<PAGE> 1
REGISTRATION NOS. 33-49098
811-06719
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 3, 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. 16 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17
------------------
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
------------
Walter B. Grimm, President
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>
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)
---
X 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
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T FUNDS
CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page...................................... Cover Page
Financial
Highlights................................... Selected Per Share Data and Ratios;
Performance
Synopsis........................................ Fee Table
General Description
of Registrant................................ BB&T Funds; Investment Objective
and Policies; Investment Restrictions;
General Information - Description of
the BB&T Funds and Its Shares
Management of the
Funds........................................ Management of BB&T Funds;
General Information - Custodian and
Transfer Agent
Capital Stock and
Other Securities............................. BB&T Funds; How to Purchase and
Redeem Shares; Dividends and Taxes;
General Information - Description of
the BB&T Funds and Its Shares;
General Information - Miscellaneous
Purchase of Securities
Being Offered................................ Valuation of Shares; How to Purchase
and Redeem Shares
Redemption or Repurchase........................ How to Purchase and Redeem Shares
Legal Proceedings............................... Inapplicable
</TABLE>
<PAGE> 3
MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free 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
Virginia Intermediate Tax-Free Fund
Intermediate Corporate Bond 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 MAY 17, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................
BB&T Funds .......................................................
Fee Table.........................................................
Financial Highlights..............................................
Investment Objectives and Policies................................
Investment Restrictions...........................................
Valuation of Shares...............................................
How to Purchase and Redeem Shares.................................
Dividends and Taxes...............................................
Management of BB&T Funds..........................................
General Information...............................................
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BB&T
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
BB&T FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-i-
<PAGE> 5
BB&T FUNDS
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
BB&T FUNDS is an open-end management investment company offering to the
public eighteen separate investment funds (each a "Fund"). Each Fund of the BB&T
Funds 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 BB&T Funds (the
"Underlying Funds"). The remaining fifteen Funds primarily invest in the
securities of issuers unrelated to the BB&T Funds.
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.
THE BB&T TAX-FREE MONEY MARKET FUND (the "Tax-Free Money Market Fund")
seeks as high a level of current interest income exempt from federal income tax
as is consistent with stability of principal. The Tax-Free Money Market
Fund seeks to achieve this objective by investing substantially all of its
assets in short-term tax-exempt obligations issued by state and local
governments.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND
THE U.S. TREASURY FUND, AND THE TAX-FREE MONEY MARKET 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
<PAGE> 6
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 total 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 BB&T VIRGINIA INTERMEDIATE TAX-FREE FUND (the "Virginia Fund") seeks
to produce a high level of current interest income which is exempt from both
federal income tax and Virginia personal income tax. Normally, the Virginia Fund
will invest at least 90% of its total assets in high grade obligations issued by
or on behalf of the State of Virginia and its political subdivisions.
THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND THE VIRGINIA FUND
ARE NON-DIVERSIFIED FUNDS AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION PER
ISSUER THAN DIVERSIFIED FUNDS.
THE BB&T INTERMEDIATE CORPORATE BOND FUND (the "Intermediate Corporate
Bond Fund") seeks current income consistent with the preservation of capital
through investment of at least 65% of its total assets in a diversified
portfolio of investment grade corporate bonds.
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.
-2-
<PAGE> 7
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 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 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
Funds which invest primarily in equity securities.
This Prospectus relates to the Class A Shares of the BB&T Funds (formerly
the Investor Shares) and Class B Shares of the BB&T Funds, which are offered to
the general public. Through a separate prospectus, BB&T Funds 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 BB&T Funds or
by calling the BB&T Funds 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 BB&T
Funds' 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 FUNDS 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 May 17, 1999.
-3-
<PAGE> 8
PROSPECTUS SUMMARY
BB&T Funds The BB&T Funds, a Massachusetts business trust, is
an open-end management investment company which
currently consists of eighteen 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 BB&T Funds
(the "Underlying Funds"). The remaining fifteen
Funds primarily invest in securities of issuers
unrelated to the BB&T Funds. 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, the South Carolina Fund, and the Virginia Fund
and Class A Shares and Class B Shares were not yet
being offered in the Equity Index Fund. Shareholders
investing directly in Class B Shares of the U.S.
Treasury Fund, the Prime Money Market Fund, or the
Tax-Free 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 respective 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 TAX-FREE MONEY MARKET FUND seeks as high a level
of current interest income exempt from federal
income tax as is consistent with stability
of principal.
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
total 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.
-4-
<PAGE> 9
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 VIRGINIA FUND seeks to produce a high level of
current interest income which is exempt from both
federal income tax and Virginia personal income tax.
Normally, the Virginia Fund will invest at least 90%
of its total assets in high grade obligations issued
by or on behalf of the State of Virginia and its
political subdivisions.
THE INTERMEDIATE CORPORATE BOND FUND seeks current
income consistent with the preservation of capital
through investment of at least 65% of its total
assets in a diversified portfolio of investment
grade corporate bonds.
THE GROWTH AND INCOME FUND seeks capital growth,
current income or both, primarily through investment
in stocks.
THE BALANCED FUND seeks to obtain long-term capital
growth and to produce current income through
investment in a broadly diversified portfolio of
securities, including common stocks, preferred
stocks and bonds.
THE LARGE COMPANY GROWTH FUND seeks long-term
capital appreciation through investment primarily in
a diversified portfolio of equity and equity-related
securities of large capitalization growth companies.
THE SMALL COMPANY GROWTH FUND seeks long-term
capital appreciation through investment primarily in
a diversified portfolio of equity and equity-related
securities of small capitalization growth companies.
THE INTERNATIONAL EQUITY FUND seeks long-term
capital appreciation through investment primarily in
equity securities of foreign issuers.
THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND seeks
capital appreciation and income by investing
primarily in a group of diversified BB&T 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
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 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.
-5-
<PAGE> 10
An investment in the North Carolina Fund, the South
Carolina Fund, or the Virginia Fund may involve
special risk considerations. (See "Other Investment
Policies of the North Carolina Fund, the South
Carolina Fund, and the Virginia 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, the U.S. Treasury
Fund, and the Tax-Free Money Market 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, the Intermediate U.S.
Government Bond, the North Carolina, the South
Carolina, the Virginia, the Intermediate Corporate
Bond, the Growth and Income, the Balanced, the Large
Company Growth, the Small Company Growth, the
International Equity, the Capital Manager
Conservative Growth, the Capital Manager Moderate
Growth, and the Capital Manager Growth Funds is
equal to that Fund's net asset value per Share plus
the applicable sales charge. The public offering
price of the Class B Shares is equal to the Fund's
net asset value per share. (See "HOW TO PURCHASE AND
REDEEM SHARES--Sales Charge".)
Maximum Purchase For Class A Shares there is no maximum purchase. For
Class B Shares the maximum purchase is $250,000.
(See "HOW TO PURCHASE AND REDEEM SHARES -- Purchases
of Class A and Class B Shares.")
Minimum Purchase For Class A and Class B Shares, there is a $1000
minimum initial purchase with no minimum investment
for subsequent purchases. (See "HOW TO PURCHASE AND
REDEEM SHARES--Purchases of Class A and Class B
Shares.")
Investment Adviser Branch Banking and Trust Company ("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 and the Tax-Free 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 Tax-Free Money Market Fund, the
Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, Intermediate Corporate Bond
Fund, the North Carolina Fund, the South Carolina
Fund, and the Virginia 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,
-6-
<PAGE> 11
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.
-7-
<PAGE> 12
BB&T FUNDS
BB&T Funds is an open-end management investment company. The BB&T Funds
consist of eighteen series of units of beneficial interest ("Shares") offered to
the public, each representing interests in one of eighteen 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 BB&T Funds (the "Underlying Funds"). The remaining fifteen
Funds primarily invest in securities of issuers unrelated to the BB&T Funds.
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, the
South Carolina Fund, the Virginia Fund, and Class A Shares and Class B Shares
were not yet being offered in the Equity Index Fund.
-8-
<PAGE> 13
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 0.42% 0.42% 0.41% 0.41% 0.42% 0.42%
Total Fund Operating Expenses
(after voluntary fee reductions)(5) 0.72% 1.47% 0.71% 1.46% 0.72% 1.47%
</TABLE>
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<PAGE> 14
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 BB&T
Funds 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 BB&T Funds 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 FUNDS -- Distributor.")
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 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 1.17% and 1.67%, respectively, for the Capital
Manager Conservative Growth Fund, 1.16% and 1.66%, respectively, for
the Capital Manager Moderate Growth Fund, 1.17% and 1.67%,
respectively, for the Capital Manager 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.
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.
-10-
<PAGE> 15
<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%
Intermediate Corporate Bond Fund 0.96%
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%
Equity Index Fund 0.46%
</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%
Intermediate Corporate Bond Fund 1.21%
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%
Equity Index Fund 0.66%
</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%
-11-
<PAGE> 16
and 2.87%, respectively, and for the Capital Manager Growth Fund is 2.40% and
2.90%, respectively.
EXAMPLE:
On the basis of estimated expenses for the Funds of Funds, including voluntary
fee reductions, set forth on page 11, 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 $ 83 $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 FUNDS" 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.
-12-
<PAGE> 17
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A and Class B Shares of the Funds will
bear, either directly or indirectly.
<TABLE>
<CAPTION>
PRIME MONEY U.S. TREASURY TAX-FREE MONEY
MARKET FUND FUND MARKET 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) 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% 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) 0.20%(3) 0.20%(3) 0.30% 0.30% 0.20%(3) 0.20%(3)
12b-1 Fees (after voluntary fee reductions) 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary fee reductions) 0.38%(5) 0.44%(5) 0.31%(5) 0.31%(5) 0.45%(5) 0.45%(5)
Total Fund Operating Expenses
(after voluntary fee reductions) 0.83%(6) 1.64%(6) 0.86%(6) 1.61%(6) 0.90%(6) 1.65%(6)
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE
SHORT-INTERMEDIATE U.S. GOVERNMENT
FUND BOND FUND
------------------ -------------------------
CLASS A CLASS A CLASS B
------------------ --------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 2.00% 4.50% 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% 5.00%
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) 0.50%(3) 0.50%(3) 0.50%(3)
12b-1 Fees (after voluntary fee reductions) 0.25%(4) 0.25%(4) 1.00%
Other Expenses (after voluntary fee reductions) 0.31%(5) 0.34% 0.34%
Total Fund Operating Expenses
(after voluntary fee reductions) 1.06%(6) 1.09%(6) 1.84%(6)
</TABLE>
-13-
<PAGE> 18
<TABLE>
<CAPTION>
NORTH SOUTH INTERMEDIATE
CAROLINA CAROLINA VIRGINIA CORPORATE GROWTH AND
FUND FUND FUND BOND FUND INCOME FUND
--------- --------- --------- --------------------- ----------------------
CLASS A CLASS A CLASS A CLASS A CLASS B 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) 2.00% 2.00% 2.00% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0% 0% 0% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2) 0% 0% 0% 0% 0% 0% 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) 0.40%(3) 0.40%(3) 0.40%(3) 0.50%(3) 0.50%(3)
12b-1 Fees (after voluntary fee
reductions) 0.15%(4) 0.15%(4) 0.15%(4) 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary fee
reductions) 0.31%(5) 0.59%(5) 0.38%(5) 0.56%(5) 0.56%(5) 0.35% 0.35%
Total Fund Operating Expenses
(after voluntary fee reductions) 0.96%(6) 1.04%(6) 0.93%(6) 1.21%(6) 1.96%(6) 1.10%(6) 1.85%(6)
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY
BALANCED FUND GROWTH 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) 0.42% 0.42% 0.61% 0.61%
Total Fund Operating Expenses
(after voluntary fee reductions) 1.17%(6) 1.92%(6) 1.86%(6) 2.61%
</TABLE>
<TABLE>
<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>
-14-
<PAGE> 19
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.")
3 Branch Banking and Trust Company ("BB&T") has agreed with the BB&T Funds
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, 0.40% for the Tax-Free Money
Market Fund, 0.60% for the Intermediate U.S. Government Bond Fund, the
Short-Intermediate Fund, the North Carolina Fund, the South Carolina
Fund, the Virginia Fund, and the Intermediate Corporate Bond 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 BB&T Funds 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 FUNDS--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; 0.50%
for the Tax-Free Money Market Fund; 0.34% for the Short-Intermediate
Fund; 0.38% for the North Carolina Fund; 0.87% for the South Carolina
Fund; 0.43% for the Virginia Fund; 0.61% for the Intermediate Corporate
Bond Fund; 0.64% for the Large Company Growth 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; 0.50% for the Tax-Free Money Market Fund;
0.43% for the Virginia Fund; 0.61% for the Intermediate Corporate Bond
Fund; 0.64% for the Large Company Growth Fund; and 0.51% for the
International Equity Fund. "Other Expenses" for the Tax-Free Money Market
Fund, the Virginia Fund, and the Intermediate Corporate Bond Fund are
based on estimated amounts for the current fiscal year.
6 As indicated in preceding notes, voluntary fee reductions have lowered
this amount. Lower total fund operating expenses will result in higher
yields. Absent the voluntary reduction of 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,
1.40% for the Tax-Free Money Market 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, 1.53% for the Virginia Fund, 1.71% for the Intermediate Corporate
Bond 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, 1.90%
for the Tax-Free Money Market Fund, 1.94% for the Intermediate U.S.
Government Bond Fund, 2.21% for the Intermediate Corporate Bond
-15-
<PAGE> 20
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.
-16-
<PAGE> 21
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Class A Shares of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
YEARS
Prime Money Market Fund $ 8 $ 26 $ 46 $103
U.S. Treasury Fund $ 9 $ 27 $ 48 $106
Tax-Free Money Market Fund $ 9 $ 29 N/A N/A
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
Virginia Fund $ 29 $ 49 N/A N/A
Intermediate Corporate Bond Fund $ 57 $ 82 N/A N/A
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>
-17-
<PAGE> 22
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>
YEARS
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
Tax-Free Money Market Fund
Assuming a complete
redemption at end of period $ 67 $ 82 N/A N/A
Assuming no redemption $ 17 $ 52 N/A N/A
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
Intermediate Corporate Bond Fund
Assuming a complete
redemption at end of period $ 70 $ 92 N/A N/A
Assuming no redemption $ 20 $ 62 N/A N/A
Growth and Income Fund
Assuming a complete
redemption at end of period $ 69 $ 88 $120 $197
Assuming no redemption $ 19 $ 58 $100 $197
</TABLE>
-18-
<PAGE> 23
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
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 FUNDS " 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 BB&T FUNDS also OFFER 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
FUNDS" -- "Investment Adviser" and "Administrator and Distributor.")
-19-
<PAGE> 24
FINANCIAL HIGHLIGHTS
The tables below sets forth financial highlights concerning the
investment results for each of the Funds for the periods indicated. The
information through the year ended September 30, 1998 has been audited by KPMG
LLP, independent auditors for the BB&T Funds, 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 Tax-Free Money Market
Fund, the Virginia Fund, and the Intermediate Corporate Bond Fund had not
commenced operations as of September 30, 1998.
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 BB&T FUNDS at 3435 Stelzer Road, Columbus, Ohio
43219 or by calling (800) 228-1872.
-20-
<PAGE> 25
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
10/01/97
TO
09/30/98(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>
* 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.
-21-
<PAGE> 26
Prime Money Market Fund
<TABLE>
<CAPTION>
09/02/98
TO
09/30/98(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.
-22-
<PAGE> 27
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93
------------ ------------ ------------ ------------ ------------ ------------
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>
* 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.
-23-
<PAGE> 28
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 01/01/96
ENDED ENDED TO
09/30/98 09/30/97 09/30/96(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.
-24-
<PAGE> 29
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
09/30/98 09/30/97 09/30/96
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.73 $ 9.88
---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.51 0.54 0.55
Net realized and unrealized gains
(losses) on investments 0.30 0.03 (0.15)
---------- ---------- ----------
Total from Investment Activities 0.81 0.57 0.40
---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.51) (0.54) (0.55)
Net realized gains -- -- --
---------- ---------- ----------
Total Distributions (0.51) (0.54) (0.55)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.06 $ 9.76 $ 9.73
========== ========== ==========
Total Return (excludes sales charge) 8.50% 6.07% 4.09%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 4,476 $ 5,151 $ 6,356
Ratio of expenses to average
net assets 1.06% 1.11% 1.19%
Ratio of net investment income to
average net assets 5.15% 5.60% 5.55%
Ratio of expenses to average
net assets* 1.44% 1.46% 1.54%
Ratio of net investment income to
average net assets* 4.77% 5.25% 5.20%
Portfolio turnover(d) 53.74% 87.99% 54.82%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 11/30/92
ENDED ENDED TO
09/30/95 09/30/94 09/30/93(a)
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.60 $ 10.29 $ 10.00
---------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income 0.53 0.50 0.47
Net realized and unrealized gains
(losses) on investments 0.29 (0.68) 0.30
---------- ---------- ----------
Total from Investment Activities 0.82 (0.18) 0.77
---------- ---------- ----------
DISTRIBUTIONS
Net investment income (0.54) (0.50) (0.48)
Net realized gains -- (0.01) --
---------- ---------- ----------
Total Distributions (0.54) (0.51) (0.48)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.88 $ 9.60 $ 10.29
========== ========== ==========
Total Return (excludes sales charge) 8.74% (1.86%) 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 7,102 $ 10,345 $ 14,915
Ratio of expenses to average
net assets 1.17% 0.89% 0.56%(c)
Ratio of net investment income to
average net assets 5.50% 5.01% 5.43%(c)
Ratio of expenses to average
net assets* 1.58% 1.58% 1.56%(c)
Ratio of net investment income to
average net assets* 5.09% 4.32% 4.42%(c)
Portfolio turnover(d) 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.
-25-
<PAGE> 30
INTERMEDIATE U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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.
-26-
<PAGE> 31
INTERMEDIATE U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 01/01/96
ENDED ENDED TO
09/30/98 09/30/97 09/30/96(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.
