder's account
number or tax identification number and sending redemption proceeds only to the
address of record or to a previously authorized bank account. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption request to the Group.
CHECK WRITING SERVICE
Shareholders of Class A Shares of the 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 may 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 and Class B Shares of a Fund. With
Shareholder authorization, the Group's transfer agent will automatically redeem
Class A Shares and Class B 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. In certain cases, Class B Shareholders
may redeem using the Auto Withdrawal Plan without paying a contingent deferred
sales charge as described in "How to Purchase and Redeem Shares -- Contingent
Deferred Sales Charge." Shareholders participating in the Auto Withdrawal Plan
must maintain a minimum account balance of $1,000 in the Fund from which Class A
Shares or Class B 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 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
56
<PAGE> 60
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 1940 Act.
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 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 Fund, the South Carolina
Fund, the Short-Intermediate Fund and the Intermediate U.S. Government Bond Fund
is declared daily and paid monthly. A dividend on the Shares of the Growth and
Income Fund and the Balanced Fund is declared and paid monthly. The Large
Company Growth Fund, the Small Company Growth Fund, the International Equity
Fund and Funds of the Funds declare and pay dividends quarterly. Net realized
capital gains, if any, are distributed at least annually to Shareholders of
record.
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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 declaration 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.
If you elect to receive distributions in cash and your checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
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, and International
Equity Funds, and so-designated by the Funds, may qualify for the dividends
received deduction for corporate shareholders. A corporate shareholder will only
be eligible to claim such a dividends received deduction with respect to a
dividend from one of these Funds if the shareholder held its shares on the
ex-dividend date and for at least 45 more days during the 90-day period
surrounding the ex-dividend date. 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 designated by a Fund as deriving from net gains on securities held
for more than one year will be taxable to Shareholders as such, 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.
Distributions are taxable to a Shareholder of a Fund even if they are paid
from income or gains earned by the Fund prior to the Shareholder's investment
(and thus were included in the price paid by the Shareholder).
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 on securities it has held for at least the
minimum period specified in the Code, 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
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<PAGE> 62
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, so long as the shareholder held the Fund shares (without
protection from risk of loss) on the ex-dividend date and for at least 15 other
days during the 30-day period surrounding the ex-dividend date, or (b) if a
shareholder itemizes deductions, to deduct such proportionate amounts from U.S.
Federal taxable income. Although a Fund of Funds may itself be entitled to a
deduction for such taxes paid by a Fund in which the Fund of Funds invests, the
Fund of Funds will not be able to pass any such credit or deduction through to
its own shareholders.
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.
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
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<PAGE> 63
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 net
gains on securities held for more than one year are taxable to Shareholders as
such, 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
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).
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.
TAX CONSIDERATIONS RELATING TO THE FUNDS OF FUNDS
The use of the fund-of-funds structure could affect the amount, timing and
character of distributions to Shareholders. See "Taxation" in the Statement of
Additional Information.
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 1940 Act. The Trustees, in turn, elect
the officers of the Group to supervise actively its day-to-day operations. The
Trustees of the
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Group, their current addresses, and principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
---------------- ---------------- ---------------------------
<S> <C> <C>
*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 December,
Fayetteville Street Mall 1993, Vice Chairman, Carolina Power &
P.O. Box 109 Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive Director,
101 Reynolda Village Z. Smith Reynolds Foundation
Winston-Salem,
NC 27106
W. Ray Long Trustee Retired; Executive Vice President, Branch
605 Blenheim Drive Banking and Trust Company
Raleigh, NC 27612
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 1940 Act.
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, Inc. 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.
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, a bank
holding company that is a North Carolina corporation, headquartered in
Winston-Salem, North Carolina. As of December 31, 1997, BB&T Corporation had
assets of approximately $29.2 billion. Through its subsidiaries, BB&T
Corporation operates over 540 banking offices in Maryland, North Carolina, South
Carolina, Virginia and Washington, D.C., 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 16 years and currently manages assets of more
than $3.37 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,
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<PAGE> 65
BB&T (and, with respect to the Small Company Growth Fund, BFMI, with respect to
the International Equity Fund, BlackRock International, and, with respect to the
Prime Money Market Fund, BIMC) 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.
For the fiscal year ended September 30, 1998, the Funds paid the following
investment advisory fees for Funds that had operated for that entire year: the
Prime Money Market Fund paid 0.30% of its average daily net assets; the U.S.
Treasury Fund paid 0.40% of its average daily net assets; each of the
Short-Intermediate Fund, the Intermediate Bond Fund, the North Carolina Fund,
the Growth and Income Fund, and the Balanced Fund, after voluntary fee
reductions, paid 0.50% of its average daily net assets; and each of the Small
Company Growth Fund and the International Equity Fund paid 1.00% of its average
daily net assets. The South Carolina Fund, the Funds of Funds, and the Large
Company Growth Fund had operations for less than a full fiscal year.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the Group other than the Small Company Growth and
International Equity Funds (which are managed by Sub-Advisers, described below),
as well as their previous business experience, are as follows:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- ------------------------------------------------------------
<S> <C>
Keith F. Karlawish............. Manager of the Intermediate U.S. Government Bond Fund and
Short-Intermediate Fund since September, 1994. From June,
1993 to September, 1994, Mr. Karlawish was Assistant Manager
of the Intermediate U.S. Government 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 Company. 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.
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.
C. Steven Brennaman............ Manager of the North Carolina Fund since January, 1988 and
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.
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- ------------------------------------------------------------
<S> <C>
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
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) 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, BIMC 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.
BIMC is a wholly owned subsidiary of BlackRock Advisors, Inc. ("BAI")
(formerly PNC Asset Management Group, Inc.). BAI was organized in 1994 to
perform advisory services for investment companies, and has its principal
offices at 345 Park Avenue, 29th Floor, New York, New York 10154. BAI is an
indirect majority-owned subsidiary of PNC Bank Corp., a diversified financial
services company. BIMC's principal business address is 400 Bellevue Parkway, 4th
Floor, Wilmington, Delaware 19809.
As Sub-Adviser, BIMC 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. BIMC 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,
BIMC 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%) of the
Prime Money Market Fund's average daily net assets or such lower fee as may be
agreed upon in writing by BB&T and BIMC.
BlackRock Financial Management, Inc. ("BFMI") ( formerly PNC Equity
Advisors Company) 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, BFMI 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 BFMI since 1995 and has been the portfolio manager of the BlackRock
Funds(SM) Small Cap Growth Equity Portfolio since its inception. From 1986 to
1992, he was an investment manager at PNC Bank and its predecessor, Provident
National Bank.
BFMI is an indirect majority-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. At September 30, 1998, BFMI had approximately $70 billion in
discretionary assets under management, including $24 billion in mutual fund
portfolios. PNC Bank is a wholly-owned indirect subsidiary of PNC Bank Corp. PNC
Bank Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania, is
one of the largest diversified financial services companies in the United States
and operates eight lines of business; regional community banking, corporate
banking, national consumer banking, private banking, mortgage banking, secured
lending, asset management and mutual fund servicing. Financial products and
services are offered nationally and in PNC Bank's primary geographic markets in
Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC Bank's origins, and
in particular its trust administration services, date back to the mid-to-late
1800s. During the first nine months of 1998, PNC Bank's fixed income, equity and
liquidity businesses were consolidated under BlackRock, Inc., BFMI's indirect
parent. This combination
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<PAGE> 67
created one of the largest asset managers in the United States with $122 billion
in assets under management as of September 30, 1998.
For its services and expenses incurred under the Sub-Advisory Agreement,
BFMI 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................. 0.50%
Next $50 million.................. 0.45%
Over $100 million................. 0.40%
</TABLE>
BlackRock International, Ltd. ("BlackRock International") (formerly
CastleInternational Asset Management Limited) serves as the Sub-Adviser to the
International Equity Fund pursuant to a Sub-Advisory Agreement with BB&T. Under
the Sub-Advisory Agreement, BlackRock International 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.
BlackRock International, formed in 1996, with its primary office at 7
Castle Street, Edinburgh, Scotland, EH2 3AH, is an indirect majority-owned
subsidiary of PNC Bank Corp. As of September 30, 1998, BlackRock International
had approximately $1.8 billion in discretionary assets under management,
including five mutual fund portfolios and three tax exempt institutional
portfolios.
For its services and expenses incurred under the Sub-Advisory Agreement,
BlackRock International is entitled to a fee, payable by BB&T. The fee is
computed daily and paid quarterly at the following annual rates (as a percentage
of the International Equity Fund's average daily net assets), which vary
according to the level of Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
----------- ----------
<S> <C>
Up to $50 million................. 0.50%
Next $50 million.................. 0.45%
Over $100 million................. 0.40%
</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 BlackRock International since 1996. Prior to joining
BlackRock International, Mr. Anderson was the Investment Director of Dunedin
Fund Managers Ltd. Mr. Anderson has been the Portfolio Manager for the BlackRock
Funds(SM) International Equity Portfolio since 1996.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for each Fund. BISYS Fund
Services LP 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, 1998, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
0.20% for each of the Intermediate U.S. Government Bond Fund, the Growth and
Income Fund, the Balanced Fund, the International Equity Fund, and the Small
Company Growth Fund; 0.17% for the Short-Intermediate Fund; 0.15% for the U.S.
Treasury Fund and the North Carolina Fund; and 0.11% for the Prime Money Market
Fund. The Funds of Funds, the South Carolina Fund, and the Large Company
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<PAGE> 68
Growth Fund had operations of less than a full fiscal
year.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with the
performance of their services as 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 periods ended September 30, 1998, each Fund's total operating
expenses for Class A Shares were as follows (as a percentage of average daily
net assets of each Fund): Prime Money Market Fund: 0.83%; U.S. Treasury Fund:
0.86%; Short-Intermediate Fund: 1.06%; Intermediate U.S. Government Bond Fund:
1.09%; South Carolina Fund: 1.04%; North Carolina Fund: 0.96%; Growth and Income
Fund: 1.10%; Balanced Fund: 1.17%; Large Company Growth Fund: 1.39%; Small
Company Growth Fund: 1.86%; and International Equity Fund: 1.75%. Absent fee
waivers, these operating expenses would have been: Prime Money Market Fund:
1.43%; U.S. Treasury Fund: 1.26%; Short-Intermediate Fund: 1.44%; Intermediate
U.S. Government Bond Fund: 1.44%; South Carolina Fund: 1.97%; North Carolina
Fund: 1.48%; Growth and Income Fund: 1.59%; Balanced Fund: 1.66%; Large Company
Growth Fund: 1.87%; Small Company Growth Fund: 2.11%; and International Equity
Fund: 2.01%.
For the fiscal year ended September 30, 1998, each Fund's total operating
expenses for Class B Shares were as follows (as a percentage of average daily
net assets of each Fund): Prime Money Market Fund: 1.64%; U.S. Treasury Fund:
1.61%; Intermediate U.S. Government Bond Fund: 1.84%; Growth and Income Fund:
1.85%; Balanced Fund: 1.92%; Large Company Growth Fund: 2.14%; Small Company
Growth Fund: 2.61%; and International Equity Fund: 2.50%. Absent fee waivers,
these operating expenses would have been: Prime Money Market Fund: 1.99%; U.S.
Treasury Fund: 1.76%; Intermediate U.S. Government Bond Fund: 1.94%; Growth and
Income Fund: 2.09%; Balanced Fund: 2.16%; Large Company Growth Fund: 2.37%; and
International Equity Fund: 2.51%.
The organizational expenses of the Prime Money Market Fund, the South
Carolina Fund, the Large Company Growth Fund, the Funds of Funds and the Small
Company Growth Fund have been capitalized and are being amortized in the first
two years of the Fund's operations. Such amortization will reduce the amount of
income available for payment as dividends.
BANKING LAWS
BB&T, BIMC, BFMI, and BlackRock International 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, BIMC, BFMI, and
BlackRock International 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.
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<PAGE> 69
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 (0.50%) 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 (0.25%) of the average daily net assets of Class A
Shares of each Fund (in the case of the North Carolina Fund, the South Carolina
Fund and the Funds of Funds, 0.15% of the average daily net assets of the Class
A Shares of each Fund). The Distributor may use the distribution fee to provide
distribution assistance with respect to a Fund's Class A and Class B Shares or
to provide shareholder services to the holders of such Shares. The Distributor
may also use the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks), broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with distribution assistance or (ii) to pay banks, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of shareholder services. All
payments by the Distributor for distribution assistance or shareholder services
under the Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of a Fund's Class A and Class B Shares to the
Participating Organization's customers on whose behalf the investment in such
Shares is made and/or to the provision of shareholder services to the
Participating Organization's customers owning a Fund's Class A and Class B
Shares. Under the Distribution Plan, a Participating Organization may include
Southern National Corporation or a subsidiary bank or nonbank affiliates, or the
subsidiaries or affiliates of those banks. A Servicing Agreement entered into
with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount
of the fee is more or less than the actual expenses incurred in a particular
year by the Distributor in connection with distribution assistance or
shareholder services rendered by the Distributor itself or incurred by the
Distributor pursuant to the Servicing Agreements entered into under the
Distribution Plan. If the amount of the distribution fee is greater than the
Distributor's actual expenses incurred in a particular year (and the Distributor
does not waive that portion of the distribution fee), the Distributor will
realize a profit in that year from the distribution fee. If the amount of the
distribution fee is less than the Distributor's actual expenses incurred in a
particular year, the Distributor will realize a loss in that year under the
Distribution Plan and will not recover from a Fund the excess of expenses for
the year over the distribution fee, unless actual expenses incurred in a later
year in which the Distribution Plan remains in effect were less than the
distribution fee paid in that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
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
66
<PAGE> 70
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.
Portfolio Brokerage. When placing orders for the Group's securities
transactions, BB&T or a Fund's respective Sub-Adviser will use its judgment to
obtain best price and execution. The full range and quality of brokerage
services available are considered in making these determinations. BB&T or a
Fund's respective Sub-Adviser may use a qualified affiliated broker or dealer of
BB&T to execute the Group's transactions when it reasonably believes that
commissions (or prices) charged and transaction quality will be at least
comparable to those available from other qualified brokers or dealers.
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 fourteen 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 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, 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. Each
Fund is authorized to issue three classes of shares: Class A, Class B and Trust
Shares. Currently, the Short-Intermediate Fund, the North Carolina Fund and the
South Carolina Fund are not offering Class B Shares. Shareholders investing
directly in Class B Shares of the U.S. Treasury Fund or the Prime Money Market
Fund, as opposed to Shareholders obtaining Class B Shares of the U.S. Treasury
Fund or the Prime Money Market 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 or the Prime Money Market 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 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, 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
67
<PAGE> 71
are elected by the Shareholders and may be removed by the Board of Trustees or
Shareholders at a meeting held for such purpose in accordance with the
provisions of the Declaration of Trust and the By-laws of the Group and
Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous" in the
Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of October 29, 1998 the following person owned of record or beneficially
more than 25% of the Class A Shares of the U.S. Treasury Money Market Fund:
<TABLE>
<CAPTION>
PERCENT OWNED
----------------------
RECORD
NAME AND ADDRESS TOTAL SHARES ONLY BENEFICIALLY
---------------- ------------ ------ ------------
<S> <C> <C> <C>
U.S. Treasury Money Market Fund -- Class A Shares
- ----------------------------------------------------------------------
National Financial Services
Corp.
For the Exclusive Benefit of
Our Customers
P.O. Box 3752
Church Street Station
New York, NY 10008-3752...... 31,195,208.82 73.913%
</TABLE>
Accordingly, National Financial Services Corp. may be deemed to be a
"controlling person" of the Class A Shares of the U.S. Treasury Money Market
Fund.
<TABLE>
<CAPTION>
PERCENT OWNED
----------------------
TOTAL RECORD
NAME AND ADDRESS SHARES ONLY BENEFICIALLY
---------------- ------ ------ ------------
<S> <C> <C> <C>
Capital Manager Moderate Growth Fund -- Class A Shares
- ---------------------------------------------------------------------
William H. Peeler and Betty P.
Peeler
JTWROS
3802 Old Sptg Hwy
Moore, SC 29369................ 94,027.660 70.990
</TABLE>
Accordingly, William H. Peeler and Betty P. Peeler may be deemed to be
"controlling persons" of the Class A Shares of the Capital Manager Moderate
Growth Fund.
<TABLE>
<CAPTION>
PERCENT OWNED
----------------------
TOTAL RECORD
NAME AND ADDRESS SHARES ONLY BENEFICIALLY
---------------- ------ ------ ------------
<S> <C> <C> <C>
Capital Manager Conservative Growth Fund -- Class A Shares
- ---------------------------------------------------------------------
Branch Banking & Trust Company
Lorraine K. Cauthen
IRA
108 Strawberry Lane
Clemson, SC 29631............... 6,259.342 52.779
</TABLE>
Accordingly, Lorraine K. Cauthen may be deemed to be a "controlling person"
of the Class A Shares of the Capital Manager Conservative Growth Fund.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Bank of New York serves as the Custodian for the International Equity Fund.
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for all other Funds of 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 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 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
68
<PAGE> 72
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.
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 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.
69
<PAGE> 73
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.
70
<PAGE> 74
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
ADMINISTRATOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
BISYS Fund Services LP
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 LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 75
[BB&T MUTUAL FUNDS LOGO]
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 AND TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED FEBRUARY 1, 1999
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 2
The Group................................................... 5
Fee Table................................................... 5
Financial Highlights........................................ 10
Investment Objectives and Policies.......................... 18
Investment Restrictions..................................... 38
Valuation of Shares......................................... 40
How to Purchase and Redeem Shares........................... 41
Dividends and Taxes......................................... 44
Management of BB&T Mutual Funds Group....................... 47
General Information......................................... 53
</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> 77
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public fourteen separate investment funds (each a
"Fund"). Each Fund of the Group offers multiple classes of units of beneficial
interest ("Shares"). Three of the Funds, (the "Funds of Funds"), offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in securities of issuers unrelated to the Group.
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 U.S.
Government Bond Fund") seeks current income consistent with the preservation of
capital through investment of at least 65% of its assets in bonds issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and North Carolina personal income tax. Normally, the
North Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.
THE 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 FUNDS
AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION PER ISSUER THAN DIVERSIFIED
FUNDS.
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.
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, BB&T
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 February 1, 1999.
<PAGE> 78
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group............................ BB&T Mutual Funds Group (the "Group"), a Massachusetts
business trust, is an open-end management investment company
which currently consists of fourteen separately managed
portfolios (each a "Fund"). Three of the Funds (the "Funds
of Funds") offer Shareholders a professionally-managed
investment program by purchasing shares of other Funds of
the Group (the "Underlying Funds"). The remaining eleven
Funds primarily invest in securities of issuers unrelated to
the Group. Each Fund is authorized to offer three classes of
Shares: Class A, Class B and Trust Class. As of the date of
this prospectus, Class B Shares were not yet being offered
in the Short-Intermediate, North Carolina and South Carolina
Funds. This prospectus relates to only the Trust 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 U.S. GOVERNMENT 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.
</TABLE>
2
<PAGE> 79
<TABLE>
<S> <C>
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.
THE INTERNATIONAL EQUITY FUND seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.
THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND seeks capital
appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.
THE CAPITAL MANAGER MODERATE GROWTH FUND seeks capital
appreciation and, secondarily, income by investing primarily
in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
THE CAPITAL MANAGER GROWTH FUND seeks capital appreciation
by investing primarily in a group of diversified BB&T mutual
funds which invest primarily in equity securities.
Funds of Funds....................... Capital Manager Conservative Growth, Capital Manager
Moderate Growth and Capital Manager Growth Funds intend to
primarily invest in the shares of other BB&T mutual funds.
Investment Risks..................... Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of the
obligations in each Fund's portfolio, and market conditions.
An investment in the North Carolina Fund 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 Fund,
the Intermediate U.S. Government Bond Fund, 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, the International
Equity Fund, the Capital Manager Conservative Growth Fund,
the Capital Manager Moderate Growth Fund, and the Capital
Manager Growth Fund 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 ("BB&T" or the "Adviser"),
Raleigh, North Carolina.
</TABLE>
3
<PAGE> 80
<TABLE>
<S> <C>
Sub-Advisers......................... BlackRock Institutional Management Corporation ("BIMC" or
the "Sub-Adviser"), Wilmington, Delaware, serves as the
Sub-Adviser to the Prime Money Market Fund. BlackRock
Financial Management, Inc. ("BFMI" or the "Sub-Adviser"),
Philadelphia, Pennsylvania, serves as the Sub-Adviser to the
Small Company Growth Fund. BlackRock International, Ltd.
("BlackRock International" or the "Sub-Adviser"), Edinburgh,
Scotland, serves as the Sub-Adviser to the International
Equity Fund.
Dividends............................ The Prime Money Market Fund, the U.S. Treasury Fund, the
North Carolina Fund, the South Carolina Fund, the
Short-Intermediate Fund, and the Intermediate U.S.
Government Bond Fund declare dividends daily and pay such
dividends monthly. The Growth and Income Fund and the
Balanced Fund declare and pay dividends 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.
Distributor.......................... BISYS Fund Services LP, Columbus, Ohio.
</TABLE>
4
<PAGE> 81
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of fourteen series of units of beneficial interest
("Shares"), each representing interests in one of fourteen separate investment
funds (each a "Fund"). Three of the Funds (the "Funds of Funds") offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in securities of issuers unrelated to the Group. Each Fund is
authorized to offer three classes of Shares: Class A Shares, Class B Shares and
Trust Shares. However, as of the date of this prospectus, Class B Shares were
not yet being offered in the Short-Intermediate Fund, the North Carolina Fund
and the South Carolina Fund.
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
MONEY U.S. SHORT- INTERMEDIATE U.S.
MARKET TREASURY INTERMEDIATE GOVERNMENT 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)........................... 0.20%(3) 0.30%(3) 0.50%(3) 0.50%(3)
12b-1 Fee................................ 0% 0% 0% 0%
Other Expenses (after voluntary fee
reductions)........................... 0.35%(4) 0.31%(4) 0.31%(4) 0.34%
---- ---- ---- -----
Total Fund Operating Expenses (after
voluntary fee reductions)............. 0.55%(5) 0.61%(5) 0.81%(5) 0.84%(5)
==== ==== ==== =====
</TABLE>
5
<PAGE> 82
<TABLE>
<CAPTION>
GROWTH LARGE SMALL
NORTH SOUTH AND COMPANY COMPANY INTERNATIONAL
CAROLINA CAROLINA INCOME BALANCED GROWTH GROWTH EQUITY
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ----------- ----------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <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% 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)..................... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or
redemption proceeds, as
applicable)................ 0% 0% 0% 0% 0% 0% 0%
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)(2)............. 0% 0% 0% 0% 0% 0% 0%
Exchange Fee................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net
assets)
Management Fees (after
voluntary fee
reductions)................ 0.50%(3) 0.30%(3) 0.50%(3) 0.50%(3) 0.50%(3) 1.00% 1.00%
12b-1 Fees................... 0% 0% 0% 0% 0% 0% 0%
Other Expenses (after
voluntary fee
reductions)................ 0.31%(4) 0.58%(4) 0.35% 0.42% 0.56% 0.61% 0.50%(4)
---- ---- ---- ---- ---- ----- -----
Total Fund Operating Expenses
(after voluntary fee
reductions)................ 0.81%(5) 0.88%(5) 0.85%(5) 0.92%(5) 1.06%(5) 1.61% 1.50%
==== ==== ==== ==== ==== ===== =====
</TABLE>
- ---------
(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of a Fund.
(See "HOW TO PURCHASE AND REDEEM SHARES -- "Purchases of Trust Shares" and
"HOW TO PURCHASE AND REDEEM SHARES -- Exchange Privilege.")
(2) A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. Such fee
is currently being waived. (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, 1999. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets for Trust
Shares would be 0.40% for the Prime Money Market Fund and the U.S. Treasury
Fund, 0.60% for the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the North Carolina Fund and the South Carolina Fund;
and 0.74% for the Growth and Income Fund, the Balanced Fund and the Large
Company Growth Fund.
(4) Absent voluntary reduction of fees, "Other Expenses" for Trust Shares, as a
percentage of average daily net assets, would be 0.51% for the Prime Money
Market Fund, 0.36% for the U.S. Treasury Fund, 0.34% for the
Short-Intermediate U.S. Government Income Fund, 0.38% for the North Carolina
Fund, 0.79% for the South Carolina Fund, and 0.51% for the International
Equity 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 0.91%
for the Prime Money Market Fund, 0.76% for the U.S. Treasury Fund, 0.94% for
the Short-Intermediate Fund, 0.94% for the Intermediate U.S. Government Bond
Fund, 0.98% for the North Carolina Fund, 1.39% for the South Carolina Fund,
1.09% for the Growth and Income Fund, 1.16% for the Balanced Fund, 1.51% for
the International Equity Fund, and 1.30% for the Large Company Growth Fund.
6
<PAGE> 83
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares
of the Funds, assuming (1) 5% annual return and (2) redemption at the
end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund................. $ 6 $18 $31 $ 69
U.S. Treasury Fund...................... $ 6 $20 $34 $ 76
Short-Intermediate Fund................. $ 8 $26 $45 $100
Intermediate U.S. Government Bond
Fund.................................. $ 9 $27 $47 $104
North Carolina Fund..................... $ 8 $26 $45 $100
South Carolina Fund..................... $ 9 $28 $49 $108
Growth and Income Fund.................. $ 9 $27 $47 $105
Balanced Fund........................... $ 9 $29 $51 $113
Large Company Growth Fund............... $11 $34 $58 $129
Small Company Growth Fund............... $16 $51 $88 $191
International Equity Fund............... $15 $47 $82 $179
</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.
7
<PAGE> 84
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 CAPITAL
MANAGER MANAGER CAPITAL
CONSERVATIVE MODERATE MANAGER
GROWTH GROWTH GROWTH
FUND FUND FUND
--------------- --------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)............... 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)...................................... 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable).................... 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)................. 0% 0% 0%
Exchange Fee................................... $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions)(3).............................. 0.05% 0.05% 0.05%
12b-1 Fee...................................... 0% 0% 0%
Other Expenses................................. 0.42% 0.41% 0.42%
---- ---- ----
Total Fund Operating Expenses (after voluntary
fee reductions)(4).......................... 0.47% 0.46% 0.47%
==== ==== ====
</TABLE>
- ---------------
(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of a Fund.
(See "HOW TO PURCHASE AND REDEEM SHARES -- "Purchases of Trust Shares" and
"HOW TO PURCHASE AND REDEEM SHARES -- Exchange Privilege.")
(2) A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. Such fee
is currently being waived. (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, 1999. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets would be
0.25%.
(4) As indicated in the preceding notes, voluntary fee reductions have lowered
this amount. However, total fund operating expenses will result in higher
yields. Absent voluntary reduction of investment advisory and/or other
expenses, total fund operating expenses for Trust Shares as a percentage of
average daily net assets would be 0.67% for the Capital Manager Conservative
Growth Fund and Capital Manager Growth Fund and 0.66% for the Capital
Manager Moderate Growth Fund.
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.
8
<PAGE> 85
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>
Prime Money Market Fund.................................... 0.55%
U.S. Treasury Fund......................................... 0.61%
Short-Intermediate Fund.................................... 0.81%
Intermediate U.S. Government Bond Fund..................... 0.84%
Growth and Income Fund..................................... 0.85%
Balanced Fund.............................................. 0.92%
Small Company Growth Fund.................................. 1.61%
International Equity Fund.................................. 1.50%
Large Company Growth Fund.................................. 1.06%
</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 Shares of the Capital Manager Conservative Growth Fund is 1.43%, for the
Capital Manager Moderate Growth Fund is 1.49% and for the Capital Manager Growth
Fund is 1.55%.