-27-
<PAGE> 32
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
09/30/98 09/30/97 09/30/96
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.27 $ 10.05 $ 10.15
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.42 0.40 0.36
Net realized and unrealized gains
(losses) on investments 0.25 0.22 (0.10)
------------ ------------ ------------
Total from Investment Activities 0.67 0.62 0.26
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.42) (0.40) (0.36)
Net realized gains -- -- --
------------ ------------ ------------
Total Distributions (0.42) (0.40) (0.36)
------------
NET ASSET VALUE, END OF PERIOD $ 10.52 $ 10.27 $ 10.05
============ ============ ============
Total Return (excludes sales charge) 6.63% 6.28% 2.61%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 11,592 $ 9,419 $ 9,261
Ratio of expenses to average net assets 0.96% 1.00% 1.11%
Ratio of net investment income
to average net assets 4.03% 3.94% 3.58%
Ratio of expenses to average
net assets* 1.48% 1.50% 1.61%
Ratio of net investment income
to average net assets* 3.51% 3.44% 3.08%
Portfolio turnover(d) 32.63% 16.98% 20.90%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 10/16/92
ENDED ENDED TO
09/30/95 09/30/94 09/30/93(a)
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.78 $ 10.29 $ 10.00
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.36 0.36 0.36
Net realized and unrealized gains
(losses) on investments 0.37 (0.50) 0.29
------------ ------------ ------------
Total from Investment Activities 0.73 (0.14) 0.65
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.36) (0.36) (0.36)
Net realized gains -- (0.01) --
------------ ------------ ------------
Total Distributions (0.36) (0.37) (0.36)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.15 $ 9.78 $ 10.29
============ ============ ============
Total Return (excludes sales charge) 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 8,717 $ 11,083 $ 13,695
Ratio of expenses to average net assets 1.05% 0.75% 0.43%(c)
Ratio of net investment income
to average net assets 3.63% 3.63% 3.80%(c)
Ratio of expenses to average
net assets* 1.63% 1.66% 1.77%(c)
Ratio of net investment income
to average net assets* 3.05% 2.72% 2.45%(c)
Portfolio turnover(d) 9.38% 0.56% 5.92%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
-28-
<PAGE> 33
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
10/20/97
TO
09/30/98(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.
-29-
<PAGE> 34
GROWTH AND INCOME STOCK FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
09/30/98 09/30/97 09/30/96
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.98 $ 15.31 $ 12.97
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.23 0.26 0.26
Net realized and unrealized gains (losses)
on investments (0.17) 5.30 2.43
------------ ------------ ------------
Total from Investment Activities 0.06 5.56 2.69
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.23) (0.26) (0.26)
Net realized gains (1.33) (0.63) (0.09)
In excess of net realized gains -- -- --
------------ ------------ ------------
Total Distributions (1.56) (0.89) (0.35)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 18.48 $ 19.98 $ 15.31
============ ============ ============
Total Return (excludes sales charge) 0.10% 37.80% 20.97%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of Period (000) $ 39,817 $ 34,679 $ 18,949
Ratio of expenses to average net assets 1.10% 1.09% 1.11%
Ratio of net investment income to
average net assets 1.18% 1.52% 1.82%
Ratio of expenses to average net assets* 1.59% 1.58% 1.60%
Ratio of net investment income to
average net assets* 0.69% 1.03% 1.33%
Portfolio turnover(d) 13.17% 22.66% 19.82%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 10/09/92
ENDED ENDED TO
09/30/95 09/30/94 09/30/93(a)
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.26 $ 11.26 $ 10.00
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.25 0.25 0.28
Net realized and unrealized gains (losses)
on investments 1.98 0.12 1.27
------------ ------------ ------------
Total from Investment Activities 2.23 0.37 1.55
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.25) (0.26) (0.29)
Net realized gains (0.12) (0.11) --
In excess of net realized gains (0.15) -- --
------------ ------------ ------------
Total Distributions (0.52) (0.37) (0.29)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 12.97 $ 11.26 $ 11.26
============ ============ ============
Total Return (excludes sales charge) 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of Period (000) $ 10,842 $ 7,973 $ 6,009
Ratio of expenses to average net assets 1.07% 0.92% 0.63%(c)
Ratio of net investment income to
average net assets 2.15% 2.26% 2.85%(c)
Ratio of expenses to average net assets* 1.60% 1.65% 1.68%(c)
Ratio of net investment income to
average net assets* 1.62% 1.52% 1.81%(c)
Portfolio turnover(d) 8.73% 21.30% 27.17%
</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.
-30-
<PAGE> 35
GROWTH AND INCOME STOCK FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 01/01/96
ENDED ENDED TO
09/30/98 09/30/97 09/30/96(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.
-31-
<PAGE> 36
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
09/30/98 09/30/97 09/30/96
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.63 $ 11.96 $ 11.04
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.39 0.45 0.43
Net realized and unrealized gains
(losses) on investments 0.54 2.04 0.92
------------ ------------ ------------
Total from Investment Activities 0.93 2.49 1.35
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.39) (0.45) (0.43)
Net realized gains (0.35) (0.37) --
------------ ------------ ------------
Total Distributions (0.74) (0.82) (0.43)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 13.82 $ 13.63 $ 11.96
============ ============ ============
Total Return (excludes sales charge) 6.89% 21.76% 12.43%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 21,948 $ 17,234 $ 12,456
Ratio of expenses to average net assets 1.17% 1.18% 1.20%
Ratio of net investment income to
average net assets 2.75% 3.63% 3.78%
Ratio of expenses to average net assets* 1.66% 1.67% 1.69%
Ratio of net investment income to
average net assets* 2.26% 3.14% 3.29%
Portfolio turnover(d) 31.85% 27.07% 19.87%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 10/05/92
ENDED ENDED TO
09/30/95 09/30/94 09/30/93(a)
------------ ------------ ------------
CLASS A CLASS A CLASS A
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 10.20 $ 10.00
------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income 0.44 0.38 0.08
Net realized and unrealized gains
(losses) on investments 1.27 (0.44) 0.21
------------ ------------ ------------
Total from Investment Activities 1.71 (0.06) 0.29
------------ ------------ ------------
DISTRIBUTIONS
Net investment income (0.43) (0.38) (0.09)
Net realized gains -- -- --
------------ ------------ ------------
Total Distributions (0.43) (0.38) (0.09)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 11.04 $ 9.76 $ 10.20
============ ============ ============
Total Return (excludes sales charge) 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 9,257 $ 8,560 $ 2,569
Ratio of expenses to average net assets 1.17% 0.98% 0.50%(c)
Ratio of net investment income to
average net assets 4.27% 4.02% 4.39%(c)
Ratio of expenses to average net assets* 1.71% 1.75% 2.00%(c)
Ratio of net investment income to
average net assets* 3.73% 3.25% 2.89%(c)
Portfolio turnover(d) 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.
-32-
<PAGE> 37
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR 01/01/96
ENDED ENDED TO
09/30/98 09/30/97 09/30/96(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.
-33-
<PAGE> 38
LARGE COMPANY GROWTH FUND
<TABLE>
<CAPTION>
10/03/97 TO
09/30/98 (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>
* 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.
-34-
<PAGE> 39
LARGE COMPANY GROWTH FUND
<TABLE>
<CAPTION>
10/03/97 TO
09/30/98(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.
-35-
<PAGE> 40
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED 12/07/94 TO
09/30/98 09/30/97 09/30/96 09/30/95(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>
* 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.
-36-
<PAGE> 41
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED 01/01/96 TO
09/30/98 09/30/97 09/30/96(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>
(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.
-37-
<PAGE> 42
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEAR 01/02/97
ENDED TO
09/30/98 09/30/97(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 (1.09) 1.25
------------ ------------
and foreign currency transactions
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>
* 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.
-38-
<PAGE> 43
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEAR 01/02/97
ENDED TO
09/30/98 09/30/97(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.
-39-
<PAGE> 44
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
<TABLE>
<CAPTION>
01/29/98
TO
09/30/98(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>
* 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.
-40-
<PAGE> 45
CAPITAL MANAGER MODERATE GROWTH FUND
<TABLE>
<CAPTION>
01/29/98
TO
09/30/98(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.
-41-
<PAGE> 46
CAPITAL MANAGER GROWTH FUND
<TABLE>
<CAPTION>
01/29/98
TO
09/30/98(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.
-42-
<PAGE> 47
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 BB&T Funds' Adviser or Sub-Adviser, under guidelines
established by the BB&T Funds' 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 a nationally recognized statistical ratings organization ("Rating
Agency") 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 Rating Agencies (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 Rating Agency;
or (3) are unrated, but are determined to be of comparable quality by the
Adviser or BIMC 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:
-43-
<PAGE> 48
(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, 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.
-44-
<PAGE> 49
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.
TAX-FREE MONEY MARKET FUND
The investment objective of the Tax-Free Money Market Fund is to seek as
high a level of current interest income exempt from federal income tax as is
consistent with stability of principal.
The Tax-Free Money Market Fund invests substantially all of its assets in
a diversified portfolio of short-term tax-exempt obligations issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions and tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests in
trusts and partnership interests ("Municipal Obligations"). As a fundamental
policy, except during periods of unusual market conditions or during temporary
defensive periods, the Tax-Free Money Market Fund will invest substantially all,
but in no event less than 80%, of its total assets in Municipal Obligations with
remaining maturities of 397 days (thirteen months) or less as determined in
accordance with the rules of the SEC. The Tax-Free Money Market Fund may hold
uninvested cash reserves pending investment, during temporary defensive periods
or if, in the opinion of the Adviser or BIMC, suitable tax-exempt obligations
are unavailable. There is no percentage limitation on the amount of assets which
may be held uninvested. Uninvested cash reserves will not earn income.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the Funds
from tax-exempt derivative securities are rendered by counsel to the respective
sponsors of such securities. The Tax-Free Money Market Fund and the Adviser or
BIMC will rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
-45-
<PAGE> 50
The Tax-Free Money Market Fund will purchase only Municipal Obligations
which are "Eligible Securities" (as defined by the SEC) and which present
minimal credit risks as generally determined by the Adviser or BIMC pursuant
to guidelines approved by BB&T Funds' Board of Trustees. Eligible Securities
consist of the following types of securities: (i) securities that have
short-term debt ratings at the time of purchase in the two highest rating
categories by at least two unaffiliated Rating Agencies (or one Rating Agency if
the security was rated by only one Rating Agency); (ii) securities that are
issued by an issuer (or, in certain cases guaranteed by an issuer) with such
ratings; or (iii) securities without such short-term ratings that have been
determined to be of comparable quality by the Adviser or BIMC pursuant to
guidelines approved by BB&T Funds' Board of Trustees. The Appendix to the
Statement of Additional Information includes a description of applicable ratings
by Rating Agencies.
The Tax-Free Money Market Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the Tax-Free Money Market 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 Tax-Free Money Market Fund would be appropriate.
THE FIXED INCOME FUNDS
The investment objective of the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Intermediate Corporate 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. The Intermediate Corporate Bond Fund
will invest in a diversified portfolio of corporate and Government bonds. At
least 65% of the Intermediate Corporate Bond Fund's total assets will be
invested in corporate bonds rated in one of the top four
-46-
<PAGE> 51
rating categories by a Rating Agency, such as Moody's or S&P, at the time of
purchase or that are determined by the Adviser to be of comparable quality.
Additionally, at least 80% of the Intermediate Corporate Bond Fund's assets will
normally be invested in a combination of investment grade corporate bonds and
U.S. Government Securities. The dollar-weighted average maturity of the
Intermediate Corporate Bond Fund is expected to be from three 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 Rating Agency 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
-47-
<PAGE> 52
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 VIRGINIA FUND
The Virginia Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and Virginia
personal income tax. Under normal market conditions, the Virginia Fund will
invest at least 90% of its total assets in high grade obligations issued by or
on behalf of the State of Virginia 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 Virginia personal income tax and not
treated as a preference item for purposes of the federal alternative minimum tax
for individuals ("Virginia Tax-Exempt Obligations"). The Virginia 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 Virginia Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the Virginia 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 Virginia Fund would be suitable
for them.
-48-
<PAGE> 53
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.
-49-
<PAGE> 54
The Balanced Fund's equity securities will generally consist of common
stocks but may also consist of other equity-type securities such as warrants,
preferred stocks and convertible debt instruments. The Fund's equity investments
will be in companies with a favorable outlook and which are believed by BB&T to
be undervalued.
The Balanced Fund's debt securities will consist of securities such as
bonds, notes, debentures and money market instruments. The Balanced Fund may
also invest in CMOs. The average dollar-weighted maturity of debt securities
held by the Balanced Fund will vary according to market conditions and interest
rate cycles and will range between 1 year and 30 years under normal market
conditions.
It is a fundamental policy of the Balanced Fund that it will invest at
least 25% of its total assets in fixed-income senior securities. For this
purpose, fixed-income senior securities include debt securities, preferred stock
and that portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those securities.
THE 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."
- ---------------------------
(1) The "S&P 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
-50-
<PAGE> 55
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.
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
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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.
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 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 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 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 BB&T Funds. 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 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.
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<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%
Equity Index Fund 0%-55%
Fixed Income Funds
Short-Intermediate Fund 0%-75%
Intermediate U.S. Government Bond Fund 0%-75%
Intermediate Corporate 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%
Equity Index Fund 0%-75%
</TABLE>
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<TABLE>
<S> <C>
Fixed Income Funds
Short-Intermediate Fund 0%-55%
Intermediate U.S. Government Bond Fund 0%-55%
Intermediate Corporate 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%
Equity Index Fund 0%-90%
Fixed Income Funds
Short-Intermediate Fund 0%-40%
Intermediate U.S. Government Bond Fund 0%-40%
Intermediate Corporate Bond Fund 0%- 40%
Money Market Funds
U.S. Treasury Fund 0%-10%
Prime Money Market Fund 0%-10%
</TABLE>
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<PAGE> 59
The allocation of each Fund of Funds' assets among the Underlying Funds
will be made by BB&T under the supervision of the BB&T Funds' 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.
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, Intermediate
Corporate Bond, North Carolina, South
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Carolina, Virginia, 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.
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 or the Tax-Free 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
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<PAGE> 61
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 Tax-Free 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 Tax-Free 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
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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 Virginia 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 Rating Agencies (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
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 Tax-Free Money Market Fund, the Intermediate
Corporate Bond Fund, the Growth and Income Fund, the Balanced Fund, the Large
Company Growth Fund, the Small Company Growth Fund, and the International
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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.
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The Short-Intermediate, the Intermediate U.S. Government Bond, the
Intermediate Corporate Bond, the Growth and Income, the Balanced, the Large
Company Growth, and the Small Company Growth Funds may also invest in "zero
coupon" U.S. Government Securities. These securities tend to be more volatile
than other types of U.S. Government Securities. Zero coupon securities are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. 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.
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,
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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 BB&T
Funds' 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.
ASSET-BACKED SECURITIES
The Prime Money Market Fund and the Intermediate Corporate Bond Fund may
invest in asset-backed securities which are securities created by the grouping
of certain private loans, receivables, and other lender assets, such as
automobile receivables and credit-card receivables, into pools.
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
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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 and the Intermediate Corporate Bond Fund will be subject to the same
quality requirements as other securities purchased by the Fund.
DETERMINING THE MATURITY OF CERTAIN DEBT SECURITIES
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.
COMMERCIAL BONDS
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The Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund,
the Growth and Income Fund, the Large Company Growth Fund, and the Small Company
Growth Fund 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. The Intermediate Corporate Bond Fund will invest at least 65% of its
total assets in investment grade corporate bonds. 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 Fixed Income Funds, 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 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, will invest only in bonds, notes, and
debentures which are rated at the time of purchase within the three highest
rating groups assigned by a Rating Agency (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 Intermediate Corporate Bond
Fund will invest at least 65% of its total assets in corporate bonds, notes, and
debentures which are rated at the time of purchase within one of the four
highest rating groups assigned by a Rating Agency (for example Baa by Moody's or
BBB by S&P) or that are unrated but determined by the Adviser 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 (or fourth rating category with
respect to the Intermediate Corporate Bond Fund), 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.
The Intermediate Corporate Bond Fund may invest up to 15% of its net
assets in corporate debt obligations that are not investment grade, but are
rated in any category below BBB or Baa or are of comparable quality in the
judgment of the Adviser (i.e. "junk bonds") and may include bonds in default. To
the extent consistent with SEC rules, the
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Intermediate Corporate Bond Fund may invest in noninvestment grade securities by
investing in other investment companies that primarily invest in such
securities. Corporate debt obligations that are below investment grade are high
yield, high-risk securities, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade securities, lower rated securities tend
to reflect short-term corporate, economic, and market developments, as well as
investor perceptions of the issuer's credit quality. In addition, lower rated
securities may be more difficult to dispose of or to value than higher rated,
lower-yielding securities. Changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments with respect to these securities than for higher rated securities.
OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Large Company
Growth, the Small Company Growth, the International Equity, the Growth and
Income Fund and the Balanced Funds 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
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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
BB&T Funds (other than the U.S. Treasury Money Market Fund, the Prime Money
Market Fund, and the Tax-Free 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.
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 BB&T Funds (other than the U.S. Treasury Money Market
Fund, the Prime Money Market Fund, and the Tax-Free 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
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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 and the Intermediate Corporate Bond Fund may
invest in debt obligations of foreign corporations and banks. The Intermediate
Corporate Bond Fund may also invest in debt obligations of foreign governments.
The Prime Money Market Fund and the Intermediate Corporate Bond 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.
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The Prime Money Market Fund and the Intermediate Corporate Bond Fund may
invest in commercial paper (including variable amount master demand notes)
issued by U.S. or foreign corporations. The Prime Money Market Fund and the
Intermediate Corporate Bond 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 and the Intermediate Corporate Bond 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
Intermediate Corporate Bond Fund may invest in debt obligations of foreign
issuers that are denominated either in U.S. dollars or foreign currency. The
Intermediate Corporate Bond Fund will not invest more than 25% of its total
assets in the debt obligations of foreign issuers.
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
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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
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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 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. 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 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.
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The expense ratio of the International Equity Fund is expected to be
higher than that of Funds of the BB&T Funds investing primarily in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost of
custody of foreign securities, higher commissions paid on comparable
transactions on foreign markets, foreign income taxes withheld at the source and
additional costs arising from delays in settlements of transactions involving
foreign securities.
The International Equity Fund may invest its assets in countries with
emerging economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, 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
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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 FUNDS"--"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, the South Carolina Fund, and the Virginia 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 BB&T Funds'
Board of Trustees. The BB&T Funds will employ one or more securities lending
agents to initiate and affect securities lending transactions for the BB&T
Funds. 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
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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 Intermediate Corporate 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 their investment objectives, the Prime
Money Market Fund and the Tax-Free 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 and the
Tax-Free 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.
RESTRICTED SECURITIES
Each Fund of the BB&T Funds (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.
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Each Fund of the BB&T Funds (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.
MUNICIPAL OBLIGATIONS
The Tax-Free Money Market Fund invests primarily in 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
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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.
The two principal classifications of Municipal Obligations which may be
held by the Tax-Free Money Market Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Revenue securities include private activity
bonds which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate use of the facility involved.
The Tax-Free Money Market Fund's portfolio may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds 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.
Although the Tax-Free Money Market Fund may invest more than 25% of its
net assets in (i) Municipal Obligations whose issuers are in the same state and
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, it does not presently intend to do so on a regular basis. To
the extent the Tax-Free Money Market Fund's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Tax-Free Money Market Fund will be
subject to the peculiar risks presented by such projects and by the laws and
economic conditions relating to such states to a greater extent than it would be
if its assets were not so concentrated.
TAXABLE MUNICIPAL OBLIGATIONS
The Intermediate Corporate Bond Fund may invest in taxable municipal
obligations. Taxable municipal obligations are typically issued by
municipalities or their agencies for purposes which do not qualify for federal
tax exemption, but do qualify for state and local tax exemption ("Taxable
Municipal Obligations"). These debt obligations are issued to finance the cost
of buying, building or improving various projects, such as sporting facilities,
health care facilities, housing projects, electric, water and sewer utilities,
and colleges or universities. Generally, payments on these debt obligations
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depend on the revenues generated by the projects, excise taxes or state
appropriations, or the debt obligations can be backed by the government's taxing
power. Due to federal taxation, Taxable municipal obligations offer yields more
comparable to other taxable sectors such as corporate bonds or agency bonds than
to other municipal obligations. These debt obligations are federally taxable to
individuals but may be exempt from state and local taxes.
PRIVATE ACTIVITY BONDS
The Tax-Free Money Market Fund may invest its net assets in private
activity bonds ("industrial development bonds" under prior law). While interest
paid on private activity bonds will be exempt from regular federal income tax,
it may be treated as a specific tax preference item under the federal
alternative minimum tax. (See "Dividends and Taxes".) Investors should also be
aware of the possibility of state and local alternative minimum income tax or
minimum income tax liability on interest from private activity bonds.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Prime Money Market Fund and the Tax-Free 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 and floating rate instruments may include variable rate demand
notes, which 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. Such notes are frequently not rated by
credit rating agencies, but unrated notes purchased by a Fund will be determined
by the Adviser or BIMC to be of comparable quality at the time of purchase to
rated instruments purchasable by the Fund. While the notes are not typically
rated, 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
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continuously monitor their financial status and ability to meet payment on
demand. Where necessary to ensure that a note is an Eligible Security, the
Tax-Free Money Market Fund will require that the issuer's obligation to pay the
principal of the note be backed by a guarantee in accordance with SEC Rule 2a-7.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Fund, a Fund may, upon the notice
specified in the note, demand payment of the principal of the note at any time
or during specified periods not exceeding thirteen months, 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
the Fund to dispose of a variable rate demand note if the issuer were to default
on its payment obligation or during periods that the Fund is not entitled to
exercise its demand rights, and the Fund could, for this or other reasons,
suffer a loss to the extent of the default. These notes will be considered
liquid only if 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 and the Tax-Free 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 a Fund within the limits prescribed by
the 1940 Act. As a shareholder of another investment company, a 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.
INVESTMENT COMPANIES
The Balanced Fund may invest in closed-end investment companies that
invest a significant portion of their assets in convertible securities. The
Intermediate Corporate Bond Fund may invest in investment companies that invest
primarily in debt securities. Securities of other investment companies will be
acquired by a Fund within the limits prescribed by the 1940 Act and in
accordance with its investment objective, policies and restrictions. As a
shareholder of an investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
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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.
CONVERTIBLE SECURITIES
The Intermediate Corporate Bond Fund, the Balanced Fund, the Growth and
Income Fund, the Large Company Growth Fund, the Small Company Growth Fund and
the Equity Index Fund may invest 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. See the Statement of Additional Information for
further discussion of convertible securities.
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, the South Carolina Fund
and the Virginia Fund
TAX-EXEMPT OBLIGATIONS
In addition to their respective investments in North Carolina Tax-Exempt
Obligations, South Carolina Tax-Exempt
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Obligations, and Virginia Tax-Exempt Obligations, the North Carolina Fund, the
South Carolina Fund, and Virginia Fund, respectively, may invest in tax-exempt
obligations issued by or on behalf of states other than North Carolina, South
Carolina, or Virginia 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, South Carolina Tax-Exempt Obligations,
and Virginia 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. Up to 10% of the
Virginia Fund's total assets may be invested in Tax-Exempt Obligations other
than Virginia Tax-Exempt Obligations. If deemed appropriate for temporary
defensive periods, as determined by BB&T, the North Carolina Fund, the South
Carolina Fund, or the Virginia 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, South Carolina Tax-Exempt
Obligations, and Virginia Tax-Exempt Obligations, respectively, to over 10% of
its total assets. Investments made for temporary defensive purposes will not be
intended to achieve each Fund's investment objective with respect to North
Carolina, South Carolina or Virginia 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, the South Carolina Fund, and the Virginia 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
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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. In Virginia, such obligations are not included in the calculation of
applicable debt limits, provided such obligations are properly structured.
Among other types of Tax-Exempt Obligations, the North Carolina Fund,
the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the Virginia 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. Moral
obligation securities are issued by state and local governments in Virginia. 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, the South Carolina Fund, and the Virginia Fund
invest in Tax-Exempt Obligations which are rated at the time of purchase in one
of the three highest categories by a Rating Agency in the case of bonds; one of
the two highest categories by a Rating Agency 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 Rating Agency 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
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another Rating Agency in the case of variable rate demand obligations. The North
Carolina Fund, the South Carolina Fund, and the Virginia 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 BB&T Funds' 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, the Virginia Fund, nor BB&T will
review the proceedings relating to the issuance of Tax-Exempt Obligations or the
basis for such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND
VIRGINIA FUND
The North Carolina Fund, the South Carolina Fund, and the Virginia 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, the
South Carolina Fund, and the Virginia 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, South Carolina Tax-Exempt
Obligations, or Virginia Tax-Exempt Obligations, respectively, are unavailable.
PUTS
The Tax-Free Money Market Fund, North Carolina Fund, the South Carolina
Fund, and the Virginia 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
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specified period of time at a specified price. A put would be sold, transferred,
or assigned only with the underlying security. The Tax-Free Money Market Fund,
North Carolina Fund, the South Carolina Fund, and the Virginia 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
Tax-Free Money Market Fund, North Carolina Fund, the South Carolina Fund, and
the Virginia 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
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further discussion of investment considerations associated with South Carolina
Tax-Exempt Obligations.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE VIRGINIA FUND
Because the Virginia Fund will invest at least 90% of the value of its
total assets in Virginia Tax-Exempt Obligations and because it seeks to maximize
income derived from Virginia Tax-Exempt Obligations, it is more susceptible to
factors adversely affecting issuers of Virginia Tax-Exempt Obligations than is a
comparable municipal bond mutual fund that is not concentrated in these issuers
to this degree. See "SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA
TAX-EXEMPT OBLIGATIONS" in the Statement of Additional Information for further
discussion of investment considerations associated with Virginia Tax-Exempt
Obligations.
DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund, the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the Virginia 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, South Carolina Tax-Exempt Obligations,
and Virginia Tax-Exempt Obligations, the North Carolina Fund, the South
Carolina Fund, and the Virginia 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,
the South Carolina Fund, and the Virginia 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, the South Carolina, and the Virginia Funds' Shares.
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VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina
Fund, South Carolina Tax-Exempt Obligations purchased by the South Carolina
Fund, and Virginia Tax-Exempt Obligations purchased by the Virginia 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, the South Carolina Fund, and the Virginia 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, the South Carolina Fund's, or the Virginia 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, the South Carolina Fund, the
Virginia Fund and the Tax-Free Money Market Fund may acquire "stand-by
commitments" with respect to Tax-Exempt Obligations (Municipal Obligations in
the case of the Tax-Free Money Market Fund) held in their portfolios. 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, the South Carolina Fund, the Virginia Fund
and the Tax-Free Money Market 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
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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%.
Additionally, it is presently anticipated that the portfolio turnover rate of
the Virginia Fund will not exceed 50% and the portfolio turnover rate of the
Intermediate Corporate Bond Fund will not exceed 75%. 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 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 BB&T Funds' principal service providers are taking steps the BB&T Funds
believe 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 BB&T Funds' business and have a
material adverse impact on the BB&T Funds' operations. In addition, year 2000
issues could have a negative effect 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, the U.S. Treasury Fund, and the Tax-Free
Money Market 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
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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, the U.S. Treasury Fund and the
Tax-Free Money Market Fund will apply this restriction to 100% of its
portfolio, except that for the Prime Money Market Fund and the Tax-Free
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
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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
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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
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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, the South Carolina Fund, and the Virginia 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, the U.S. Treasury Fund, and the Tax-Free Money Market Fund
and therefore subject to change without shareholder vote:
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The Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free
Money Market Fund may not 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, the U.S. Treasury Fund, and the Tax-Free Money Market 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, the U.S.
Treasury Fund, and the Tax-Free 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 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,
the U.S. Treasury Fund, and the Tax-Free Money Market 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 BB&T Funds believes
accurately reflects fair value.
The assets in the Prime Money Market Fund, the U.S. Treasury Fund, and
the Tax-Free 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
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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 BB&T Funds seek to
maintain the Prime Money Market Fund's, the U.S. Treasury Fund's, and the
Tax-Free Money Market 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 BB&T Funds' 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 BB&T
Funds 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 BB&T Funds' Distribution and Shareholder
Services Plan (see "MANAGEMENT OF BB&T FUNDS --Distribution Plan").
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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, the South
Carolina Fund, or the Virginia Fund. Investors purchasing Shares of the U.S.
Treasury Fund, Prime Money Market Fund, and the Tax-Free 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, Prime Money Market Fund, or the Tax-Free Money Market Fund, as
opposed to Shareholders obtaining Class B Shares of the U.S. Treasury Money
Market Fund, Prime Money Market Fund, or the Tax-Free 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, Prime Money
Market Fund, or the Tax-Free 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 BB&T Funds 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 BB&T Funds, P.O. Box 182533, Columbus, OH
43218-2533. Investors may obtain an Account Registration Form and additional
information regarding the BB&T Funds 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
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calling the BB&T Funds 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 BB&T Funds' transfer agent. To make payments electronically, investors must
call the BB&T Funds at (800) 228-1872 to obtain instructions regarding the bank
account number into which the funds should be wired and other pertinent
information.
Class A or Class B Shares of the Variable NAV Funds are sold at the net
asset value per Share next determined after receipt by the Distributor of an
order in good form to purchase Shares, plus a sales charge at the time of
purchase in the case of Class A Shares (see "VALUATION OF SHARES"). In the case
of orders for the purchase of Shares placed through a broker-dealer, the public
offering price will be the net asset value as so determined plus any applicable
sales charge, but only if the broker-dealer receives the order prior to the
Valuation Time for that day and transmits to the BB&T Funds 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, Virginia, and Short-Intermediate
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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, Intermediate Corporate 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
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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, the U.S. Treasury Fund,
and the Tax-Free Money Market 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, 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 BB&T Funds. 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
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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 BB&T Funds, 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 BB&T
Funds;
(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
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imposes a sales charge. The purchase must be made within 60 days of the
redemption, and the Distributor must be notified in writing by the investor or
by his or her financial institution at the time the purchase is made. A copy of
the investor's account statement showing such redemption must accompany such
notice. The Distributor may also periodically waive the sales charge for all
investors with respect to a Fund.
LETTER OF INTENT
Any Purchaser may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such Purchaser to invest a
certain amount in Class A Shares of any of the Variable NAV Funds, i.e., those
Funds which charge a sales charge, within a period of 13 months. Each purchase
of Shares under a Letter of Intent will be made at the public offering price
plus the sales charge applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the Letter of Intent. A
Letter of Intent may include purchases of Class A Shares made not more than 90
days prior to the date such Purchaser signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included. When a purchaser enters into a
Letter of Intent which includes shares purchased prior to the date of the Letter
of Intent, the sales charge will be adjusted and used to purchase additional
Shares of the Fund at the then current public offering price at the end of the
13 month period. This program may be modified or eliminated at any time or from
time to time by the BB&T Funds 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
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will be used to purchase additional Class A Shares subject to the rate of sales
charge applicable to the actual amount of the aggregate purchases at the net
asset value next calculated.
For further information, interested investors should contact the
Distributor. Letter of Intent privileges may be amended or terminated without
notice at any time by the Distributor.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser (as defined under "HOW TO PURCHASE AND REDEEM SHARES--Sales
Charge -- Class A") may qualify for a reduced sales charge by combining
concurrent purchases of Class A Shares of one or more of the Variable NAV Funds
or by combining a current purchase of Class A Shares of a Variable NAV Fund with
prior purchases of Shares of any Variable NAV Fund. The applicable sales charge
is based on the sum of (i) the Purchaser's current purchase of Class A Shares of
any Variable NAV Fund sold with a sales charge plus (ii) the then current net
asset value of all Class A Shares held by the Purchaser in any Variable NAV
Fund. To receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must at the time of purchase provide the Transfer
Agent or the Distributor with sufficient information to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Distributor.
CLASS B SHARES
Class B Shares are not subject to a sales charge when they are purchased,
but are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and Shareholder service fee at an annual rate of 1.00% of
such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. Class B Shares convert automatically to Class A Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted under the circumstances and subject to the qualifications described
in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and Shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in
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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.
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<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
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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, Class B Shares of the U.S.
Treasury Fund, or Class B Shares of the Tax-Free Money Market 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 BB&T Funds 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 BB&T Funds during the eight-year period, the BB&T Funds will
aggregate the holding periods for the shares of each Fund of the BB&T Funds 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
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<PAGE> 105
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 Funds 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 BB&T Funds' 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 Funds, 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 FUNDS INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A BB&T Funds 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 Funds 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 Funds IRA distribution requests must be made in writing to BISYS
Fund Services. Any additional deposits to a BB&T Funds IRA must distinguish the
type and year of the contribution.
For more information on a BB&T Funds IRA call the BB&T Funds at (800)
228-1872. Investment in Shares of the North Carolina Fund, the South Carolina
Fund, and the Virginia Fund would not be appropriate for any IRA. Shareholders
are advised
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to consult a tax adviser on BB&T Funds 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, the U.S. Treasury Fund, or the Tax-Free 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 the Prime Money Market Fund, the U.S. Treasury Fund, or the
Tax-Free Money Market 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, the
U.S. Treasury Fund, or the Tax-Free Money Market Fund will be deemed to have
been received by the Distributor only when federal funds with respect thereto
are available to the BB&T Funds' 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, the U.S. Treasury
Fund, or the Tax-Free Money Market Fund which is transmitted by federal funds
wire will be available the same day for investment by the BB&T Funds' 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, the U.S. Treasury Fund, or the
Tax-Free Money Market Fund.
Shares of the Prime Money Market Fund, the U.S. Treasury Fund, or the
Tax-Free Money Market Fund purchased before 12:00 noon, Eastern Time, begin
earning dividends on the same Business Day. All Shares of the Prime Money Market
Fund, the U.S. Treasury Fund, or the Tax-Free Money Market Fund continue to
earn dividends through the day before their redemption.
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<PAGE> 107
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 BB&T Funds. Information
concerning this Prospectus should be read in conjunction with any such
information received from the Participating Organizations or Banks.
The BB&T Funds reserve 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. Only residents of
Virginia may exchange their Class A Shares of the other Funds for Class A Shares
of the Virginia 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, the U.S. Treasury
Fund, or the Tax-Free Money Market 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, the
U.S. Treasury Fund, or the Tax-Free Money Market Fund were acquired in a
previous exchange involving Shares of a Variable NAV Fund, then such Shares of
the Prime Money Market Fund, the U.S. Treasury Fund, or the Tax-Free Money
Market 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
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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, the South Carolina Fund,
or the Virginia 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.
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A Shareholder wishing to exchange Class A or Class B Shares purchased
directly from the BB&T Funds may do so by contacting the BB&T Funds 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
BB&T Funds reserve the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days written notice.
The BB&T Funds' 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 Funds Auto Exchange enables Shareholders to make regular, automatic
withdrawals from Class B Shares of a BB&T Fund and use those proceeds to benefit
from dollar-cost- averaging by automatically making purchases of shares of
another BB&T Fund. With shareholder authorization, the BB&T Funds' 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 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 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, Prime Money Market Fund, or the Tax-Free Money Market Fund, as opposed to
Shareholders obtaining Class B
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Shares of the U.S. Treasury Fund, the Prime Money Market Fund, or the Tax-Free
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, Prime Money
Market Fund, or the Tax-Free 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
Funds, 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 BB&T Funds 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
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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 BB&T Funds 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 BB&T Funds' transfer agent, BB&T or the BB&T Funds 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 BB&T
Funds' telephone transaction procedures, upon instructions reasonably believed
to be genuine. The BB&T Funds will employ procedures designed to provide
reasonable assurance that instructions communicated by telephone are genuine; if
these procedures are not followed, the BB&T Funds 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
BB&T Funds.
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CHECK WRITING SERVICE
Shareholders of Class A Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, and the Tax-Free 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 Funds Auto Withdrawal Plan enables Shareholders to make regular
redemptions of Class A Shares and Class B Shares of a Fund. With Shareholder
authorization, the BB&T Funds' 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 Funds, 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
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greatest extent possible, the BB&T Funds 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 BB&T Funds 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, the U.S. Treasury Fund, and the Tax-Free Money Market Fund will
attempt to honor requests from its Shareholders for same day payment upon
redemption of Shares if the request for redemption is received by the Transfer
Agent before 12:00 noon Eastern Time, on a Business Day or, if the request for
redemption is received after 12:00 noon Eastern Time, to honor requests for
payment on the next Business Day, unless it would be disadvantageous to 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 BB&T Funds 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 BB&T Funds intend to
pay cash for all Shares redeemed, but under abnormal conditions which may make
payment in cash unwise, the BB&T Funds 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 BB&T
Funds reserve 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 BB&T Funds exercise
their 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.
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See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the BB&T Funds may suspend the right
of redemption or redeem Shares involuntarily if it appears appropriate to do so
in light of the BB&T Funds' 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,
the U.S. Treasury Fund, and the Tax-Free Money Market 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, the U.S.
Treasury Fund, and the Tax-Free Money Market 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, the South Carolina, the
Virginia, the Short-Intermediate, the
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Intermediate U.S. Government Bond, and the Intermediate Corporate Bond Funds 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, the Small Company Growth, the International Equity, and the
Funds of Funds declare and pay dividends quarterly. Net realized capital gains,
if any, 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 Funds, 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.
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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, South Carolina, or Virginia 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, South Carolina, and Virginia, 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 TAX-FREE MONEY MARKET FUND
The Tax-Exempt Money Market Fund can only pay its Shareholders
exempt-interest dividends if, at the close of every quarter of the Fund's
taxable year, at least 50% of the total value of the Tax-Exempt Money Market
Fund's assets consist of obligations, the interest on which is exempt from
federal income tax. Distributions designated as exempt-interest dividends by the
Tax-Exempt Money Market Fund generally are not subject to federal income tax.
Any loss on the sale or exchange of shares in the Tax-Exempt Money Market Fund
held for six months or less will be disallowed to the extent of any
exempt-interest dividend received by the shareholders with respect to such
shares. In addition, an investment in the Fund may result in liability for
federal alternative minimum tax, both for individual and corporate shareholders.
TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND
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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 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, THE SOUTH CAROLINA
FUND, AND THE VIRGINIA FUND
The portions of dividends paid for each year that are exempt from
federal, and North Carolina, South Carolina, or Virginia 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, South Carolina,
and Virginia 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
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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 will not be subject to Virginia income tax if the Virginia
Fund pays distributions to Shareholders that it derived from interest on debt
obligations of Virginia or its political subdivisions, debt obligations of the
United States excludable from Virginia income tax under the laws of the United
States, or debt obligations of Puerto Rico, Guam, or the Virgin Islands, which
debt obligations are backed by the full faith and credit of the borrowing
government.
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, the South Carolina Fund or the Virginia 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, the South Carolina Fund or the Virginia Fund invests in
securities the interest on which is subject to federal alternative minimum
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tax for individuals. To the extent the North Carolina Fund, the South Carolina
FUND OR THE VIRGINIA 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, the South Carolina Fund and the Virginia 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, Virginia and federal income tax purposes to the extent
of the amount of such exempt-interest dividend, even though, in the case of
North Carolina, South Carolina or Virginia, some portion of such dividend
actually may have been subject to North Carolina, South Carolina or Virginia
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, the South Carolina Fund and the Virginia 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, the South Carolina Fund, and the
Virginia 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, the South Carolina Fund or the Virginia 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
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asset value of a Share in the North Carolina Fund, the South Carolina Fund or
the Virginia 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, the South Carolina Fund or
the Virginia Fund is not deductible for federal, North Carolina, South Carolina
or Virginia 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, the South Carolina Fund, and
the Virginia 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, the South Carolina
Fund, the Virginia Fund, and their Shareholders. Accordingly, potential
investors in the North Carolina Fund, the South Carolina Fund, and the Virginia
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, the South Carolina Fund, and the
Virginia 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.
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MANAGEMENT OF BB&T FUNDS
TRUSTEES OF THE BB&T FUNDS
Overall responsibility for management of the BB&T Funds rests with the
Board of Trustees of the BB&T Funds, who are elected by the Shareholders of the
BB&T Funds. There are currently five Trustees, two of whom are "interested
persons" of the BB&T Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of the BB&T Funds to supervise
actively its day-to-day operations. The Trustees of the BB&T Funds, 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 BB&T Funds the Past 5 Years
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 53
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall from 1985 to December, 1993,
P.O. Box 109 Vice Chairman, Carolina
Raleigh, NC 27602 Power & Light Company
Age: 69
Thomas W. Lambeth Trustee From 1978 to present,
101 Reynolda Village Executive Director, Z. Smith
Winston-Salem, NC 27106 Reynolds Foundation
Age: 64
*W. Ray Long Trustee Retired; Executive Vice
605 Blenheim Drive President, Branch Banking and
Raleigh, NC 27612 Trust Company
Age: 64
</TABLE>
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<TABLE>
<S> <C> <C>
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of
Greenville, SC 29615 Engineered Custom Plastics
Age: 66 Corporation from 1969 to 1990
</TABLE>
* Indicates an "interested person" of the BB&T Funds 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 BB&T Funds for
acting as a Trustee. The officers of the BB&T Funds (see the Statement of
Additional Information) receive no compensation directly from the BB&T Funds for
performing the duties of their offices. BISYS Fund Services, Inc. receives fees
from the BB&T Funds for acting as Administrator and BISYS Fund Services Ohio,
Inc. receives fees from the BB&T Funds for acting as Transfer Agent and for
providing fund accounting services to the BB&T Funds. 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
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the BB&T Funds, it has experience in managing collective investment funds with
investment portfolios and objectives comparable to those of the BB&T Funds. 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 BB&T Funds' 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 the
Prime Money Market Fund and the Tax-Free 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 BB&T Funds and BB&T,
the fee payable to BB&T by the Prime Money Market Fund, the U.S. Treasury Fund,
and the Tax-Free Money Market 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, South Carolina, and Virginia Funds' average daily net assets;
and seventy-four one-hundredths of one percent (0.74%) 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; and twenty-five
one-hundredths of one percent (0.25%) of each Funds of Funds' average daily net
assets; or (b) such fee as may from time to time be agreed upon in writing by
the BB&T Funds and BB&T. A fee agreed to in writing from time to time by the
BB&T Funds 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
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paid 0.40% 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 South Carolina Fund, the Funds
of Funds, and the Large Company Growth Fund had operations for less than a full
fiscal year. The Tax-Free Money Market Fund, Intermediate Corporate Bond Fund
and Virginia Fund had not commenced operations as of September 30, 1998.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the BB&T Funds 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 and the
Intermediate Corporate Bond Fund since its inception. 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 Co. Mr. Karlawish earned a B.S. in
Business Administration from the University of Richmond, an
MBA from the University of North Carolina at Chapel Hill and
is a Chartered Financial Analyst.
Richard B. Jones Manager of the Growth and Income Fund since
February 1, 1993. Since 1987, Mr. Jones has been a
portfolio manager in the BB&T Trust Division. He is
a Chartered Financial Analyst, and holds a B.S. in
Business Administration from Miami (Ohio) University
and an MBA from Ohio State University.
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
</TABLE>
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<PAGE> 125
<TABLE>
<S> <C>
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 and the Virginia Fund
since each Fund's inception. Mr. Brennaman joined BB&T
after its merger with United Carolina Bank in July, 1997. He
has been a Senior Portfolio Manager with UCB since June,
1995. Mr. Brennaman holds a B.A. degree in Political Science
from Mercer University and a M.S. degree in Management from
Troy State University.
Daniel J. Rivera Manager of the Large Company Growth Fund since its
inception, Mr. Rivera joined the BB&T staff in July, 1997, after
BB&T's merger with United Carolina Bank. He had been
Director of Investments at UCB since January, 1994. Mr.
Rivera received a Bachelors degree in Languages from the
Virginia Military Institute, and is a Chartered Financial Analyst.
</TABLE>
SUB-ADVISERS
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) serves as the Sub-Adviser to the Prime
Money Market Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund,
selects its investments and places all orders for purchases and sales of each
Fund's securities, subject to the general supervision of the BB&T Funds' Board
of Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's respective 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 the Tax-Free Money Market Fund, and generally makes
all purchase and sale investment decisions for the Fund. BIMC also provides
research and credit
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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 and eleven one-hundredths of
one percent (0.11%) of the Tax-Free 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 BB&T Funds' 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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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 BB&T Funds'
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
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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 BB&T Funds' principal underwriter and distributor (the
"Administrator" or the "Distributor," as the context indicates) under agreements
approved by the BB&T Funds' 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 BB&T Funds 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 (0.20%) 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 BB&T Funds and the Administrator. A fee agreed to
in writing from time to time by the BB&T Funds 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 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
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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 BB&T Funds, 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 BB&T
Funds' 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.
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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 BB&T Funds contemplated by its investment advisory
agreement with the BB&T Funds 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 BB&T Funds. 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 BB&T Funds. See "MANAGEMENT OF BB&T FUNDS--Glass Steagall Act" in the
Statement of Additional Information for further discussion of applicable banking
laws and regulations.
DISTRIBUTION PLAN
The BB&T Funds' Class A and Class B Shares are sold on a continuous basis
by the Distributor. Under the BB&T Funds' 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 BB&T Funds 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, the
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Virginia 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
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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 BB&T 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 BB&T Funds 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 BB&T Funds 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 BB&T Funds' 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 BB&T Funds' 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 BB&T FUNDS AND ITS SHARES
The BB&T Funds were organized as a Massachusetts business trust on
October 1, 1987 and commenced active operation on September 24, 1992. The BB&T
Funds have an unlimited number
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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 eighteen 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 Intermediate Corporate
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 Virginia Intermediate Tax-Free Fund, the BB&T Prime Money Market Fund,
the BB&T U.S. Treasury Money Market Fund, the BB&T Tax-Free 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 Equity Index
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, the
South Carolina Fund, and the Virginia Fund are not offering Class B Shares and
the Equity Index Fund is not offering Class A Shares or Class B Shares.
Shareholders investing directly in Class B Shares of the U.S. Treasury Fund,
Prime Money Market Fund or Tax-Free Money Market Fund, as opposed to
Shareholders obtaining Class B Shares of the U.S. Treasury Fund, Prime Money
Market Fund, or Tax-Free 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, Prime Money Market Fund, or Tax-Free 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.
-129-
<PAGE> 134
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the BB&T Funds
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 BB&T Funds 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 BB&T
Funds 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 BB&T Funds or such
Fund.
Overall responsibility for the management of the BB&T Funds is vested in
the Board of Trustees. See "MANAGEMENT OF BB&T FUNDS--Trustees of the BB&T
Funds." 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 BB&T Funds and Massachusetts law. See "ADDITIONAL INFORMATION--
Miscellaneous" in the Statement of Additional Information for further
information.
Although the BB&T Funds are not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the BB&T Funds' outstanding
Shares have the right to call a meeting to elect or remove one or more of the
Trustees of the BB&T Funds. Shareholder inquiries should be directed to the
Secretary of the BB&T Funds at 3435 Stelzer Road, Columbus, Ohio 43219.
As of February 18, 1999 the following persons owned beneficially more
than 25% of Class A Shares or Class B Shares of the following Funds:
SOUTH CAROLINA FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ----------------- ------------ --------------------------
<S> <C> <C>
Cheryl K. Boone 16,572.497 25.27%
George O. Boone
1901 Martin Road
Chapin, SC 29036
</TABLE>
-130-
<PAGE> 135
Accordingly, Cheryl K. Boone and George O. Boone may be deemed to be
"controlling persons" of the Class A Shares of the South Carolina Fund.
Capital Manager Conservative Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ---------------- ------------ --------------------------
<S> <C> <C>
Lorraine K. Cauthen 6,369.791 30.79%
108 Strawberry Lane
Clemson, SC 29631
Cheryl B. Cobb and 6,737.523 32.57%
Linda Z. Greer
STWRO5
214 Park Road
Lexington, SC 29072
</TABLE>
Accordingly, Lorraine K. Cauthen, Cheryl B. Cobb and Linda Z. Greer may be
deemed to be "controlling persons" of the Class A Shares of the Capital Manager
Conservative Growth Fund.
Capital Manager Conservative Growth Fund - Class B Shares
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ---------------------- ------------ --------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc. 94.977 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Conservative Growth Fund.
Capital Manager Moderate Growth Fund - Class A Shares
-131-
<PAGE> 136
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ---------------------- ------------ --------------------------
<S> <C> <C>
William H. Peeler 92,394.294 61.62%
and Betty P. Peeler
3802 Old Sptg Hwy.
Moore, SC 29369
</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.
Capital Manager Moderate Growth Fund - Class B Shares
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ---------------------- ------------ --------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc. 93.985 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Moderate Growth Fund.
Capital Manager Growth Fund - Class B Shares
<TABLE>
<CAPTION>
Name and Address Total Shares Percent Beneficially Owned
- ---------------------- ------------ --------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc. 93.545 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Growth Fund.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Bank of New York serves as the Custodian for the International Equity
Fund. Firststar Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for all other Funds of the BB&T Funds.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides
fund accounting services to the BB&T Funds.
-132-
<PAGE> 137
OTHER CLASSES OF SHARES
In addition to Class A and Class B Shares, the BB&T Funds 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, the U.S. Treasury
Fund's, and the Tax-Free Money Market 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 BB&T Funds
and thus compounded in the course of a 52-week period. The effective yield will
be higher than the yield because of the compounding effect of this assumed
reinvestment.
Total return is calculated for the past year and the period since the
establishment of each Money Market Fund. Average annual total return is measured
by comparing the value of an investment in a Money Market Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.
From time to time performance information of a Variable NAV Fund showing
its average annual total return, aggregate total return, and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures
-133-
<PAGE> 138
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, the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the Virginia 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, the South Carolina Fund, or the Virginia 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
-134-
<PAGE> 139
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.
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 BB&T Funds' performance information.
Further information about the performance of each Fund of the BB&T Funds
is contained in the BB&T Funds' 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.
-135-
<PAGE> 140
Inquiries regarding the BB&T Funds may be directed in writing to the BB&T
Funds at the following address: the BB&T Funds, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.
-136-
<PAGE> 141
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
-137-
<PAGE> 142
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T FUNDS
TRUST SHARES
Part A Item Prospectus Caption
- ----------- ------------------
Cover Page........................ Cover Page
Financial
Highlights..................... Selected Per Share Data and Ratios;
Performance
Synopsis.......................... Fee Table
General Description
of Registrant.................. BB&T Funds; Investment Objective
and Policies; Investment Restrictions;
General Information - Description of
the BB&T Funds and Its Shares
Management of the
Funds........................... Management of BB&T Funds;
General Information - Custodian and
Transfer Agent
Capital Stock and
Other Securities............... BB&T Funds; How to Purchase and
Redeem Shares; Dividends and Taxes;
General Information - Description of
the BB&T Funds and Its Shares;
General Information - Miscellaneous
Purchase of Securities
Being Offered.................. Valuation of Shares; How to Purchase
and Redeem Shares
Redemption or Repurchase.......... How to Purchase and Redeem Shares
Legal Proceedings................. Inapplicable
<PAGE> 143
MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free 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
Virginia Intermediate Tax-Free Fund
Intermediate Corporate Bond Fund
STOCK FUNDS
Growth and Income Stock Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund
Equity Index 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 MAY 17, 1999
<PAGE> 144
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary........................................................
BB&T Funds ..............................................................
Fee Table.................................................................
Financial Highlights......................................................
Investment Objectives and Policies........................................
Investment Restrictions...................................................
Valuation of Shares.......................................................
How to Purchase and Redeem Shares.........................................
Dividends and Taxes.......................................................
Management of BB&T Funds................................................
General Information.......................................................
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BB&T
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
BB&T FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-i-
<PAGE> 145
BB&T FUNDS
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
THE BB&T FUNDS is an open-end management investment company offering to
the public eighteen separate investment funds (each a "Fund"). Each Fund of the
BB&T Funds 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 BB&T Funds (the "Underlying Funds"). The remaining fifteen Funds primarily
invest in securities of issuers unrelated to the BB&T Funds.
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.
THE BB&T TAX-FREE MONEY MARKET FUND (the "Tax-Free Money Market Fund")
seeks as high a level of current interest income exempt from federal income tax
as is consistent with stability of principal. The Tax-Free Money Market Fund
seeks to achieve this objective by investing substantially all of its assets in
short-term tax-exempt obligations issued by state and local governments.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND, THE U.S. TREASURY FUND, AND THE
TAX-FREE MONEY MARKET 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.
<PAGE> 146
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 total 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 BB&T VIRGINIA INTERMEDIATE TAX-FREE FUND (the "Virginia Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and Virginia personal income tax. Normally, the Virginia
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of
Virginia and its political subdivisions.
THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND THE VIRGINIA
FUND ARE NON-DIVERSIFIED FUNDS AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION
PER ISSUER THAN DIVERSIFIED FUNDS.
THE BB&T INTERMEDIATE CORPORATE BOND FUND (the "Intermediate Corporate
Bond Fund") seeks current income consistent with the preservation of capital
through investment of at least 65% of its total assets in a diversified
portfolio of investment grade
corporate bonds.
THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund")
seeks capital growth, current income or both, through investment in stocks.
-2-
<PAGE> 147
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 EQUITY INDEX FUND (the "Equity Index Fund") seeks a total
return which corresponds to that of the Standard & Poor's 500 Composite Stock
Price Index(1) (the "S&P 500 Index").
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 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 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 Funds which invest primarily in equity securities.
This Prospectus relates to the Trust Shares of the BB&T Funds, 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, BB&T Funds 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
- --------
(1)The "S&P 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.
-3-
<PAGE> 148
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 BB&T Funds or by calling the BB&T Funds 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 BB&T
Funds' 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 FUNDS 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 May 17, 1999.
-4-
<PAGE> 149
PROSPECTUS SUMMARY
BB&T Funds BB&T Funds, a Massachusetts business trust,
is an open-end management investment company
which currently consists of eighteen
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 BB&T
Funds (the "Underlying Funds"). The
remaining fifteen Funds primarily invest in
securities of issuers unrelated to the BB&T
Funds. 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
Fund, the North Carolina Fund, the South
Carolina Fund, and the Virginia Fund and
Class A Shares and Class B Shares were not
yet being offered in the Equity Index Fund.
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 TAX-FREE MONEY MARKET FUND seeks as high
a level of current interest income exempt
from federal income tax as is consistent
with stability of principal.
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.
-5-
<PAGE> 150
THE INTERMEDIATE U.S. GOVERNMENT BOND FUND
seeks current income consistent with the
preservation of capital through investment
of at least 65% of its total 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 VIRGINIA FUND seeks to produce a high
level of current income which is exempt from
both federal income tax and Virginia
personal income tax. Normally, the Virginia
Fund will invest at least 90% of its total
assets in high grade obligations issued by
or on behalf of the State of Virginia and
its political subdivisions.
THE INTERMEDIATE CORPORATE BOND FUND seeks
current income consistent with the
preservation of capital through investment
of at least 65% of its total assets in a
diversified portfolio of investment grade
corporate bonds.
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
-6-
<PAGE> 151
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 EQUITY INDEX FUND seeks a total return
which corresponds to that of the S&P 500.
THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND
seeks capital appreciation and income by
investing primarily in a group of
diversified BB&T 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 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 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 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, the South Carolina Fund, or
the Virginia Fund involves special risk
considerations. (See "Other Investment
Policies of the North Carolina Fund, the
South Carolina Fund, and the Virginia
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
-7-
<PAGE> 152
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, the U.S. Treasury Fund, and
the Tax-Free Money Market 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
Virginia Fund, the Intermediate Corporate
Bond Fund, the Growth and Income Fund, the
Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund, the
International Equity Fund, the Equity Index
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.
Sub-Advisers BlackRock Institutional Management
Corporation ("BIMC" or the "Sub-Adviser"),
Wilmington, Delaware, serves as the Sub-
Adviser to the Prime Money Market Fund and
the Tax-Free 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.
(" " or the "Sub-Adviser,"),
, , serves as the
Sub-Adviser to the Equity Index Fund.
-8-
<PAGE> 153
Dividends The Prime Money Market Fund, the U.S.
Treasury Fund, the Tax-Free Money Market
Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the
Intermediate Corporate Bond Fund, the North
Carolina Fund, the South Carolina Fund, and
the Virginia 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 Equity Index Fund, and the Funds of
Funds declare and pay dividends quarterly.
Distributor BISYS Fund Services LP, Columbus, Ohio.