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>
Prime Money Market Fund.................................... 0.91%
U.S. Treasury Fund......................................... 0.76%
Short-Intermediate Fund.................................... 0.94%
Intermediate U.S. Government Bond Fund..................... 0.94%
Growth and Income Fund..................................... 1.09%
Balanced Fund.............................................. 1.16%
Small Company Growth Fund.................................. 1.61%
International Equity Fund.................................. 1.51%
Large Company Growth Fund.................................. 1.30%
</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 Shares of the Capital Manager Conservative Growth Fund is 1.78%, for the
Capital Manager Moderate Growth Fund is 1.85%, and for the Capital Manager
Growth Fund is 1.90%.
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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Manager Conservative Growth Fund.................... $5 $15 $26 $59
Capital Manager Moderate Growth Fund........................ $5 $15 $26 $59
Capital Manager Growth Fund................................. $5 $15 $26 $59
</TABLE>
Absent voluntary fee reductions, the dollar amounts in the above example would
be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Manager Conservative Growth Fund.................... $7 $21 $37 $83
Capital Manager Moderate Growth Fund........................ $7 $21 $37 $82
Capital Manager Growth Fund................................. $7 $21 $37 $83
</TABLE>
9
<PAGE> 86
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.
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, 1998 has been audited by KPMG LLP, independent
auditors for the Group, whose report thereon, insofar as it relates to each of
the most recent five years or periods indicated herein is included in the
Statement of Additional Information.
The Class A Shares (formerly the Investor Shares) and Trust Shares of each
Fund (other than the Balanced Fund and the Small Company Growth Fund, which had
not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. 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.
10
<PAGE> 87
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 5,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
Total from Investment
Activities.............. 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
Total Distributions....... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= =======
Total Return...................... 5.01% 4.71% 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $235,796 $266,840 $205,974 $120,083 $77,464 $74,962
Ratio of expenses to average net
assets........................ 0.61% 0.75% 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment income
to average net assets......... 4.90% 4.61% 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average net
assets*....................... 0.76% 0.75% 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment income
to average net assets*........ 4.75% 4.61% 4.63% 4.95% 2.82% 2.27%(c)
</TABLE>
<TABLE>
<CAPTION>
PRIME MONEY
MARKET FUND
---------------------
OCTOBER 1, 1997 TO
SEPTEMBER 30, 1998(A)
---------------------
TRUST CLASS
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.051
-------
Total from Investment Activities.................... 0.051
-------
DISTRIBUTIONS
Net investment income..................................... (0.051)
-------
Total Distributions................................. (0.051)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return................................................ 5.23%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $37,769
Ratio of expenses to average net assets................... 0.55%(c)
Ratio of net investment income to average net assets...... 5.11%(c)
Ratio of expenses to average net assets*.................. 0.91%(c)
Ratio of net investment income to average net assets*..... 4.75%(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.
11
<PAGE> 88
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE NOVEMBER 30,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.77 $ 9.74 $ 9.89 $ 9.61 $ 10.30 $ 10.00
-------- -------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.53 0.57 0.57 0.56 0.52 0.49
Net realized and unrealized
gains (losses) on
investments................... 0.30 0.03 (0.15) 0.28 (0.68) 0.30
-------- -------- ------- ------- ------- -------
Total from Investment
Activities.............. 0.83 0.60 0.42 0.84 (0.16) 0.79
-------- -------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.53) (0.57) (0.57) (0.56) (0.52) (0.49)
Net realized gains.............. -- -- -- -- (0.01) --
-------- -------- ------- ------- ------- -------
Total Distributions....... (0.53) (0.57) (0.57) (0.56) (0.53) (0.49)
-------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 10.07 $ 9.77 $ 9.74 $ 9.89 $ 9.61 $ 10.30
======== ======== ======= ======= ======= =======
Total Return...................... 8.77% 6.33% 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $157,329 $103,523 $62,621 $45,005 $38,208 $34,646
Ratio of expenses to average net
assets........................ 0.81% 0.86% 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net investment income
to average net assets......... 5.40% 5.85% 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to average net
assets*....................... 0.94% 0.96% 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net investment income
to average net assets*........ 5.27% 5.75% 5.71% 5.64% 4.83% 4.94%(c)
Portfolio turnover(d)........... 53.74% 87.99% 54.82% 106.81% 7.06% 14.06%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.85 $ 9.64 $ 9.89 $ 9.34 $ 10.40 $ 10.00
-------- -------- -------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.54 0.56 0.58 0.61 0.62 0.64
Net realized and unrealized
gains (losses) on
investments................... 0.75 0.21 (0.25) 0.55 (1.04) 0.40
-------- -------- -------- ------- ------- -------
Total from Investment
Activities.............. 1.29 0.77 0.33 1.16 (0.42) 1.04
-------- -------- -------- ------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.55) (0.56) (0.58) (0.61) (0.62) (0.64)
Net realized gains.............. -- -- -- -- (0.02) --
-------- -------- -------- ------- ------- -------
Total Distributions....... (0.55) (0.56) (0.58) (0.61) (0.64) (0.64)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 10.59 $ 9.85 $ 9.64 $ 9.89 $ 9.34 $ 10.40
======== ======== ======== ======= ======= =======
Total Return...................... 13.46% 8.20% 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $186,256 $142,545 $119,633 $78,578 $68,451 $59,816
Ratio of expenses to average net
assets........................ 0.84% 0.87% 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income
to average net assets......... 5.35% 5.74% 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net
assets*....................... 0.94% 0.97% 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income
to average net assets*........ 5.25% 5.64% 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d)........... 60.98% 62.45% 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.
12
<PAGE> 89
<TABLE>
<CAPTION>
North Carolina Intermediate Tax-Free Fund
-------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 16, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ----------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....... 0.43 0.41 0.38 0.37 0.38 0.36
Net realized and unrealized
gains (losses) on
investments............... 0.26 0.22 (0.10) 0.37 (0.50) 0.29
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.69 0.63 0.28 0.74 (0.12) 0.65
------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income....... (0.43) (0.41) (0.38) (0.37) (0.38) (0.36)
Net realized gains.......... -- -- -- -- (0.01) --
------- ------- ------- ------- ------- -------
Total Distributions..... (0.43) (0.41) (0.38) (0.37) (0.39) (0.36)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 10.53 $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29
======= ======= ======= ======= ======= =======
Total Return.................. 6.90% 6.43% 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)..................... $73,454 $61,120 $28,443 $28,091 $27,770 $20,128
Ratio of expenses to average
net assets................ 0.81% 0.85% 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment
income to average net
assets.................... 4.18% 4.13% 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average
net assets*............... 0.98% 1.00% 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment
income to average net
assets*................... 4.01% 3.98% 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover(d)....... 32.63% 16.98% 20.90% 9.38% 0.56% 5.92%
</TABLE>
<TABLE>
<CAPTION>
South Carolina
Intermediate Tax-Free
Fund
---------------------
OCTOBER 20, 1997 TO
SEPTEMBER 30,
1998(a)
-------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.38
Net realized and unrealized gains (losses) on
investments............................................. 0.41
-------
Total from Investment Activities...................... 0.79
-------
Distributions
Net investment income..................................... (0.38)
-------
Total Distributions................................... (0.38)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.41
Total Return (excludes sales charge)........................ 8.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $18,242
Ratio of expenses to average net assets................... 0.88%(c)
Ratio of net investment income to average net assets...... 3.88%(c)
Ratio of expenses to average net assets*.................. 1.39%(c)
Ratio of net investment income to average net assets*..... 3.37%(c)
Portfolio turnover(d)..................................... 58.80%
</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.
13
<PAGE> 90
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
-----------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 20.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28 $ 10.00
-------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......... 0.28 0.30 0.29 0.28 0.28 0.30
Net realized and unrealized
gains (losses) on
investments.................. (0.17) 5.31 2.44 1.98 0.11 1.28
-------- -------- -------- -------- ------- -------
Total from Investment
Activities............... 0.11 5.61 2.73 2.26 0.39 1.58
-------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income.......... (0.28) (0.30) (0.29) (0.28) (0.28) (0.30)
Net realized gains............. (1.33) (0.63) (0.09) (0.12) (0.11) --
In excess of net realized
gains........................ -- -- -- (0.15) -- --
-------- -------- -------- -------- ------- -------
Total Distributions........ (1.61) (0.93) (0.38) (0.55) (0.39) (0.30)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD... $ 18.52 $ 20.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28
======== ======== ======== ======== ======= =======
Total Return..................... 0.35% 38.13% 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)........................ $348,613 $308,984 $206,659 $145,603 $89,355 $82,358
Ratio of expenses to average
net assets................... 0.85% 0.84% 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income
to average net assets........ 1.43% 1.77% 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average
net assets*.................. 1.09% 1.08% 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income
to average net assets*....... 1.19% 1.53% 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d).......... 13.17% 22.66% 19.82% 8.73% 21.30% 27.17%
</TABLE>
<TABLE>
<CAPTION>
Balanced Fund
-----------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 13.60 $ 11.93 $ 11.01 $ 9.74 $ 10.18 $ 10.00
-------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......... 0.42 0.49 0.46 0.46 0.40 0.09
Net realized and unrealized
gains (losses) on
investments.................. 0.54 2.04 0.92 1.27 (0.44) 0.18
-------- ------- ------- ------- ------- -------
Total from Investment
Activities............... 0.96 2.53 1.38 1.73 (0.04) 0.27
-------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income.......... (0.42) (0.49) (0.46) (0.46) (0.40) (0.09)
Net realized gains............. (0.35) (0.37) -- -- -- --
-------- ------- ------- ------- ------- -------
Total Distributions........ (0.77) (0.86) (0.46) (0.46) (0.40) (0.09)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD... $ 13.79 $ 13.60 $ 11.93 $ 11.01 $ 9.74 $ 10.18
======== ======= ======= ======= ======= =======
Total Return..................... 7.18% 22.11% 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)........................ $108,943 $88,524 $69,374 $49,794 $39,715 $20,374
Ratio of expenses to average
net assets................... 0.92% 0.93% 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income
to average net assets........ 3.00% 3.88% 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average
net assets*.................. 1.16% 1.17% 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income
to average net assets*....... 2.76% 3.64% 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d).......... 31.85% 27.07% 19.87% 23.68% 12.91% 8.32%
</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.
14
<PAGE> 91
<TABLE>
<CAPTION>
Large Company Growth
Fund
--------------------
OCTOBER 3, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.04
Net realized and unrealized gains (losses) on
investments............................................. (0.27)
-------
Total from Investment Activities...................... (0.23)
-------
DISTRIBUTIONS
Net investment income..................................... (0.04)
Net realized gains........................................ (0.10)
-------
Total Distributions................................... (0.14)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.63
=======
Total Return (excludes sales charge)........................ (2.33%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $50,975
Ratio of expenses to average net assets................... 1.06%(c)
Ratio of net investment loss to average net assets........ 0.41%(c)
Ratio of expenses to average net assets*.................. 1.30%(c)
Ratio of net investment income to average net assets*..... 0.17%(c)
Portfolio turnover(d)..................................... 108.36%
</TABLE>
<TABLE>
<CAPTION>
Small Company Growth Fund
-------------------------------------------------------------------
FOR THE FOR THE FOR THE DECEMBER 7, 1994
YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995(a)
------------- ------------- ------------- ----------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 23.52 $ 21.18 $ 14.57 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment loss................................. (0.20).. (0.11) (0.17) (0.07)
Net realized and unrealized gains (losses) on
investments....................................... (5.32).. 2.47 6.78 4.64
------- ------- ------- -------
Total from Investment Activities................ (5.52).. 2.36 6.61 4.57
------- ------- ------- -------
DISTRIBUTIONS
In excess of net realized gains..................... (0.31).. (0.02) -- --
------- ------- ------- -------
Total Distributions............................. (0.31).. (0.02) -- --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................ 17.$69..... $ 23.52 $ 21.18 $ 14.57
======= ======= ======= =======
Total Return.......................................... (23.62%) 11.17% 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................... $65,180 $58,660 $36,373 $16,962
Ratio of expenses to average net assets............. 1.61% 1.64% 1.79% 2.33%(c)
Ratio of net investment loss to average net
assets............................................ (1.11%) (1.04)% (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*............ 1.61% 1.64% 1.79% 2.42%(c)
Ratio of net investment loss to average net
assets*........................................... (1.11%) (1.04)% (1.00)% (1.43)%(c)
Portfolio Turnover(d)............................... 157.44% 80.66% 71.62% 46.97%
</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.
15
<PAGE> 92
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
--------------------------------
FOR THE JANUARY 2, 1997
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997(a)
------------- ----------------
TRUST CLASS TRUST CLASS
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 11.28 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.06 0.03
Net realized and unrealized gains on investments.......... (1.10) 1.30
------- -------
Total from Investment Activities...................... (1.04) 1.33
------- -------
DISTRIBUTIONS
Net investment income..................................... (0.06) (0.02)
Net realized gains........................................ (0.23) --
In excess of net realized gains........................... -- (0.03)
------- -------
Total Distributions................................... (0.29) (0.05)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.95 $ 11.28
======= =======
Total Return................................................ (9.45%) 13.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $70,356 $52,373
Ratio of expenses to average net assets................... 1.50% 1.79%(c)
Ratio of net investment income to average net assets...... 0.50% 0.32(c)
Ratio of expenses to average net assets*.................. 1.51% 1.81%(c)
Ratio of net investment income to average net assets*..... 0.49% 0.30%(c)
Portfolio Turnover(d)..................................... 53.27% 41.45%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL MANAGER
CONSERVATIVE FUND
-------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
-------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.32
Net realized and unrealized gains (losses) on
investments............................................. 0.08
-------
Total from Investment Activities...................... 0.40
-------
DISTRIBUTIONS
Net investment income..................................... (0.32)
-------
Total Distributions................................... (0.32)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.08
=======
Total Return................................................ 3.95%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $23,773
Ratio of expenses to average net assets................... 0.47%(c)
Ratio of net investment income to average net assets...... 3.12%(c)
Ratio of expenses to average net assets*.................. 0.67%(c)
Ratio of net investment income to average net assets*..... 2.92%(c)
Portfolio turnover(d)..................................... 4.28%
</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.
16
<PAGE> 93
<TABLE>
<CAPTION>
CAPITAL MANAGER
MODERATE FUND
------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.23
Net realized and unrealized gains (losses) on
investments............................................. (0.16)
-------
Total from Investment Activities...................... 0.07
-------
DISTRIBUTIONS
Net investment income..................................... (0.22)
-------
Total Distributions................................... (0.22)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85
=======
Total Return................................................ 0.68%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $21,682
Ratio of expenses to average net assets................... 0.46%(c)
Ratio of net investment income to average net assets...... 2.21%(c)
Ratio of expenses to average net assets*.................. 0.66%(c)
Ratio of net investment income to average net assets*..... 2.01%(c)
Portfolio turnover(d)..................................... 4.85%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL MANAGER
GROWTH FUND
------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.16
Net realized and unrealized gains (losses) on
investments............................................. (0.32)
-------
Total from Investment Activities...................... (0.16)
-------
DISTRIBUTIONS
Net investment income..................................... (0.16)
-------
Total Distributions................................... (0.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.68
=======
Total Return................................................ (1.72%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $21,370
Ratio of expenses to average net assets................... 0.47%(c)
Ratio of net investment income to average net assets...... 1.53%(c)
Ratio of expenses to average net assets*.................. 0.67%(c)
Ratio of net investment income to average net assets*..... 1.33%(c)
Portfolio turnover(d)..................................... 7.69%
</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.
17
<PAGE> 94
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.
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 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 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 ("S&P") and "P-1" by Moody's Investors
Services, Inc. ("Moody's")); 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.
The Prime Money Market Fund may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as government, bank,
commercial and other obligations, that are available in the money markets. In
particular, the Fund may invest in:
(A) U.S. dollar-denominated obligations issued or supported by the credit of
U.S. or foreign banks or savings institutions with total assets in excess
of $1 billion (including obligations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued or guaranteed
by U.S. and foreign corporations and other issuers;
(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 interests 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,
18
<PAGE> 95
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
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
U.S. Government 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 U.S. Government 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 U.S. Government 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 U.S.
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 or AAA by S&P), or, if not
rated, are of comparable quality as determined by BB&T. The applicable ratings
are described in the Appendix to the Statement of Additional Information.
THE NORTH CAROLINA FUND
The North Carolina Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.
The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether investment in the North Carolina Fund
would be suitable for them.
THE 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
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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.
Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.
Stocks such as those in which the Growth and Income Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Growth and Income Fund's investments, the net asset value
per Share of the Fund may decrease instead of increase.
THE BALANCED FUND
The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.
The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.
The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.
The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
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<PAGE> 97
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, 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 those 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 nine Underlying Funds of the Group. These assets will be
allocated within the ranges indicated below.
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
The Capital Manager Conservative Growth Fund will invest 25% to 55% of its
assets in Underlying Funds which invest primarily in equity securities including
the equity portion of the Balanced Fund, 45% to 75% of its
- ---------------
(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> 98
assets in Underlying Funds which invest primarily in fixed income securities
including the fixed income portion of the Balanced Fund and up to 20% of its
assets in Underlying Funds which are money market funds.
<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
Short-Intermediate Fund.............................. 0%-75%
Intermediate U.S. Government Bond Fund............... 0%-75%
MONEY MARKET FUNDS
U.S. Treasury Fund................................... 0%-20%
Prime Money Market Fund.............................. 0%-20%
</TABLE>
CAPITAL MANAGER MODERATE GROWTH FUND
The Capital Manager Moderate Growth Fund will invest 45% to 75% of its assets
in Underlying Funds which invest primarily in equity securities including the
equity portion of the Balanced Fund, 25% to 55% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 15% of its assets in Underlying
Funds which are money market funds.
<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 U.S. Government Bond Fund............... 0%-55%
MONEY MARKET FUNDS
U.S. Treasury Fund................................... 0%-15%
Prime Money Market Fund.............................. 0%-15%
</TABLE>
CAPITAL MANAGER GROWTH FUND
The Capital Manager Growth Fund will invest 60% to 90% of its assets in
Underlying Funds which invest primarily in equity securities including the
equity portion of the Balanced Fund, 10% to 40% of its assets in
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<PAGE> 99
Underlying Funds which invest primarily in fixed income securities including the
fixed income portion of the Balanced Fund and up to 10% of its assets in
Underlying Funds which are money market funds.
<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 U.S. Government Bond Fund............... 0%-40%
MONEY MARKET FUNDS
U.S. Treasury Fund................................... 0%-10%
Prime Money Market Fund.............................. 0%-10%
</TABLE>
The allocation of each Fund of Funds' assets among the Underlying Funds will
be made by BB&T under the supervision of the Group's Board of Trustees within
the percentage ranges set forth in the table above. BB&T will make allocation
decisions according to its outlook for the economy, financial markets, and
relative market valuation of the Underlying Funds. BB&T may vary the allocation
within the above ranges. There is no assurance that the Funds of Funds will
achieve their stated objectives.
The Funds of Funds' net asset value will fluctuate with changes in the equity
markets and the value of the Underlying Funds in which they invest. Each Fund of
Funds' investment return is diversified by its investment in the Underlying
Funds, which invest in growth and income stocks, foreign securities, debt
securities, and cash and cash equivalents.
With their remaining assets, the Funds of Funds may make direct investments in
any domestic and foreign securities and other instruments which the Underlying
Funds may purchase, as described in this prospectus.
The Funds of Funds and the Underlying Funds are permitted for temporary
defensive purposes to invest up to 100% of their assets in short-term fixed
income securities. Such securities include obligations of the U.S. government
and its agencies and instrumentalities, commercial paper, bank certificates of
deposit, repurchase agreements, bankers' acceptances, variable amount master
demand notes, and bank money market deposit accounts. The Funds of Funds and the
Underlying Funds may also hold cash for liquidity purposes.
To the extent the Funds of Funds or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Funds of Funds are concentrated in the Underlying
Funds, so each Fund of Funds' performance is directly related to the performance
of the Underlying Funds. In addition, as a matter of fundamental policy, each
Fund of Funds must allocate its investments among the Underlying Funds within
certain ranges. As a result, the Funds of Funds do not have the same flexibility
to invest as mutual funds without such constraints.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation through investment primarily in equity securities of
foreign issuers. During normal market conditions, the International Equity Fund
will normally invest at least 80%, and, in any event, at least 65%, of the value
of its total assets in equity securities. Equity securities include common stock
and preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; and depositary receipts
of companies.
During normal market conditions, the International Equity Fund will normally
invest at least 90%, and, in any event, at least 65%, of the value of its total
assets in securities of foreign issuers. The Fund will pursue investments in
non-dollar denominated stocks primarily in countries included in the Morgan
Stanley Capital International Europe, Australia and the Far East Index ("EAFE").
The Fund may also invest its
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<PAGE> 100
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
Sub-Adviser targets equity securities that are believed to be undervalued. The
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 Sub-
Adviser will also consider macroeconomic factors such as the prospects for
relative economic growth among certain foreign countries, expected levels of
inflation, government policies influencing business conditions, and the outlook
for currency relationships.
ALL FUNDS
The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous"). There can be, of course, no
assurance that a Fund will achieve its investment objective.
Depending upon the performance of the portfolio investments of each of the
Short-Intermediate, Intermediate U.S. Government 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 (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 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 by BFMI (formerly PNC Equity Advisors Company)
for the Small Company Growth Fund or by BlackRock International (formerly
CastleInternational Asset Management Limited) for the International Equity Fund
or by BIMC (formerly PNC Institutional Management Corporation) for the Prime
Money Market Fund. Except as described in the Statement of Additional
Information, there is no aggregate limitation on the amount of a Fund's total
assets that may be invested in instruments which are subject to repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
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
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<PAGE> 101
the market value of the securities sold by a Fund may decline below the price at
which a Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
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.
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 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 BFMI with respect to the
Small Company Growth Fund or BlackRock International 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, BFMI or, in the case of the International Equity Fund, BlackRock
International), 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 Fund and the Intermediate U.S. Government Bond Fund. 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
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<PAGE> 102
instrumentalities of the U.S. Government, but not supported by such full faith
and credit. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks, or the Federal Home Loan Mortgage Corporation,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities. 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 Fund, the Intermediate U.S. Government Bond Fund, the
Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund and 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. Even
though such securities do not pay current interest in cash, a Fund nonetheless
is required to accrue interest income on these investments and to distribute the
interest income on a current basis. Thus, a Fund could be required at times to
liquidate other investments in order to satisfy its distribution requirements.
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 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.
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<PAGE> 103
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% (10% in the case of the Prime Money Market Fund)
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 BFMI, 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 BFMI, with respect to the Small Company Growth Fund), such investment is
considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Large Company
Growth, Small Company Growth, International Equity, 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
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security with the same exercise price and expiration date as any call option
which it may previously have written. Upon the sale of a portfolio security upon
which it has written a covered call option, a Fund must effect a closing
purchase transaction so as to avoid converting a covered call into a "naked
call," i.e., a call option on a security not owned by the Fund. If a Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise. When writing a covered call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security above the exercise price but retains the risk of loss
should the price of the security decline.
To the extent consistent with its investment objective, the 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, each Fund of the Group
(other than the U.S. Treasury Money Market Fund and the Prime Money Market 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 a 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.
Each Fund of the Group (other than the U.S. Treasury Money Market Fund and the
Prime Money Market 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
purchaser'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
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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.
FOREIGN INVESTMENTS
The Prime Money Market Fund may invest in debt obligations of foreign
corporations and banks. The Prime Money Market Fund may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank;
Canadian Time Deposits ("CTDs") which are essentially the same as ETDs except
they are issued by Canadian offices of major Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Prime Money Market Fund will not invest in excess of 10% of its net assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
The Prime Money Market Fund may invest in commercial paper (including variable
amount master demand notes) issued by U.S. or foreign corporations. The Prime
Money Market Fund may also invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.
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 21
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of securities listed on the stock exchanges of
such countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom are
currently included in EAFE.
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From time to time the International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in countries such as
France, Germany, Japan and the United Kingdom. Investments of 25% or more of the
Fund's total assets in this or any other country will make the Fund's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. For example, in the past events in the Japanese
economy as well as social developments and natural disasters have affected
Japanese securities and currency markets, and have periodically disrupted the
relationship of the Japanese yen with other currencies and with the U.S. dollar.
The International Equity Fund may invest in both sponsored and unsponsored
ADRs, European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs")
and other similar global instruments. ADRs typically are issued by an American
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic
underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR and
GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly, a
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
On January 1, 1999, the European Monetary Market Union ("EMU") introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. Those countries are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. A new European Central Bank ("ECB") will be created to manage the
monetary policy of the new unified region. On the same day, exchange rates will
be irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by coins and banks notes by the
middle of 2002.
The introduction of the euro presents some uncertainties and possible risks,
including whether the payment and operational systems of banks and other
financial institutions are adequate; whether exchange rates for existing
currencies and the euro are adequately established; and whether suitable
clearing and settlement systems for the euro are in operation. These and other
factors may cause market disruptions before or after January 1, 1999 and could
adversely affect the value of certain foreign securities held by a Fund.
The introduction of the euro is expected to impact European capital markets in
ways that are impossible to quantify at this time. For example, investors may
begin to view EMU countries as a single market, and that may impact future
investment decisions for a Fund. As the euro is implemented, there may be
changes in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro transition by
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EMU countries -- present and future -- may impact the fiscal and monetary
policies of those participating countries. There may be increased levels of
price competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in increased
volatility for all financial markets.
The expense ratio of the International Equity Fund is expected to be higher
than that of Funds of the Group 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, Egypt, Greece,
Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco, Peru, The
Philippines, Poland, Romania, Russia, South Africa, South Korea, Taiwan,
Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in countries with emerging economies
or securities markets to 20% of its total assets.
The International Equity Fund may (but is not required to) use forward foreign
currency exchange contracts to hedge against movements in the value of foreign
currencies (including the European Currency Unit (ECU)) relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time. The Funds
of Funds may not use forward foreign currency exchange contracts.
OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the 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
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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
which BB&T and/or a Fund's respective Sub-Adviser has determined are
creditworthy under guidelines established by the Group's Board of Trustees. The
Group will employ one or more securities lending agents to initiate and affect
securities lending transactions for the Group. 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 lend only on a fully collateralized
basis in order to reduce such risk. During the time portfolio securities are on
loan, the Fund is entitled to receive any dividends or interest paid on such
securities. Additionally, cash collateral received will be invested on behalf of
the Fund exclusively in money market instruments. While a Fund will not have the
right to vote securities on loan, the Funds intend to terminate the loan and
retain the right to vote if that is considered important with respect to the
investment. Each Fund will restrict its securities lending to 33 1/3% of its
total assets.
In order to generate income, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond 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 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 BFMI, with respect to the Small Company Growth
Fund or BlackRock International, 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.
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
Each Fund of the Group (other than the U.S. Treasury 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.
Each Fund of the Group (other than the U.S. Treasury 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
Adviser or 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
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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 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 of dealers to undertake to make a market in the
obligation; and (4) the nature of the marketplace trades.
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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. BIMC 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.
MONEY MARKET FUNDS
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 bears directly in connection with its own operations.
CLOSED-END INVESTMENT COMPANIES
The Balanced Fund may invest in closed-end investment companies that invest a
significant portion of their assets in convertible securities. Convertible
securities are fixed income-securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. As a shareholder of a closed-end investment company
holding such convertible securities, 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 bears directly in connection with its own
operations.
STANDARD & POOR'S DEPOSITORY RECEIPTS
Each of the Growth and Income Stock Fund, Balanced Fund, Large Company Growth
Fund, and Small Company Growth Fund may invest in Standard & Poor's Depository
Receipts ("SPDRs"). SPDRs represent interests in trusts sponsored by a
subsidiary of the American Stock Exchange, Inc. and structured to provide
investors proportionate undivided interests in a securities portfolio consisting
of substantially all of the common stocks (in substantially the same weighting)
as the component common stocks of a particular Standard & Poor's Index, e.g.,
the S&P 500 Index. SPDRs are generally not redeemable, but are exchange traded.
SPDRs are issued by a trust that is a unit investment trust, a type of
registered investment company. SPDRs, therefore, will be acquired by a fund only
within the limits prescribed under the 1940 Act.
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 un-
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available. 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. 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, assessment, fee 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
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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.
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 individual
shareholders. All tax-exempt dividends will be included in determining the
federal alternative minimum taxable income for 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.
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. North Carolina experienced a
positive General Fund balance for each of its last five fiscal years. 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
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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 for many years by 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 1940 Act. 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 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
For the fiscal year ended September 30, 1998, the Portfolio turnover rate for
each of the Funds with a full year of operations (other than Money Market Funds)
was as follows: Short-Intermediate Fund 53.74%; Intermediate U.S. Government
Bond Fund 60.98%; Growth and Income Fund 13.17%; North Carolina Fund 32.63%;
Small Company Growth Fund 157.44%; equity portion of the Balanced Fund 11.88%,
and fixed income portion of the Balanced Fund 61.41%; and International Equity
Fund 53.27%. The portfolio turnover of each of the Funds (except the Money
Market Funds) may vary
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greatly from year to year as well as within a particular year. It is presently
anticipated that the annual portfolio turnover rates of the Funds of Funds will
not exceed 50%, the annual portfolio turnover rate of the South Carolina Fund
will not exceed 75% and the annual portfolio turnover rate of the Large Company
Growth Fund will not exceed 150%. High turnover rates will generally result in
higher transaction costs to a Fund and may result in higher levels of taxable
realized gains (including short-term capital gains which are generally taxed at
ordinary income tax rates) to a Fund's shareholders. See "DIVIDENDS AND TAXES."
YEAR 2000
The investment services industry is evaluating the capability of existing
application software programs and operating systems to accommodate the date
value for the year 2000. Many existing application software products in the
marketplace were designed only to accommodate only a two-digit date position,
which represents the year (e.g., "95" is stored on the system and represents the
year 1995). If the year 1999 is the maximum date value these systems are able to
accurately process, the improper identification of the year 2000 could result in
a computer system failure or miscalculations causing a disruption of operations.
The Group's principal service providers are taking steps the Group believes are
reasonably designed to address the year 2000 issues with respect to the computer
systems those providers operate. However, this is an ongoing process and testing
and other steps are scheduled to be completed in 1999. Nevertheless, the
inability of service providers to successfully address year 2000 issues could
result in interruptions in the Group's business and have a material adverse
impact on the Group's operations. In addition, year 2000 issues could have a
negative affect on the portfolio securities in which the Funds invest, thereby
affecting the performance of the Funds.
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.
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
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principal business activities in the same industry, provided that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, repurchase agreements secured
by obligations of the U.S. Government or its agencies or instrumentalities or
securities issued by "regulated investment companies" as defined in the
Internal Revenue Code of 1986, as amended (the "Code"); (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
"regulated investment companies" as defined in the Code, if, immediately after
such purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, or the Fund would hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding voting securities
of the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
The Growth and Income Fund, the Balanced Fund, 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, 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
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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 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 (the "NYSE")
(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
NYSE (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 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day,
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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 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 LP. 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 and Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.
Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of each of the Funds are sold at the net asset value per Trust
Share next determined after receipt by the Distributor of an order in good form
to purchase Trust Shares (see "VALUATION OF SHARES"). There is no sales charge
imposed by the Group in connection with the purchase of the Group's Trust
Shares.
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<PAGE> 118
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 transfer agent
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 transfer agent , 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 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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<PAGE> 119
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 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 may reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
currently being waived. 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
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<PAGE> 120
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 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 1940 Act.
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.
A dividend on the Shares of the North Carolina Fund, the South Carolina Fund,
the Short-Intermediate Fund, and the Intermediate U.S. Government Bond Fund is
declared daily and paid monthly. A dividend on the Shares of the Growth and
Income Fund and the Balanced Fund is declared and 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. Net realized
capital gains, if any,
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are distributed at least annually to Shareholders of record.
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 declaration 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.
If you elect to receive distributions in cash and your checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
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
Fund, the Balanced Fund, the Large Company Growth Fund, the Small Company Growth
Fund, the International Equity and the Funds of Funds, and so designated by the
Funds, may qualify for the dividends received deduction for corporate
shareholders. A corporate shareholder will only be eligible to claim such a
dividends received deduction with respect to a dividend from one of these Funds
if the shareholder held its shares on the ex-dividend date and for at least 45
more days during the 90-day period surrounding the ex-dividend date. 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 designated by a Fund as deriving
from net gains on securities held for more than one year will be taxable to
Shareholders as such, 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.
Distributions are taxable to a Shareholder of a Fund even if they are paid
from income or gains earned by the Fund prior to the Shareholder's investment
(and thus were included in the price paid by the Shareholder).
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 on securities it has held for at least the
minimum period specified in the Code, 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
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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 so long as the shareholder held the Fund shares (without
protection from risk of loss) on the ex-dividend date and for at least 15 other
days during the 30-day period surrounding the ex-dividend date, or (b) if a
shareholder itemizes deductions, to deduct such proportionate amounts from U.S.
Federal taxable income. Although a Fund of Funds may itself be entitled to a
deduction for such taxes paid by a Fund in which the Fund of Funds invests, the
Fund of Funds will not be able to pass any such credit or deduction through to
its own shareholders.
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 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
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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 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 net gains
on securities held for more than one year are taxable to Shareholders as such,
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 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).
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 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.
TAX CONSIDERATIONS RELATING TO THE FUNDS OF FUNDS
The use of the fund-of-funds structure could affect the amount, timing and
character of distributions to Shareholders. See "Taxation" in the Statement of
Additional Information.
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 1940 Act. The Trustees, in turn, elect
the
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officers of the Group to supervise actively its day-to-day operations. The
Trustees of the Group, their current addresses, and principal occupations during
the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
---------------- ---------------- ---------------------------
<S> <C> <C>
*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 December,
Fayetteville Street Mall 1993, Vice Chairman, Carolina Power &
P.O. Box 109 Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive Director,
101 Reynolda Village Z. Smith Reynolds Foundation
Winston-Salem, NC 27106
W. Ray Long Trustee Retired; Executive Vice President, Branch
605 Blenheim Drive Banking and Trust Company from 1974 to
Raleigh, NC 27612 1998.
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 1940 Act.
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, Inc. 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.
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,
1997, BB&T Corporation had assets of approximately $29.2 billion. Through its
subsidiaries, BB&T Corporation operates over 540 banking offices in Maryland,
North Carolina, South Carolina, Virginia and Washington, D.C., 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 16 years and currently manages assets of more
than $3.37 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, BFMI, with respect to the
International Equity Fund, BlackRock International and, with respect to
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the Prime Money Market Fund, BIMC) 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 (0.40%) of
each Fund's average daily net assets; sixty one-hundredths of one percent
(0.60%) of each Fixed Income Funds' and the North Carolina and South Carolina
Funds' average daily net assets; seventy-four one-hundredths of one percent
(0.74%) 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 (0.25%) 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, 1998, the Funds paid the following
investment advisory fees for Funds that had operated for that entire year: the
Prime Money Market Fund paid 0.26% of its average daily net assets; the U.S.
Treasury Fund paid 0.31% of its average daily net assets; each of the Short-
Intermediate, Intermediate U.S. Government Bond, North Carolina, Growth and
Income, and Balanced Funds, after voluntary fee reductions, paid 0.50% of its
average daily net assets; and each of the Small Company Growth and International
Equity Funds paid 1.00% of its average daily net assets. The Funds of Funds, the
South Carolina Fund and the Large Company Growth Fund had operations of less
than a full fiscal year.
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 U.S. Government Bond Fund and
Short-Intermediate Fund since September, 1994. From June,
1993 to September, 1994, Mr. Karlawish was Assistant Manager
of the Intermediate U.S. Government 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 Company. 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.
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............ Manager of the North Carolina Funds since January, 1998 and
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.
</TABLE>
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<PAGE> 126
<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- ------------------------------------------------------------
<S> <C>
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
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) serves as the Sub-Adviser to the Prime
Money Market Fund pursuant to a Sub-Advisory Agreement with BB&T. Under the
Sub-Advisory Agreement, BIMC 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.
BIMC is a wholly-owned subsidiary of BlackRock Advisors, Inc. ("BAI")
(formerly PNC Asset Management Group, Inc.). BAI was organized in 1994 to
perform advisory services for investment companies, and has its principal
offices at 345 Park Avenue, 29th Floor, New York, New York 10154. BAI is an
indirect majority-owned subsidiary of PNC Bank Corp., a diversified financial
services company. BIMC's principal business address is 400 Bellevue Parkway, 4th
Floor, Wilmington, Delaware 19809.
As Sub-Adviser, BIMC 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. BIMC 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, BIMC
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 (0.09%) of the
Prime Money Market Fund's average daily net assets or such lower fee as may be
agreed upon in writing by BB&T and BIMC.
BlackRock Financial Management, Inc. ("BFMI") (formerly PNC Equity Advisors
Company) serves as the Sub-Adviser to the Small Company Growth Fund pursuant to
a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, BFMI
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 BFMI since 1995 and has been the portfolio manager of the BlackRock
Funds(SM) Small Cap Growth Equity Portfolio since its inception. From 1986 to
1992, he was an investment manager at PNC Bank and its predecessor, Provident
National Bank.
BFMI is an indirect majority-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. At September 30, 1998, BFMI had approximately $70 billion in
discretionary assets under management, including $24 billion in mutual fund
portfolios. PNC Bank is a wholly-owned indirect subsidiary of PNC Bank Corp. PNC
Bank Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania, is
one of the largest diversified financial services companies in the United States
and operates eight lines of business: regional community banking, corporate
banking, national consumer banking, private banking, mortgage banking, secured
lending, asset management and mutual fund servicing. Financial products and
services are offered nationally and in PNC Bank's primary geographic markets in
Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC Bank's origins, and
in particular its trust administration services, date back to the mid-to-late
1800s. During the first nine months of 1998, PNC Bank's fixed income, equity and
liquidity businesses were consolidated under BlackRock, Inc., BFMI's indirect
parent. This combination created one of the largest asset managers in the United
States with $122 billion in assets under management as of September 30, 1998.
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<PAGE> 127
For its services and expenses incurred under the Sub-Advisory Agreement, BFMI
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>
BlackRock International, Ltd. ("BlackRock International") (formerly
CastleInternational Asset Management Limited), serves as the Sub-Adviser to the
International Equity Fund pursuant to a Sub-Advisory Agreement with BB&T. Under
the Sub-Advisory Agreement, BlackRock International 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.
BlackRock International, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect majority-owned subsidiary
of PNC Bank Corp. As of September 30, 1998, BlackRock International had
approximately $1.8 billion in discretionary assets under management, including
five mutual fund portfolios and three tax exempt institutional portfolios.
For its services and expenses incurred under the Sub-Advisory Agreement,
BlackRock International is entitled to a fee, payable by BB&T. The fee is
computed daily and paid quarterly at the following annual rates (as a percentage
of the International Equity Fund's average daily net assets), which vary
according to the level of Fund assets:
<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
----------- ----------
<S> <C>
Up to $50 million................. .50%
Next $50 million.................. .45%
Over $100 million................. .40%
</TABLE>
The person primarily responsible for the management of the International
Equity Fund is Gordon Anderson. Mr. Anderson has served as Managing and
Investment Director of BlackRock International since 1996. Prior to joining
BlackRock International, Mr. Anderson was the Investment Director of Dunedin
Fund Managers Ltd. Mr. Anderson has served as the Portfolio Manager for the
BlackRock Funds(SM) International Equity Portfolio since 1996.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for each Fund. BISYS Fund
Services LP 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, 1998, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
0.20% for each of the Intermediate U.S. Government Bond, the Growth and Income,
the Balanced, the Small Company Growth and the International Equity Funds; 0.17
for the Short-Intermediate Fund; 0.15% for the U.S. Treasury and the North
Carolina Funds; and 0.11% for the Prime Money Market Fund. The Funds of Funds,
the South Carolina Fund and the Large Company Growth Fund had operations of less
than a full fiscal year.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with the
performance of their services as 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
51
<PAGE> 128
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, 1998, each Fund's total operating
expenses for Trust Shares were as follows (as a percentage of average daily net
assets of each Fund): Prime Money Market Fund: 0.55%; U.S. Treasury Fund: 0.61%;
Short-Intermediate Fund: 0.81%; Intermediate U.S. Government Bond Fund: 0.84%;
North Carolina Fund: 0.81%; South Carolina Fund: 0.88%; Growth and Income Fund:
0.85%; Balanced Fund: 0.92%; Large Company Growth Fund: 1.06%; Small Company
Growth Fund: 1.61%; and International Equity Fund: 1.50%. Absent fee waivers by
the Adviser and Administrator, these operating expenses would have been: Prime
Money Market Fund: 0.91%; U.S. Treasury Fund: 0.76%; Short-Intermediate Fund:
0.94%; Intermediate U.S. Government Bond Fund: 0.94%; North Carolina Fund:
0.98%; South Carolina Fund: 1.39%; Growth and Income Fund: 1.09%; and Balanced
Fund: 1.16%. Large Company Growth Fund: 1.30%; and International Equity Fund:
1.51%.
The organizational expenses of the Prime Money Market Fund, the South Carolina
Fund, the Large 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, BIMC, BFMI, and BlackRock International 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, BIMC, BFMI, and BlackRock
International 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.
PORTFOLIO BROKERAGE
When placing orders for the Group's securities transactions, BB&T or a Fund's
respective Sub-Adviser will use its judgment to obtain best price and execution.
The full range and quality of brokerage services available are considered in
making these determinations. BB&T or a Fund's respective Sub-Adviser may use a
qualified affiliated broker or dealer of BB&T to execute the Group's
transactions when it reasonably believes that commissions (or prices) charged
and transaction quality will be at least comparable to those available from
other qualified brokers or dealers.
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<PAGE> 129
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 fourteen 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, 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. Each
Fund is authorized to issue three classes of shares: Class A, Class B and Trust
Shares. Currently, the Short-Intermediate Fund, the North Carolina Fund and the
South Carolina Fund, 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 1940 Act, 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 October 29, 1998, 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
over 95% of the Trust Shares of each of the 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 1940 Act.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Bank of New York serves as the Custodian for the International Equity Fund.
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for all other Funds of 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 Group also offers Class A and Class B Shares
of each Fund. 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
53
<PAGE> 130
prior to the sixth anniversary of purchase. Class A and Class B Shares are also
subject to a Distribution and Shareholder Services Plan fee. As of the date of
this Prospectus, however, Class B Shares were not yet being offered in the
Short-Intermediate Fund, the North Carolina Fund, and 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 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
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<PAGE> 131
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 Inc., IBC/Donoghue's MONEY FUND REPORT and
Ibbotson Associates, Inc. References may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, Business Week, American Banker, Fortune, Institutional Investor,
Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger, Pension and
Investments, U.S.A. Today and local newspapers. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above may be included in advertisements and in reports
to Shareholders.
Information about the performance of a Fund is based on a Fund's record up to
a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to the Group at the
following address -- the BB&T Mutual Funds Group, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.
55
<PAGE> 132
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
ADMINISTRATOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
BISYS Fund Services LP
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 LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 133
[BB&T MUTUAL FUNDS LOGO]
U.S. Treasury Money Market Fund
Prime Money Market Fund
CLASS A SHARES
CLASS B SHARES
TRUST SHARES
BRANCH BANKING AND TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED FEBRUARY 1, 1999
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 2
The Group................................................... 3
Fee Table................................................... 3
Financial Highlights........................................ 4
Investment Objectives and Policies.......................... 8
Investment Restrictions..................................... 15
Valuation of Shares......................................... 15
How to Purchase and Redeem Shares........................... 16
Dividends and Taxes......................................... 24
Management of BB&T Mutual Funds Group....................... 25
General Information......................................... 29
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 135
BB&T MUTUAL FUNDS GROUP
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>
THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public fourteen separate investment funds (each, a
"Fund"). Each Fund of the Group offers multiple classes of units of beneficial
interest ("Shares"). Three of the Funds (the "Funds of Funds"), offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group. The remaining eleven Funds primarily invest in
securities of issuers unrelated to the Group.
THE BB&T U.S. TREASURY MONEY MARKET FUND (the "U.S. Treasury Fund") seeks
current income with liquidity and stability of principal, through investment
exclusively in short-term obligations issued or guaranteed by the U.S. Treasury,
some of which may be subject to repurchase agreements. The U.S. Treasury Fund
seeks to maintain a constant net asset value of $1.00 per share.
THE BB&T PRIME MONEY MARKET FUND (the "Prime Money Market Fund") seeks as high
a level of current income as is consistent with maintaining liquidity and
stability of principal. The Prime Money Market Fund seeks to maintain a constant
net asset value of $1.00 per share.
This Prospectus relates to Class A Shares (formerly the Investor Shares) and
Class B Shares, which are offered to the general public, and to Trust Shares
which are offered to BB&T and its affiliates and other financial service
providers approved by the Distributor for the investment of funds for which they
act in a fiduciary, advisory, agency, custodial or similar capacity.
This Prospectus relates only to the U.S. Treasury Fund and the Prime Money
Market Fund (each a "Money Market Fund"). Interested persons who wish to obtain
a copy of the prospectuses of the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T North Carolina
Intermediate Tax-Free Fund, the BB&T South Carolina Intermediate Tax-Free Fund
(collectively, the "Fixed Income Funds"), the BB&T Growth and Income Stock Fund,
the BB&T Balanced Fund, the BB&T Small Company Growth Fund, the BB&T Large
Company Growth Fund, the BB&T International Equity Fund (collectively, the
"Equity 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
(collectively, the "Funds of Funds") may contact the Distributor at the
telephone number shown above.
Additional information about each of the Funds contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is available upon request
without charge by writing to the Group or by calling the Group at the telephone
number shown above. The Statement of Additional Information bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about U.S. Treasury and
Prime Money Market Funds that a prospective investor ought to know before
investing. Investors should read this Prospectus and retain it for future
reference.
------------------------
AN INVESTMENT IN THE U.S. TREASURY FUND AND THE PRIME MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE
------------------------
SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY, BB&T
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 February 1, 1999.
<PAGE> 136
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Group............................ BB&T Mutual Funds Group, (the "Group") a Massachusetts
business trust, is an open-end management investment company
which currently consists of fourteen separately managed
portfolios (each a "Fund"). Three of the Funds (the "Funds
of Funds"), offer Shareholders a professionally-managed
investment program by purchasing shares of other Funds of
the Group. The remaining eleven Funds primarily invest in
securities of issuers unrelated to the Group. This
prospectus relates to the U.S. Treasury Fund and the Prime
Money Market Fund only (each a "Money Market Fund.") Each
Fund is authorized to offer three classes of Shares: Class
A, Class B and Trust Class. Shareholders investing directly
in Class B Shares of the U.S. Treasury Fund or the Prime
Money Market 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
will be withdrawn from the U.S. Treasury Fund or the Prime
Money Market Fund within two years of purchase.
Investment Objective and
Policies........................... THE U.S. TREASURY FUND 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 PRIME MONEY MARKET FUND seeks as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
Investment Risks..................... Each Money Market Fund's performance may change daily based
on many factors including interest rate levels, the
characteristics of the obligations in each Money Market
Fund's portfolio, and market conditions. The Prime Money
Market Fund may invest in U.S. dollar-denominated
instruments of foreign issuers or municipal securities
backed by the credit of foreign banks, which may be subject
to risks in addition to those inherent in U.S. investments.
(See "Foreign Investments.")
Offering Price....................... The public offering price of the Class A Shares, Class B
Shares and Trust Shares of the U.S. Treasury Fund and the
Prime Money Market Fund is equal to that class' net asset
value per Share, which each Money Market Fund will seek to
maintain at $1.00.
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 Trust Shares and
Class A and Class B Shares.")
Minimum Purchase..................... For Class A Shares and Class B Shares, there is a $1000
minimum initial purchase with no minimum investment for
subsequent purchases. No minimum purchase applies to
purchases of Trust Shares. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Trust Shares and Purchases of Class A
and Class B Shares.")
Investment Adviser................... Branch Banking and Trust Company ("BB&T" or the "Adviser"),
Raleigh, North Carolina.
Sub-Adviser.......................... BlackRock Institutional Management Corporation ("BIMC" or
the "Sub-Adviser"), Wilmington, Delaware serves as the
Sub-Adviser to the Prime Money Market Fund.
Dividends............................ The U.S. Treasury Fund and the Prime Money Market Fund
declare dividends daily and pay such dividends monthly.
Distributor.......................... BISYS Fund Services LP, Columbus, Ohio.
</TABLE>
2
<PAGE> 137
THE GROUP
BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of fourteen series of units of beneficial interest
("Shares"), each representing interests in one of fourteen separate investment
funds (each a "Fund"). Three of the Funds (the "Funds of Funds") offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group. The remaining eleven Funds primarily invest in
securities of issuers unrelated to the Group. Each Fund is authorized to offer
three classes of Shares: Class A Shares, Class B Shares and Trust Shares.
FEE TABLE
The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Class A, Class B and Trust Shares of the Money Market
Funds will bear, either directly or indirectly.
<TABLE>
<CAPTION>
U.S. TREASURY FUND PRIME MONEY MARKET FUND
------------------------------- -------------------------------
CLASS A CLASS B TRUST CLASS CLASS A CLASS B TRUST CLASS
------- ------- ----------- ------- ------- -----------
<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% 0% 0% 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% 0% 5.00% 0%
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)....................... 0.30%(3) 0.30%(3) 0.30%(3) 0.20%(3) 0.20%(3) 0.20%(3)
12b-1 Fees (after voluntary fee
reductions)....................... 0.25%(4) 1.00% 0% 0.25%(4) 1.00% 0%
Other Expenses (after voluntary fee
reductions)....................... 0.31%(5) 0.31%(5) 0.31%(5) 0.38%(5) 0.44%(5) 0.35%(5)
----- ------ ------ ----- ----- -----
Total Fund Operating Expenses (after
voluntary fee reductions)......... 0.86%(6) 1.61%(6) 0.61%(6) 0.83%(6) 1.64%(6) 0.55%(6)
===== ====== ====== ===== ===== =====
</TABLE>
- ---------------
(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in a Money Market Fund. (See
"HOW TO PURCHASE AND REDEEM SHARES--Purchases of Trust Shares and 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. Such fee
is currently being waived. (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, 1999. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets for the
Trust Shares, Class A Shares and Class B Shares of the U.S. Treasury Money
Market Fund and the Prime Money Market Fund would be 0.40%.
(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 0.50% for Class A Shares for each Money Market Fund.
(See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Distributor.")
(5) Absent voluntary fee reductions, "Other Expenses" as a percentage of average
daily net assets would be 0.53% for Class A Shares, 0.59% for Class B Shares
and 0.51% for the Trust Shares of the Prime Money Market Fund. Absent
voluntary fee reductions, "Other Expenses" as a percentage of average daily
net assets would be 0.36% for Class A Shares, Class B Shares, and Trust
Shares of the U.S. Treasury Money Market 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 fees, distribution
and/or other expenses, Total Fund Operating Expenses for Class A Shares and
Class B Shares as a percentage of average daily net assets would be
3
<PAGE> 138
1.26% and 1.76%, respectively, for the U.S. Treasury Fund and 1.43% and 1.99%,
respectively, for the Prime Money Market Fund. Absent the voluntary reduction of
investment advisory fees and other expenses, Total Fund Operating Expenses for
Trust Shares of the U.S. Treasury Money Market Fund and the Prime Money Market
Fund would be 0.76% and 0.91%, respectively.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares
of the Money Market Funds, assuming (1) 5% annual return and (2) redemption
at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund......................... $6 $20 $34 $76
Prime Money Market Fund.................... $6 $18 $31 $69
Trust Shares are not subject to a 12b-1 fee
</TABLE>
You would pay the following expenses on a $1,000 investment in Class A
Shares of the Money Market Funds, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund......................... $9 $27 $48 $106
Prime Money Market Fund.................... $8 $26 $46 $103
</TABLE>
You would pay the following expenses on a $1,000 investment in Class B
Shares of the Money Market Funds, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund
Assuming a complete redemption at end of
period................................. $67 $82 $109 $173
=== === ==== ====
Assuming no redemption................... $17 $52 $ 89 $173
=== === ==== ====
U.S. Treasury Fund
Assuming a complete redemption at end of
period................................. $66 $81 $108 $171
=== === ==== ====
Assuming no redemption................... $16 $51 $ 88 $171
=== === ==== ====
</TABLE>
The purpose of the tables above is to assist a potential investor in a Money
Market Fund in understanding the various costs and expenses that an investor in
the Class A, Class B or Trust Shares of a Money Market Fund will bear directly
or indirectly. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete
discussion of annual operating expenses of each Fund. THE FOREGOING EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables below sets forth financial highlights concerning the investment
results for the U.S. Treasury Fund and the Prime Money Market Fund for the
periods indicated. The information through the year ended September 30, 1998 has
been audited by KPMG LLP, independent auditors for the Group, whose report
thereon, insofar as it relates to each of the most recent five years or periods
indicated herein is included in the Statement of Additional Information.
The Class A Shares (formerly the Investor Shares) and Trust Shares of the U.S.
Treasury Fund effectively were operated as a single class of shares from the
commencement of operations of the Fund until January 31, 1993. On February 1,
1993, the U.S. Treasury Fund commenced operating as a multiple class Fund and
assessed Rule 12b-1 fees to Class A Shares (and not to Trust Shares) pursuant to
an exemptive order received from the Securities and Exchange Commission on
January 19, 1993.
4
<PAGE> 139
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCT. 5, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1996 1995 1994 1993(a)
----------- ----------- ----------- ----------- ----------- ------------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.............. 0.046 0.044 0.044 0.047 0.027 0.026
------- ------- ------- ------- ------- -------
Total from Investment
Activities................... 0.046 0.044 0.044 0.047 0.027 0.026
------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income.............. (0.046) (0.044) (0.044) (0.047) (0.027) (0.026)
------- ------- ------- ------- ------- -------
Total Distributions............ (0.046) (0.044) (0.044) (0.047) (0.027) (0.026)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Return....................... 4.75% 4.50% 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $41,478 $32,541 $27,931 $13,948 $ 1,486 $ 279
Ratio of expenses to average net
assets........................... 0.86% 0.95% 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net investment income to
average net assets............... 4.65% 4.41% 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to average net
assets*.......................... 1.26% 1.25% 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net investment income to
average net assets*.............. 4.25% 4.11% 4.11% 4.55% 2.51% 1.77%(c)
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
----------------------------------------
FOR THE FOR THE JAN. 1, 1996
YEAR ENDED YEAR ENDED TO
SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1996(a)
----------- ----------- ------------
CLASS B CLASS B CLASS B
SHARES SHARES SHARES
----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.00 $ 1.00 $ 1.00
------ ------ ------
INVESTMENT ACTIVITIES
Net investment income.............. 0.039 0.036 0.025
------ ------ ------
Total from Investment
Activities................... 0.039 0.036 0.025
------ ------ ------
DISTRIBUTIONS
Net investment income.............. (0.039) (0.036) (0.025)
------ ------ ------
Total Distributions............ (0.039) (0.036) (0.025)
------ ------ ------
NET ASSET VALUE, END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return (excludes redemption
charge).......................... 3.97% 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).... $1,255 $1,502 $1,305
Ratio of expenses to average net
assets........................... 1.61% 1.75% 1.75%(c)
Ratio of net investment income to
average net assets............... 3.90% 3.61% 3.55%(c)
Ratio of expenses to average net
assets*.......................... 1.76% -- --
Ratio of net investment income to
average net assets*.............. 3.75% -- --
</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.