BB&T FUNDS
BB&T Funds is an open-end management investment company. The BB&T Funds
consist of eighteen series of units of beneficial interest ("Shares"), each
representing interests in one of eighteen 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 BB&T Funds (the "Underlying Funds"). The remaining fifteen Funds primarily
invest in securities of issuers unrelated to the BB&T Funds. 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,
the South Carolina Fund, and the Virginia Fund and Class A Shares and Class B
Shares were not yet being offered in the Equity Index Fund.
-9-
<PAGE> 154
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>
INTERMEDIATE
PRIME U.S. TAX-FREE SHORT- U.S.
MONEY MARKET TREASURY MONEY MARKET INTERMEDIATE GOVERNMENT BOND
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2) 0% 0% 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after voluntary
fee reductions) 0.20%(3) 0.30%(3) 0.20%(3) 0.50%(3) 0.50%(3)
12b-1 Fee 0% 0% 0% 0% 0%
Other Expenses (after voluntary 0.35%(4) 0.31%(4) 0.45%(4) 0.31%(4) 0.34%
fee reductions)
Total Fund Operating Expenses
(after voluntary fee reductions) 0.55%(5) 0.61%(5) 0.65%(5) 0.81%(5) 0.84%(5)
</TABLE>
-10-
<PAGE> 155
<TABLE>
<CAPTION>
INTERMEDIATE LARGE
NORTH SOUTH CORPORATE GROWTH COMPANY
CAROLINA CAROLINA VIRGINIA BOND AND INCOME BALANCED GROWTH
FUND FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ---- ----
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
CLASS CLASS CLASS CLASS CLASS CLASS 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) 0.40%(3) 0.40%(3) 0.50%(3) 0.50%(3) 0.50%(3)
12b-1 Fees 0% 0% 0% 0% 0% 0% 0%
Other Expenses (after voluntary
fee reductions) 0.31%(4) 0.58%(4) 0.38%(4) 0.56%(4) 0.35% 0.42% 0.56%
Total Fund Operating Expenses
(after voluntary fee reductions) 0.81%(5) 0.88%(5) 0.78%(5) 0.96%(5) 0.85%(5) 0.92%(5) 1.06%(5)
</TABLE>
<TABLE>
<CAPTION>
SMALL
COMPANY INTERNATIONAL EQUITY
GROWTH EQUITY INDEX
FUND FUND FUND
---- ---- ----
TRUST TRUST TRUST
CLASS CLASS 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) 1.00% 1.00% 0.10%(3)
12b-1 Fees 0% 0% 0%
Other Expenses (after voluntary
fee reductions) 0.61% 0.50%(4) 0.36%(4)
Total Fund Operating Expenses
(after voluntary fee reductions) 1.61% 1.50% 0.46%(5)
</TABLE>
-11-
<PAGE> 156
(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 BB&T
Funds 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, the U.S. Treasury Fund, and the Tax-Free Money Market
Fund; 0.60% for the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the Intermediate Corporate Bond Fund, the North
Carolina Fund, the South Carolina Fund and the Virginia Fund; and 0.74%
for the Growth and Income Fund, the Balanced Fund and the Large Company
Growth Fund, and 0.25% for the Equity Index 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, 0.50% for
the Tax-Free Money Market Fund, 0.34% for the Short-Intermediate Fund,
0.61% for the Intermediate Corporate Bond Fund, 0.38% for the North
Carolina Fund, 0.79% for the South Carolina Fund, 0.43% for the
Virginia Fund, 0.51% for the International Equity Fund and 0.41% for
the Equity Index Fund. "Other Expenses" for the Tax-Free Money Market
Fund, the Virginia Fund, the Intermediate Corporate Bond Fund, and the
Equity Index Fund are based on estimated amounts for the current fiscal
year.
(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, 0.90% for the Tax-Free Money Market Fund, 0.94% for the
Short-Intermediate Fund, 0.94% for the Intermediate U.S. Government
Bond Fund, 1.21% for the Intermediate Corporate Bond Fund, 0.98% for
the North Carolina Fund, 1.39% for the South Carolina Fund, 1.03% for
the Virginia Fund, 1.09% for the Growth and Income Fund, 1.16% for the
Balanced Fund, 1.30% for the Large Company
-12-
<PAGE> 157
Growth Fund, 1.51% for the International Equity Fund, and 0.66% for the
Equity Index Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund $ 6 $18 $31 $ 69
U.S. Treasury Fund $ 6 $20 $34 $ 76
Tax-Free Money Market Fund $ 7 $21 N/A N/A
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
Virginia Fund $ 8 $25 N/A N/A
Intermediate Corporate Bond Fund $10 $31 N/A N/A
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
Equity Index Fund $ 5 $15 N/A N/A
</TABLE>
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant
to a sales charge.
The purpose of the table above is to assist a potential investor in the
Funds in understanding the various costs and expenses that an investor in the
Trust Shares of each Fund will bear directly or indirectly. See
-13-
<PAGE> 158
"MANAGEMENT OF BB&T FUNDS" 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.
-14-
<PAGE> 159
FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Trust Shares of the Funds of Funds will bear,
either directly or indirectly.
<TABLE>
<CAPTION>
CAPITAL MANAGER CAPITAL MANAGER
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2) 0% 0% 0%
Exchange Fee $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (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>
-15-
<PAGE> 160
(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 BB&T
Funds 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.
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%
Intermediate Corporate Bond Fund 0.96%
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%
Equity Index Fund 0.46%
</TABLE>
-16-
<PAGE> 161
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%
Intermediate Corporate Bond Fund 1.21%
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%
Equity Index Fund 0.66%
</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:
-17-
<PAGE> 162
<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>
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 FUNDS" 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.
-18-
<PAGE> 163
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 BB&T Funds, 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 Tax-Free Money Market
Fund, the Virginia Fund, the Intermediate Corporate Bond Fund and the Equity
Index Fund had not commenced operations as of September 30, 1998.
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 BB&T
Funds at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling (800) 228-1872.
-19-
<PAGE> 164
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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.
-20-
<PAGE> 165
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
10/1/97
TO
09/30/98(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.
-21-
<PAGE> 166
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 11/30/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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> 167
INTERMEDIATE U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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.
-23-
<PAGE> 168
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/16/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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.
-24-
<PAGE> 169
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
10/20/97
TO
09/30/98(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.
-25-
<PAGE> 170
GROWTH AND INCOME STOCK FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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.
-26-
<PAGE> 171
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/09/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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.
-27-
<PAGE> 172
LARGE COMPANY GROWTH FUND
<TABLE>
<CAPTION>
10/03/97
TO
09/30/98(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>
* 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.
-28-
<PAGE> 173
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED 12/07/94 TO
09/30/98 09/30/97 09/30/96 09/30/95(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.
-29-
<PAGE> 174
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEAR 01/02/97
ENDED TO
09/30/98 09/30/97(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>
- ---------------------
* 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.
-30-
<PAGE> 175
CAPITAL MANAGER CONSERVATIVE FUND
<TABLE>
<CAPTION>
10/02/97
TO
09/30/98(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.
-31-
<PAGE> 176
CAPITAL MANAGER MODERATE FUND
<TABLE>
<CAPTION>
10/02/97
TO
09/30/98(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>
* 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.
-32-
<PAGE> 177
CAPITAL MANAGER GROWTH FUND
<TABLE>
<CAPTION>
10/02/97
TO
09/30/98(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.
-33-
<PAGE> 178
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 BB&T Funds' Adviser or Sub-Adviser, under guidelines
established by the BB&T Funds' 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 a nationally recognized statistical ratings organization ("Rating
Agency") 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 Rating Agencies (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 Rating Agency;
or (3) are unrated, but are determined to be of comparable quality by the
Adviser or BIMC 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:
-34-
<PAGE> 179
(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 BIMC 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.
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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 TAX-FREE MONEY MARKET FUND
The investment objective of the Tax-Free Money Market Fund is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with stability of principal.
The Tax-Free Money Market Fund invests substantially all of its assets
in a diversified portfolio of short-term tax-exempt obligations issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions, and tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests in
trusts and partnership interests ("Municipal Obligations"). As a fundamental
policy, except during periods of unusual market conditions or during temporary
defensive periods, the Tax-Free Money Market Fund will invest substantially all,
but in no event less than 80%, of its total assets in Municipal Obligations with
remaining maturities of 397 days (thirteen months) or less as determined in
accordance with the rules of the SEC. The Tax-Free Money Market Fund may hold
uninvested cash reserves pending investment, during temporary defensive periods
or if, in the opinion of the Adviser or BIMC, suitable tax-exempt obligations
are unavailable. There is no percentage limitation on the amount of assets which
may be held uninvested. Uninvested cash reserves will not earn income.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the Funds
from tax-exempt derivative securities are rendered by counsel to the respective
sponsors of such securities. The Tax-Free Money Market Fund and the Adviser or
BIMC will rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
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The Tax-Free Money Market Fund will purchase only Municipal Obligations
which are "Eligible Securities" (as defined by the SEC) and which present
minimal credit risks as determined by the Adviser or BIMC pursuant
to guidelines approved by BB&T Funds' Board of Trustees. Eligible Securities
consist of the following types of securities: (i) securities that have
short-term debt ratings at the time of purchase in the two highest rating
categories by at least two unaffiliated Rating Agencies (or one Rating Agency if
the security was rated by only one Rating Agency); (ii) securities that are
issued by an issuer (or, in certain cases guaranteed by an issuer) with such
ratings; or (iii) securities without such short-term ratings that have been
determined to be of comparable quality by the Adviser or BIMC pursuant to
guidelines approved by BB&T Funds' Board of Trustees. The Appendix to the
Statement of Additional Information includes a description of applicable ratings
by Rating Agencies.
The Tax-Free Money Market Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the Tax-Free Money Market 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 Tax-Free Money Market Fund would be appropriate.
THE FIXED INCOME FUNDS
The investment objective of the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, and the Intermediate Corporate 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. The Intermediate Corporate Bond Fund
will invest in a diversified portfolio of corporate and Government bonds. At
least 65% of the Intermediate Corporate Bond Fund's total assets will be
invested in corporate bonds rated in one of the top four rating categories by a
Rating Agency such as Moody's or S&P at the time of purchase or that are
determined by the Adviser to be of comparable quality. Additionally, at least
80% of the Intermediate Corporate Bond Fund's assets will normally be invested
in a combination of investment grade corporate bonds and U.S. Government
Securities. The dollar-weighted average maturity of the Intermediate
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Corporate Bond Fund is expected to be from three 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 Rating Agency 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 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
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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 VIRGINIA FUND
The Virginia Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and Virginia
personal income tax. Under normal market conditions, the Virginia Fund will
invest at least 90% of its total assets in high grade obligations issued by or
on behalf of the State of Virginia 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 Virginia personal income tax and not
treated as a preference item for purposes of the federal alternative minimum tax
for individuals ("Virginia Tax-Exempt Obligations"). The Virginia 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 Virginia Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the Virginia 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 Virginia 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
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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
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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 S&P 500 Index. In making
portfolio investments, the Large Company Growth Fund will assess characteristics
such as financial condition, revenue, growth, profitability, earnings per share
growth, and trading liquidity. The remainder of the Fund's assets, if not
invested in the securities of large companies, will be invested in the
instruments described below and under "Specific Investment Policies."
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies. The Small Company Growth Fund will invest in companies that are
considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's 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.
INTERNATIONAL EQUITY FUND
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The International Equity Fund's investment objective is to seek
long-term capital appreciation through investment primarily in equity securities
of foreign issuers. During normal market conditions, the International Equity
Fund will normally invest at least 80%, and, in any event, at least 65%, of the
value of its total assets in equity securities. Equity securities include common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depositary
receipts of companies.
During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks primarily in countries included in
the Morgan Stanley Capital International Europe, Australia and the Far East
Index ("EAFE"). The Fund may also invest its assets in countries with emerging
economies or securities markets. The Fund will be diversified across countries,
industry groups and companies with investment at all times in at least three
foreign countries.
When choosing securities, a value investment style is employed so that
the 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.
THE EQUITY INDEX FUND
The Equity Index Fund seeks to provide investment results that
correspond to the total return of the broad range of common stocks represented
in the S&P 500 Index. The S&P 500 Index is made up of 500 common stocks, most
of which trade on the New York Stock Exchange ("NYSE"). Standard & Poor's is
neither an affiliate nor a sponsor of the Fund, and inclusion of a stock in the
index does not imply that it is a good investment. The S&P 500 is a widely
recognized, unmanaged index of common stock prices. It is generally
acknowledged that the S&P 500 broadly represents the performance of publicly
traded common stocks in the United States. Total returns for the S&P 500 assume
reinvestment of dividends but do not include the effect of brokerage
commissions or other fees.
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The Sub-Adviser normally seeks to invest at least 80% of the Fund's
assets in equity securities of companies that compose the S&P 500.
The Fund may not always hold all of the same securities as the S&P 500.
BB&T may choose, if circumstances warrant, to exclude an index stock from the
Fund and substitute a similar stock if doing so will help the Fund achieve
its objective.
The Fund may not track the S&P 500 perfectly. Differences between the
S&P 500 and the Fund's portfolio may cause differences in performance. Even if
the Fund's investments match the S&P 500 exactly, its returns could differ on a
day-to-day basis because of differences in how the Fund and the S&P 500 are
valued.
The Fund seeks to achieve a 95% or better correlation between its total
return (before expenses) and the total return of the S&P 500. The Sub-Adviser
monitors correlation between the performance of the Fund and that of the S&P
500 on a monthly basis. Correlation is measured by comparing the Fund's monthly
returns to those of the S&P 500 over the recent 36-month period. In the
unlikely event that the Fund cannot achieve a correlation of 95% or better, the
trustees will consider alternative arrangements.
The value of the Fund's investments varies in response to many factors.
Stock values fluctuate in response to the activities of individual companies and
general market and economic conditions.
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 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 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 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 BB&T Funds. These assets
will be allocated within the ranges indicated below.
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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 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%
Equity Index Fund 0%-55%
Fixed Income Funds
Short-Intermediate Fund 0%-75%
Intermediate U.S. Government Bond Fund 0%-75%
Intermediate Corporate 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.
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<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%
Equity Index Fund 0%-75%
Fixed Income Funds
Short-Intermediate Fund 0%-55%
Intermediate U.S. Government Bond Fund 0%-55%
Intermediate Corporate 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.
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<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%
Equity Index Fund 0%-90%
Fixed Income Funds
Short-Intermediate Fund 0%-40%
Intermediate U.S. Government Bond Fund 0%-40%
Intermediate Corporate 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 BB&T Funds' 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,
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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.
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, Intermediate
Corporate Bond Fund, North Carolina, South Carolina, Virginia, Growth and
Income, Balanced, Large Company Growth, Small Company Growth, International
Equity, Equity Index, 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
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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 or the Tax-Free 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 Tax-Free Money Market Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the International Equity Fund, and the Equity Index 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
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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 Tax-Free Money Market Fund's, the
Large Company Growth Fund's, the Small Company Growth Fund's , the International
Equity Fund's, and the Equity Index 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 Virginia 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 Equity Index 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 Rating Agencies (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, the Small Company Growth Fund, and
the Equity Index 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, the Small Company Growth Fund, and the Equity Index 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'
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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 Tax-Free Money Market Fund, the Intermediate
Corporate Bond 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 Equity Index 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
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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 Intermediate Corporate Bond Fund, the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund, the Small Company Growth Fund, and
the Equity Index 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, the Small Company Growth Fund,
and the Equity Index 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.
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
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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 BB&T
Funds' 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.
ASSET-BACKED SECURITIES
The Prime Money Market Fund and the Intermediate Corporate Bond Fund
may invest in asset-backed securities, which are securities created by the
grouping of certain private loans, receivables, and other lender assets, such as
automobile receivables and credit-card receivables, into pools.
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
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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 and the Intermediate Corporate Bond Fund will be subject to the same
quality requirements as other securities purchased by the Fund.
DETERMINING THE MATURITY OF CERTAIN DEBT SECURITIES
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.
COMMERCIAL BONDS
The Short-Intermediate Fund, the Intermediate U.S. Government Bond
Fund, the Growth and Income Fund, the Large Company Growth Fund, and the Small
Company Growth Fund 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. The Intermediate Corporate Bond Fund will invest at least 65%
of its total assets in investment grade
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corporate bonds. 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 Fixed Income Funds, 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 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, will invest only in bonds, notes, and
debentures which are rated at the time of purchase within the three highest
rating groups assigned by a Rating Agency (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 Intermediate Corporate Bond
Fund will invest at least 65% of its total assets in corporate bonds, notes, and
debentures which are rated at the time of purchase within one of the four
highest rating groups assigned by a Rating Agency (for example Baa by Moody's or
BBB by S&P) or that are unrated but determined by the Adviser 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 (or fourth rating category with
respect to the Intermediate Corporate Bond Fund), 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.
The Intermediate Corporate Bond Fund may invest up to 15% of its net
assets in corporate debt obligations that are not investment grade, but are
rated in any category below BBB or Baa or are of comparable quality in the
judgment of the Adviser (i.e. "junk bonds") and may include bonds in default. To
the extent consistent with SEC rules, the Intermediate Corporate Bond Fund may
invest in noninvestment grade securities by investing in other investment
companies that primarily invest in such securities. Corporate debt obligations
that are below investment grade are high yield, high-risk securities, typically
subject to greater market fluctuations and greater risk of loss of income and
principal due to an issuer's default. To a greater extent than investment grade
securities, lower rated securities tend to reflect short-term corporate,
economic, and market developments, as well as investor perceptions of the
issuer's credit quality. In addition, lower rated securities may be more
difficult to dispose of or to value than higher rated, lower-yielding
securities. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments with
respect to these securities than for higher rated securities.
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OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Large
Company Growth, Small Company Growth, International Equity, Growth and Income ,
Balanced , and Equity Index Funds may engage in writing call options from time
to time as BB&T deems to be appropriate. Options are written solely as covered
call options (options on securities owned by a Fund). Such options must be
listed on a national securities exchange and issued by the Options Clearing
Corporation. In order to close out an option position, a Fund will enter into a
"closing purchase transaction"--the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written. Upon the sale of a portfolio security upon
which it has written a covered call option, a Fund must effect a closing
purchase transaction so as to avoid converting a covered call into a "naked
call," i.e., a call option on a security not owned by the Fund. If a Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise. When writing a covered call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security above the exercise price but retains the risk of loss
should the price of the security decline.
To the extent consistent with its investment objective, the Large
Company Growth Fund, the Small Company Growth Fund, the International Equity
Fund, and the Equity Index 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 BB&T Funds (other than the U.S. Treasury Fund, the Prime Money Market Fund,
and the Tax-Free 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
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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 BB&T Funds (other than the U.S. Treasury Fund, the
Prime Money Market Fund, and the Tax-Free 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.