5
<PAGE> 140
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCT. 5, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1996 1995 1994 1993(A)
----------- ----------- ----------- ----------- ----------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....... 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
Total from Investment
Activities............ 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income....... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
Total Distributions..... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= =======
Total Return................ 5.01% 4.71% 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)..................... $235,796 $266,840 $205,974 $120,083 $77,464 $74,962
Ratio of expenses to average
net assets................ 0.61% 0.75% 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment
income to average net
assets.................... 4.90% 4.61% 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average
net assets*............... 0.76% 0.75% 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment
income to average net
assets*................... 4.75% 4.61% 4.63% 4.95% 2.82% 2.27%(c)
</TABLE>
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
-----------------------
OCT. 1, 1997
TO
SEPT. 30, 1998(A)
-----------------------
CLASS A
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.048
------
Total from Investment Activities..................... 0.048
------
DISTRIBUTIONS
Net investment income..................................... (0.048)
Total Distributions.................................. (0.048)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00
Total Return.............................................. 4.93%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $3,262
Ratio of expenses to average net assets................... 0.83%(c)
Ratio of net investment income to average net assets...... 4.83%(c)
Ratio of expenses to average net assets*.................. 1.43%(c)
Ratio of net investment income to average net assets*..... 4.23%(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.
6
<PAGE> 141
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
-----------------------
SEPT. 2, 1998
TO
SEPT. 30, 1998(A)
-----------------------
CLASS B
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.003
------
Total from Investment Activities..................... 0.003
------
DISTRIBUTIONS
Net investment income..................................... (0.003)
------
Total Distributions.................................. (0.003)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00
======
Total Return (excludes redemption charge)................. 0.32%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 300
Ratio of expenses to average net assets................... 1.64%(c)
Ratio of net investment income to average net assets...... 3.98%(c)
Ratio of expenses to average net assets*.................. 1.99%(c)
Ratio of net investment income to average net assets*..... 3.63%(c)
</TABLE>
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
-----------------------
OCT. 1, 1997
TO
SEPT. 30, 1998(A)
-----------------------
TRUST CLASS
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.051
-------
Total from Investment Activities..................... 0.051
-------
DISTRIBUTIONS
Net investment income..................................... (0.051)
-------
Total Distributions.................................. (0.051)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00
Total Return.............................................. 5.23%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $37,769
Ratio of expenses to average net assets................... 0.55%(c)
Ratio of net investment income to average net assets...... 5.11%(c)
Ratio of expenses to average net assets*.................. 0.91%(c)
Ratio of net investment income to average net assets*..... 4.75%(c)
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
7
<PAGE> 142
INVESTMENT OBJECTIVES AND POLICIES
All instruments in which the Money Market Funds invest are valued based on the
amortized cost valuation technique pursuant to Rule 2a-7 under the Investment
Company Act of 1940 (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.
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 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.
U.S. TREASURY FUND
The investment objective of the U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term United States dollar-denominated obligations issued or guaranteed by
the U.S. Treasury, some of which may be subject to repurchase agreements.
The investment objective of the Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the U.S. Treasury
Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous.") There can
be, of course, no assurance that the Fund will achieve its investment objective.
Obligations purchased by the U.S. Treasury Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.
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 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.
The investment objective of the Prime Money Market Fund is fundamental and may
not be changed without the vote of a majority of the outstanding Shares of the
Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous.") There can
be, of course, no assurance that the Fund will achieve its investment objective.
The Prime Money Market Fund may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as government, bank,
commercial and other obligations, that are available in the money markets. In
particular, the Fund may invest in:
(A) U.S. dollar-denominated obligations issued or supported by the credit of
U.S. or foreign banks or savings institutions with total assets in excess of
$1 billion (including obligations of foreign branches of such banks);
(B) high quality commercial paper and other obligations issued or guaranteed by
U.S. and foreign corporations and other issuers;
(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;
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(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 interests 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.
CORPORATE AND BANK OBLIGATIONS
To the extent consistent with its investment objective, the Prime Money Market
Fund may invest in debt obligations of domestic corporations and banks. Bank
obligations may include certificates of deposit, notes, bankers' acceptances and
fixed time deposits. These obligations may be general obligations of the parent
bank or may be limited to the issuing branch or subsidiary by the terms of the
specific obligation or by government regulation. The Prime Money Market Fund may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.
PRIVATE PLACEMENT INVESTMENTS
The Prime Money Market Fund may invest in commercial paper issued by
corporations without registration under the Securities Act of 1933 (the "1933
Act") in reliance on the exemption in Section 3(a)(3), and commercial paper
issued in reliance on the so-called "private placement" exemption in Section
4(2) ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the Federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers
which make a market in Section 4(2) paper, thus providing liquidity.
The Prime Money Market Fund may purchase securities which are not registered
under the 1933 Act but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act. These securities will not be
considered illiquid so long as the Sub-Adviser determines that an adequate
trading market exists for the securities. This investment practice could have
the effect of increasing the level of illiquidity in the Fund during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities.
GUARANTEED INVESTMENT CONTRACTS
The Prime Money Market Fund may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Under these contracts, the Fund makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits
interest to the Fund on a monthly basis, which is based on an index (such as the
Salomon Brothers CD Index), but is guaranteed not to be less than a certain
minimum rate. The Prime Money Market Fund does not expect to invest more than 5%
of its net assets in GICs at any time during the current fiscal year.
WHEN-ISSUED SECURITIES
The Prime Money Market Fund may purchase securities on a when-issued or
delayed-delivery basis and may purchase or sell securities on a "forward
commitment" basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid Fund securities equal to the
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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 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.
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 repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the underlying
assets or provided by a third party. Credit enhancement techniques include
letters of credit, insurance bonds, limited guarantees (which are generally
provided by the issuer), senior-subordinated structures and over
collateralization. Asset-backed securities purchased by the Prime Money Market
Fund will be subject to the same quality requirements as other securities
purchased by the Fund.
COLLATERALIZED MORTGAGE OBLIGATIONS
Although under normal market conditions it does not expect to do so, except in
connection with repurchase agreements, the Prime Money Market Fund, may also
invest in collateralized mortgage obligations ("CMOs"). CMOs are
mortgage-related securities which are structured pools of mortgage pass-through
certificates or mortgage loans. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Prime Money Market
Fund would have the same effect as the prepayment
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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 Prime Money Market 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 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 10% of the value of the Fund's net assets would be
invested in such securities and other illiquid securities.
Unless stated otherwise, the Prime Money Market Fund will limit its investment
in CMOs to 25% of the value of its total assets.
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 of dealers to undertake to make a market in the
obligation; and (4) the nature of the marketplace trades.
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 depos-
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its in a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs") which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States.
The Prime Money Market Fund will not invest in excess of 10% of its net assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
The Prime Money Market Fund may invest in commercial paper (including variable
amount master demand notes) issued by U.S. or foreign corporations. The Prime
Money Market Fund may also invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.
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.
On January 1, 1999, the European Monetary Market Union ("EMU") introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. Those countries are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. A new European Central Bank ("ECB") will be created to manage the
monetary policy of the new unified region. On the same day, exchange rates will
be irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by coins and bank notes by the
middle of 2002.
The introduction of the euro presents some uncertainties and possible risks,
including whether the payment and operational systems of banks and other
financial institutions are adequate; whether exchange rates for existing
currencies and the euro are adequately established; and whether suitable
clearing and settlement systems for the euro are in operation. These and other
factors may cause market disruptions before or after January 1, 1999 and could
adversely affect the value of certain foreign securities held by the Prime Money
Market Fund.
The introduction of the euro is expected to impact European capital markets in
ways that are impossible to quantify at this time. For example, investors may
begin to view EMU countries as a single market, and that may impact future
investment decisions for a Fund. As the euro is implemented, there may be
changes in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro transition by
EMU countries -- present and future -- may impact the fiscal and monetary
policies of those participating countries. There may be increased levels of
price competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in increased
volatility for all financial markets.
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).
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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. BIMC (formerly PNC
Institutional Management Corporation), the Prime Money Market Fund's
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. 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.
MONEY MARKET FUNDS
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 bears 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 total assets will be held uninvested.
Uninvested cash reserves will not earn income.
COMMON INVESTMENT POLICIES OF THE MONEY MARKET FUNDS
REPURCHASE AGREEMENTS
Securities held by each Money Market Fund may be subject to repurchase
agreements. A Money Market Fund will enter into repurchase agreements for the
purposes of maintaining liquidity and obtaining favorable yields. Under the
terms of a repurchase agreement, a Money Market Fund acquires securities from
financial institutions or registered broker-dealers, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon date and
price. The seller is required to maintain the value of the collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). If the seller under a repurchase agreement were to default on
its repurchase obligation or become insolvent, a Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by a Fund were delayed pending court action.
Additionally, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund could incur delays and costs in selling the underlying
security or could suffer a loss of principal and interest if such Fund were
treated as an unsecured creditor and required to return the underlying security
to the seller's estate. A Fund will enter into repurchase agreements with
financial institutions or registered broker-dealers deemed creditworthy by BB&T
(or BIMC). Except as described in the Statement of Additional Information, there
is no aggregate limitation on the amount of a Money Market Fund's total assets
that may be invested in instruments which are subject to repurchase agreements.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, each Money
Market Fund may borrow
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funds for temporary purposes by entering into reverse repurchase agreements. A
Money Market Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Money Market Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. Reverse repurchase agreements include the risk that the market value of
the securities sold by a Fund may decline below the price at which a Money
Market Fund is obligated to repurchase the securities.
Reverse repurchase agreements are considered to be borrowings by a Money
Market Fund under the 1940 Act.
U.S. GOVERNMENT SECURITIES
The U.S. Treasury Fund may invest in U.S. Government Securities to the extent
that they are obligations issued or guaranteed by the U.S. Treasury.
Types of U.S. Government Securities in which the Prime Money Market Fund will
invest include obligations issued or guaranteed as to payment of principal and
interest by the full faith and credit of the U.S. Government, such as Treasury
bills, notes, bonds and certificates of indebtedness, and obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government, but not
supported by such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks, or
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Although the Prime Money Market Fund does not expect to do so, under normal
market conditions, except in connection with repurchase agreements, it may
invest in U.S. Government Securities that are mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities.
SECURITIES LENDING
In order to generate additional income, each Money Market Fund may, from time
to time, lend its portfolio securities to broker-dealers, banks or institutional
borrowers of securities which BB&T and/or a Fund's respective Sub-Adviser has
determined are creditworthy under guidelines established by the Group's Board of
Trustees. The Group will employ one or more securities lending agents to
initiate and effect securities lending transactions for the Group. While the
lending of securities may subject a Money Market 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, a Money Market
Fund will lend only on a fully collateralized basis in order to reduce such
risk. During the time portfolio securities are on loan, the Money Market Fund is
entitled to receive any dividends or interest paid on such securities.
Additionally, cash collateral received will be invested on behalf of the Money
Market Fund exclusively in money market instruments. While a Money Market Fund
will not have the right to vote securities on loan, each Money Market Fund
intends to terminate the loan and retain the right to vote if that is considered
important with respect to the investment. Each Money Market Fund will restrict
its securities lending to 33 1/3% of its total assets.
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YEAR 2000
The investment services industry is evaluating the capability of existing
application software programs and operating systems to accommodate the date
value for the year 2000. Many existing application software products in the
marketplace were designed to accommodate only a two-digit date position, which
represents the year (e.g., "95" is stored on the system and represents the year
1995). If the year 1999 is the maximum date value these systems are able to
accurately process, the improper identification of the year 2000 could result in
a computer system failure or miscalculations causing a disruption of operations.
The Group's principal service providers are taking steps the Group believes are
reasonably designed to address the year 2000 issues with respect to the computer
systems those providers operate. However, this is an ongoing process and testing
and other steps are scheduled to be completed in 1999. Nevertheless, the
inability of service providers to successfully address year 2000 issues could
result in interruptions in the Group's business and have a material adverse
impact on the Group's operations. In addition, year 2000 issues could have a
negative affect on the portfolio securities in which the Funds invest, thereby
affecting the performance of the Funds.
INVESTMENT RESTRICTIONS
The U.S. Treasury Fund and the Prime Money Market Fund are subject to a number
of investment restrictions that may be changed only by a vote of a majority of
the outstanding shares of the particular Fund (see "GENERAL INFORMATION--
Miscellaneous").
The U.S. Treasury Fund and the Prime Money Market may not:
1. Purchase securities of any issuer, other than obligations issued or
guaranteed by the U.S. Government if, as a result, with respect to 75% of its
portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. In addition, although not a fundamental investment
restriction (and therefore subject to change without shareholder vote), to the
extent required by rules of the Securities and Exchange Commission the U.S.
Treasury Fund and the Prime Money Market Fund will apply this restriction to
100% of its portfolio, except that for the Prime Money Market Fund, 25% of the
value of its total assets may be invested in any one issuer for a period of up
to three business days.
2. Borrow money or issue senior securities, except that a Money Market Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% (one-third with respect to the Prime
Money Market Fund) of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of (one-third
of the value of the Fund's total assets at the time of such borrowing with
respect to the Prime Money Market Fund) the lesser of the dollar amounts
borrowed or 10% of the value of a Fund's total assets at the time of its
borrowing. The Prime Money Market Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. The U.S. Treasury Fund will not purchase
securities while borrowings are outstanding.
3. Make loans, except that each of the Money Market Funds may purchase or
hold debt securities and lend portfolio securities in accordance with its
investment objective and policies and may enter into repurchase agreements.
The following is a non-fundamental investment restriction of the U.S. Treasury
Fund and the Prime Money Market Fund and therefore subject to change without
shareholder vote.
The U.S. Treasury Fund and the Prime Money Market Fund may not:
1. Invest more than 10% of its net assets in instruments which are not
readily marketable.
VALUATION OF SHARES
The net asset value of the U.S. Treasury Fund and the Prime Money Market Fund
is determined and the Shares are priced as of 12:00 p.m. and as of the close of
regular trading of the New York Stock Exchange (the "NYSE") (generally 4:00 p.m.
Eastern Time) on each Business Day ("Valuation Times"). As used
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herein a "Business Day" constitutes any day on which the New York Stock Exchange
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, Martin Luther King, Jr. 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 assets in the U.S. Treasury Fund and the Prime Money Market Fund are
valued based upon the amortized cost method. This method values a security at
its cost on the date of purchase and thereafter assumes a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. If the Board of Trustees
determines that the extent of any deviation from a $1.00 price per share may
result in material dilution or other unfair results to Shareholders, it will
take such steps as it considers appropriate to eliminate or reduce these
consequences to the extent reasonably practicable. This may include selling
portfolio securities prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity of a Fund, adjusting or withholding
dividends, or utilizing a net asset value per share determined by using
available market quotations. Although the Group seeks to maintain the U.S.
Treasury Fund's and Prime Money Market Fund's net asset value per Share at
$1.00, there can be no assurance that net asset value will not vary.
For further information about the valuation of investments, see the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services LP. 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 and Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.
Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of each of the Money Market Funds are sold at the net asset value
per Trust Share next determined after receipt by the Distributor of an order in
good form to purchase Trust Shares (see "VALUATION OF SHARES"). There is no
sales charge imposed by the Group in connection with the purchase of the Group's
Trust Shares.
There is no minimum or subsequent investment requirement for Trust Shares.
There is no limit on the amount of Trust Shares that may be purchased.
PURCHASES OF CLASS A 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").
Investors purchasing Shares of the U.S. Treasury Fund are generally required
to purchase Class A or
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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 or Prime Money Market Fund, as
opposed to Shareholders obtaining Class B Shares of the U.S. Treasury Money
Market Fund or Prime 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 will be withdrawn from the U.S. Treasury Money
Market Fund or Prime 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 Plan (see "Auto Exchange Plan").
Shares of the Group sold to Participating Organizations acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Participating Organizations. With respect to
Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers.
Investors may purchase Class A Shares and Class B Shares of a Money Market
Fund by completing and signing an Account Registration Form and mailing it,
together with a check (or other negotiable bank draft or money order) in at
least the minimum initial purchase amount, payable to the Group, to BB&T Mutual
Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. Investors may obtain an
Account Registration Form and additional information regarding the Group by
contacting their local BB&T office. Subsequent purchases of Class A and Class B
Shares 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 transfer agent.
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.
The minimum investment is $1,000 for the initial purchase of Class A and Class
B Shares of a Money Market 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, automatic 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.
Class A Shares of the U.S. Treasury Fund and the Prime Money Market Fund are
sold at net asset value without imposition of a sales charge.
From time to time dealers who receive dealer discounts and broker commissions
from the Distributor may reallow all or a portion of such dealer discounts and
broker commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Class A Shares of any of the Funds of the
Group. Compensation will also include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more of the
Funds, and/or other dealer-sponsored special events. In some instances, this
compensation will be made available only to dealers whose representatives have
sold a significant amount of such Shares. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will also include the following types of non-cash
compensation offered through sales contests: (1) vacation trips, including the
provision of travel arrangements and lodging at luxury resorts at exotic
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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.
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.
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 PERCENTAGE OF
YEAR(S) 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.
For example, assume you purchased 100 Class B Shares of an Equity Fund at $8
per share (at a total cost of $800) and in the eleventh month after purchase,
the net asset value per share is $10 and, during such time, you acquire five
additional Class B shares of the Equity Fund through dividend reinvestment. If
you then exchange all of your Equity Fund Class B shares for Class B Shares of
one of the Money Market Funds, you will have 1,050 Class B Shares (assuming a
net asset value of $1.00 per share for the Money Market Fund). Assume twelve
months later you acquire 50 additional Class B Shares of the
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Money Market Fund through dividend reinvestments. If you then make your first
redemption of 500 Money Market Fund Class B Shares (producing proceeds of $500),
100 of such Shares would not be subject to a Contingent Deferred Sales Charge
because they were acquired through dividend reinvestment. With respect to the
remaining 400 Class B Shares being redeemed, a Contingent Deferred Sales Charge
would be applied only to 320 Class B Shares (representing the original cost of
$8 per share for the Equity Fund) and not to the remaining 80 Class B Shares
(representing the increase in net asset value of $2 per share for the Equity
Fund).
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; (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; (iii) provided that the Shareholder withdraws no
more than 12% of the account value annually using the Auto Withdrawal Plan
Feature; (iv) for Investors who purchased Class B Shares of the Prime Money
Market Fund or Class B Shares of the U.S. Treasury Fund through the Cash Sweep
Program at BB&T Treasury Services Division; and (v) for Investors who purchased
through a participant directed defined contribution plan. 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; and (ii) exchanges for Class B
Shares of other Funds of the Group as described under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Class A Shares and will be subject to the lower distribution and Shareholder
service fees charged to Class A Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Class A Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Class A Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Class A Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Group during the eight-year period, the Group will aggregate the
holding periods for the shares of each Fund of the Group for purposes of
calculating that eight-year period. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same.
AUTO INVEST PLAN
BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make regular
purchases of Class A and Class B Shares through automatic deduction from their
bank accounts. With Shareholder authorization, the Group's transfer agent will
deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $25 per Fund; the minimum amount for subsequent automatic
investments in a Fund is $25. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or supplemental sign-up form that can be acquired by calling the
Distributor and attach a voided check and (for new Shareholders only) send a
check for the initial $25 Fund Share purchase. 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
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43218-2533. The Auto Invest Plan may be amended or terminated without notice at
any time by the Distributor.
BB&T MUTUAL FUNDS GROUP INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A BB&T Mutual Funds Group IRA enables individuals, even if they participate in
an employer-sponsored retirement plan, to establish their own retirement program
by purchasing Class A Shares for an IRA. BB&T Mutual Funds Group IRA
contributions may be tax-deductible and earnings are tax deferred. Under the Tax
Reform Act of 1986 and Taxpayer Relief Act of 1997, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All BB&T Mutual Funds Group IRA distribution requests must be made in writing
to BISYS Fund Services. Any additional deposits to a BB&T Mutual Funds Group IRA
must distinguish the type and year of the contribution.
For more information on a BB&T Mutual Funds Group IRA call the Group at (800)
228-1872. Shareholders are advised to consult a tax adviser on BB&T Mutual Funds
Group IRA contribution and withdrawal requirements and restrictions.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Class A, Class B or Trust Shares will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for the U.S.
Treasury Fund and the Prime Money Market Fund received prior to a Valuation Time
on any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the date of receipt. An order for a Money Market Fund
received after the last Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the next
Business Day.
An order to purchase Class A and Trust Shares of the Money Market Funds will
be deemed to have been received by the Distributor only when federal funds with
respect thereto are available to the Group's transfer agent for investment.
Federal funds are monies credited to a bank's account within a Federal Reserve
Bank. Payment for an order to purchase Shares of the Money Market Funds which is
transmitted by federal funds wire will be available the same day for investment
by the Group's transfer agent, if received prior to the last Valuation Time (see
"VALUATION OF SHARES"). It is strongly recommended that investors of substantial
amounts use federal funds to purchase Shares of the Money Market Funds.
Shares of the Money Market Funds purchased before 12:00 noon, Eastern Time,
begin earning dividends on the same Business Day. All Shares of the Money Market
Funds continue to earn dividends through the day before their redemption.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in the Group. Information concerning this
Prospectus should be read in conjunction with any such information received from
the Participating Organizations or Banks.
The Group reserves the right to reject any order for the purchase of its Class
A, Class B or Trust Shares in whole or in part, including purchases made with
foreign and third party drafts or checks.
EXCHANGE PRIVILEGE
TRUST SHARES
Trust Shares of each Money Market Fund may be exchanged for Trust Shares of
the other Funds and the Funds of Funds, provided that the Shareholder making the
exchange is eligible on the date of the exchange to purchase Trust Shares (with
certain exceptions and subject to the terms and conditions described in this
prospectus). Trust Shares of each Money Market Fund may also be exchanged for
Class A Shares, if the Shareholder ceases to be eligible to purchase Trust
Shares. Trust Shares of each Money Market Fund may not be exchanged for Class B
Shares.
The Group does not impose a charge for processing exchanges of its Trust
Shares. However, the exchange of Trust Shares for Class A Shares will require
payment of the sales charge unless the sales charge is waived. Shareholders may
exchange their Trust Shares for Trust Shares of another Fund on the basis of the
relative net asset value of the Shares exchanged.
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CLASS A
Class A Shares of each Money Market Fund may be exchanged for Class A Shares
of the other Funds, provided that the Shareholder making the exchange is
eligible on the date of the exchange to purchase Class A Shares (with certain
exceptions and subject to the terms and conditions described in this
prospectus). Class A Shares may not be exchanged for Class B Shares of the other
Funds, and may be exchanged for Trust Shares of the other Funds only if the
Shareholder becomes eligible to purchase Trust Shares. Only residents of North
Carolina may exchange the Class A Shares of the 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 Class A Shares of the Money Market Funds, for which no
sales load was paid, for Class A Shares of a Fund which has a variable net asset
value (a "Variable NAV Fund"). Under such circumstances, the cost of the
acquired Class A Shares will be the net asset value per share plus the
appropriate sales load. If Class A Shares of the Money Market Funds were
acquired in a previous exchange involving Shares of a Variable NAV Fund, then
such Shares of the Money Market Funds may be exchanged for Shares of a Variable
NAV Fund without payment of any additional sales load within a twelve month
period. Under such circumstances, the Shareholder must notify the Distributor
that a sales load was originally paid. Depending upon the terms of a particular
Customer account, a Participating Organization may charge a fee with regard to
such an exchange. Information about such charges will be supplied by the
Participating Organization.
CLASS B
Class B Shares of each Money Market Fund may be exchanged for Class B Shares
of the other Funds on the basis of relative net asset value per Class B Share,
without the payment of any Contingent Deferred Sales Charge which might
otherwise be due upon redemption of the outstanding Class B Shares. Investors
should note that, as of the date of this prospectus, Class B Shares were not yet
being offered in the Short-Intermediate Fund, 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 three 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 Money Market Funds from which the exchange was
made is "tacked" to the holding period of the newly acquired Class B Shares. For
purposes of calculating the holding period applicable to the newly acquired
Class B Shares, the newly acquired Class B Shares shall be deemed to have been
issued on the date of receipt of the Shareholder's order to purchase the
outstanding Class B Shares of the Money Market Funds 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, Class B or Trust Shares purchased
through a Participating Organization or Bank may do so by contacting the
Participating Organization or Bank. If an exchange request in good order is
received by the Distributor or the Transfer Agent by 12:00 noon (Eastern Time)
on any Business Day, the exchange usually will occur on that day. Any
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be
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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 PLAN
BB&T Mutual Funds Group Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Class B Shares of a BB&T Mutual 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 account and will automatically
invest that amount in Class B Shares of the BB&T Mutual Fund designated by the
Shareholder at the public offering price on the date of such deduction. The Auto
Exchange feature can only be used within the same class of shares. In order to
participate in the Auto Exchange, Shareholders must have a minimum initial
purchase of $10,000 in their BB&T Mutual Fund account. The Auto Exchange feature
can only be used within the same Class of Shares.
Shareholders investing directly in Class B Shares of the U.S. Treasury Fund or
Prime Money Market Fund, as opposed to Shareholders obtaining Class B Shares of
the U.S. Treasury Fund or the Prime 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 Fund or the Prime Money Market Fund within two years of purchase.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the BB&T
Mutual Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Exchange
may be amended or terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Class A and Trust Shares without charge, and
their Class B Shares subject to the applicable Contingent Deferred Sales Charge,
on any day that net asset value is calculated (see "VALUATION OF SHARES") and
Shares may ordinarily be redeemed by mail or by telephone. However, all or part
of a Customer's Shares may be required to be redeemed in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization or Bank. For example, if a Customer has agreed to
maintain a minimum balance in his or her account, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Participating Organization or Bank may redeem for and on behalf of the Customer,
all or part of the Customer's Shares to the extent necessary to maintain the
required minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of 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.
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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 may reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
currently being waived. There is no charge for having payment of redemption
requests mailed or sent via the Automated Clearing House to a designated bank
account. For telephone redemptions, call the Group at (800) 228-1872. If not
selected on the Account Registration form, the Shareholder will automatically
receive telephone redemption privileges. None of the Distributor, the Group's
transfer agent, BB&T or the Group will be liable for any losses, damages,
expense or cost arising out of any telephone transaction (including exchanges
and redemptions) effected in accordance with the Group's telephone transaction
procedures, upon instructions reasonably believed to be genuine. The Group will
employ procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
Group may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verifying the account name and a shareholder's account number or
tax identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone transactions, Shareholders
may also mail the redemption request to the Group.
CHECK WRITING SERVICE
Shareholders of Class A Shares of the U.S. Treasury Fund and the Prime Money
Market Fund may write checks on Fund accounts for $100 or more. Once a
Shareholder has signed and returned a signature card, he or she will receive a
supply of checks. A check may be made payable to any person, and the
Shareholder's account will continue to earn dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. The
Shareholder's account may 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 and Class B Shares of a Fund. With
Shareholder authorization, the Group's transfer agent will automatically redeem
Class A Shares and Class B 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. In certain cases, Class B Shareholders
may redeem using the Auto Withdrawal Plan without paying a contingent deferred
sales charge as described in "How to Purchase and Redeem Shares -- Contingent
Deferred Sales Charge." Shareholders participating in the Auto Withdrawal Plan
must maintain a minimum account balance of $1,000 in the Fund from which Class A
Shares or Class B Shares are being redeemed. Purchase of additional Class A and
Class B 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 U.S. Treasury Fund and the Prime Money Market
Fund will attempt to honor requests from its Shareholders for same day payment
upon redemption of Shares if the request for redemp-
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tion is received by the Transfer Agent before 12:00 noon Eastern Time, on a
Business Day or, if the request for redemption is received after 12:00 noon
Eastern Time, to honor requests for payment on the next Business Day, unless it
would be disadvantageous to a Fund or its Shareholders to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares, which may take up to 10 days or more. To avoid delay in payment
upon redemption shortly after purchasing Shares, investors should purchase
Shares by certified check or by wire transfer. The Group intends to pay cash for
all Shares redeemed, but under abnormal conditions which may make payment in
cash unwise, the Group may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Group
reserves the right to redeem, at net asset value, the Class A and Class B Shares
of any Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder, the account of such Shareholder in a Fund has a value of less than
$1,000. Accordingly, an investor purchasing Class A or Class B 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 Class A
and Class B 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 1940 Act.
DIVIDENDS AND TAXES
Each Money Market Fund will be treated as a separate entity for federal income
tax purposes. Each Money Market Fund intends to qualify for treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, a Money Market Fund will not have to pay
federal taxes on amounts it distributes to Shareholders. Regulated investment
companies are subject to a federal excise tax if they do not distribute
substantially all of their income on a timely basis. Each Money Market Fund
intends to avoid paying federal income and excise taxes by timely distributing
substantially all its net investment income and net realized capital gains, if
any.
Dividends received by a Shareholder of a Money Market Fund that are derived
from such Fund's investments in U.S. Government Securities may not be entitled
to the exemption from state and local income taxes that would be available if
the Shareholder had purchased U.S. Government Securities directly. Shareholders
are advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Money Market Fund.
Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.
The net investment income of the Shares of the Money Market Funds is declared
daily as a dividend to Shareholders at the close of business on the day of
declaration. Dividends will generally be paid monthly. The Money Market Funds do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any capital gains dividends.
As a result of the Distribution and Shareholder Services Plan fee applicable
to Class A and Class B Shares, the amount of dividends payable with respect to
the Trust Shares will exceed dividends on Class A Shares, and the amount of
dividends on Class A Shares will exceed the dividends on Class B Shares.
A Shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional Shares at net asset value as of
the date of declaration unless the Shareholder
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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. If you elect to
receive distributions in cash and checks (1) are returned and marked as
"undeliverable" or (2) remain uncashed for six months, your cash election will
be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
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 net investment income of a
Fund. Because all of the net investment income of the Money Market Funds is
expected to be interest income, it is anticipated that no distributions from
such Funds will qualify for the dividends received deduction. 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, distribution 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 Money Market Fund. Shareholders should consult
their own tax advisers concerning the tax consequences of an investment in a
Money Market Fund with specific reference to their own tax situation.
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the 1940 Act. The Trustees, in turn, elect
the officers of the Group to supervise actively its day-to-day operations. The
Trustees of the
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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 THE 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 1992,
Columbus, OH 43219 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 December,
Fayetteville Street Mall 1993, Vice Chairman, Carolina Power & Light
P.O. Box 109 Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive Director, Z.
101 Reynolda Village Smith Reynolds Foundation
Winston-Salem,
NC 27106
W. Ray Long Trustee Retired; Executive Vice President, Branch
605 Blenheim Drive Banking and Trust Company from 1974 to 1998
Raleigh, NC 27612
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 1940 Act.
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.
INVESTMENT ADVISER
BB&T is the Investment Adviser of the U.S. Treasury Fund and the Prime Money
Market Fund. BB&T is the oldest bank in North Carolina and is the principal bank
affiliate of BB&T Corporation, a bank holding company that is a North Carolina
corporation, headquartered in Winston-Salem, North Carolina. As of December 31,
1997, BB&T Corporation had assets of approximately $29.2 billion. Through its
subsidiaries, BB&T Corporation operates over 540 banking offices in Maryland,
North Carolina, South Carolina, Virginia and Washington, D.C., 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 16 years and currently manages assets of more
than $3.37 billion.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Prime Money Market Fund,
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<PAGE> 161
BIMC) manages the Funds, makes decisions with respect to, and places orders for,
all purchases and sales of its investment securities, and maintains its records
relating to such purchases and sales.
Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by the Money Market Funds for investment advisory services is
the lesser of: (a) a fee computed daily and paid monthly at the annual rate of
forty one hundredths of one percent (.40%) of each Money Market Fund's average
daily net assets; or (b) such fee as may from time to time be agreed upon in
writing by the Group and BB&T. A fee agreed to in writing from time to time by
the Group and BB&T may be significantly lower than the fee calculated at the
annual rate and the effect of such lower fee would be to lower a Fund's expenses
and increase the net income of the fund during the period when such lower fee is
in effect.
For the fiscal year ended September 30, 1998, the U.S. Treasury Fund paid
investment advisory fees of 0.31% of its average daily net assets and the Prime
Money Market Fund paid investment advisory fees of 0.26% of its average daily
net assets.
INVESTMENT SUB-ADVISER
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) 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, BIMC 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.
BIMC is a wholly-owned subsidiary of BlackRock Advisors, Inc. ("BAI")
(formerly PNC Asset Management Group, Inc.) BAI was organized in 1994 to perform
advisory services for investment companies, and has its principal offices at 345
Park Avenue, 29th Floor, New York, New York 10154. BAI is an indirect
majority-owned subsidiary of PNC Bank Corp., a diversified financial services
company. BIMC's principal business address is 400 Bellevue Parkway, 4th Floor,
Wilmington, Delaware 19809.
As Sub-Adviser, BIMC 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. BIMC 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, BIMC
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%) of the
Prime Money Market Fund's average daily net assets or such lower fee as may be
agreed upon in writing by BB&T and BIMC.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for each Fund. BISYS Fund
Services LP 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,
1998, the U.S. Treasury Fund paid 0.15% of its average daily net assets and the
Prime Money Market Fund paid 0.11% 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 Adviser and Administrator, respectively,
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<PAGE> 162
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, 1998, total operating expenses for the
U.S. Treasury Fund and the Prime Money Market Fund as a percentage of average
daily net assets was 0.61% and 0.55%, respectively, for Trust Shares, 0.86% and
0.83%, respectively, for Class A Shares, and 1.61% and 1.64%, respectively, for
Class B Shares. Absent Fee Waivers by the Adviser and Administrator, these
operating expenses would have been: 0.76% and 0.91%, respectively, for the Trust
Shares of the U.S. Treasury Fund and Prime Money Market Fund; 1.26% and 1.43%,
respectively for the Class A Shares of the U.S. Treasury Fund and Prime Money
Market Fund; and 1.99% and 1.76%, respectively, for the Class B Shares of the
U.S. Treasury Money Market Fund and Prime Money Market Fund.
The organizational expenses of the Prime Money Market Fund have been
capitalized and are being amortized in the first two years of the Fund's
operations. Such amortization will reduce the amount of income available for
payment as dividends.
BANKING LAWS
BB&T and BIMC each believes that it possesses the legal authority to perform
the investment advisory and sub-advisory services for the Group contemplated by
its investment advisory agreement with the Group and investment sub-advisory
agreement with BB&T and described in this Prospectus without violation of
applicable banking laws and regulations, and has so represented to the Group.
Future changes in federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies and their subsidiaries
and affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which BB&T and BIMC could continue to perform such services for the
Group. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass Steagall Act" in the
Statement of Additional Information for further discussion of applicable banking
laws and regulations.
DISTRIBUTION PLAN
The Group's Class A and Class B Shares are sold on a continuous basis by the
Distributor. Under the Group's Distribution and Shareholder Services Plan (the
"Distribution Plan"), a Fund will pay a monthly distribution fee to the
Distributor as compensation for its services in connection with the Distribution
Plan at an annual rate equal to fifty one-hundredths of one percent (.50%) of
the average daily net assets of Class A Shares of each Fund and one percent
(1.00%) of the average daily net assets of Class B Shares of each Fund. The
Distributor may periodically waive all or a portion of the fee with respect to a
Fund in order to increase the net investment income of the Fund available for
distribution as dividends. The Distributor has agreed with the Group to reduce
its fee under the Distribution Plan to an amount not to exceed twenty-five
one-hundredths of one percent (.25%) of the average daily net assets of Class A
Shares of each Fund. The Distributor may use the distribution fee to provide
distribution assistance with respect to a Fund's Class A and Class B Shares or
to provide shareholder services to the holders of such Shares. The Distributor
may also use the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks), broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with distribution assistance or (ii) to pay banks, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
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<PAGE> 163
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of shareholder services. All
payments by the Distributor for distribution assistance or shareholder services
under the Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of a Fund's Class A and Class B Shares to the
Participating Organization's customers on whose behalf the investment in such
Shares is made and/or to the provision of shareholder services to the
Participating Organization's customers owning a Fund's Class A and Class B
Shares. Under the Distribution Plan, a Participating Organization may include
Southern National Corporation or a subsidiary bank or nonbank affiliates, or the
subsidiaries or affiliates of those banks. A Servicing Agreement entered into
with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.
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 fourteen 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 U.S. Treasury Money Market
Fund, the BB&T Prime Money Market Fund, the BB&T Balanced Fund, the BB&T Small
Company Growth Fund, the BB&T International Equity Fund, the BB&T Large Company
Growth Fund, the BB&T Capital Manager Conservative Growth Fund, the BB&T Capital
Manager Moderate Growth Fund,
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<PAGE> 164
and the BB&T Capital Manager Growth Fund. Each Fund is authorized to issue three
classes of shares: Class A, Class B and Trust Shares. Currently, the
Short-Intermediate Fund, the North Carolina Fund, and the South Carolina Fund
are not offering Class B Shares. Shareholders investing directly in Class B
Shares of the U.S. Treasury Fund or the Prime Money Market Fund, as opposed to
Shareholders obtaining Class B Shares of the U.S. Treasury Fund or the Prime
Money Market 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 will be withdrawn from the U.S. Treasury Fund or the Prime Money
Market 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 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, and (iii) only the holders of Class A
and Class B Shares will be entitled to vote on matters submitted to Shareholder
vote with regard to the Distribution Plan applicable to such classes.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.
Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.
Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.
As of October 29, 1998, BB&T owned of record substantially all of the Trust
Shares of the U.S. Treasury Fund and the Prime Money Market Fund and held voting
or investment power with respect to more than 95% of the Trust Shares of each of
the U.S. Treasury Fund and the Prime Money Market Fund. BB&T may therefore be
deemed to be a "controlling person" of the Trust Shares of the U.S. Treasury
Fund and the Prime Money Market Fund within the meaning of the 1940 Act. As of
October 29, 1998, National Financial Services Corp., P.O. Box 3752, Church
Street Station, New York, NY 10008-3752 is the record owner with respect to
73.91% of the Class A Shares of the U.S. Treasury Fund and may therefore be
deemed to be a controlling person of the Class A Shares of the Fund within the
meaning of the 1940 Act. As of the same date, BISYS Fund Services, 3435 Stelzer
Road, Columbus, OH 43219 is the record owner with respect to 98.78% of the Class
B Shares of the Prime Money Market Fund and may therefore be deemed to be a
controlling person of the Class B Shares of the Fund within the meaning of the
1940 Act.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for the Money Market Funds.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Group.
PERFORMANCE INFORMATION
From time to time, the U.S. Treasury Fund's and the Prime Money Market Fund's
annualized "yield" and "effective yield" and total return for Class A, Class B
and Trust Shares may be presented in advertisements, sales literature and
Shareholder reports. The "yield" of each Money Market Fund is based
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<PAGE> 165
upon the income earned by the Fund over a seven-day period and then annualized,
i.e. the income earned in the period is assumed to be earned every seven days
over a 52-week period and is stated as a percentage of the investment. The
"effective yield" of a Money Market Fund is calculated similarly but when
annualized, the income earned by the investment is assumed to be reinvested in
Shares of the Group and thus compounded in the course of a 52-week period. The
effective yield will be higher than the yield because of the compounding effect
of this assumed reinvestment.
Total return is calculated for the past year and the period since the
establishment of each Money Market Fund. Average annual total return is measured
by comparing the value of an investment in a Fund at the beginning of the
relevant period to the redemption value of the investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.
Yield, effective yield and total return will be calculated separately for each
Class of Shares. Because Class A Shares are subject to lower Distribution Plan
fees than Class B Shares, the yield and total return for Class A Shares will be
higher than that of the Class B Shares for the same period. Because Trust Shares
are not subject to Distribution Plan fees, the yield and total return for Trust
Shares will be higher than that of the Class A and Class B Shares for the same
period.
Investors may also judge the performance of a Money Market Fund by comparing
its performance to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market
indices and data such as that provided by Lipper 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 Money Market Fund is based on a Fund's
record up to a certain date and is not intended to indicate future performance.
Yield and total return of any investment are generally functions of portfolio
quality and maturity, type of investments and operating expenses. Yields and
total returns of a Money Market Fund will fluctuate. Any fees charged by the
Participating Organizations to their customers in connection with investment in
a Fund are not reflected in the Group's performance information.
Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to the Group at the
following address: the BB&T Mutual Funds Group, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.
31
<PAGE> 166
INVESTMENT ADVISER
BRANCH BANKING AND TRUST COMPANY
434 FAYETTEVILLE STREET MALL
RALEIGH, NC 27601
INVESTMENT SUB-ADVISER
(PRIME MONEY MARKET FUND ONLY)
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
ADMINISTRATOR
BISYS FUND SERVICES, INC.
3435 STELZER ROAD
COLUMBUS, OH 43219
DISTRIBUTOR
BISYS FUND SERVICES LP
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 LLP
TWO NATIONWIDE PLAZA, SUITE 1600
COLUMBUS, OH 43215
<PAGE> 167
INVESTMENT ADVISER
BRANCH BANKING AND TRUST COMPANY
434 FAYETTEVILLE STREET MALL
RALEIGH, NC 27601
INVESTMENT SUB-ADVISER
BLACKROCK FINANCIAL MANAGEMENT, INC.
1600 MARKET STREET, 27TH FLOOR
PHILADELPHIA, PA 19103
ADMINISTRATOR
BISYS FUND SERVICES, INC.
3435 STELZER ROAD
COLUMBUS, OH 43219
DISTRIBUTOR
BISYS FUND SERVICES, LP
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 LLP
TWO NATIONWIDE PLAZA, SUITE 1600
COLUMBUS, OH 43215
25
<PAGE> 168
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 the Funds 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> 169
Underwriters Management of BB&T Mutual
Funds Group
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
-2-
<PAGE> 170
------------
BB&T MUTUAL FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1999
----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Class A Shares and Class B Shares Prospectus and Trust
Shares 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 February 1, 1999, the Prospectus of the BB&T U.S. Treasury Money
Market Fund and the BB&T Prime Money Market Fund which is dated February 1,
1999, and the Prospectus of the BB&T Small Company Growth Fund (Trust Shares)
which is dated February 1, 1999. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. Copies of the
Prospectuses may be obtained by writing BB&T Mutual Funds Group at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 228-1872.
<PAGE> 171
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
BB&T MUTUAL FUNDS GROUP....................................................................B-1
INVESTMENT OBJECTIVES AND POLICIES.........................................................B-1
Additional Information on Portfolio Instruments........................................B-1
Puts..................................................................................B-13
Investment Restrictions...............................................................B-17
Portfolio Turnover....................................................................B-20
VALUATION.................................................................................B-21
Valuation of the Money Market Funds...................................................B-21
Valuation of the Growth and Income Fund, the North Carolina Fund,
the South Carolina Fund, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond Fund, the Balanced Fund, the Large Company
Growth Fund, the Small Company Growth Fund, and the Funds of Funds...........B-22
Valuation of the International Equity Fund............................................B-23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................................B-23
Purchase of Class A and Class B Shares................................................B-24
Matters Affecting Redemption..........................................................B-24
ADDITIONAL TAX INFORMATION................................................................B-25
Additional Tax Information Concerning the International Equity Fund...................B-28
Additional Tax Information Concerning the North Carolina and
South Carolina Funds.........................................................B-28
Special Considerations Regarding Investment in South Carolina Tax-Exempt
Obligations..................................................................B-35
MANAGEMENT OF BB&T MUTUAL FUNDS GROUP.....................................................B-39
Officers..............................................................................B-39
Investment Adviser....................................................................B-41
Investment Sub-Advisers...............................................................B-42
Portfolio Transactions................................................................B-44
Glass-Steagall Act....................................................................B-47
Manager and Administrator.............................................................B-48
Distributor...........................................................................B-50
Custodian.............................................................................B-52
Independent Auditors..................................................................B-53
Legal Counsel.........................................................................B-53
PERFORMANCE INFORMATION...................................................................B-53
Yields of the Money Market Funds......................................................B-53
Yields of the Other Funds of the Group................................................B-54
</TABLE>
-i-
<PAGE> 172
<TABLE>
<S> <C>
Calculation of Total Return...........................................................B-55
Performance Comparisons...............................................................B-58
ADDITIONAL INFORMATION....................................................................B-65
Organization and Description of Shares................................................B-65
Shareholder and Trustee Liability.....................................................B-66
Miscellaneous.........................................................................B-67
FINANCIAL STATEMENTS......................................................................B-76
Audited Financial Statements as of September 30, 1998.................................B-76
APPENDIX..................................................................................B-77
</TABLE>
-ii-
<PAGE> 173
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 fourteen series of units of beneficial
interest ("Shares") offered to the public, each representing interests in one of
fourteen separate investment portfolios ("Funds"): 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 U.S. Government 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"), the BB&T
International Equity Fund (the "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 (collectively, the "Funds of Funds")
which offer Shareholders a professionally-managed investment program by
purchasing shares of existing Funds of the Group (the "Underlying Funds"). Each
Fund may offer to the public three classes of Shares: Class A Shares, Class B
Shares and Trust Shares. As of the date of this Statement of Additional
Information, Class B Shares were not yet being offered in the Short-Intermediate
Fund, the North Carolina Fund and the South Carolina Fund. Much of the
information contained in this Statement of Additional Information expands on
subjects discussed in the Prospectuses. Capitalized terms not defined herein are
defined in the Prospectuses. No investment in Shares of a Fund should be made
without first reading the applicable Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the information pertaining to
portfolio instruments of each Fund as set forth in the Prospectuses.
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("NRSROs") that may be
used by Branch Banking and Trust Company ("BB&T" or the "Adviser"), BlackRock
Financial Management, Inc. ("BFMI") (formerly PNC Equity Advisors Company),
BlackRock
B-1
<PAGE> 174
International, Ltd. ("BlackRock International") (formerly CastleInternational
Asset Management Limited) and BlackRock Institutional Management Corporation
("BIMC") (formerly PNC Institutional Management Corporation) (BFMI, BlackRock
International and BIMC, 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 each Fund, except for the U.S. Treasury
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 (the "1933 Act").
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Prime Money Market Fund, Growth and Income Fund, Large
Company Growth
B-2
<PAGE> 175
Fund, Small Company Growth Fund, Short-Intermediate Fund, Intermediate U.S.
Government Bond Fund, International Equity Fund, and Balanced Fund (the
Short-Intermediate Fund and the Intermediate U.S. Government 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, the Growth and Income
Fund, the Balanced Fund, the Large Company Growth Fund, the Small Company Growth
Fund, the 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.
B-3
<PAGE> 176
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, the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund, the 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 foreign
B-4
<PAGE> 177
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
B-5
<PAGE> 178
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, the Small Company Growth Fund, the International Equity Fund and the 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, the
Small Company Growth Fund and the International Equity Fund may invest in
"investment grade securities," which are securities rated in the four highest
rating categories of an NRSRO. It should be noted that debt obligations rated in
the lowest of the top four ratings (i.e., "Baa" by
B-6
<PAGE> 179
Moody's Investors Services, Inc. ("Moody's") or "BBB" by Standard & Poor's
Corporation ("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, the Small Company Growth Fund and the International Equity Fund may
participate in rights offerings and may purchase warrants, which are privileges
issued by corporations enabling the owners to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. Subscription rights normally have a short life span to
expiration. The purchase of rights or warrants involves the risk that the Fund
could lose the purchase value of a right or warrant if the right to subscribe to
additional shares is not exercised prior to the rights' and warrants'
expiration. Also, the purchase of rights and/or warrants involves the risk that
the effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security. A Fund will not invest more than 5% of its net assets, taken at market
value, in warrants, or more than 2% of its net assets, taken at market value, in
warrants not listed on the New York or American Stock Exchanges. Warrants
acquired by a Fund in units or attached to other securities are not subject to
this restriction.
Variable and Floating Rate Notes. The Prime Money Market Fund, 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 Fund and the South Carolina Fund, (or BIMC
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 BIMC 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
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payment obligations and a Fund could, as a result or for other reasons, suffer a
loss to the extent of the default. Variable or floating rate notes may be
secured by bank letters of credit.
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. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
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Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus, the two principal classifications of
Tax-Exempt Obligations consist of "general obligation" and "revenue" issues. The
North Carolina Fund and the South Carolina Fund 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 Fund and the South Carolina Fund, an issue of Tax-Exempt Obligations
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Funds. Neither event would under all circumstances
require the elimination of such an obligation from the North Carolina Fund's or
the 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 Fund or South
Carolina Fund.
An issuer's obligations for its Tax-Exempt Obligations are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Tax-Exempt Obligations may be
materially adversely affected by litigation or other conditions.
Although lease obligations do not 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,
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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, the Small Company Growth Fund, the
International Equity Fund, and the 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 Large Company Growth Fund, the Small Company Growth Fund,
the Growth and Income Fund, the Balanced Fund and the Funds of Funds may write
(sell) "covered" call options and purchase options to close out options
previously written by it. Such options must be listed on a National Securities
Exchange and issued by the Options Clearing Corporation. 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
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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.
The purpose of writing covered call options is to generate additional
premium income for the 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 the opinion of a Fund's Adviser or Sub-Adviser, 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.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund does not have any control over the
point at which it may be required to sell the underlying securities, because it
may be assigned an exercise notice at any time prior to the expiration of its
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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.
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
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with an exercise notice of a call option assigned to it, rather than delivering
such security from its portfolio. In such cases, additional costs will be
incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
Puts. The North Carolina Fund and the South Carolina Fund 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 Fund and the South Carolina
Fund and the Funds of Funds to facilitate the liquidity of their portfolio
assets or to shorten the maturity of underlying assets. Puts may also be used to
facilitate the reinvestment of assets at a rate of return more favorable than
that of the underlying security.
The North Carolina Fund, the South Carolina Fund and the Funds of Funds
will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for puts either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
The North Carolina Fund, the South Carolina Fund and the Funds of Funds
intend to enter into puts only with dealers, banks, and broker-dealers which, in
BB&T's opinion, present minimal credit risks.
See "Options and Futures" in the Prospectus regarding the Small Company
Growth Fund's and the International Equity Fund's investment policy with respect
to puts.
Risk Factors Relating to Options. There are several risks associated
with transactions in put and call options. For example, there are significant
differences between the securities
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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 Adviser or Sub-Adviser to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates.
Futures Contracts and Related Options. Each Fund of the Group (other
than the U.S. Treasury Money Market Fund) may invest in futures contracts and
options thereon (interest rate futures contracts or index futures contracts, as
applicable). Positions in futures contracts may be closed out only on an
exchange which provides a secondary market for such futures. However, there can
be no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, a Fund may be required to make delivery
of the instruments underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on a Fund's
ability to effectively hedge.
Successful use of futures by the Funds is also subject to an Adviser's
or Sub-Adviser's ability to correctly predict movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, a Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have approximately
equal offsetting losses in its futures positions. In addition, in some
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
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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.
Standard & Poor's Depository Receipts
- -------------------------------------
Each of the Growth and Income Stock Fund, Balanced Fund, Large Company
Growth Fund, and Small Company Growth Fund may invest in Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs represent interests in trusts sponsored by
a subsidiary of the American Stock Exchange, Inc. and are structured to provide
investors proportionate undivided interests in a securities portfolio
constituting substantially all the common stocks (in substantially the same
weighting) as the component common stocks of a particular Standard & Poor's
Index ("S&P Index"), e.g., the S&P 500. SPDRs are not redeemable, but are
exchange traded. SPDRs represent interests in an investment company that is not
actively managed, i.e., securities are held in an effort to track the
performance of the pertinent S&P Index and not for
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the purpose of selecting securities that are considered superior investments.
The results of SPDRs will not replicate exactly the performance of the pertinent
S&P Index due to reductions in the SPDRs' performance attributable to
transaction and other expenses, including fees to service providers, borne by
the SPDRs. SPDRs distribute dividends on a quarterly basis. Under the 1940 Act,
a fund must limit investments in SPDRs to 5% of the fund's total assets and 3%
of the outstanding voting securities of the SPDRs issuer. Moreover, a Fund's
investments in SPDRs, when aggregated with all other investments in investment
companies, may not exceed 10% of the Fund's total assets.
Closed-End Investment Companies
- -------------------------------
The Balanced Fund may invest in closed-end investment companies that
invest a significant portion of their assets in convertible securities. The
shares of closed-end investment companies, which are not redeemable, will be
purchased only if they are traded on a domestic stock exchange. Closed-end Fund
shares often trade at a substantial discount (or premium) from their net asset
value. Therefore, there can be no assurance that a share of a closed-end Fund,
when sold, will be sold at a price that approximates its net asset value. Under
the 1940 Act, the Balanced Fund will limit investments in each such closed-end
Fund to the lesser of 5% of the Balanced Fund's total assets or 3% of the
closed-end Fund's outstanding voting securities. Furthermore, the Balanced
Fund's investments in all investment companies may not exceed 10% of the Fund's
total assets.
Convertible Securities
- ----------------------
Convertible securities are fixed income-securities which may be
exchanged or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. Convertible
bonds and convertible preferred stocks are fixed-income securities that
generally retain the investment characteristics of fixed-income securities until
they have been converted, but also react to movements in the underlying equity
securities. The holder is entitled to receive the fixed-income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities, and, therefore, have a claim to
assets of the corporation prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality.
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Investment Restrictions
- -----------------------
Except as provided otherwise, the following investment restrictions may
be changed with respect to a particular Fund only by a vote of a majority of the
outstanding Shares of that Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectus).
None of the Funds of the Group (other than the International Equity
Fund and Prime Money Market Fund) may:
1. Purchase securities on margin, sell securities short, participate on
a joint or joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent that a Fund may
be deemed to be an underwriter under certain securities laws in the disposition
of "restricted securities" acquired in accordance with such Fund's investment
objectives and policies;
2. Purchase or sell commodities, commodity contracts (including futures
contracts, with respect to each Fund other than the 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, the North Carolina
Fund, the South Carolina Fund, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond Fund, the Balanced Fund, the Large Company Growth Fund, the
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, the North Carolina Fund, the South Carolina Fund, the Short-Intermediate
Fund, the Intermediate U.S. Government Bond Fund, the Balanced Fund, the Large
Company Growth Fund, the 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 Fund
and the South Carolina Fund may purchase securities of a money market fund which
invests primarily in high quality short-term obligations exempt from federal
income tax, if, with respect to the Fund, immediately after such purchase, the
acquiring Fund does not own in the aggregate (a) more than 3% of the acquired
company's outstanding voting securities, (b) securities issued by the acquired
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (c) securities issued by the acquired company
and all other investment companies (other than Treasury stock of the acquiring
Fund) having an aggregate value in excess of 10% of the value of the acquiring
Fund's total assets; (iii) the Large Company Growth Fund, the Small Company
Growth Fund,
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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.
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, the
North Carolina Fund, the South Carolina Fund, the Short-Intermediate Fund, and
the Intermediate U.S. Government Bond Fund may not write or purchase call
options. Each of the Funds may not write put options. The U.S. Treasury Fund,
the Short-Intermediate Fund and the Intermediate U.S. Government Bond Fund may
not purchase put options. The North Carolina Fund and the South Carolina Fund
may not invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its predecessors) with
less than three years of continuous operation.
The International Equity Fund may not:
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof, or the disposition of securities, in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
3. Write or sell unsecured put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, securities indices, futures contracts and options on futures
contracts.
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related options or the
Fund's sale of securities short against the box, and (b) the Fund may obtain
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
5. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.
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The Prime Money Market Fund may not:
1. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of its total assets to be invested in the obligations
of issuers in the 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 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:
The Prime Money Market Fund and the U.S. Treasury Fund may not
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invest more than 10% of its net assets in illiquid securities.
None of the Funds (except the Prime Money Market Fund) may invest in
any issuer for purposes of exercising control or management.
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, 1998, and
September 30, 1997, the portfolio turnover rates for each of the Funds with a
full year of operations in the subject fiscal years (other than the U.S.
Treasury Fund) were as follows: Short-Intermediate Fund: 53.74% and 87.99%,
respectively; Intermediate U.S. Government Bond Fund: 60.98% and 62.45%,
respectively; Growth and Income Fund: 13.17% and 22.66%, respectively; North
Carolina Fund: 32.63% and 16.98%, respectively; Small Company Growth Fund:
157.44% and 80.66%, respectively; the common stock portion of the Balanced Fund:
11.88% and 26.57%, respectively, and the fixed income portion of the Balanced
Fund: 61.41% and 27.59%, respectively. High turnover rates will generally result
in higher transaction costs to the Funds and may result in higher levels of
taxable realized gains (including short-term taxable gains generally taxed at
ordinary income tax rates) 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. See
"Additional Tax Information."