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FOREIGN INVESTMENTS
The Prime Money Market Fund and the Intermediate Corporate Bond Fund
may invest in debt obligations of foreign corporations and banks. The
Intermediate Corporate Bond Fund may also invest in debt obligations of foreign
governments. The Prime Money Market Fund and the Intermediate Corporate Bond
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 and the Intermediate Corporate Bond Fund
may invest in commercial paper (including variable amount master demand notes)
issued by U.S. or foreign corporations. The Prime Money Market Fund and the
Intermediate Corporate Bond 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 and the Intermediate Corporate Bond 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
Intermediate Corporate Bond Fund may invest in debt obligations of foreign
issuers that are either denominated in U.S. dollars or foreign currency. The
Intermediate Corporate Bond Fund will not invest more than 25% of its total
assets in the debt obligations of foreign issuers.
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The Balanced Fund, the Growth and Income Fund, the Large Company Growth
Fund, the Small Company Growth Fund, and the Equity Index 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, the Large Company Growth Fund, and
the Equity Index 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 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.
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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. 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 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
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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 BB&T Funds investing primarily in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost of
custody of foreign securities, higher commissions paid on comparable
transactions on foreign markets, foreign income taxes withheld at the source,
and additional costs arising from delays in settlements of transactions
involving foreign securities.
The International Equity Fund may invest its assets in countries with
emerging economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, 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.
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OTHER INVESTMENT PRACTICES
For liquidity purposes, each Fund except the Prime Money Market Fund
and the U.S. Treasury Fund may invest 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
FUNDS"--"Investment Adviser" and "Administrator and Distributor") will reduce
that portion of their usual asset-based service fees from each investing Fund by
an amount equal to their service fees from the Prime Money Market Fund or the
U.S. Treasury Fund that are attributable to those Fund investments. BB&T and the
Administrator will promptly forward such fees to the investing Funds. The Funds,
except the Funds of Funds, will incur additional expenses due to the duplication
of expenses as a result of investing in securities of other unaffiliated money
market mutual funds. Additional restrictions on the Funds' investments in the
securities of an unaffiliated money market fund and/or the Prime Money Market
Fund or the U.S. Treasury Fund are contained in the Statement of Additional
Information.
In addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.
In order to generate additional income, each Fund except the North
Carolina Fund, the South Carolina Fund, and the Virginia 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 BB&T Funds'
Board of Trustees. The BB&T Funds will employ one or more securities lending
agents to initiate and affect securities lending transactions for the BB&T
Funds. 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.
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In order to generate income, the Short-Intermediate, the Intermediate
U.S. Government Bond, the Intermediate Corporate Bond, the Growth and Income,
the Balanced, the Large Company Growth, the Small Company Growth, the
International Equity, and the Equity Index Funds may engage in the technique of
short-term trading. Such trading involves the selling of securities held for a
short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for capital appreciation and/or
income of the Funds in order to take advantage of what BB&T (or 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 their investment objectives, the Prime
Money Market Fund and the Tax-Free 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 and the
Tax-Free 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.
RESTRICTED SECURITIES
Each Fund of the BB&T Funds (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 BB&T Funds (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.
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GUARANTEED INVESTMENT CONTRACTS
The Prime Money Market Fund may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Under these contracts, the Fund makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits
interest to the Fund on a monthly basis, which is based on an index (such as the
Salomon Brothers CD Index), but is guaranteed not to be less than a certain
minimum rate. The Prime Money Market Fund does not expect to invest more than 5%
of its net assets in GICs at any time during the current fiscal year.
MUNICIPAL OBLIGATIONS
The Tax-Free Money Market Fund invests primarily in 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.
The two principal classifications of Municipal Obligations which may be
held by the Tax-Free Money Market Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Revenue securities include private activity
bonds
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which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate use of the facility involved.
The Tax-Free Money Market Fund's portfolio may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds 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.
Although the Tax-Free Money Market Fund may invest more than 25% of its
net assets in (i) Municipal Obligations whose issuers are in the same state and
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, it does not presently intend to do so on a regular basis. To
the extent the Tax-Free Money Market Fund's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Tax-Free Money Market Fund will be
subject to the peculiar risks presented by such projects and by the laws and
economic conditions relating to such states to a greater extent than it would be
if its assets were not so concentrated.
TAXABLE MUNICIPAL OBLIGATIONS
The Intermediate Corporate Bond Fund may invest in taxable municipal
obligations. Taxable municipal obligations are typically issued by
municipalities or their agencies for purposes which do not qualify for federal
tax exemption, but do qualify for state and local tax exemption ("Taxable
Municipal Obligations"). These debt obligations are issued to finance the cost
of buying, building or improving various projects, such as sporting facilities,
health care facilities, housing projects, electric, water and sewer utilities,
and colleges or universities. Generally, payments on these debt obligations
depend on the revenues generated by the projects, excise taxes or state
appropriations, or the debt obligations can be backed by the government's taxing
power. Due to federal taxation, Taxable Municipal Obligations offer yields more
comparable to other taxable sectors such as corporate bonds or agency bonds than
to other municipal obligations. These debt obligations are federally taxable to
individuals but may be exempt from state and local taxes.
PRIVATE ACTIVITY BONDS
The Tax-Free Money Market Fund may invest its net assets in private
activity bonds ("industrial development bonds" under prior law). While interest
paid on private activity bonds will be exempt from regular federal income tax,
it may be treated as a specific tax preference item under the federal
alternative minimum tax. (See "Dividends and Taxes".) Investors should also be
aware of the possibility of state and local
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alternative minimum income tax or minimum income tax liability on interest from
private activity bonds.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Prime Money Market Fund and the Tax-Free 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 and floating rate instruments may include variable rate demand
notes, which 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. Such notes are frequently not rated by
credit rating agencies, but unrated notes purchased by a Fund will be determined
by the Adviser or BIMC to be of comparable quality at the time of purchase to
rated instruments purchasable by the Tax-Free Money Market Fund. 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. Where necessary to ensure that a note is an Eligible Security, the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by a guarantee in accordance with SEC Rule 2a-7. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Fund, a Fund may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding thirteen months, 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 rate demand note if the issuer were to default on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for this or other reasons, suffer a loss to
the extent of the default. These notes will be considered liquid only if 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 and the Tax-Free 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 a Fund
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within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, a 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 a Fund bears directly in connection with its own operations.
INVESTMENT COMPANIES
The Balanced Fund may invest in closed-end investment companies that
invest a significant portion of their assets in convertible securities. The
Intermediate Corporate Bond Fund may invest in investment companies that invest
primarily in debt securities. Securities of other investment companies will be
acquired by a Fund within the limits prescribed by the 1940 Act and in
accordance with its investment objective, policies and restrictions. As a
shareholder of an investment company holding a 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.
CONVERTIBLE SECURITIES
The Intermediate Corporate Bond Fund, the Balanced Fund, the Growth and
Income Fund, the Large Company Growth Fund, the Small Company Growth Fund and
the Equity Index Fund may invest 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. See the Statement of Additional Information for
further discussion of convertible securities.
STANDARD & POOR'S DEPOSITORY RECEIPTS
Each of the Growth and Income Stock Fund, Balanced Fund, Large Company
Growth Fund, and Small Company Growth Fund, and the Equity Index 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.
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UNINVESTED CASH RESERVES
The Prime Money Market Fund may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Fund's Sub-Adviser, suitable obligations are unavailable. During normal market
periods, no more than 20% of the Fund's assets will be held uninvested.
Uninvested cash reserves will not earn income.
OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND
TAX-EXEMPT OBLIGATIONS
In addition to their respective investments in North Carolina
Tax-Exempt Obligations , South Carolina Tax-Exempt Obligations, and Virginia
Tax-Exempt Obligations, the North Carolina Fund, the South Carolina Fund, and
Virginia Fund, respectively, may invest in tax-exempt obligations issued by or
on behalf of states other than North Carolina , South Carolina, or Virginia 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 , South Carolina Tax-Exempt Obligations, and Virginia
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. Up to 10% of the
Virginia Fund's total assets may be invested in Tax-Exempt Obligations other
than Virginia Tax-Exempt Obligations. If deemed appropriate for temporary
defensive periods, as determined by BB&T, the North Carolina Fund, the South
Carolina Fund, or the Virginia 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, South Carolina Tax-Exempt
Obligations, or Virginia Tax-Exempt Obligations, respectively, to over 10% of
its total assets. Investments made for temporary defensive purposes will not be
intended to achieve a Fund's investment objective with respect to North
Carolina, South Carolina or Virginia 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, the South Carolina Fund, and the Virginia
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
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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. In Virginia, such obligations are not included in the calculation of
applicable debt limits, provided such obligations are properly structured.
Among other types of Tax-Exempt Obligations, the North Carolina Fund,
the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the Virginia
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. Moral obligation securities are issued by state and local
governments in Virginia. 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, the South Carolina Fund, and the Virginia
Fund invest in Tax-Exempt Obligations which are rated at the time of purchase in
one of the three highest categories by a Rating Agency in the case of bonds; one
of the two highest categories by a Rating Agency 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 Rating Agency 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 Rating Agency in the case of variable rate demand
obligations. The North Carolina Fund, the South Carolina Fund, and the Virginia
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 BB&T Funds' Board of Trustees. The applicable ratings
are described in the Appendix to the Statement of Additional Information.
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Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund, the South Carolina Fund, the Virginia Fund, nor BB&T will
review the proceedings relating to the issuance of Tax-Exempt Obligations or the
basis for such opinions.
TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND
VIRGINIA FUND
The North Carolina Fund, the South Carolina Fund, and the Virginia
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, the
South Carolina Fund, and the Virginia 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 , South Carolina Tax-Exempt
Obligations, or Virginia Tax-Exempt Obligations, respectively, are unavailable.
PUTS
The Tax-Free Money Market Fund, the North Carolina Fund, the South
Carolina Fund, and the Virginia 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 Tax-Free Money Market Fund, the North Carolina Fund, the South
Carolina Fund, and the Virginia 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 Tax-Free Money Market
Fund, the North Carolina Fund, the South Carolina Fund, and the Virginia Fund
will acquire puts solely to facilitate Fund liquidity, shorten the maturity of
the underlying security, or permit the investment of their funds at a more
favorable rate of return.
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RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND
Because the North Carolina Fund will invest at least 90% of the value
of its total assets in North Carolina Tax-Exempt Obligations and because it
seeks to maximize income derived from North Carolina Tax-Exempt Obligations, it
is more susceptible to factors adversely affecting issuers of North Carolina
Tax-Exempt Obligations than 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE VIRGINIA FUND
Because the Virginia Fund will invest at least 90% of the value of its
total assets in Virginia Tax-Exempt Obligations and because it seeks to maximize
income derived from Virginia Tax-Exempt Obligations, it is more susceptible to
factors adversely affecting issuers of Virginia Tax-Exempt Obligations than is a
comparable municipal bond mutual fund that is not concentrated in these issuers
to this degree. See "SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA
TAX-EXEMPT OBLIGATIONS" in the Statement of Additional Information for further
discussion of investment considerations associated with Virginia Tax-Exempt
Obligations.
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DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund, the South Carolina Fund, and the Virginia
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, the South Carolina Fund, and the
Virginia 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 , South
Carolina Tax-Exempt Obligations, and Virginia Tax-Exempt Obligations, the North
Carolina Fund, the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the Virginia 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, the South Carolina, and the Virginia Funds'
Shares.
VARIABLE AND FLOATING RATE SECURITIES
North Carolina Tax-Exempt Obligations purchased by the North Carolina
Fund, South Carolina Tax-Exempt Obligations purchased by the South Carolina
Fund, and Virginia Tax-Exempt Obligations purchased by the Virginia 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, the South Carolina Fund, and the Virginia 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 , South Carolina Fund's, or the Virginia 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, the South Carolina Fund, the
Virginia Fund and the Tax-Free Money Market Fund may acquire "stand-by
commitments" with respect to Tax-Exempt Obligations (Municipal Obligations in
the case of the Tax-Free Money Market Fund) held in their portfolios. 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
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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, the South Carolina Fund, the
Virginia Fund and the Tax-Free Money Market 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 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%. Additionally, it is
presently anticipated that the portfolio turnover rate of the Virginia Fund will
not exceed 50%, the portfolio turnover rate of the Intermediate Corporate Bond
Fund will not exceed 75%, and the portfolio turnover rate of the Equity Index
Fund will not exceed 5%. 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 BB&T Funds' principal service providers are taking steps the BB&T Funds
believe 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 BB&T Funds' business and have a
material adverse impact on the BB&T Funds' operations. In addition, year 2000
issues could have a negative effect 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, the U.S. Treasury Fund, and the Tax-Free
Money Market 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, the U.S. Treasury Fund and the Tax-Free Money Market Fund will
apply this restriction to 100% of its portfolio, except that for the
Prime Money Market Fund and the Tax-Free 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.
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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, the Small Company Growth Fund and the Equity Index 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
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after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more
than 10% of any class of securities of the issuer or more than 10% of
the outstanding voting securities of the issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard
to such limitations. There is no limit to the percentage of assets that
may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The International Equity Fund may not:
1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities)
if more than 5% of the value of the Fund's total assets would (taken at
current value) be invested in the securities of such issuer, or more
than 10% of the issuer's outstanding voting securities would be owned
by the Fund, except that up to 25% of the value of the Fund's total
assets may (taken at current value) be invested without regard to these
limitations. For purposes of this limitation, a security is considered
to be issued by the entity (or entities) whose assets and revenues back
the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities
issued and guaranteed by the grantor, and owned by the Fund, does not
exceed 10% of the value of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to (i) instruments issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% (one-third with respect to the
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
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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, the South Carolina Fund and the Virginia 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, the U.S. Treasury Fund and the Tax-Free Money Market Fund
and therefore subject to change without shareholder vote:
The Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free
Money Market Fund may not 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, the U.S. Treasury Fund, and the Tax-Free Money Market 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
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Money Market Fund, the U.S. Treasury Fund, and the Tax-Free 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 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, the U.S. Treasury Fund, and the Tax-Free Money Market 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 BB&T Funds 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, the U.S. Treasury Fund, and
the Tax-Free 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 BB&T Funds
seek to maintain the Prime Money Market Fund's , the U.S. Treasury Fund's, and
the Tax-Free Money Market 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
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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 BB&T Funds' 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 BB&T
Funds 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 BB&T Funds 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 BB&T Funds in connection with the purchase of the BB&T
Funds' Trust Shares.
There is no minimum or subsequent investment requirement for Trust
Shares. There is no limit on the amount of Trust Shares that may be purchased.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Trust Shares of the Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for the Prime Money
Market Fund, the
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U.S. Treasury Fund, or the Tax-Free 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 the Prime Money Market Fund, the U.S. Treasury Fund, or
the Tax-Free Money Market 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, the
U.S. Treasury Fund, or the Tax-Free Money Market Fund will be deemed to have
been received by the Distributor only when federal funds with respect thereto
are available to the BB&T Funds' 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, the U.S.
Treasury Fund, or the Tax-Free Money Market Fund which is transmitted by federal
funds wire will be available the same day for investment by the BB&T Funds'
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, the U.S.
Treasury Fund, or the Tax-Free Money Market Fund.
Shares of the Prime Money Market Fund, the U.S. Treasury Fund, or the
Tax-Free Money Market Fund purchased before 12:00 noon, Eastern Time, begin
earning dividends on the same Business Day. All Shares of the Prime Money Market
Fund, the U.S. Treasury Fund, or the Tax-Free Money Market 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 BB&T Funds. Information
concerning this Prospectus should be read in conjunction with any such
information received from the Participating Organizations or Banks.
The BB&T Funds reserve 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.
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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 BB&T Funds do 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 BB&T Funds reserve the right
to change the terms and conditions of the exchange privilege discussed herein
upon sixty days written notice.
The BB&T Funds' 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
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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 BB&T Funds 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 BB&T Funds 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 BB&T Funds' transfer agent, BB&T or the BB&T Funds 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 BB&T
Funds' telephone transaction procedures, upon instructions reasonably believed
to be genuine. The BB&T Funds will employ procedures designed to provide
reasonable assurance that instructions communicated by telephone are genuine; if
these procedures are not followed, the
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BB&T Funds 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 BB&T Funds.
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 BB&T Funds 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 BB&T Funds 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, the U.S. Treasury Fund, and the Tax-Free Money Market Fund will
attempt to honor requests from its Shareholders for same day payment upon
redemption of Shares if the request for redemption is received by the Transfer
Agent before 12:00 noon Eastern Time, on a Business Day or, if the request for
redemption is received after 12:00 noon Eastern Time, to honor requests for
payment on the next Business Day, unless it would be disadvantageous to 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 BB&T Funds 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 BB&T Funds intend to
pay cash for all Shares redeemed, but under abnormal conditions which may make
payment in cash unwise, the BB&T Funds 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 BB&T Funds may suspend the
right of redemption or redeem Shares involuntarily if it appears appropriate to
do so in light of the BB&T Funds' responsibilities under the 1940 Act.
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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,
the U.S. Treasury Fund, and the Tax-Free Money Market 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, the U.S.
Treasury Fund, and the Tax-Free Money Market 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, the South Carolina, the
Virginia, the Short-Intermediate, the Intermediate U.S. Government Bond, and the
Intermediate Corporate Bond Funds 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, the Equity Index Fund and the Funds of Funds
declare and pay dividends quarterly. Net realized capital gains, if any, 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 Funds , P.O. Box 182533, Columbus,
OH 43218-2533, and will become effective with respect to
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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, the Balanced, the Large Company Growth, the Small Company Growth, 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 , South Carolina or Virginia resident are currently eligible for
exemption from those states' income taxes, subject to the provisions discussed
below. 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 , South Carolina, and
Virginia, as
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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 TAX-FREE MONEY MARKET FUND
The Tax-Exempt Money Market Fund can only pay its Shareholders
exempt-interest dividends if, at the close of every quarter of the Fund's
taxable year, at least 50% of the total value of the Tax-Exempt Money Market
Fund's assets consist of obligations, the interest on which is exempt from
federal income tax. Distributions designated as exempt-interest dividends by the
Tax-Exempt Money Market Fund generally are not subject to federal income tax.
Any loss on the sale or exchange of shares in the Tax-Exempt Money Market Fund
held for six months or less will be disallowed to the extent of any
exempt-interest dividend received by the shareholders with respect to such
shares. In addition, an investment in the Fund may result in liability for
federal alternative minimum tax, both for individual and corporate shareholders.
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 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.
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Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND,
AND THE VIRGINIA FUND
The portions of dividends paid for each year that are exempt from
federal and North Carolina , South Carolina, or Virginia 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, the South
Carolina Fund, and the Virginia 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 will not be subject to Virginia income tax if the
Virginia Fund pays distributions to Shareholders that it derived from interest
on debt obligations of Virginia or its political subdivisions, debt obligations
of the United States excludable from Virginia income tax under the laws of the
United States, or debt obligations of Puerto Rico, Guam, or the Virgin Islands,
which debt obligations are backed by the full faith and credit of the borrowing
government.