Because the U.S. Treasury Fund and the Prime Money Market Fund intend
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, 1998 and September 30, 1997, 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 its Shares are priced as of 12:00 p.m. and as of the
close of regular trading of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time) on each Business Day ("Valuation Times"). As used herein a
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day (other than a day 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, Martin Luther King, Jr. 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, the North Carolina Fund, the South
Carolina Fund, the Short-Intermediate Fund, the Intermediate U.S. Government
Bond Fund, the Balanced Fund, the Large Company Growth Fund, the 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 BFMI'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, BFMI and BlackRock
International 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 mean 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 Adviser and/or Sub-Adviser under the supervision of the Board of
Trustees determines such method does not represent fair value. All other assets
and securities held by the Fund (including restricted securities) are valued at
fair value as determined in good faith by the Board of Trustees or by someone
under its direction. Any assets which are denominated in a foreign currency are
translated into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
As discussed above, the International Equity Fund may use a pricing
service or market/dealer experienced in such matters to value the Fund's
securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares in each of the Group's Funds are sold on a
continuous basis by BISYS Fund Services ("BISYS"). In addition to purchasing
Shares directly from BISYS, Class A, Class B or Trust Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at BB&T, or BB&T's affiliated or correspondent banks. Customers
purchasing Shares of the Group may include officers, directors, or employees of
BB&T or BB&T's affiliated or correspondent banks.
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Purchase of Class A and Class B Shares
- --------------------------------------
As stated in the Class A and Class B Prospectus, the public offering
price of Class A Shares of the Growth and Income Fund, the North Carolina Fund,
the South Carolina Fund, the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the Balanced Fund, the Large Company Growth Fund, the
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 offering such Shares 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 a Money Market
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 Money Market Fund within two years of purchase.
Certain sales of Class A Shares are made without a sales charge, as
described in the Class A and Class B Prospectus under the caption "Sales Charge
Waivers," to promote goodwill with employees and others with whom BISYS, BB&T
and/or the Group have business relationships, and because the sales effort, if
any, involved in making such sales is negligible.
As the Group's principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the Group to dealers. BISYS re-allows the
applicable sales charge as dealer discounts and brokerage commissions. Dealer
allowances expressed as a percentage of offering price for all offering prices
are set forth in the Class A and Class B Prospectus (see "How to Purchase and
Redeem Shares"). From time to time, BISYS will make expense reimbursements for
special training of a dealer's registered representatives in group meetings or
to help pay the expenses of sales contests. Neither BISYS nor dealers are
permitted to delay the placement of orders to benefit themselves by a price
change.
Matters Affecting Redemption
- ----------------------------
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange")
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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) 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 (c)
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.
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
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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.
Distributions from a Fund (other than exempt-interest dividends, as
discussed below) will be taxable to Shareholders as ordinary income to the
extent derived from the Fund's investment income and net short-term capital
gains. Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains (generally subject to a 20%
tax rate), regardless of how long a Shareholder has held a Fund's shares and are
not eligible for the dividends received deduction. Any distributions that are
not from a Fund's investment company taxable income or net capital gains may be
characterized as a return of capital to Shareholders or, in some cases, as
capital gain. The tax treatment of dividends and distributions will be the same
whether a Shareholder reinvests them in additional shares or elects to receive
them in cash. A Fund of Funds will not be able to offset gains realized by one
Fund in which such Fund of Funds invests against losses realized by another Fund
in which such Fund of Funds invests. The use of a fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular Shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of a Fund (whether by redemption, sale
or exchange), a Shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the Shareholder's
hands, and will be long-term or short-term generally depending upon the
Shareholder's holding period for the shares. Depending on the percentage
ownership by a Fund of Funds in an underlying Fund both before and after a
redemption, a redemption of Fund shares by the Fund of Funds may cause the Fund
of Funds to be treated as not receiving capital gain income on the amount by
which the distribution exceeds the tax basis of the Fund of Funds in the shares
of the underlying Fund, but instead to be treated as receiving a dividend
taxable as ordinary income on the full amount of the distribution. This could
cause Shareholders of a Fund of Funds to recognize higher amounts of ordinary
income than if the Shareholders had held the shares of the underlying Funds
directly.
Each of the Group's Funds will be required in certain cases to withhold
and remit to the U.S. 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
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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," "constructive 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, convert
long-term capital gains into short-term capital losses, and otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to Shareholders. Income earned as a
result of these transactions would, in general, not be eligible for the
dividends received deduction or for treatment as exempt-interest dividends when
distributed to Shareholders. The Funds will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Funds.
Investment by the Fund in "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax or other charge on the proceeds
from the sale of its investment in such a company; however, this tax can be
avoided by making an election to mark such investments to market annually or to
treat the passive foreign investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent of more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain income
received from related persons.
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.
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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 (especially with
respect to foreign, state or local taxation). 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
- -------------------------------------------------------------------
The International Equity Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar instruments) may
give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in the value of the foreign currency concerned.
Additional Tax Information Concerning the North Carolina and South Carolina
- ---------------------------------------------------------------------------
Funds
- -----
As indicated in the Prospectuses, the North Carolina Fund and the South
Carolina Fund 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 Carolina Fund and
the South Carolina Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, so-called Keogh or H.R. 10 plans, and individual retirement accounts. Such
plans and accounts are generally tax-exempt and, therefore, would not realize
any additional benefit from the dividends of the North Carolina Fund and the
South Carolina Fund being tax-exempt, and such dividends would be ultimately
taxable to the beneficiaries of such plans and accounts when distributed to
them.
Interest income distributed by each of the North Carolina and South
Carolina Funds from certain types of tax-exempt securities may be subject to
federal alternative minimum tax for individuals. All tax-exempt dividends will
be included in determining the federal alternative minimum taxable income for
corporate shareholders. In addition, the Code may require Shareholders that
receive exempt-interest dividends to treat as taxable income a portion of
certain otherwise nontaxable social security and railroad retirement benefit
payments.
In addition, the North Carolina Fund and the South Carolina Fund may
not be appropriate investments for Shareholders who are "substantial users" of
facilities financed by
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private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his trade or business, and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds represent more than 5% of the total revenues derived by all users of
such facilities, or who occupies more than 5% of the usable area of such
facilities, or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related person" includes certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders. Each Shareholder who may be
considered a "substantial user" should consult a tax adviser with respect to
whether exempt-interest dividends would retain the exclusion under Section 103
of the Code if the Shareholder were treated as a "substantial user" or a
"related person."
The Code permits a RIC which invests at least 50% of its total assets
in Tax-Exempt Obligations to pass through to its investors, tax-free, net
Tax-Exempt Obligations interest income. The policy of the North Carolina Fund
and the South Carolina Fund is to pay each year as dividends substantially all
the Fund's Tax-Exempt Obligations interest income net of certain deductions. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the North Carolina Fund and the South Carolina Fund and
designated as an exempt-interest dividend in a written notice mailed to
Shareholders within sixty days after the close of the Fund's taxable year, but
not to exceed in the aggregate the net Tax-Exempt Obligations interest received
by the Fund during the taxable year. The percentage of the total dividends paid
for any taxable year which qualifies as federal exempt-interest dividends will
be the same for all Shareholders receiving dividends from the North Carolina
Fund and the South Carolina Fund, respectively, during such year, regardless of
the period for which the Shares were held.
While the North Carolina Fund and the South Carolina Fund 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 Fund
and the South Carolina Fund will have no tax liability with respect to such
distributed gains, and the distributions will be taxable to Shareholders as net
gains on securities held for more than one year regardless of how long a
Shareholder has held the Shares of the North Carolina Fund or the South Carolina
Fund. Such distributions will be designated as a capital gains dividend in a
written notice mailed by the North Carolina Fund and the South Carolina Fund 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
individual or corporate income tax; however, distributions of gains attributable
to such types of obligations that were issued after June 30,
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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 Fund and the South Carolina Fund do not expect
to earn any significant amount of investment company taxable income, taxable
income earned by the North Carolina Fund and the South Carolina Fund 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 Fund and the South Carolina Fund is to limit the acquisition of puts to
those under which the Fund will be treated for Federal income tax purposes as
the owner of the Tax-Exempt Obligations acquired subject to the put and the
interest on the Tax-Exempt Obligations will be tax-exempt to the Fund. Although
the Internal Revenue Service has issued a published ruling that provides some
guidance regarding the tax consequences of the purchase of puts, there is
currently no guidance available from the Internal Revenue Service that
definitively establishes the tax consequences of many of the types of puts that
the North Carolina Fund and the South Carolina Fund could acquire under the 1940
Act. Therefore, although the North Carolina Fund and the South Carolina Fund
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 Fund and the South Carolina
Fund. If the North Carolina Fund or the South Carolina Fund were not treated as
the owners of the Tax-Exempt Obligations, income from such securities would
probably not be tax exempt.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting purchasers of Shares of the North Carolina
Fund and the South Carolina Fund. No attempt has been made to present a detailed
explanation of the Federal or state income tax treatment of the North Carolina
Fund and the South Carolina Fund 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 Fund and the South Carolina Fund are
urged to consult their tax advisers with specific reference to their own tax
situation. In addition, the foregoing discussion is based on tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
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SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS
The concentration of investments in North Carolina Tax-Exempt
Obligations by the North Carolina Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
North Carolina and its political subdivisions, agencies, instrumentalities, and
authorities could adversely affect the value of the North Carolina Fund and its
portfolio securities. This section briefly describes current economic trends in
North Carolina. The information set forth below is derived from official
statements prepared in connection with the issuance of North Carolina Tax-Exempt
Obligations and other sources that are generally available to investors. The
Group has not independently verified this information.
The State of North Carolina has 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, and insurance tax, tobacco products tax. State sales
taxes on food, as well as the inheritance and soft drink taxes, are 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.
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.
Fiscal year 1997 ended with a positive General Fund balance of
approximately $760.6 million. Along with additional reserves, $135 million was
reserved in the Reserve for Repair and Renovation of State Facilities, in
addition to a supplemental reserve of $39.3 million for repairs and renovations.
An additional $49.4 million was transferred to the Clean Water Management Trust
Fund and $115 million and $156 million were reserved in newly-created Disaster
Relief and Intangible Tax Refund Reserves, respectively. No additional amounts
were transferred to the Savings Reserve for the year. After additional reserves,
the unrestricted General Fund balance at the end of fiscal year 1997 was
approximately $319.9 million.
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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. Detailed budget results for fiscal
year 1998 were not available as of the date this summary was prepared; however,
as a result of record collections, it is expected that fiscal year 1998 ended
with a positive General Fund Balance which was expected to exceed one billion
dollars. On October 28, 1998, the North Carolina General Assembly adopted the
biennium budget for 1998 to 2000. The $12.6 billion budget for fiscal year 1999
included over $100 million in new spending for the state's universities and
community colleges, over $90 million in new spending for health and human
services, including $42.5 million for expansion of North Carolina's Smart Start
program for preschool children, and almost $30 million in new spending on law
enforcement. The legislature also approved teacher pay raises averaging 6.5
percent.
The General Assembly also took action to reduce some taxes, including
elimination of the sales tax on food (estimated cost $185.5 million 1999-2000)
and the inheritance tax (estimated cost $52.5 million 1999-2000).
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 July 1998, North Carolina ranked
tenth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in September 1998 to be 3.5% of the labor force, as
compared with an unemployment rate of 4.5% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds - Federal
Retirees. In Davis v. Michigan (1989), the United States Supreme Court ruled
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
North Carolina law contained similar exemptions in favor of state
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<PAGE> 205
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 (Swanson). 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.
2. Patton v. State of North Carolina and Bailey v. State of North
Carolina -- State Tax Refunds - Federal and State Retirees.
An additional lawsuit was filed in 1995 in State court by Federal
pensioners to recover State income taxes paid on Federal retirement benefits
(Patton). This case grew out of a claim by Federal pensioners in the original
Federal court case in Swanson. In the new lawsuit, the plaintiffs allege that
when the State granted an increase in retirement benefits to State retirees in
the same legislation that equalized tax treatment between state and Federal
retirees, the increased benefits to State retirees constituted an indirect
violation of Davis. The lawsuit seeks a refund of taxes paid by Federal retirees
on Federal retirement benefits received in the years 1989 through 1993 and
refunds or monetary relief sufficient to equalize the alleged on-going
discriminatory treatment for those years. State and local governmental retirees
filed a class action suit in 1990 Bailey 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
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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. An appeal from this order is pending in the North Carolina Supreme
Court.
In June 1998, the plaintiff classes in the Bailey and Patton cases
reached a tentative settlement with the State of North Carolina. Under the terms
of the settlement, the General Assembly will appropriate $400,000,000 in the
1998-1999 fiscal year, and $399,000,000 by July 15, 1999 in the 1999-2000 fiscal
year, to a settlement fund. Amounts in the fund will be paid to the state, local
and federal retirees in the cases. The terms of the settlement provide that such
payments will completely extinguish all of the state's liability to the retirees
arising from the taxation of state, local and federal retirement income and
benefits from 1989 through 1997.
The tentative court settlement was made subject to the appropriation of
funds by the General Assembly, and to court approval following notice to the
class members. The $400,000,000 appropriation was made by action of the Assembly
in September, 1998, and on October 7, 1998, the court entered an order approving
the settlement. In order to achieve final consummation of the settlement, the
General Assembly must appropriate the $399,000,000 amount for the 1999-2000
fiscal year at its 1999 session, which begins in January, 1999.
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. In March 1997, and again in March, 1998,
North Carolina issued $450 million of the authorized school bonds (Public School
Building Bonds). In November 1997, North Carolina issued $250 million of the
authorized highway bonds (Highway Bonds). The offering of the remaining $2.05
billion of these authorized bonds is anticipated to occur over the next two-five
years.
On November 3, 1998, North Carolina voters approved the issuance of
$800,000,000 in clean water bonds and $200,000,000 natural gas facilities bonds.
The clean water bonds will provide grants and loans for needed water and sewer
improvement projects for the state's municipalities, and fund programs to reduce
pollution in the state's waterways. The natural gas bond issue will provide
grants, loans and other financing for local distribution companies or state or
local government agencies to build natural gas facilities, in part to help
attract industry to the state's rural regions.
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Currently, Moody's, S&P, and Fitch IBCA 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 its
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.
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. Such limits on growth are subject to
suspension by a super-majority of the General Assembly. The State Constitution
also establishes a General Reserve Fund to be maintained in an amount equal to
3% (4% prior to 1988) of General Fund revenue for the latest fiscal year.
In the November 1988 general election the electorate approved a
constitutional amendment creating 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.
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,
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the State had cash surpluses. 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 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 25, 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 revenue estimate of $3.588 billion. In response, the
Budget and Control Board eliminated the 2% Capital Reserve Fund appropriation of
$65.8 million and reduced agency appropriations by $33.6 million and required
agencies to set aside additional appropriations of $67.3 million. 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 permanently reducing the $67.3 million in
appropriations which were set aside
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on June 30, 1991 and further reduced appropriations by $27.2 million. 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 $195 million for the 1992-1993 fiscal
year. These reductions were based on the rate of growth in each agency's budget
over the past year. 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 on September
15, 1992, the Board instituted a 4% across the board reduction. On November 10,
1992, the Budget and Control Board permanently reduced $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 ($273.48 million), 1995 ($393 million), 1996 ($316.7 million) and 1997
($297.8 million). During those fiscal years, the General Assembly authorized
supplemental appropriations contingent upon the existence of sufficient year-end
surpluses. 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 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.
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South Carolina is primarily a manufacturing state. In 1996, one-fifth
of all jobs in the State were in manufacturing, compared to 15% 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.
Personal income in South Carolina grew five and five-tenths percent
(5.5%) during 1997 compared to income growth of five and seven-tenths percent
(5.7%) nationwide and five and seven-tenths percent (5.7%) in the Southeast.
Over the last five (5) years (1992-1997) personal income in South Carolina rose
at a compounded annual rate of five and seven-tenths percent (5.7%), falling
short of the annual income growth for the Southeast region, at six percent (6%),
and outpacing the five and four-tenths percent (5.40%) growth in the United
States in the same period.
In 1997, employment increased two and eight-tenths percent (2.8%) while
the rate of employment growth in the United States was two and six-tenths
percent (2.6%). Monthly unemployment rates in the State have declined below
comparable national rates during 1997, and reached an historical low
unemployment rate of two and four-tenths percent in March 1998. The unemployment
rate for South Carolina in 1997 was four and five-tenths percent (4.5%),
four-tenths of one percent lower than the four and nine-tenths percent (4.9%)
nationwide.
General Fund Revenues increased at a rate of five and six-tenths
percent (5.6%) during Fiscal Year 1996-97 over the previous fiscal year. The
state finished Fiscal Year 1996-97 with a revenue excess of $158 million above
the Fiscal Year 1996-97 Appropriation Act. Preliminary revenues through June
1998 have increased at a rate of five and five-tenths percent (5.5%) during the
Fiscal Year 1997-98. The State is expecting a revenue excess of $60 million
above the Fiscal Year 1997-98 Appropriation Act.
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
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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 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.
Political subdivisions may pledge certain additional revenues, however, to
secure their general obligation bonds and, 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>
Gary R. Tenkman Treasurer From April 1998 to present,
Director, Financial Services, BISYS
Fund Services; From 1990 to March
1998 Audit Manager, Ernst & Young
LLP.
Richard B. Ille President and From July 1990 to present, employee
Secretary of BISYS Fund Services; from May
1989 to July 1990, employee of
BISYS Fund Services Ohio, Inc.
</TABLE>
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<PAGE> 212
<TABLE>
<S> <C> <C>
Alaina V. Metz Assistant Secretary From June 1995 to present,
employee, BISYS Fund Services; from
May 1989 - June 1995, Supervisor,
Mutual Fund Legal Department,
Alliance Capital Management.
Steven G. Mintos Vice President From January, 1987 to present,
employee and Limited Partner of
BISYS Fund Services; from 1988 to
present, Vice President of BISYS
Fund Services Ohio, Inc., in 1986,
Vice President of BISYS Fund
Services Ohio, Inc.
D'Ray Moore Assistant Secretary From February, 1990 to present,
employee of BISYS Fund Services.
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, Inc.
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.
<TABLE>
COMPENSATION TABLE(1)
---------------------
<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>
Walter B. Grimm None None None None
Chairman of the Board
W. Ray Long None None None None
Trustee
William E. Graham $9,000 None None $9,000
Trustee
Thomas W. Lambeth $9,000 None None $9,000
Trustee
Robert W. Stewart $9,000 None None $9,000
Trustee
</TABLE>
(1) Figures are for the Funds' fiscal year ended September 30, 1998. The
Group includes fourteen separate series.
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<PAGE> 213
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, 1999 as to each of the Funds and from year to year if
such continuance is approved at least annually by the Group's Board of Trustees
or by vote of the holders of a majority of the outstanding Shares of that Fund
(as defined under "GENERAL INFORMATION - Miscellaneous"). The Advisory Agreement
is terminable as to a particular Fund at any time upon 60 days written notice
without penalty by the Trustees, by vote of the holders of a majority of the
outstanding Shares of that Fund, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.
For the fiscal year or period ended September 30, 1998, the Funds paid
the following investment advisory fees to BB&T: U.S. Treasury Fund: $883,574
(which was $271,649 less than the maximum amount of advisory fees, if charged);
Prime Money Market Fund: $132,875 (which was $73,260 less than the maximum
amount of advisory fees if charged); Short-Intermediate U.S. Government Fund:
$770,752 (which was $154,167 less than the maximum amount of advisory fees, if
charged); Intermediate U.S. Government Fund: $907,396 (which was $181,482 less
than the maximum amount of advisory fees, if charged); Growth and Income Stock
Fund: $2,095,241 (which was $1,005,608 less than the maximum amount of advisory
fees, if charged); North Carolina Tax-Free Fund: $416,698 (which was $83,340
less than the maximum amount of advisory fees, if charged); South Carolina Fund:
$64,984 (from commencement of operations on October 20, 1997) (which was $43,717
less than the maximum amount of advisory fees if charged); Balanced Fund:
$694,357 (which was $333,244 less than the maximum amount of advisory fees, if
charged); International Equity Fund: $710,172 (which was $0 less than the
maximum amount of advisory fees, if charged); Large Company Growth Fund:
$258,070 (from commencement of operations on October 3, 1997) (which was
$123,874 less than the maximum amount of advisory fees if charged); Small
Company Growth Fund: $890,569 (which was $0 less than the maximum amount of
advisory fees, if charged); Capital Manager Conservative Growth Fund: $11,280
(from commencement of operations on October 2, 1997) (which was $45,273 less
than the maximum
B-41
<PAGE> 214
amount of advisory fees if charged); Capital Manager Moderate Growth Fund:
$11,256 (from commencement of operations on October 2, 1997) (which was $45,181
less than the maximum amount of advisory fees if charged); and Capital Manager
Growth Fund: $11,209 (from commencement of operations on October 2, 1997) (which
was $44,992 less than the maximum amount of advisory fees if charged).
For the fiscal year ended September 30, 1997, the Funds paid the
following investment advisory fees to BB&T: U.S. Treasury Fund: $940,705 (which
was $0 less than the maximum amount of advisory fees, if charged);
Short-Intermediate U.S. Government Fund: $562,927 (which was $94,368 less than
the maximum amount of advisory fees, if charged); Intermediate U.S. Government
Fund: $812,351 (which was $135,725 less than the maximum amount of advisory
fees, if charged); Growth and Income Stock Fund: $2,147,800 (which was $698,408
less than the maximum amount of advisory fees, if charged); North Carolina
Tax-Free Fund: $363,548 (which was $61,045 less than the maximum amount of
advisory fees, if charged); Balanced Fund: $707,060 (which was $229,694 less
than the maximum amount of advisory fees, if charged); International Equity
Fund: $326,911 (from commencement of operations on January 2, 1997) (which was
$6,794 less than the maximum amount of advisory fees, if charged); and Small
Company Growth Fund: $551,965 (which was $0 less than the maximum amount of
advisory fees, if charged). The Funds of Funds, the South Carolina Fund, the
Large Company Growth Fund, and the Prime Money Market Fund had not commenced
operations as of September 30, 1997.
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.
Investment Sub-Advisers
- -----------------------
Investment sub-advisory and management services are provided to the
Small Company Growth Fund by BlackRock Financial Management, Inc. ("BFMI")
(formerly PNC Equity Advisors Company), an indirect majority-owned subsidiary of
PNC Bank Corp., pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement")
dated as of February 13, 1997 between BB&T and BFMI.
B-42
<PAGE> 215
The Sub-Advisory Agreement provides that BFMI 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 BFMI in the performance of its duties,
or from reckless disregard by BFMI of its duties and obligations thereunder.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 1999 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 BFMI or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act. Sub-advisory fees payable to BFMI are borne exclusively
by BB&T as Adviser to the Small Company Growth Fund.
For the fiscal year ended September 30, 1998, BB&T paid BFMI $426,658
for sub-advisory services to the Small Company Growth Fund. For the fiscal year
ended September 30, 1997, BB&T paid BFMI and PNC Bank (the former Sub-Adviser to
the Small Company Growth Fund) $272,847 and $124,980 for sub-advisory services.
For the fiscal year ended September 30, 1996, BB&T paid $154,356 and $34,132,
respectively, in investment sub-advisory fees to PNC Bank.
Investment sub-advisory and management services are provided to the
International Equity Fund by BlackRock International, Ltd. ("BlackRock
International") (formerly CastleInternational Asset Management Limited), an
indirect majority-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 BlackRock International.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until December 31, 1999 and thereafter will continue from year to year if
such continuance is approved at least annually by the Group's Board of Trustees
or by vote of the holders of a majority of the outstanding Shares of the Fund
(as defined under "GENERAL INFORMATION - Miscellaneous"). The Sub-Advisory
Agreement is terminable at any time without penalty, on 60 days' written notice
by the Trustees, by vote of the holders of a majority of the outstanding Shares
of the Fund, by BlackRock International, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act. Sub-advisory fees payable to BlackRock International are borne exclusively
by BB&T as Adviser to the International Equity Fund. For the fiscal year ended
September 30, 1998, and for the period from the commencement of operations,
January 2,
B-43
<PAGE> 216
1997 to September 30, 1997, BB&T paid BlackRock International $344,577 and
$163,456, respectively, for sub-advisory services to the International Equity
Fund.
Investment sub-advisory and management services are provided to the
Prime Money Market Fund by BlackRock Institutional Management Corporation
("BIMC") (formerly PNC Institutional Management Corporation), an indirect
majority-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
BIMC.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 1999 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 BIMC or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act. Sub-advisory fees payable to BIMC are borne exclusively
by BB&T as Adviser to the Prime Money Market Fund. For the period from the
commencement of operations, October 1, 1997 to September 30, 1998, BB&T paid
BIMC $46,694 for sub-advisory services to the Prime Money Market Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Group may
include descriptions of each 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, the
North Carolina Fund, the South Carolina Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Large Company Growth Fund, the Small
Company Growth 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
B-44
<PAGE> 217
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, the Group, where possible,
will deal directly with dealers who make a market in the securities involved
except in those circumstances where better price and execution are available
elsewhere. While BB&T and 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, 1998, the Growth and Income
Fund paid aggregate brokerage commissions in the amount of $152,631. During the
fiscal year ended September 30, 1998, BB&T directed brokerage transactions for
the Growth and Income Fund to brokers because of research services provided in
the following amounts: aggregate transactions -- $118,652,289; aggregate
commissions: $152,631.
During the fiscal year ended September 30, 1998, the Balanced Fund paid
aggregate brokerage commissions in the amount of $49,964. During the fiscal year
ended September 30, 1998, BB&T directed brokerage transactions for the Balanced
Fund to brokers because of research services provided in the following amounts:
aggregate transactions -- $38,484,168; aggregate commissions: $49,964.
During the fiscal year ended September 30, 1998, the Small Company
Growth Fund paid aggregate brokerage commissions in the amount of $91,551.
During the fiscal year ended September 30, 1998, the Large Company
Growth Fund paid aggregate brokerage commissions in the amount of $125,276.
During the fiscal year ended September 30, 1998, BB&T directed brokerage
transactions for the Large Company Growth Fund to brokers because of research
services provided in the following amounts: $97,877,295; aggregate commissions:
$125,276.
During the fiscal year ended September 30, 1998, the International
Equity Fund paid aggregate brokerage commissions in the amount of $240,357.
During the fiscal year ended September 30, 1998, BB&T directed brokerage
transactions for the International Equity Fund to brokers because of research
services provided in the following amounts: $12,332,336; aggregate commissions:
$36,268.
During the fiscal year ended September 30, 1997, the Growth and Income
Fund paid aggregate brokerage commissions in the amount of $151,013. During the
fiscal year ended September 30, 1997, BB&T directed brokerage transactions for
the Growth and Income Fund to brokers because of research services provided in
the following amounts: aggregate transactions -- $106,698,201; aggregate
commissions: $142,060.
During the fiscal year ended September 30, 1997, the Balanced Fund paid
aggregate brokerage commissions in the amount of $42,859. During the fiscal year
ended
B-45
<PAGE> 218
September 30, 1997, BB&T directed brokerage transactions for the Balanced Fund
to brokers because of research services provided in the following amounts:
aggregate transactions -- $29,962,265; aggregate commissions: $41,873.
During the fiscal year ended September 30, 1997, the Small Company
Growth Fund paid aggregate brokerage commissions in the amount of $40,983.
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.
To the extent permitted by applicable rules and regulations, either
BB&T or the Sub-Advisers may execute portfolio transactions on behalf of the
Funds through an affiliate of BB&T. As required by Rule 17e-1 under the 1940
Act, the Funds have adopted procedures which provide that commissions paid to
such affiliate must be fair and reasonable compared to the commission, fees or
other remuneration paid to other brokers in connection with comparable
transactions. The procedures also provide that the Board will review reports of
such affiliated brokerage transactions in connection with the foregoing
standard.