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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, the South Carolina Fund or the Virginia 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, the South Carolina Fund or the Virginia 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, the South
Carolina Fund and the Virginia 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, Virginia and federal income tax purposes to the extent
of the amount of such exempt-interest dividend, even though, in the case of
North Carolina , South Carolina or Virginia, some portion of such dividend
actually may have been subject to North Carolina , South Carolina or Virginia
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, the South Carolina Fund and the Virginia 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, the South Carolina Fund and the
Virginia 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, the South Carolina Fund or the Virginia 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
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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, the South
Carolina Fund or the Virginia 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, the South Carolina Fund
or the Virginia Fund is not deductible for federal, North Carolina , South
Carolina or Virginia 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, the
South Carolina Fund and the Virginia 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, the South Carolina Fund, and
the Virginia 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, the South Carolina
Fund, the Virginia Fund and their Shareholders. Accordingly, potential investors
in the North Carolina Fund, the South Carolina Fund, and the Virginia 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, the South Carolina Fund, and the
Virginia 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 FUNDS
TRUSTEES OF THE BB&T FUNDS
Overall responsibility for management of the BB&T Funds rests with the
Board of Trustees of the BB&T Funds, who are elected by the Shareholders of the
BB&T Funds. There are currently five Trustees, two of whom are "interested
persons" of the BB&T Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of the BB&T Funds to supervise
actively its day-to-day operations. The Trustees of
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the BB&T Funds, their current addresses, and principal occupations during the
past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE BB&T FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
<S> <C> <C>
*Walter B. Grimm Chairman of From June 1992 to present,
3435 Stelzer Road the Board employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 53
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams; from
Fayetteville Street Mall 1985 to December, 1993, Vice
P.O. Box 109 Chairman, Carolina Power & Light
Raleigh, NC 27602 Company
Age: 69
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, NC 27106 Foundation
Age: 64
*W. Ray Long Trustee Retired; Executive Vice President,
605 Blenheim Drive Branch Banking and Trust Company
Raleigh, NC 27612 from 1974 to 1998.
Age: 64
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of Engineered
Greenville, SC 29615 Custom Plastics Corporation from
Age: 66 1969 to 1990
</TABLE>
* Indicates an "interested person" of the BB&T Funds 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 BB&T Funds for
acting as a Trustee. The officers of the BB&T Funds (see the Statement of
Additional Information) receive no compensation directly from the BB&T Funds for
performing the duties of their offices. BISYS Fund Services, Inc. receives fees
from the BB&T Funds for acting as Administrator and BISYS Fund Services Ohio,
Inc. receives fees from the BB&T Funds for acting as Transfer Agent and for
providing fund accounting services to the BB&T Funds. Walter B. Grimm is an
employee of BISYS Fund Services.
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INVESTMENT ADVISER
BB&T is the Investment Adviser of each Fund. BB&T is the oldest bank in
North Carolina and is the principal bank affiliate of BB&T Corporation
(formerly, Southern National Corporation), a bank holding company that is a
North Carolina corporation, headquartered in Winston-Salem, North Carolina. As
of December 31, 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 BB&T Funds,
it has experience in managing collective investment funds with investment
portfolios and objectives comparable to those of the BB&T Funds. 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 BB&T Funds' 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 the
Prime Money Market Fund and the Tax-Free 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 BB&T Funds and BB&T,
the fee payable to BB&T by the Prime Money Market Fund, the U.S. Treasury Fund,
and the Tax-Free Money Market 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 , South Carolina, and Virginia 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; twenty-five one-hundredths of one percent (0.25%) of
each Funds of Funds' average daily net assets; and twenty-five one-hundredths of
one percent (0.25%) of the Equity Index Fund's average daily net assets, or (b)
such fee as may from time to time be agreed upon in writing by the BB&T Funds
and BB&T. A fee agreed to in writing from time to time by the BB&T Funds and
BB&T may be significantly lower than the fee
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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 Tax-Free Money Market Fund,
Intermediate Corporate Bond Fund, Virginia Fund and Equity Index Fund had not
commenced operations as of September 30, 1998.
The persons primarily responsible for the management of each of the
Variable NAV Funds of the BB&T Funds (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:
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- -------------------
Keith F. Karlawish Manager of the Intermediate U.S. Government
Bond Fund and Short-Intermediate Fund since
September, 1994 and the Intermediate
Corporate Bond Fund since its inception.
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
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a B.S. degree in Business Administration
from the University of North Carolina at
Chapel Hill.
C. Steven Brennaman Manager of the North Carolina Funds since
January, 1998 and manager of the South
Carolina Fund and the Virginia Fund since
each Fund's inception. Mr. Brennaman joined
BB&T after its merger with United Carolina
Bank in July, 1997. He has been a Senior
Portfolio Manager with UCB since June, 1995.
Mr. Brennaman holds a B.A. degree in
Political Science from Mercer University and
a M.S. degree in Management from Troy State
University.
Daniel J. Rivera Manager of the Large Company Growth Fund
since its inception, Mr. Rivera joined the
BB&T staff in July, 1997, after BB&T's
merger with United Carolina Bank. He had
been Director of Investments at UCB since
January, 1994. Mr. Rivera received a
Bachelors degree in Languages from the
Virginia Military Institute, and is a
Chartered Financial Analyst.
SUB-ADVISERS
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) serves as the Sub-Adviser to the Prime
Money Market Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund,
selects its investments and places all orders for purchases and sales of each
Fund's securities, subject to the general supervision of the BB&T Funds' Board
of Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's respective 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 the Tax-Free 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.
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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 coverage daily net assets and eleven
one-hundredths of one percent (0.11%) of the Tax-Free 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 BB&T Funds' 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.
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:
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<PAGE> 238
<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 BB&T Funds'
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 served as the Portfolio Manager for
the BlackRock Funds(sm) International Equity Portfolio since 1996.
(" ") serves as the Sub-Adviser to the Equity Index Fund pursuant to a
Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement,
manages the Equity Index Fund, selects its investments and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of BB&T Funds' Board of Trustees and BB&T and in accordance with the Equity
Index Fund's investment objective, policies and restrictions.
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<PAGE> 239
[ADD Description of Sub-Adviser]
For its services and expenses incurred under the Sub-Advisory Agreement, ____ is
entitled to a fee, payable by BB&T. The fee is computed daily and paid monthly
at the annual rate of _____ of one percent (0.___%) of the Equity Index Fund's
average daily net assets.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for each Fund. BISYS
Fund Services LP acts as the BB&T Funds' principal underwriter and distributor
(the "Administrator" or the "Distributor," as the context indicates) under
agreements approved by the BB&T Funds' 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 BB&T Funds 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 (0.20%) 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 BB&T Funds and the Administrator. A fee agreed to
in writing from time to time by the BB&T Funds 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
operations: taxes, interest, any brokerage fees and commissions, fees and travel
expenses of the Trustees of the BB&T Funds, 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,
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<PAGE> 240
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 BB&T
Funds' 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 BB&T Funds contemplated by its investment advisory
agreement with the BB&T Funds 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 BB&T Funds. 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 BB&T Funds. See
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<PAGE> 241
"MANAGEMENT OF BB&T FUNDS --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 BB&T 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 BB&T Funds' 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 BB&T Funds' 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 BB&T FUNDS AND ITS SHARES
The BB&T Funds were organized as a Massachusetts business trust on
October 1, 1987 and commenced active operation on September 24, 1992. The BB&T
Funds have 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 eighteen 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
Intermediate Corporate 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 Virginia Intermediate Tax-Free Fund, the
BB&T Prime Money Market Fund, the BB&T U.S. Treasury Money Market Fund, the BB&T
Tax-Free 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 Equity Index 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, the South Carolina Fund, and the Virginia Fund, are not
offering Class B Shares and the Equity Index Fund is not offering Class A Shares
or Class B
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<PAGE> 242
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 BB&T Funds
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 BB&T Funds 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 BB&T
Funds 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 BB&T Funds or such
Fund.
Overall responsibility for the management of the BB&T Funds is vested
in the Board of Trustees. See "MANAGEMENT OF BB&T FUNDS --Trustees of the BB&T
Funds." 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 BB&T Funds and Massachusetts law. See "ADDITIONAL
INFORMATION--Miscellaneous" in the Statement of Additional Information for
further information.
Although the BB&T Funds are not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the BB&T Funds' outstanding
Shares have the right to call a meeting to elect or remove one or more of the
Trustees of the BB&T Funds. Shareholder inquiries should be directed to the
Secretary of the BB&T Funds at 3435 Stelzer Road, Columbus, Ohio 43219.
As of February 18, 1999, 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 90% 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.
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<PAGE> 243
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Bank of New York serves as the Custodian for the International Equity
Fund. Firststar Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as
Custodian for all other Funds of the BB&T Funds.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and
provides fund accounting services to the BB&T Funds.
OTHER CLASSES OF SHARES
In addition to Trust Shares, the BB&T Funds 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 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, the South Carolina Fund, and
the Virginia Fund and Class A Shares and Class B Shares were not being offered
in the Equity Index Fund.
PERFORMANCE INFORMATION
From time to time, the Prime Money Market Fund's , the U.S. Treasury
Fund's, and the Tax-Free Money Market 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 BB&T Funds 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.
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<PAGE> 244
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, the South Carolina Fund, and the Virginia
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, the South Carolina Fund, and the Virginia
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, the South Carolina Fund, or the Virginia Fund.
Each Fund may also present its average annual total return, aggregate
total return, yield and/or tax equivalent yield, as the case may be, excluding
the effect of a sales charge, if any.
The Variable NAV Funds and the Funds of Funds may also calculate a
distribution rate. Distribution rates will be computed by dividing the
distribution per Share of a class made by a Fund over a twelve-month period by
the maximum offering price per Share. The distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses. The
calculation of income in the distribution rate includes both income and capital
gain dividends and does not reflect unrealized gains or losses, although a Fund
may also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital items
which are often non-recurring in nature, and may include returns of principal,
whereas yield does not include such items. Each of the Funds do not intend to
publish distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Trust Shares are not
subject to Distribution and Shareholder
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<PAGE> 245
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 BB&T Funds' performance information.
Further information about the performance of each Fund of the BB&T
Funds is contained in the BB&T Funds' 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 BB&T Funds may be directed in writing to the
BB&T Funds at the following address -- the BB&T Funds , P.O. Box 182533,
Columbus, OH 43218-2533 or by calling toll free (800) 228-1872.
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<PAGE> 246
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
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<PAGE> 247
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T FUNDS
SMALL COMPANY GROWTH FUND
TRUST SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page............................. Cover Page
Financial
Highlights.......................... Selected Per Share Data and Ratios;
Performance
Synopsis............................... Fee Table
General Description
of Registrant....................... BB&T Funds ; Investment Objective
and Policies; Investment Restrictions;
General Information - Description of
the BB&T Funds and Its Shares
Management of the Funds ............... Management of BB&T Funds ;
General Information - Custodian and
Transfer Agent
Capital Stock and
Other Securities.................... BB&T Funds ; How to Purchase and
Redeem Shares; Dividends and Taxes;
General Information - Description of
the BB&T Funds and Its Shares;
General Information - Miscellaneous
Purchase of Securities
Being Offered....................... Valuation of Shares; How to Purchase
and Redeem Shares
Redemption or Repurchase............... How to Purchase and Redeem Shares
Legal Proceedings...................... Inapplicable
</TABLE>
<PAGE> 248
SMALL COMPANY GROWTH FUND
TRUST SHARES
BRANCH BANKING AND TRUST COMPANY
INVESTMENT ADVISER
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
PROSPECTUS DATED MAY 17, 1999
<PAGE> 249
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................................................
Fee Table...........................................................
BB&T Funds........................................................
Financial Highlights................................................
Investment Objective and Policies...................................
Investment Restrictions.............................................
Valuation of Shares.................................................
How to Purchase and Redeem Shares...................................
Dividends and Taxes.................................................
Management of BB&T Funds..........................................
General Information.................................................
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BB&T
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
BB&T FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
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<PAGE> 250
BB&T FUNDS
BB&T SMALL COMPANY GROWTH FUND
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") is
a separate investment fund of the BB&T Funds , an open-end management investment
company offering to the public eighteen separate investment funds (each a
"Fund"). Each Fund of the BB&T Funds 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 BB&T Funds. The remaining fifteen Funds primarily
invest in securities of issuers unrelated to the BB&T Funds.
The BB&T Small Company Growth Fund seeks long-term capital appreciation
through investment primarily in a diversified portfolio of equity and
equity-related securities of small capitalization growth companies.
This Prospectus relates to the Trust Shares of the Small Company Growth
Fund, which are offered to BB&T and its affiliates and other financial service
providers approved by the Distributor for the investment of funds for which they
act in a fiduciary, advisory, agency, custodial or similar capacity. Through a
separate prospectus, BB&T Funds also offers Class A and Class B Shares of the
Small Company Growth Fund, which are offered to the general public. Additional
information about each of the Funds, contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information and the prospectus relating to the Class A
and Class B Shares are available upon request without charge by writing to the
BB&T Funds or by calling the BB&T Funds 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 Small
Company Growth Fund's Trust Shares that a prospective investor ought to know
before investing. Investors should read this Prospectus and retain it for future
reference.
SHARES OF THE BB&T FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, BRANCH BANKING
<PAGE> 251
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.
Prospectus dated May 17, 1999
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<PAGE> 252
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Small Company
Growth Fund This prospectus relates to only the Trust
Shares of the Small Company Growth Fund, one
class of a separately managed portfolio of
BB&T Funds. BB&T Funds, a Massachusetts
business trust, is an open-end management
investment company which currently consists of
eighteen separately managed portfolios (each a
"Fund"). The Small Company Growth Fund offers
to the public three classes of Shares: Class
A, Class B and Trust Class.
Investment Objective and
Policies The Small Company Growth Fund seeks long-term
capital appreciation through investment
primarily in a diversified portfolio of equity
and equity-related securities of small
capitalization growth companies.
Investment Risks The Small Company Growth Fund's
performance may change daily based on many
factors including interest rate levels, the
quality of the obligations in the Fund's
portfolio, and market conditions.
Offering Price The public offering price of the Small
Company Growth Fund is equal to its net asset
value per Trust Share. (See "HOW TO PURCHASE
AND REDEEM SHARES--Purchases of Trust
Shares.")
Minimum Purchase No minimum purchase applies to purchases of
Trust Shares.
Investment Adviser Branch Banking and Trust Company ("BB&T"),
Raleigh, North Carolina.
Investment Sub-Adviser BlackRock Financial Management, Inc.,
Philadelphia, Pennsylvania ("BFMI" or the
"Sub-Adviser")
Dividends The Small Company Growth Fund declares and
pays dividends quarterly.
Distributor BISYS Fund Services LP, Columbus, Ohio.
</TABLE>
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<PAGE> 253
BB&T FUNDS
BB&T Funds is an open-end management investment company. The BB&T Funds
consists of eighteen series of units of beneficial interest ("Shares"), each
representing interests in one of eighteen 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 BB&T Funds. The remaining fifteen Funds primarily invest in securities of
issuers unrelated to the BB&T Funds. Each Fund is authorized to offer three
classes of Shares: Class A Shares, Class B Shares and Trust Shares.
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FEE TABLE
The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Trust Shares of the Small Company Growth Fund
will bear, either directly or indirectly.
<TABLE>
<CAPTION>
SMALL
COMPANY
GROWTH FUND
-----------
TRUST
CLASS
-----
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of offering price) 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(2) 0%
Exchange Fee $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 1.00%
12b-1 Fees 0%
Other Expenses 0.61%
----
Total Fund Operating Expenses 1.61%
====
</TABLE>
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(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of the
Fund. (See "HOW TO PURCHASE AND REDEEM SHARES--"Purchases of Trust Shares"
and "HOW TO PURCHASE AND REDEEM SHARES--Exchange Privilege.")
(2) A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. Such fee
is currently being waived. (See "HOW TO PURCHASE AND REDEEM SHARES--
Redemption by Telephone.")
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Trust Shares of
the Small Company Growth Fund, assuming (1) 5% annual return and (2) redemption
at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Company Growth Fund $ 16 $ 51 $ 88 $191
</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
Fund in understanding the various costs and expenses that an investor in the
Trust Shares of the Fund will bear directly or indirectly. See "MANAGEMENT OF
BB&T FUNDS " for a more complete discussion of annual operating expenses of the
Fund. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE> 256
FINANCIAL HIGHLIGHTS
The table below sets forth financial highlights concerning the
investment results for the Small Company Growth Fund for the periods indicated.
The information through the year ended September 30, 1998 has been audited by
KPMG LLP, independent auditors for the BB&T Funds, whose report thereon, insofar
as it relates to each of the years or periods indicated herein is included in
the Statement of Additional Information.
Information regarding the Class A and Class B Shares can be obtained in
a separate prospectus by writing to the BB&T Funds at 3435 Stelzer Road,
Columbus, Ohio 43219 or by calling (800) 228-1872.
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<PAGE> 257
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR 12/07/94
ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95(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 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% 2.24%(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.
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<PAGE> 258
INVESTMENT OBJECTIVES AND POLICIES
THE SMALL COMPANY GROWTH FUND
The Small Company Growth Fund's investment objective is to seek
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies. The investment objective of the Fund is fundamental and may not be
changed without the vote of a majority of the outstanding Shares of the Fund (as
defined below under "GENERAL INFORMATION--Miscellaneous"). There can be, of
course, no assurance that the Fund will achieve its investment objective.
The Small Company Growth Fund will invest in companies that are
considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $1 billion at the
time of purchase. In making portfolio investments, the Small Company Growth Fund
will assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
invested in the instruments described below and under "Specific Investment
Policies."
Smaller, less seasoned companies may be subject to greater business
risk than larger, established companies. They may be more vulnerable to changes
in economic conditions, specific industry conditions, market fluctuations and
other factors affecting the profitability of companies. Therefore, the stock
price of smaller capitalization companies may be subject to greater price
fluctuations than 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.
Depending upon the performance of the portfolio investments of the
Small Company Growth Fund the net asset value per Share of the Fund will
fluctuate.
SPECIFIC INVESTMENT POLICIES
The following is a description of certain permitted investments for the
Small Company Growth Fund. For a more detailed description, see the Statement of
Additional Information.