B-46
<PAGE> 219
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.
B-47
<PAGE> 220
BB&T and PNC Bank Corp. subsidiaries, BFMI, BIMC, and BlackRock
International, 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 Corp.'s subsidiaries
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 Corp.'s subsidiaries, 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 Fund Services, Inc. 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 BFMI, BlackRock International, and BIMC
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 Agreement and BFMI, BlackRock International
and BIMC under the Sub-Advisory Agreements, those by Star
B-48
<PAGE> 221
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, 1996, September 30, 1997, and
September 30, 1998 each of the Funds paid the following administration fees to
the Administrator: U.S. Treasury Fund: $365,557, $470,355, and $441,787 (which
is $135,824 less than the maximum amount of administration fees, if charged),
respectively; Short-Intermediate Fund: $115,305, $187,425, and $266,751 (which
is $41,555 less than the maximum amount of administration fees, if charged),
respectively; Intermediate U.S. Government Bond Fund: $212,620, $270,652, and
$362,963, respectively; Growth and Income Fund: $402,293, $579,761, and
$838,105, respectively; North Carolina Fund: $53,810 (which is $17,942 less than
the maximum amount of administration fees, if charged), $121,183, and $125,009
(which is $41,670 less than the maximum amount of administration fees, if
charged), respectively; Balanced Fund: $148,506, $190,947, and $277,746,
respectively; and Small Company Growth Fund: $61,583, $110,393, and $178,115,
respectively. For the period from commencement of operations to September 30,
1997 and for the fiscal year ended September 30, 1998, the International Equity
Fund paid $64,023 and $142,036, respectively, in administrative fees to the
Administrator. For the period from commencement of operations to September 30,
1998, each of the Funds paid the following administration fees to the
Administrator: Prime Money Market Fund: $55,572 (which is $47,495 less than the
maximum amount of administration fees, if charged) (commencement of operations
on October 1, 1997); South Carolina Fund: $19,413 (which is $16,821 less than
the maximum amount of administration fees, if charged) (commencement of
operations on October 20, 1997); Large Company Growth Fund: $103,228
(commencement of operations on October 3, 1997); Capital Manager Conservative
Growth Fund: $11,280 which is $31 less than the maximum amount of administration
fees, if charged (commencement of operations on October 2, 1997); Capital
Manager Moderate Growth Fund: $11,256 which is $31 less than the maximum amount
of administration fees, if charged (commencement of operations on October 2,
1997); and Capital Manager Growth Fund: $11,209 which is $31 less than the
maximum amount of administration fees, if charged (commencement of operations on
October 2, 1997).
The Administration Agreement shall, unless sooner terminated as
provided in the Administration Agreement (described below), will continue until
September 30, 2002. Thereafter, the Administration Agreement shall be renewed
automatically for successive five
B-49
<PAGE> 222
year terms, unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term. The Administration Agreement is terminable with respect to a
particular Fund only upon mutual agreement of the parties to the Administration
Agreement and for cause (as defined in the Administration Agreement) by the
party alleging cause, on not less than 60 days notice by the Group's Board of
Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the Group in connection with the matters to
which the Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
from the reckless disregard by the Administrator of its obligations and duties
thereunder.
Distributor
- -----------
BISYS Fund Services LP 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.
No compensation is paid to the Distributor under the Distribution
Agreement. However, the Distributor is entitled to receive payments under the
Distribution and Shareholder Services Plan, dated October 1, 1992, as restated
February 7, 1997 (the "Distribution Plan"). The fee of .50% of average daily net
assets of Class A Shares of each Fund (which has been voluntarily reduced to
.25% for each Fund, other than the Funds of Funds, and reduced to 0.15% for the
Funds of Funds) and the fee of 1.00% of average daily net assets of Class B
Shares of each Fund payable under the 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 year ended September 30, 1998, each of the Funds paid
the following fees under the Distribution Plan for Class A Shares: U.S. Treasury
Fund: $93,967 (which was $94,418 less than the maximum amount of fees under the
Distribution Plan, if charged); Prime Money Market Fund: $2,967 (which was
$2,942 less than the maximum amount of fees under the Distribution Plan, if
charged); Short-Intermediate Fund: $11,478 (which was $11,479 less than the
maximum amount of fees under the Distribution Plan, if charged); Intermediate
U.S. Government Bond Fund: $10,589 (which was $10,589 less than the maximum
amount of fees under the Distribution Plan, if charged); Growth and Income Stock
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<PAGE> 223
Fund: $98,954 (which was $98,946 less than the maximum amount of fees under the
Distribution Plan, if charged); North Carolina Fund: $14,955 (which was $34,895
less than the maximum amount of fees under the Distribution Plan, if charged);
South Carolina Fund: $312 (which was $729 less than the maximum amount of fees
under the Distribution Plan, if charged) (from commencement of operations on
October 20, 1997): Balanced Fund: $55,648 (which was $55,643 less than the
maximum amount of fees under the Distribution Plan, if charged); Large Company
Growth Fund: $2,079 (which was $2,076 less than the maximum amount of fees under
the Distribution Plan, if charged) (from commencement of operations on October
3, 1997); Small Company Growth Fund: $28,875 (which was $28,876 less than the
maximum amount of fees under the Distribution Plan, if charged); International
Equity Fund: $2,914 (which was $2,914 less than the maximum amount of fees under
the Distribution Plan, if charged); Capital Manager Conservative Growth Fund:
$43 (which was $68 less than the maximum amount of fees under the Distribution
Plan, if charged) (from commencement of operations on October 2, 1997); Capital
Manager Moderate Growth Fund: $467 (which was $489 less than the maximum amount
of fees under the Distribution Plan, if charged) (from commencement of
operations on October 2, 1997) and Capital Manager Growth Fund: $222 (which was
$278 less than the maximum amount of fees under the Distribution Plan, if
charged) (from commencement of operations on October 2, 1997).
For the fiscal year ended September 30, 1998, each of the Funds paid
the following fees under the Distribution Plan for Class B Shares: U.S. Treasury
Fund: $12,359; Intermediate U.S. Government Fund: $8,701; Growth and Income
Stock Fund: $261,070; Balanced Fund: $109,512; Small Company Growth Fund:
$93,005; International Equity Fund: $17,346; Prime Money Market Fund: $175 (from
commencement of operations on September 2, 1998); and Large Company Growth Fund:
$15,480 (from commencement of operations on October 3, 1997.
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
B-51
<PAGE> 224
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.
Securities Lending Agent
- ------------------------
The Group has retained Cantor Fitzgerald & Co. ("Cantor Fitzgerald") as
its securities lending agent and will compensate that firm based on a percentage
of the profitability generated by securities lending transactions effected on
the Group's behalf. Cantor Fitzgerald has employed BISYS to provide certain
administrative services relating to securities lending transactions entered into
on behalf of the Group. Cantor Fitzgerald, rather than the Group, will
compensate BISYS for those services.
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.
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<PAGE> 225
Independent Auditors
- --------------------
KPMG LLP ("KPMG") has been selected as independent auditors. 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 "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 Class A Shares, for the seven-day period ended
September 30, 1998, the yield and effective yield of the U.S. Treasury Fund
calculated as described above was 4.49% and 4.59%, respectively. With respect to
Trust Shares, for the seven-day period ended September 30, 1997, the yield and
effective yield of the U.S. Treasury Fund calculated as described above was
4.74% and 4.85%, respectively. With respect to the Class B Shares, for the
seven-day period ended September 30, 1998, the yield and effective yield of the
U.S. Treasury Fund calculated as described above was 3.74% and 3.81%.
B-53
<PAGE> 226
With respect to Class A Shares, for the seven-day period ended
September 30, 1998, the yield and effective yield of the Prime Money Market Fund
calculated as described above was 4.71% and 4.82%, respectively. With respect to
Trust Shares, for the seven-day period ended September 30, 1998, the yield and
effective yield of the Prime Money Market Fund calculated as described above was
5.06% and 5.19%, respectively. With respect to Class B Shares, for the seven-day
period ended September 30, 1998, the yield and effective yield of the Prime
Money Market Fund was 3.96% and 4.04%.
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 U.S. Government 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.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of
each of the Funds will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses of the Group
allocated to each Fund. These factors and possible differences in the methods
used in calculating yield should be considered when comparing a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of the Fund's
shares and to the relative risks associated with the investment objectives and
policies of each Fund.
The North Carolina Fund and the South Carolina Fund may also advertise
a "tax equivalent yield" and a "tax equivalent effective yield." Tax equivalent
yield will be computed by dividing that portion of the North Carolina and South
Carolina Funds' yield
B-54
<PAGE> 227
which is tax-exempt by the difference between one and a stated income tax rate
and adding the product to that portion, if any, of the yield of the Fund that is
not tax-exempt. The tax equivalent effective yield for the North Carolina Fund
and the South Carolina Fund 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 Class A Shares, for the 30-day period ended September
30, 1998, the yields of the Funds were as follows: Short-Intermediate Fund --
4.16% (with maximum sales load) and 4.25% (with no sales load); Intermediate
U.S. Government Bond Fund -- 4.11% (with maximum sales load) and 4.30% (with no
sales load); North Carolina Fund -- 3.13% (with maximum sales load) and 3.19%
(with no sales load); South Carolina Fund -- 3.32% (with maximum sales load) and
3.39% (with no sales load); and Balanced Fund -- 2.22% (with maximum sales load)
and 2.32% (with no sales load). With respect to Class A Shares the
tax-equivalent yield for the North Carolina Fund and South Carolina Fund for the
same period were 5.62% and 5.91%, respectively, (with maximum sales load) and
5.73% and 6.04%, respectively, (with no sales load).
With respect to Class B Shares for the 30-day period ended September
30, 1998, the yields of the Funds were as follows: Intermediate U.S. Government
Bond Fund -- 3.57% and Balanced Fund -- 1.55%.
With respect to Trust Shares, for the 30-day period ended September 30,
1998, the yields of each of the Funds were as follows: Short-Intermediate Fund
- -- 4.50%; Intermediate U.S. Government Bond Fund -- 4.55%; North Carolina Fund
- -- 3.34%; South Carolina Fund -- 3.54%; and Balanced Fund -- 2.54%. With respect
to Trust Shares, the tax-equivalent yield for the same period for the North
Carolina Fund and South Carolina Fund were 5.99% and 6.30%, respectively.
Investors in the Growth and Income Fund, the North Carolina Fund, the
South Carolina Fund, the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the Balanced Fund, the Large Company Growth Fund, the
Small Company Growth Fund, the International Equity Fund, and the 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
B-55
<PAGE> 228
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 Class A Shares, for the one-year period ended September
30, 1998, average annual total returns (with maximum sales load) were as
follows: for the Short-Intermediate -- 6.32%, Intermediate Bond -- 8.02%, Growth
and Income -- (4.39)%, North Carolina -- 4.50%, Balanced -- 2.10%, Small Company
Growth -- (27.24)%, and International Equity Funds -- (13.67)%. For the same
period, average annual total returns (without sales load) were as follows: for
the Short-Intermediate -- 8.50%, Intermediate Bond -- 13.07%, Growth and Income
- -- 0.10%, North Carolina -- 6.63%, U.S. Treasury -- 4.75%, Balanced --6.89%,
Small Company Growth -- (23.81)%, and International Equity Funds -- (9.60)%.
With respect to Trust Shares, for the one-year period ended September
30, 1998, average annual total returns were as follows: for the
Short-Intermediate -- 8.77%, Intermediate Bond -- 13.46%, Growth and Income --
0.35%, North Carolina -- 6.90%, U.S. Treasury -- 5.01%, Balanced -- 7.18%, Small
Company Growth Funds -- (23.62)%, and International Equity Funds -- (9.45)%.
With respect to Class B Shares, for the one-year period ended September
30, 1998, average annual total returns (with maximum sales load) were as
follows: for the Intermediate Bond -- 8.26%, Growth and Income -- (4.37)%,
Balanced -- 2.16%, Small Company Growth - (27.38)%, U.S. Treasury -- (0.03)%,
and International Equity Funds -- (13.80)%, respectively. For the same period,
average annual total returns (without sales load) were as follows: for the
Intermediate Bond -- 12.26%, Growth and Income -- (0.67)%, U.S. Treasury --
3.97%, Balanced -- 6.16%, Small Company Growth -- (24.40)%, and International
Equity Funds -- (10.29)%.
With respect to Class A Shares for the period from commencement of
operations to September 30, 1998, average annual total returns (with maximum
sales load) were as follows: South Carolina -- 5.79% (commencement of operations
on October 20, 1997), Large Company Growth -- (6.91)% (commencement of
operations on October 3, 1997), Capital Manager Conservative Growth -- (2.65)%
(commencement of operations on January 29, 1998), Capital Manager Moderate
Growth -- (4.40)% (commencement of operations on January 29, 1998), Capital
Manager Growth -- (5.91)% (commencement of operations on January 29, 1998). For
the same period, average annual total return (without sales load) were as
follows: for the Prime Money Market -- 4.93%, South Carolina -- 7.91%, Large
Company Growth -- (2.54)%, Capital Manager Conservative Growth -- 1.89%, Capital
Manager Moderate Growth -- 0.10%, and Capital Manager Growth -- (1.45)%.
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<PAGE> 229
With respect to Trust Shares for the period from commencement of
operations to September 30, 1998, average annual total returns were as follows:
for the Prime Money Market -- 5.23% (commencement of operations on October 1,
1997), South Carolina -- 8.02% (commencement of operations on October 20, 1997),
Large Company Growth -- (2.33)% (commencement of operations on October 3, 1997),
Capital Manager Conservative Growth -- 3.95% (commencement of operations on
October 2, 1997), Capital Manager Moderate Growth -- 0.68% (commencement of
operations on October 2, 1997), and Capital Manager Growth -- (1.72)%
(commencement of operations on October 2, 1997).
With respect Class B Shares of the Large Company Growth Fund for the
period from October 3, 1997 (commencement of operations) to September 30, 1998,
average annual total returns (with maximum sales load) was (6.96)% and (with no
sales load) was (3.13)%.
With respect to Class A Shares, for the five year period through
September 30, 1998, average annual total returns (with maximum sales load) were
as follows: for the Short-Intermediate -- 4.61%, Intermediate Bond -- 5.28%,
Growth and Income -- 14.71%, North Carolina -- 3.89%, and Balanced Funds --
10.38%. For the same period, average annual total returns (without sales load)
were as follows: for the Short-Intermediate -- 5.04%, Intermediate Bond --
6.26%, Growth and Income -- 15.77%, North Carolina -- 4.31%, U.S.
Treasury -- 4.26%, and Balanced Funds -- 11.40%.
With respect to Trust Shares, for the five-year period since
commencement of operations of each of the Funds through September 30, 1998,
average annual total returns were as follows: for the Short-Intermediate --
5.29%, Intermediate Bond -- 6.54%, Growth and Income -- 16.06%, North Carolina
- -- 4.48%, U.S. Treasury -- 4.50%, and Balanced Funds -- 11.68%.
With respect to Class A Shares, for the period since commencement of
operations of each of the Funds through September 30, 1998, average annual total
returns (with maximum sales load) were as follows: for the Short-Intermediate --
5.30%, Intermediate Bond -- 6.17%, Growth and Income -- 14.95%, North Carolina
- -- 4.37%, Balanced -- 10.46%, Small Company Growth -- 14.92% and International
Equity Funds -- (1.48)%. For the same period, average annual total returns
(without sales load) were as follows: for the Short-Intermediate -- 5.65%,
Intermediate Bond -- 6.99%, Growth and Income -- 15.83%, North Carolina --4.72%,
U.S. Treasury -- 3.99%, Balanced -- 11.43%, Small Company Growth -- 16.31% and
International Equity Funds -- 1.15%.
With respect to Trust Shares, for the period since commencement of
operations of each of the Funds through September 30, 1998, average annual total
returns were as follows: for the Short-Intermediate -- 5.90%, Intermediate Bond
- -- 7.27%, Growth and Income -- 16.13%, North Carolina -- 4.87%, U.S. Treasury --
4.21%, Balanced -- 11.67%, Small Company Growth -- 16.64%, and
International Equity Funds -- 1.50%.
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<PAGE> 230
With respect to Class B Shares, for the period since commencement of
operations of each of the Funds through September 30, 1998, average annual total
returns (with maximum sales load) for the Intermediate Bond -- 4.98%, Growth and
Income -- 15.88%, U.S. Treasury -- 3.45%, Balanced -- 10.95%, Small Company
Growth -- 3.55% and International Equity Funds -- (1.74)%. For the same period,
average annual total returns (without sales load) were as follows: for the
Intermediate Bond -- 5.97%, Growth and Income -- 16.72%, U.S. Treasury -- 3.59%,
Balanced -- 11.86%, Small Company Growth -- 15.67% and International Equity
Funds -- 0.53%.
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. At any time in the future, yields and total return
may be higher or lower than past yields, there can be no assurance that any
historical results will continue.
Performance Comparisons
- -----------------------
Yield and Total Return. From time to time, performance information for
the Funds showing their average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may from time to time be included in
advertisements.
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.
B-58
<PAGE> 231
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 Stock Price Index
of 500 stocks (the "S&P 500 Index") 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 Index 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
Index 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 a
stratified sampling of all listed stocks.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the SL Government Index.
The Lehman Brothers Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized
statistical rating organization ("NRSRO").
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by BB&T or
its
B-59
<PAGE> 232
affiliated or correspondent banks for cash management services will reduce a
Fund's effective yield to Customers.
In addition, with respect to the North Carolina Fund and the South
Carolina Fund, the benefits of tax-free investments may be communicated in
advertisements or communications to shareholders. For example, the table below
presents the approximate yield that a taxable investment must earn at various
income brackets to produce after-tax yields equivalent to those of tax-exempt
investments yielding from 3.00% to 5.50%. The yields below are for illustration
purposes only and are not intended to represent current or future yields for the
North Carolina Fund and the South Carolina Fund, which may be higher or lower
than those shown. The rates shown in the table below are subject to adjustment
for the Internal Revenue Service inflation indexation. This table does not
reflect any alternative minimum tax liability. Investors should consult their
tax advisers with specific reference to their own tax situation.
B-60
<PAGE> 233
<TABLE>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ................................. TAX-EXEMPT YIELDS .................................
INCOME MARGINAL MARGINAL MARGINAL
(1998) 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
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$25,351 TO
$60,000 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
$60,001 TO
$61,400 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28% 9.03% 9.79% 10.54%
FROM
$60,401 TO
$128,100 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
$128,101 TO
$278,450 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
$278,450 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-61
<PAGE> 234
<TABLE>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARRIED
FILING JOINTLY COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ................................. TAX-EXEMPT YIELDS .................................
INCOME MARGINAL MARGINAL MARGINAL
(1998) 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
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$42,351 TO
$100,000 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
$100,001 TO
$102,300 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28% 9.03% 9.79% 10.54%
FROM
$102,301 TO
$155,950 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$155,951 TO
$278,450 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
$278,450 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-62
<PAGE> 235
<TABLE>
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. ................................. TAX-EXEMPT YIELDS .................................
INCOME MARGINAL MARGINAL MARGINAL
(1998) 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
$2,310 15.00% 2.50% 17.13% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 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
$6,931 TO
$9,240 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
$9,241 TO
$11,550 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
$11,551 TO
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$25,351 TO
$61,400 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
$61,401 TO
$128,100 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
$128,101 TO
$278,450 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
$278,450 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-63
<PAGE> 236
<TABLE>
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARRIED FILING COMBINED
JOINTLY SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. ................................. TAX-EXEMPT YIELDS .................................
INCOME MARGINAL MARGINAL MARGINAL
(1998) 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
$2,310 15.00% 2.50% 17.13% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 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
$6,931 TO
$9,240 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
$9,241 TO
$11,550 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
$11,551 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$42,351 TO
$102,300 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
$102,301 TO
$155,950 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
$155,951 TO
$278,450 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
$278,450 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-64
<PAGE> 237
The "combined Federal and N.C. or S.C. Marginal Tax Rate" represents
the combined federal and North Carolina and South Carolina tax rates,
respectively, 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 fourteen series of Shares offered to the
public which represent interests in the U.S. Treasury Fund, the Prime Money
Market Fund, the Growth and Income Fund, the North Carolina Fund, the South
Carolina Fund, the Short-Intermediate Fund, the Intermediate U.S. Government
Bond Fund, the Balanced Fund, the Large Company Growth Fund, the Small Company
Growth Fund, the International Equity Fund, the Capital Manager Conservative
Growth Fund, the Capital Manager Moderate Growth Fund, and the Capital Manager
Growth Fund, respectively. 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-65
<PAGE> 238
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.
B-66
<PAGE> 239
Miscellaneous
- -------------
The Group may include information in its Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for one or
more of the Funds within the Group, or (4) describes investment management
strategies for such Funds. Such information is provided to inform Shareholders
of the activities of the Group for the most recent fiscal year or half-year and
to provide the views of the Adviser and/or Group officers regarding expected
trends and strategies.
The organizational expenses of each Fund of the Group are amortized
over a period of two years from the commencement of the public offering of
Shares of the Fund. In the event any of the initial Shares of the Group are
redeemed during the amortization period by any holder thereof, the redemption
proceeds will be reduced by a pro rata portion of any unamortized organization
expenses in the same proportion as the number of initial Shares being redeemed
bears to the total number of initial Shares outstanding at the time of
redemption. Investors purchasing Shares of the Group subsequent to the date of
the Prospectus and this Statement of Additional Information bear such expenses
only as they are amortized against a Fund's investment income.
The Group is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Securities and Exchange Commission of the management or policies of the
Group.
As of October 29, 1998, the following persons owned of record or
beneficially 5% or more of the Class A, Class B, or Trust Shares of the listed
Funds:
<TABLE>
U.S. Treasury Money Market Fund - Class A Shares
------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
National Financial Services Corp. 31,195,208.820 73.91%
For the Exclusive Benefit of
Our Customers
P.O. Box 3752 Church Street Station
New York, NY 10008-3752
</TABLE>
B-67
<PAGE> 240
<TABLE>
U.S. Treasury Money Market Fund - Class B Shares
------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Burleigh J. Withers 128,016.500 7.66% 7.66%
IRA
424 Sinclair Street
Gastonia, NC 28054-7410
Burleigh J. Withers 128,015.490 7.66% 7.66%
IRA
424 Sinclair Street
Gastonia, NC 28054-7410
BISYS Fund Services 328,798.870 19.68%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
<TABLE>
Short-Intermediate U.S. Government Income Fund - Class A Shares
---------------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Henry Fibers, Inc. 80,035.909 18.24% 18.24%
Attn: George F. Henry, Jr.
President
P.O. Box 1675
Gastonia, NC 28053
</TABLE>
<TABLE>
Intermediate U.S. Government Bond Fund - Class A Shares
-------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Federated Bank Trust Agent 63,968.874 15.01%
Agnt For BB&T Trustee
FBO World Acceptance Corp.
Attn: Trust OPS
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
B-68
<PAGE> 241
<TABLE>
Intermediate U.S. Government Bond Fund - Class B Shares
-------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
George H. Evans 7,731.951 5.94% 5.94%
P.O. Box 20264
Greensboro, NC 27420
</TABLE>
<TABLE>
Growth and Income Stock Fund - Class A Shares
---------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Federated Bank Trust Agent 108,149.838 5.07%
Agnt for BB&T Trustee
FBO World Acceptance Corp.
Attn: Trust Ops.
P.O. Box 418
Pittsburgh, PA 15230-0418
</TABLE>
<TABLE>
North Carolina Intermediate Tax-Free Fund - Class A Shares
----------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Helen H. Hendricks 70,196.510 5.99% 5.99%
277 Beechwood Dr.
Mocksville, NC 27028
RL Honbarrier Co. 197,320.526 16.83% 16.83%
1507 Crestlin Road
High Point, NC 27260
</TABLE>
B-69
<PAGE> 242
<TABLE>
Balanced Fund - Class A Shares
------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
NFSC FEBO BBN-021954 143,737.773 9.16% 9.16%
Howell S. Childcare Center Inc.
P.O. Box 607
Attn: Business Mgr
La Grange, NC 28551
</TABLE>
<TABLE>
Balanced Fund - Trust Shares
----------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Sue B. Wigington 1,468.005 5.03% 5.03%
104 Wigington St.
Clemson, SC 29631
BB&T Capital Manager 426,518.463 5.40% 5.40%
Conservative Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
</TABLE>
<TABLE>
International Equity Fund - Class A Shares
------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
NFSC FEBO BBL-987948
Jerald T. Howell
BB&T Loan Collateral Account 8,815.933 6.72%
628 Walnut Creek Drive
Goldsboro, NC 27530
Poindexter Lumber Company 8,815.933 6.70%
P.O. Box 769
Clemmons, NC 27012-0769
</TABLE>
B-70
<PAGE> 243
<TABLE>
Large Company Growth Fund - Class A Shares
------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Dale G. Scott 13,455.617 6.47% 6.47%
and Phyllis D. Scott
JTWROS
85 Holloway Dr.
Bessett, VA 24055-3776
</TABLE>
<TABLE>
Large Company Growth Fund - Trust Shares
----------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BB&T Capital Manager 369,379.996 6.63% 6.63%
Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
</TABLE>
<TABLE>
Small Company Growth Fund - Class A Shares
------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Sanwa Bank California 59,904.249 10.25%
Cust. Wilshire Associates
Incorporated
444 Market Street, Fl. 23
San Francisco, CA 94111
</TABLE>
B-71
<PAGE> 244
<TABLE>
Prime Money Market Fund - Class A Shares
----------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
French Family Properties 281,685.130 8.54% 8.54%
4310 Ludgate Street
Lumberton, NC 28358
Dorothy M. Doumar 234,642.490 7.11% 7.11%
7337 Barberry Lane
Norfolk, VA 23505
John P. Parker 197,352.720 5.98% 5.98%
1220 Graydon Ave.
Norfolk, VA 23507
Lester D. Wright, Jr. 363,788.710 11.03% 11.03%
and Kathy E. Wright
JTWROS
31 Clayton St.
Asheville, NC 28801-2423
</TABLE>
<TABLE>
Prime Money Market Fund - Class B Shares
----------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BISYS Fund Services 543,921.910 98.79%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Rd.
Columbus, OH 43219
</TABLE>
<TABLE>
South Carolina Intermediate Tax-Free - Class A Shares
-----------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Sheldonia B. Whitby 4,821.601 16.52% 16.52%
120 S. Bendenbaugh
Leesville, SC 29070
</TABLE>
B-72
<PAGE> 245
<TABLE>
<S> <C> <C> <C>
J.C. Hipp 2,525.001 8.65% 8.65%
Trst Carolina Furniture Co. Inc.
4229 Walnut St.
Loris, SC 29569
Cheryl K. Boone 5,917.349 20.28% 20.28%
Cust. Wilt C. Boone
UGMA SC
1901 Martin Rd.
Chapin, SC 29036
Cheryl K. Boone 5,415.879 18.56% 18.56%
Cust. George D. Boone
UGMA SC
1901 Martin Rd.
Chapin, SC 29036
Sue B. Wigington 1,468.005 5.03% 5.03%
104 Wigington St.
Clemson, SC 29631
Leon J. Wise 5,041.724 17.28% 17.28%
2010 Morningside Dr.
West Columbia, SC 29169
Mary Ann S. Herth 1,962.704 6.72% 6.72%
1726 Roslyn Dr.
Columbia, SC 29206-000
</TABLE>
<TABLE>
Capital Manager Conservative Growth Fund - Class A Shares
---------------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
NFSC FEBO BBV-031968 2,383.222 20.10% 20.10%
Horace J. Traylor
Tod Betty Lou Blankenship
Tod Thomas H. Traylor
500 Pacific Ave., Apt. 403
Virginia Beach, VA 23451
</TABLE>
B-73
<PAGE> 246
<TABLE>
<S> <C> <C> <C>
Branch Banking and Trust
Company, Cust. 2,641.751 22.28%
Carol C. Watts
IRA
401 McAuthor St.
Tabor City, NC 28463
</TABLE>
<TABLE>
Capital Manager Moderate Growth Fund - Class A Shares
-----------------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Branch Banking and Trust
Company, Cust. 6,921.233 5.26%
David A. Jarvis, Sr.
IRA
P.O. Box 2292
Walterboro, SC 29488
Branch Banking and Trust
Company, Cust. 17,339.084 13.09%
Leslie L. Keeter
IRA
1704 Hodges Ferry Rd.
Portsmouth, VA 23701
</TABLE>
<TABLE>
Capital Manager Growth Fund - Class A Shares
--------------------------------------------
<CAPTION>
Percent Owned
-------------
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
George Robbie Hood 3,299.676 8.45% 8.45%
and William Gregory Hood
JTWROS
P.O. Box 11824
Charlotte, NC 28220
William Gregory Hood 3,299.676 8.45% 8.45%
and George Robbit Hood
JTWROS
4906 Cedar Forest Dr.
Charlotte, NC 28266
</TABLE>
B-74
<PAGE> 247
<TABLE>
<S> <C> <C> <C>
Elham B. Makam 9,400.636 24.07% 24.07%
and Adly A. Girgis
JTWROS
110 Sedgefield Dr.
Clemson, SC 29631
Greg Hope 4,060.634 10.40% 10.40%
117 Fruit Ridge Rd.
Whiteville, NC 28472
Branch Banking and Trust
Company, Cust. 2,069.736 5.30%
Greg Hope
IRA
117 Fruit Ridge Rd.
Whiteville, NC 28472
Branch Banking and Trust
Company, Cust. 6,997.190 17.91%
Susan M. Bowman
IRA
301 Compton Rd.
Raleigh, NC 27609
</TABLE>
As of October 29, 1998, 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 over 95% of the Trust Shares of each Fund. 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.
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-75
<PAGE> 248
FINANCIAL STATEMENTS
Audited Financial Statements as of September 30, 1998 are incorporated by
reference to the Annual Report to Shareholders, dated as of September 30, 1998,
which has 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
the Annual Report and the Funds' latest Semi-Annual 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-76
<PAGE> 249
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Funds 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 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 the Funds 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 five 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-77
<PAGE> 250
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 An obligation rated AAA has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment
on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such
obligations will likely have some quality and protective
characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
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.
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AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to
AA- time 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.
Description of the three highest long-term debt ratings by Fitch IBCA (plus or
minus signs are used with a rating symbol to indicate the relative position of
the credit within the rating category):
AAA Obligations which have the highest rating assigned by Fitch
IBCA. Capacity for timely repayment principal and interest is
extremely strong relative to other obligors in the same
country.
AA Obligations for which capacity for timely repayment of
principal and interest is very strong relative to other
obligors in the same country. The risk attached to these
obligations differs only slightly from the country's highest
rated debt.
A Obligations for which capacity for timely repayment of
principal and interest is strong relative to other obligors in
the same country. However, adverse changes in business,
economic or financial conditions are more likely to affect the
capacity for timely repayment than for obligations in higher
rated categories.
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 ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
-Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
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-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 A short-term obligation rated A-1 is rated in the highest
category by S&P. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
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D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
D-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.
D-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 IBCA's description of its three highest short-term debt ratings:
Fl Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for
that country, relative to other obligations in the same
country. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely
repayment relative to other obligors in the same country.
However, the relative degree of risk is slightly higher than
for issues classified as 'Al' and capacity for timely
repayment may be susceptible to adverse changes in business,
economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely
repayment relative to other obligors in the same country. Such
capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in
higher categories.
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.
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Short-Term Debt Ratings
- -----------------------
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high 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 the obligation is more susceptible to adverse
developments (both internal and external) than those
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.
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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 statement has been incorporated
into the Statement of Additional Information by reference
to BB&T Mutual Funds Annual Report to Shareholders, dated
September 30, 1998:
- Independent Auditors' Report, dated November
13, 1998.
- Statements of Assets and Liabilities as of
September 30, 1998.
- Statements of Operations for the year, or
period, ended September 30, 1998.
- Statements of Changes in Net Assets for the
years or period ended September 30, 1998 and
September 30, 1997.
- Schedules of Portfolio Investments as of
September 30, 1998.
- Notes to Financial Statements for the year
ended September 30, 1998.
- Financial Highlights for the years or
periods ended September 30, 1998, September
30, 1997, September 30, 1996, September 30,
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1995, September 30, 1994 and the periods ended
September 30, 1993.
(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 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
is incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A
(filed July 2, 1997).
(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) Revised Schedule A to the Investment
Advisory Agreement between the Registrant
and Branch Banking and Trust Company is
incorporated by reference to Exhibit 5(b)
to Post-Effective Amendment No. 14 to the
Registration Statement of the Registrant
on Form N-1A (filed November 25, 1998).
(c) Sub-Advisory Agreement between Branch
Banking and Trust Company and
CastleInternational Asset Management
Limited
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<PAGE> 257
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).
(d) 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).
(e) Sub-Advisory Agreement between Branch
Banking and Trust Company and PNC
Institutional Management Corporation is
incorporated by reference to Exhibit 5(f)
to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A
(filed July 2, 1997).
(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 Amendment No. 11 to the
Registration Statement of the Registrant
on Form N-1A (filed February 14, 1997).
(b) Revised Schedules A-D to the Distribution
Agreement between the Registrant and
BISYS Fund Services LP are incorporated
by reference to Exhibit 6(b) to
Post-Effective Amendment No. 13 to the
Registration Statement of the Registrant
on Form N-1A (filed November 26, 1997).
(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 incorporated by reference
to Exhibit 8(b) to Post-Effective
Amendment No. 14 to the Registration
Statement of the Registrant on Form N-1A
(filed November 25, 1998).
(c) Custody Agreement between the Registrant
and Bank of New York is incorporated by
reference to Exhibit 8(c) to Post-
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Effective Amendment No. 11 to the
Registration Statement of the Registrant
on Form N-1A (filed February 14, 1997).
(d) Form of Foreign Custody Manager Agreement
between the Registrant and Bank of New
York is incorporated by reference to
Exhibit 8(d) to Post-Effective Amendment
No. 13 to the Registration Statement of
the Registrant on Form N-1A (filed
November 26, 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) 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
incorporated by reference to
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Exhibit 9(e) to Post-Effective Amendment
No. 13 to the Registration Statement of
the Registration on Form N-1A (filed
November 26, 1997).
(f) Amended Schedule A to the Transfer Agency
Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly
The Winsbury Service Corporation) is
incorporated by reference to Exhibit 9(f)
to Post-Effective Amendment No. 13 to the
Registration Statement of the
Registration on Form N-1A (filed November
26, 1997).
(g) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly
The Winsbury Service Corporation) is
incorporated by reference to Exhibit 9(g)
to Post-Effective Amendment No. 13 to the
Registration Statement of the
Registration on Form N-1A (filed November
26, 1997).
(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 N-1A (filed February 14, 1997).
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(b) 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
incorporated by reference to Exhibit
15(a) to Post-Effective Amendment No. 13
to the Registration Statement of the
Registrant on Form N-1A (filed November
26, 1997).
(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 Limited
Partnership (formerly The Winsbury
Company Limited Partnership) is
incorporated by reference to Exhibit
15(d) to Post-Effective Amendment No. 14
to the Registration Statement of the
Registrant on Form N-1A (filed November
25, 1998).
(16) (a) Performance Calculation Schedules
relating to period ended September 30,
1993 for the U.S. Treasury Fund, Short-
Intermediate U.S. Government Income
Fund, Intermediate U.S. Government Bond
Fund, North Carolina Intermediate
Tax-Free Fund, Growth & Income Stock
Fund and Balanced 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 incorporated by reference to Exhibit
16(c) to Post-Effective
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Amendment No. 12 to the Registration
Statement on Form N-1A (filed July 2,
1997).
(d) Omitted per instructions of Letter from Barry D.
Miller, Associate Director, United States
Securities and Exchange Commission, to Craig S.
Tyle, General Counsel, Investment Company Institute
(October 2, 1998)
(17) Financial Data Schedules
(a) U.S. Treasury Money Market Fund (Class
A)
(b) U.S. Treasury Money Market Fund (Trust
Class)
(c) U.S. Treasury Money Market Fund (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 Fund (Class A)
(l) Growth & Income Stock Fund (Trust Class)
(m) Growth & Income Stock Fund (Class B)
(n) Balanced Fund (Class A)
(o) Balanced Fund (Trust Class)
(p) Balanced Fund (Class B)
(q) Small Company Growth Fund (Class A)
(r) Small Company Growth Fund (Trust Class)
(s) Small Company Growth Fund (Class B)
(t) International Equity Fund (Class A)
(u) International Equity Fund (Trust Class)
(v) International Equity Fund (Class B)
(w) Prime Money Market Fund (Class A)
(x) Prime Money Market Fund (Trust Class)
(y) Prime Money Market Fund (Class B)
(z) S.C. Intermediate Tax-Free Fund (Class
A)
(aa) S.C. Intermediate Tax-Free Fund (Trust
Class)
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(bb) Large Company Growth Fund (Class A)
(cc) Large Company Growth Fund (Trust Class)
(dd) Large Company Growth Fund (Class B)
(ee) Capital Manager Conservative Growth Fund
(Class A)
(ff) Capital Manager Conservative Growth Fund
(Trust Class)
(gg) Capital Manager Moderate Growth Fund
(Class A)
(hh) Capital Manager Moderate Growth Fund
(Trust Class)
(ii) Capital Manager Growth Fund (Class A)
(jj) Capital Manager Growth Fund (Trust
Class)
(18) Multiple Class Plan for BB&T Mutual
Funds Group adopted by the Board of
Trustees on September 21, 1995 is
incorporated by reference to Exhibit 18
to Post-Effective Amendment No. 7 to the
Registration Statement of the Registrant
on Form N-1A (filed October 18, 1995).
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Omitted per instructions of Letter from Barry D. Miller, Associate Director,
United States Securities and Exchange Commission, to Craig S. Tyle, General
Counsel, Investment Company Institute (October 2, 1998)
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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
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trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may
have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person
except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such
action, suit or other proceeding to be liable to the Trust
or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust
in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under
this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security
for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or
(c) either a majority of the disinterested Trustees acting
on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter),
or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available
facts (as opposed to a full trial type inquiry) that there
is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
COMPROMISE PAYMENT
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any
other body before which the proceeding was brought, that
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
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or her office, indemnification shall be provided if (a)
approved as in the best interests of the Trust, after
notice that it involves such indemnification, by at least
a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a
determination, based upon a review of readily available
facts (as opposed to a full trial type inquiry) that such
Covered Person acted in good faith in the reasonable
belief that his action was in the best interests of the
Trust and is not liable to the Trust or its Shareholders
by reasons of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his or her office, or (b) there has been
obtained an opinion in writing of independent legal
counsel, based upon a review of readily available facts
(as opposed to a full trial type inquiry) to the effect
that such Covered Person appears to have acted in good
faith in the reasonable belief that his action was in the
best interests of the Trust and that such indemnification
would not protect such Person against any liability to the
Trust to which he would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct
of his office. Any approval pursuant to this Section shall
not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in
the best interests of the Trust or to have been liable to
the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding)
is asserted by such 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
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<PAGE> 266
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Indemnification for the Group's principal underwriter is
provided for in the Distribution Agreement incorporated
herein by reference as Exhibit 6(a).
In addition, the Trust maintains a directors and officer
liability insurance policy with a maximum coverage of
$3,000,000.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
INVESTMENT SUB-ADVISERS.
BB&T is the investment adviser to each fund. BB&T is the
oldest bank in North Carolina and is the principal bank
affiliate of BB&T Corporation, a bank and savings and loan
holding company. As of December 31, 1997, BB&T Corporation
had assets of approximately $29.2 billion. Through its
subsidiaries, BB&T Corporation operates over 540 banking
offices in Maryland, North Carolina, South Carolina ,
Virginia and Washington, D.C., 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 16 years
and currently manages assets of more than $3.37 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
- ------------------------- -----------------------
C-12
<PAGE> 267
<TABLE>
<S> <C>
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson, Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
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.
</TABLE>
C-13
<PAGE> 268
<TABLE>
<CAPTION>
James A. Hardison
Director
<S> <C>
Dr. Richard Janeway Executive Vice President for Health Affairs
Director Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate Diagnostics
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc., McCauley
Moving & Storage of Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
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.
</TABLE>
C-14
<PAGE> 269
<TABLE>
<S> <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>
BlackRock Financial Management, Inc. ("BFMI") (formerly PNC Equity
Advisors Company) is an indirect majority-owned subsidiary of PNC Bank Corp.
BFMI serves as the investment sub-adviser to the Small Company Growth Fund. The
list required by this Item 28 of officers and directors of BFMI, 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
BFMI pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-48433).
BlackRock International, Ltd. ("BlackRock International") (formerly
CastleInternational Asset Management Limited) is an indirect majority-owned
subsidiary of PNC Bank Corp. BlackRock International serves as the investment
sub-adviser to the International Equity Fund. The list required by this Item 28
of officers and directors of BlackRock International, 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 BlackRock
International pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-51087).
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) is an indirect majority-owned subsidiary
of PNC Bank Corp. BIMC serves as the investment sub-adviser to the Prime Money
Market Fund. The list required by this Item 28 of officers and directors of
BIMC, 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 BIMC pursuant to the Investment Advisers Act of 1940 (SEC
File No. 801-13304).
C-15
<PAGE> 270
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 Alpine Equity
Trust, The ARCH Fund, Inc., American Performance Funds, AmSouth
Mutual Funds, The Coventry Group, ESC Strategic Funds, Inc., The
Eureka Funds, Fountain Square Funds, Hirtle Callaghan Trust, HSBC
Family of Funds, INTRUST Funds Trust, The Infinity Mutual Funds,
Inc., The Kent Funds, Magna Funds, Meyers Investment Trust, MMA
Praxis Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds,
Parkstone Group of Funds, The Parkstone Advantage Fund, Pegasus
Funds, The Republic Advisors Funds Trust, Puget Sound Alternative
Investment Series Trust, The Republic Funds Trust, The Riverfront
Funds, Inc., SBSF Funds, Inc. d/b/a Key Mutual Funds, Sefton Funds,
The Sessions Group, Summit Investment Trust, Variable Insurance
Funds, The Victory Portfolios, The Victory Variable Funds, and
Vintage Mutual Funds, Inc., each of which is a management
investment company. The parent of BISYS Fund Services, Inc. (the
sole general partner of BISYS Fund Services) is The BISYS Group,
Inc.
(b) Partners of BISYS Fund Services as of the date of this Part C
are as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
C-16
<PAGE> 271
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are as follows:
(1) The BB&T Mutual Funds Group
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Trust Investments
(Investment Adviser)
(3) BlackRock Financial Management, Inc.
1600 Market Street, 27th Floor
Philadelphia, PA 19103
(Investment Sub-Adviser to the Small Company
Growth Fund)
(4) BlackRock International, Ltd.
(Investment Sub-Adviser to the International
Equity Fund)
7 Castle Street
Edinburgh, Scotland EH23AH
(5) BlackRock Institutional Management Corporation
(Investment Sub-Adviser to the Prime Money Market
Fund)
400 Bellevue Parkway, 4th Floor
Wilmington, DE 19809
(6) BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
C-17
<PAGE> 272
(7) Star Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45201
(Custodian)
(8) BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(Transfer and Shareholder Servicing Agent,
Provider of Fund Accounting Services)
(9) Bank of New York
90 Washington Street, 22nd Floor
New York, NY 10286
(Custodian to the International Equity Fund)
(10) Ropes & Gray
One Franklin Square, 1301 K Street, N.W.,
Suite 800 East
Washington, D.C. 20005
(Declaration of Trust, Bylaws, Minutes Book)
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
The Registrant undertakes to call a meeting of
Shareholders, at the request of at least 10% of the
Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and
to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of
1940.
The Registrant undertakes to furnish to each person to
whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders upon request and
without charge.
C-18
<PAGE> 273
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-19
<PAGE> 274
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the 1933 Act and has duly caused this
Post-Effective Amendment No. 15 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 27th day of January, 1999.
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. 14 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ Walter B. Grimm Chairman January 27, 1999
- -------------------
*Walter B. Grimm
/s/ William E. Graham Trustee January 27, 1999
- ---------------------
*William E. Graham
/s/ Thomas W. Lambeth Trustee January 27, 1999
- ---------------------
*Thomas W. Lambeth
/s/ Gary R. Tenkman Treasurer January 27, 1999
- -------------------
*Gary R. Tenkman
/s/ W. Ray Long Trustee January 27, 1999
- ---------------
*W. Ray Long
/s/ Robert W. Stewart Trustee January 27, 1999
- ---------------------
*Robert W. Stewart
*By:/s/ Martin E. Lybecker
Martin E. Lybecker
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
C-20
<PAGE> 275
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> 276
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> 277
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> 278
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> 279
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> 280
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> 281
POWER OF ATTORNEY
-----------------
Gary R. Tenkman, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, 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: August 3, 1998 /s/ Gary R. Tenkman
------------------- ---------------------
Gary R. Tenkman
<PAGE> 282
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(10) Opinion of Ropes & Gray
(11)(a) Consent of KPMG LLP
(11)(b) Consent of Ropes & Gray
(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 Fund (Class A)
(l) Growth & Income Stock Fund (Trust Class)
(m) Growth & Income Stock Fund (Class B)
(n) Balanced Fund (Class A)
(o) Balanced Fund (Trust Class)
(p) Balanced Fund (Class B)
</TABLE>
<PAGE> 283
<TABLE>
<S> <C>
(q) Small Company Growth Fund (Class A)
(r) Small Company Growth Fund (Trust Class)
(s) Small Company Growth Fund (Class B)
(t) International Equity Fund (Class A)
(u) International Equity Fund (Trust Class)
(v) International Equity Fund (Class B)
(w) Prime Money Market Fund (Class A)
(x) Prime Money Market Fund (Trust Class)
(y) Prime Money Market Fund (Class B)
(z) S.C. Intermediate Tax-Free Fund (Class A)
(aa) S.C. Intermediate Tax-Free Fund (Trust Class)
(bb) Large Company Growth Fund (Class A)
(cc) Large Company Growth Fund (Trust Class)
(dd) Large Company Growth Fund (Class B)
(ee) Capital Manager Conservative Growth Fund (Class
A)
(ff) Capital Manager Conservative Growth Fund (Trust
Class)
(gg) Capital Manager Moderate Growth Fund (Class A)
(hh) Capital Manager Moderate Growth Fund (Trust
Class)
(ii) Capital Manager Growth Fund (Class A)
(jj) Capital Manager Growth Fund (Trust Class)
</TABLE>
<PAGE> 1
EXHIBIT 10
Opinion of Ropes & Gray
<PAGE> 2
ROPES & GRAY
ONE FRANKLIN SQUARE
1301 K STREET, N.W.
SUITE 800 EAST
WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
WRITER'S DIRECT DIAL NUMBER: (202) 626-3967
January 27, 1999
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 update disclosure with regard to each Fund of
the Trust described in said Registration Statement (each a "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 Class A, Class B and Trust shares of each Series
have been duly authorized under Massachusetts law. Upon the original issue and
sale of your authorized but unissued Class A, Class B and Trust shares of the
Series and upon receipt of the authorized consideration therefor in an amount
not less than the net asset value of the Class A, Class B and Trust shares of
the Series established and in force at the time of their sale (plus any
applicable sales charge), the Class A, Class B and Trust shares of the Series
issued will be validly issued, fully paid and non-assessable.
<PAGE> 3
BB&T Mutual Funds Group
January 27, 1999
Page 2
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 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,
/s/ Ropes & Gray
Ropes & Gray
-2-
<PAGE> 1
EXHIBIT 11(A)
Consent of KPMG LLP
<PAGE> 2
INDEPENDENT AUDITOR'S CONSENT
The Board of Trustees of
BB&T Mutual Funds Group
We consent to the use of our report dated November 13, 1998 for the BB&T Mutual
Funds Group as incorporated by reference herein and to the reference of our firm
under the headings "Financial Highlights" in the Prospectus and "Independent
Auditors" in the Statement of Additional Information included herein.
/s/ KPMG LLP
KPMG LLP
Columbus, Ohio
January 26, 1999
<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. 15 to the Registration Statement of the BB&T Mutual Funds Group on
Form N-1A under the Securities Act of 1933, as amended.
/s/ ROPES & GRAY
ROPES & GRAY
Washington, D.C.
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 011
<NAME> U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 278770812
<INVESTMENTS-AT-VALUE> 278770812
<RECEIVABLES> 1010393
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 279781205
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1252109
<TOTAL-LIABILITIES> 1252109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 278528850
<SHARES-COMMON-STOCK> 41477621<F1>
<SHARES-COMMON-PRIOR> 32541421<F1>
<ACCUMULATED-NII-CURRENT> 246
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 278529096
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15914344
<OTHER-INCOME> 0
<EXPENSES-NET> 1880037
<NET-INVESTMENT-INCOME> 14034307
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14034307
<EQUALIZATION> 0
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<F1>A Class
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> U.S. TREASURY MONEY MARKET FUND
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<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> U.S. TREASURY MONEY MARKET FUND
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<F3>TRUST Class
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<CIK> 0000889284
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<NAME> SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
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<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
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<F3>TRUST Class
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<CIK> 0000889284
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<NUMBER> 031
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
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<CIK> 0000889284
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<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
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<F3>TRUST Class
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<FN>
<F1>A Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 043
<NAME> NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
<S> <C>
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<FN>
<F3>TRUST Class
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 051
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<F1>A Class
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 052
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<FN>
<F2>B Class
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 053
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<F3>TRUST Class
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 061
<NAME> BALANCED FUND
<S> <C>
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<F1>A Class
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 062
<NAME> BALANCED FUND
<S> <C>
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<F2>B Class
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> BALANCED FUND
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<F3>TRUST Class
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> SMALL COMPANY GROWTH FUND
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<FN>
<F1>A Class
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 072
<NAME> SMALL COMPANY GROWTH FUND
<S> <C>
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<FN>
<F2>B Class
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 073
<NAME> SMALL COMPANY GROWTH FUND
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<FN>
<F3>TRUST Class
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</TABLE>
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<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 081
<NAME> INTERNATIONAL EQUITY FUND
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<F1>A Class
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 082
<NAME> INTERNATIONAL EQUITY FUND
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<ARTICLE> 6
<CIK> 0000889284
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<NUMBER> 083
<NAME> INTERNATIONAL EQUITY FUND
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NUMBER> 091
<NAME> PRIME MONEY MARKET FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> PRIME MONEY MARKET FUND
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<F3>TRUST Class
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<NAME> SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
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<F3>TRUST Class
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<NAME> LARGE COMPANY GROWTH FUND
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<F3>TRUST Class
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<CIK> 0000889284
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<F3>TRUST Class
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> CAPITAL MANAGER MODERATE GROWTH FUND
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<PER-SHARE-DIVIDEND> .16<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.85<F1>
<EXPENSE-RATIO> .93<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>A Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 133
<NAME> CAPITAL MANAGER MODERATE GROWTH FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-02-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 23833469
<INVESTMENTS-AT-VALUE> 22890771
<RECEIVABLES> 51049
<ASSETS-OTHER> 7137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22948957
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121287
<TOTAL-LIABILITIES> 121287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23209595
<SHARES-COMMON-STOCK> 2200159<F3>
<SHARES-COMMON-PRIOR> 0<F3>
<ACCUMULATED-NII-CURRENT> 68801
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 491972
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (942698)
<NET-ASSETS> 22827670
<DIVIDEND-INCOME> 600972
<INTEREST-INCOME> 3361
<OTHER-INCOME> 0
<EXPENSES-NET> 105612
<NET-INVESTMENT-INCOME> 498721
<REALIZED-GAINS-CURRENT> 560017
<APPREC-INCREASE-CURRENT> (942698)
<NET-CHANGE-FROM-OPS> 116040
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 493365<F3>
<DISTRIBUTIONS-OF-GAINS> 0<F3>
<DISTRIBUTIONS-OTHER> 0<F3>
<NUMBER-OF-SHARES-SOLD> 2316995
<NUMBER-OF-SHARES-REDEEMED> 589
<SHARES-REINVESTED> 30
<NET-CHANGE-IN-ASSETS> 22827670
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56437
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 151313
<AVERAGE-NET-ASSETS> 22445049<F3>
<PER-SHARE-NAV-BEGIN> 10.00<F3>
<PER-SHARE-NII> .23<F3>
<PER-SHARE-GAIN-APPREC> (.16)<F3>
<PER-SHARE-DIVIDEND> .22<F3>
<PER-SHARE-DISTRIBUTIONS> 0<F3>
<RETURNS-OF-CAPITAL> 0<F3>
<PER-SHARE-NAV-END> 9.85<F3>
<EXPENSE-RATIO> .46<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F3>
<FN>
<F3>TRUST Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 141
<NAME> CAPITAL MANAGER GROWTH FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-02-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 23151994
<INVESTMENTS-AT-VALUE> 21681278
<RECEIVABLES> 36592
<ASSETS-OTHER> 7137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21725007
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78613
<TOTAL-LIABILITIES> 78613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22390730
<SHARES-COMMON-STOCK> 28572<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 87793
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 638587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1470716)
<NET-ASSETS> 21646394
<DIVIDEND-INCOME> 446467
<INTEREST-INCOME> 3361
<OTHER-INCOME> 0
<EXPENSES-NET> 105579
<NET-INVESTMENT-INCOME> 344249
<REALIZED-GAINS-CURRENT> 725624
<APPREC-INCREASE-CURRENT> (1470716)
<NET-CHANGE-FROM-OPS> (440843)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1661<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2237201
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 109
<NET-CHANGE-IN-ASSETS> 21646394
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 150880
<AVERAGE-NET-ASSETS> 148892<F1>
<PER-SHARE-NAV-BEGIN> 9.93<F1>
<PER-SHARE-NII> .10<F1>
<PER-SHARE-GAIN-APPREC> (.26)<F1>
<PER-SHARE-DIVIDEND> .10<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.67<F1>
<EXPENSE-RATIO> .90<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>A Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 143
<NAME> CAPITAL MANAGER GROWTH FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-02-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 23151994
<INVESTMENTS-AT-VALUE> 21681278
<RECEIVABLES> 36592
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21725007
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78613
<TOTAL-LIABILITIES> 78613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22390730
<SHARES-COMMON-STOCK> 2208738<F3>
<SHARES-COMMON-PRIOR> 0<F3>
<ACCUMULATED-NII-CURRENT> 87793
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 638587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1470716)
<NET-ASSETS> 21646394
<DIVIDEND-INCOME> 446467
<INTEREST-INCOME> 3361
<OTHER-INCOME> 0
<EXPENSES-NET> 105579
<NET-INVESTMENT-INCOME> 344249
<REALIZED-GAINS-CURRENT> 725624
<APPREC-INCREASE-CURRENT> (1470716)
<NET-CHANGE-FROM-OPS> (440843)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 342588<F3>
<DISTRIBUTIONS-OF-GAINS> 0<F3>
<DISTRIBUTIONS-OTHER> 0<F3>
<NUMBER-OF-SHARES-SOLD> 2237201
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 109
<NET-CHANGE-IN-ASSETS> 21646394
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 150880
<AVERAGE-NET-ASSETS> 22442138<F3>
<PER-SHARE-NAV-BEGIN> 10.00<F3>
<PER-SHARE-NII> .16<F3>
<PER-SHARE-GAIN-APPREC> (.32)<F3>
<PER-SHARE-DIVIDEND> .16<F3>
<PER-SHARE-DISTRIBUTIONS> 0<F3>
<RETURNS-OF-CAPITAL> 0<F3>
<PER-SHARE-NAV-END> 9.68<F3>
<EXPENSE-RATIO> .47<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F3>
<FN>
<F3>TRUST Class
</FN>
</TABLE>