REPURCHASE AGREEMENTS
Securities held by the Small Company Growth Fund may be subject to
repurchase agreements. The Fund will enter into repurchase agreements for the
purposes of maintaining liquidity and obtaining favorable yields. Under the
terms of a repurchase agreement, the Fund acquires securities from financial
institutions or registered broker-dealers, subject to the
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seller's agreement to repurchase such securities at a mutually agreed upon date
and price. The seller is required to maintain the value of the collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). If the seller under a repurchase agreement were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price under the agreement, or to the extent that
the disposition of such securities by the Fund were delayed pending court
action. Additionally, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund could incur delays and costs in selling the
underlying security or could suffer a loss of principal and interest if the Fund
were treated as an unsecured creditor and required to return the underlying
security to the seller's estate. The Fund will enter into repurchase agreements
with financial institutions or registered broker-dealers deemed creditworthy by
the Fund's Sub-Adviser. Except as described in the Statement of Additional
Information, there is no aggregate limitation on the amount of the Fund's total
assets that may be invested in instruments which are subject to repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS
In accordance with the investment restrictions described below, the
Small Company Growth Fund may borrow funds for temporary purposes by entering
into reverse repurchase agreements. The Fund will enter into reverse repurchase
agreements for the purpose of meeting liquidity needs. Pursuant to such
agreements, the Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase them at a mutually
agreed-upon date and price. Reverse repurchase agreements include the risk that
the market value of the securities sold by the Fund may decline below the price
at which the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by the Fund under the 1940 Act.
WHEN-ISSUED SECURITIES
The Small Company Growth Fund may purchase securities on a when-issued
or delayed-delivery basis and may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid Fund securities equal to the amount of
that commitment in a separate account and may be required to subsequently place
additional assets in the separate account to maintain equivalence with the
Fund's commitment. The ability to purchase when-issued securities will provide
the Fund with the flexibility of participating in new issues of government
securities, particularly mortgage-related securities. Prior to delivery of
when-issued securities, the securities are subject to fluctuations in value, and
no income accrues until their receipt. The Fund engages in when-issued and
delayed-delivery transactions only with the intent of acquiring Fund securities
consistent with
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<PAGE> 260
its investment objective and policies, and not for investment leverage. In
when-issued and delayed-delivery transactions, the Fund relies on the seller to
complete the transaction; its failure to do so may cause the Fund to miss a
price or yield considered to be advantageous. The Small Company Growth Fund's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions.
SHORT-TERM OBLIGATIONS
The Small Company Growth Fund may invest in high quality, short-term
obligations (with maturities of 12 months or less) such as domestic and foreign
commercial paper (including variable-amount master demand notes), bankers'
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
Such investments will be limited to those obligations which, at the time of
purchase, (i) possess one of the two highest short-term ratings from at least
two nationally recognized statistical rating organizations ("Rating Agencies")
(for example, commercial paper rated "A-1" or "A-2" by Standard & Poor's
Corporation ("S&P") and "P-1" or "P-2" by Moody's Investors Services, Inc.)
("Moody's"), or (ii) do not possess a rating (i.e., are unrated) but are
determined by BFMI (formerly PNC Equity Advisors Company) to be of comparable
quality to rated instruments eligible for purchase. Under normal market
conditions, the Small Company Growth Fund will limit its investment in
short-term obligations to 35% of its total assets.
The Small Company Growth Fund may invest in short-term obligations in
order to acquire interest income combined with liquidity. For temporary
defensive purposes, as determined by BFMI, these investments may constitute 100%
of the Fund's portfolio and, in such circumstances, will constitute a temporary
suspension of the Fund's attempts to achieve its investment objective.
U.S. GOVERNMENT SECURITIES
The Small Company Growth Fund may invest in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"), some of which may be subject to repurchase agreements.
The types of U.S. Government Securities in which the Fund will invest include
obligations issued or guaranteed as to payment of principal and interest by the
full faith and credit of the U.S. Government, such as Treasury bills, notes,
bonds and certificates of indebtedness, and obligations issued or guaranteed by
the 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
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<PAGE> 261
Banks, or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Fund would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities.
The Small Company Growth Fund may also invest in "zero coupon" U.S.
Government Securities. These securities tend to be more volatile than other
types of U.S. Government Securities. Zero coupon securities are debt instruments
that do not pay current interest and are typically sold at prices greatly
discounted from par value. The return on a zero coupon obligation, when held to
maturity, equals the difference between the par value and the original purchase
price. 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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Small Company Growth Fund may also invest in collateralized
mortgage obligations ("CMOs"). CMOs are mortgage-related securities which are
structured pools of mortgage pass-through certificates or mortgage loans. CMOs
are issued with a number of classes or series which have different maturities
and which may represent interests in some or all of the interest or principal on
the underlying collateral or a combination thereof. CMOs of different classes
are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early prepayments on such
mortgages, the class or series of CMO first to mature generally will be retired
prior to its maturity. Thus, the
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<PAGE> 262
early retirement of a particular class or series of CMO held by the Fund would
have the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
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 BB&T
Funds' Board of Trustees. The Fund will not purchase a stripped mortgage
security that is illiquid if, as a result thereof, more than 15% of the value of
its net assets would be invested in such securities and other illiquid
securities.
Unless stated otherwise, the Fund will limit its investment in CMOs to
25% of the value of its total assets.
DETERMINING THE MATURITY OF CERTAIN DEBT SECURITIES
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating the Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
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<PAGE> 263
COMMERCIAL BONDS
The Small Company Growth Fund may invest up to 35% of its total assets
in bonds, notes and debentures of a wide range of U.S. corporate issuers.
Debentures represent unsecured promises to pay, while notes and bonds may be
secured by mortgages on real property or security interests in personal
property. Bonds, notes and debentures in which the Small Company Growth Fund may
invest may differ in interest rates, maturities and times of issuance and may
include CMOs (which are described above).
The Small Company Growth Fund will invest only in bonds, notes, and
debentures which are rated at the time of purchase within the three highest
rating groups assigned by a Rating Agency (for example, at least A by Moody's or
S&P), or, if unrated, which BFMI deems to be of comparable quality. The
applicable ratings are described in the Appendix to the Statement of Additional
Information. In the event that the rating of any debt securities falls below the
third highest rating category, the Fund will not be obligated to dispose of such
obligations and may continue to hold such obligations if, in the opinion of BFMI
such investment is considered appropriate under the circumstances.
OPTIONS AND FUTURES CONTRACTS
To the extent consistent with its investment objective, the Small
Company Growth Fund may engage in writing call options from time to time as BFMI
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, the 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, the 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 the 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, the Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security above the exercise price but retains the risk of loss
should the price of the security decline.
To the extent consistent with its investment objective, the Small
Company Growth Fund may write covered call options, buy put options, buy call
options and write secured put options for the purpose of hedging or earning
additional income, which may be deemed speculative. These options may relate to
particular securities, financial instruments, foreign currencies, stock or bond
indices or the yield differential between two securities, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. The Fund will not purchase put and call options when the
aggregate premiums
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<PAGE> 264
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.
To the extent consistent with its investment objective, the Small
Company Growth Fund may also invest in futures contracts and options on futures
contracts to commit funds awaiting investment in stocks or maintain cash
liquidity or for other hedging purposes. The value of the Fund's contracts may
equal or exceed 100% of its total assets, although the Fund will not purchase or
sell a futures contract unless immediately afterwards the aggregate amount of
margin deposits on its existing futures positions plus the amount of premiums
paid for related futures options entered into for other than bona fide hedging
purposes is 5% or less of its net assets.
Futures contracts obligate the Small Company Growth Fund at maturity to
take or make delivery of securities, the cash value of a securities index or a
stated quantity of a foreign currency. The Fund may sell a futures contract in
order to offset an expected decrease in the value of its portfolio positions
that might otherwise result from a market decline or currency exchange
fluctuation. The Fund may do so either to hedge the value of its securities
portfolio as a whole, or to protect against declines occurring prior to sales of
securities in the value of the securities to be sold. In addition, the Fund may
utilize futures contracts in anticipation of changes in the composition of its
holdings or in currency exchange rates.
The Small Company Growth Fund may purchase and sell call and put
options on futures contracts traded on an exchange or board of trade. When the
Fund purchases an option on a futures contract, it has the right to assume a
position as a purchaser or a seller of a futures contract at a specified
exercise price during the option period. When the Fund sells an option on a
futures contract, it becomes obligated to sell or buy a futures contract if the
option is exercised. In connection with the Fund's position in a futures
contract or related option, the Fund will create a segregated account of liquid
assets or will otherwise cover its position in accordance with applicable SEC
requirements.
The risks related to the use of futures contracts include: (i) the
correlation between movements in the market price of the portfolio investments
(held or intended for purchase) being hedged and in the price of the futures
contract may be imperfect; (ii) possible lack of a liquid secondary market for
closing out futures positions; (iii) the need for additional portfolio
management skills and techniques; (iv) losses due to unanticipated market
movements; and (v) 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 the Fund uses
futures contracts as a hedge against the possibility of a decline in the market
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<PAGE> 265
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 futures
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 Small Company Growth Fund may invest in foreign securities through
the purchase of American Depository Receipts ("ADRs") or the purchase of
securities on the New York Stock Exchange. The Fund may also invest in
securities issued by foreign branches of U.S. banks and foreign banks and in
Canadian Commercial Paper and Europaper. ADRs typically are issued by an
American bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. Unsponsored ADR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuers may not be
as current as for sponsored ADRs, and the prices of unsponsored ADRs may be more
volatile than if such instruments were sponsored by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. The Small Company Growth Fund's
investments in foreign securities may also be adversely affected by changes in
foreign political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control regulations. In addition, changes
in government administrations or economic or monetary policies in the U.S. or
abroad could result in appreciation or depreciation of portfolio securities and
could favorably or adversely affect the Fund's operations. Special tax
considerations apply to foreign securities.
In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly,
the Small Company Growth Fund's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities in U.S.
companies.
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<PAGE> 266
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 and could adversely affect the value of
certain foreign securities held by the Small Company Growth 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.
OTHER INVESTMENT PRACTICES
For liquidity purposes, the Small Company Growth Fund may invest in
money market funds. The Fund may invest up to 5% of the value of its total
assets in the securities of any one money market mutual fund (including Shares
of the 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 FUNDS"--"Investment Adviser" and
"Administrator and Distributor") will reduce that portion of their usual
asset-based service fees from the Fund by an amount equal to their service fees
from the Prime Money Market Fund and the U.S. Treasury Fund that are
attributable to the Fund investments. BB&T and the
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Administrator will promptly forward such fees to the Fund. The Fund will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of other unaffiliated money market mutual funds. Additional
restrictions on the Fund's investments in the securities of an unaffiliated
money market fund and/or the Prime Money Market Fund or the U.S. Treasury Fund
are contained in the Statement of Additional Information.
In order to generate additional income, the Fund may, from time to
time, lend its portfolio securities to broker-dealers, banks or institutional
borrowers of securities which BB&T and/or the Fund's Sub-Adviser has determined
are creditworthy under guidelines established by the BB&T Funds' Board of
Trustees. The BB&T Funds will employ one or more securities lending agents to
initiate and affect securities lending transactions for the BB&T Funds. While
the lending of securities may subject the Fund to certain risks, such as delays
or the inability to regain the securities in the event the borrower was to
default on its lending agreement or enter into bankruptcy, the Fund will 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 the Fund will not have the right to vote securities on loan,
the Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. The Fund will restrict its
securities lending to 33 1/3% of its total assets.
In order to generate income, the Small Company Growth Fund may engage
in the technique of short-term trading. Such trading involves the selling of
securities held for a short time, ranging from several months to less than a
day. The object of such short-term trading is to increase the potential for
capital appreciation and/or income of the Fund in order to take advantage of
what BFMI believes are changes in market, industry or individual company
conditions or outlook. Any such trading would increase the portfolio turnover
rate of the Fund and its transaction costs.
RESTRICTED SECURITIES
The Small Company Growth 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 Small Company Growth Fund may purchase securities which are not
registered under the 1933 Act but which can be sold to "qualified institutional
buyers" in accordance with
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Rule 144A under the 1933 Act. These securities will not be considered illiquid
so long as BFMI 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.
CONVERTIBLE SECURITIES
The Small Company Growth Fund may invest 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. See the Statement of Additional
Information for further discussion of convertible securities.
STANDARD & POOR'S DEPOSITORY RECEIPTS
The 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 the Fund
only within the limits prescribed under the 1940 Act.
PORTFOLIO TURNOVER
The Portfolio turnover rate for the Small Company Growth Fund was
157.44% in the fiscal year ended September 30, 1998. The portfolio turnover of
the Fund may vary greatly from year to year as well as within a particular year.
High turnover rates will generally result in higher transaction costs to the
Fund and may result in higher levels of taxable realized gains (including
short-term capital gains which generally are taxed at ordinary income tax rates)
to the 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 to accommodate only a two-digit date position, which
represents the year (e.g., "95" is stored on the system
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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 BB&T Funds' principal service providers are taking
steps the BB&T Funds 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 BB&T
Funds' business and have a material adverse impact on the BB&T Funds'
operations. In addition, year 2000 issues could have a negative effect on the
portfolio securities in which the Funds invest, thereby affecting the
performance of the Funds.
INVESTMENT RESTRICTIONS
The Small Company Growth Fund is subject to a number of investment
restrictions that may be changed only by a vote of a majority of the outstanding
shares of the Fund (see "GENERAL INFORMATION--Miscellaneous").
The Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested
in securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly-owned finance companies will
be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
2. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of any class of securities
of the issuer or more than 10% of the outstanding voting securities of
the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations. There is no
limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
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3. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
for temporary purposes in amounts up to 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of
its borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
4. Make loans, except that the Fund may purchase or hold debt
securities and lend portfolio securities in accordance with its
investment objective and policies and may enter into repurchase
agreements.
VALUATION OF SHARES
The net asset value of the Small Company Growth Fund is determined and
its Shares are priced as of the close of regular trading of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on each Business Day ("Valuation
Time"). As used herein a "Business Day" constitutes any day on which the New
York Stock Exchange (the "NYSE") is open for trading and any other day (other
than a day during which no Shares are tendered for redemption and no orders to
purchase Shares are received) during which there is sufficient trading in the
Fund's portfolio instruments that the Fund's net asset value per share might be
materially affected. Currently, the NYSE is closed on the customary national
business holidays of New Year's Day, 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 the Fund, less (i) such class's
proportional share of general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number of relevant class
Shares outstanding.
The securities in the Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees of the BB&T Funds believes accurately reflects fair value.
For further information about the valuation of investments, see the Statement of
Additional Information.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the BB&T Funds' 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 BB&T
Funds 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 BB&T Funds sold to the Banks acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Shares so sold, it is
the responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Trust Shares of the Fund are sold at the net asset value per Trust
Share next determined after receipt by the Distributor of an order in good form
to purchase Trust Shares (see "VALUATION OF SHARES"). There is no sales charge
imposed by the BB&T Funds in connection with the purchase of the Fund'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 Trust Shares of the Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for the Fund
received prior to the 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 the 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.
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 Fund. Information
concerning this Prospectus should be read in conjunction with any such
information received from the Participating Organizations or Banks.
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The BB&T Funds reserves the right to reject any order for the purchase
of its Trust Shares in whole or in part, including purchases made with foreign
and third party drafts or checks.
EXCHANGE PRIVILEGE
Trust Shares of the Small Company Growth Fund may be exchanged for
Trust Shares of the other Funds, provided that the Shareholder making the
exchange is eligible on the date of the exchange to purchase Trust Shares (with
certain exceptions and subject to the terms and conditions described in this
prospectus). Trust Shares may also be exchanged for Class A Shares, if the
Shareholder ceases to be eligible to purchase Trust Shares. Trust Shares may not
be exchanged for Class B Shares.
The BB&T Funds 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 BB&T Funds reserves the right
to change the terms and conditions of the exchange privilege discussed herein
upon sixty days written notice.
The BB&T Funds' exchange privilege is not intended to afford
shareholders a way to speculate on short-term movements in the market.
Accordingly, in order to prevent excessive use of the exchange privilege that
may potentially disrupt the management of the Fund and increase transaction
costs, the BB&T Funds has established a policy of limiting excessive exchange
activity. Exchange activity will not be deemed excessive if limited to four
substantive exchange redemptions from a Fund during any calendar year.
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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 BB&T Funds 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 BB&T Funds at (800)
228-1872. If not selected on the Account
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Registration form, the Shareholder will automatically receive telephone
redemption privileges. None of the Distributor, the BB&T Funds' transfer agent,
BB&T or the BB&T Funds 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 BB&T Funds' telephone transaction procedures,
upon instructions reasonably believed to be genuine. The BB&T Funds will employ
procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
BB&T Funds 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 BB&T Funds.
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 BB&T Funds 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 BB&T Funds or the Shareholders
of the particular Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the BB&T Funds 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 BB&T Funds intends
to pay cash for all Shares redeemed, but under abnormal conditions which may
make payment in cash unwise, the BB&T Funds 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 BB&T Funds may suspend the
right of redemption or redeem Shares involuntarily if it appears appropriate to
do so in light of the BB&T Funds' responsibilities under the 1940 Act.
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DIVIDENDS AND TAXES
The Small Company Growth Fund will be treated as a separate entity for
federal income tax purposes. The Fund intends to qualify for treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). If qualified, the Fund will not have to pay federal taxes
on amounts it distributes to Shareholders. Regulated investment companies are
subject to a federal excise tax if they do not distribute substantially all of
their income on a timely basis. The Fund intends to avoid paying federal income
and excise taxes by timely distributing substantially all its net investment
income and net realized capital gains.
Dividends received by a Shareholder of the Small Company Growth Fund
that are derived from the 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 the Fund.
Shareholders will be advised at least annually as to the amount and
federal income tax character of distributions made during the year.
The amount of dividends payable with respect to the Trust Shares will
exceed dividends on Class A Shares, and the amount of dividends on Class A
Shares will exceed dividends on Class B Shares as a result of the Distribution
and Shareholder Services Plan fee applicable to Class A and Class B Shares.
Net realized capital gains, if any, are distributed at least annually
to Shareholders of record. The Small Company Growth Fund declares and pays
dividends quarterly.
A Shareholder will automatically receive all income dividends and
capital gain distributions in additional full and fractional Shares at net asset
value as of the date of 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 Funds, 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
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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 Small
Company Growth Fund, and so designated by the Fund, 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 the Fund 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. Distributions designated by the 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).
The foregoing is a summary of certain federal, state and local income
tax consequences of investing in the Fund. Shareholders should consult their own
tax advisers concerning the tax consequences of an investment in the Fund with
specific reference to their own tax situation.
MANAGEMENT OF BB&T FUNDS
TRUSTEES OF THE BB&T FUNDS
Overall responsibility for management of the BB&T Funds rests with the
Board of Trustees of the BB&T Funds, who are elected by the Shareholders of the
BB&T Funds. There are currently five Trustees, two of whom are "interested
persons" of the BB&T Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of the BB&T Funds to supervise
actively its day-to-day operations. The Trustees of the BB&T Funds, their
current addresses, and principal occupations during the past five years are as
follows:
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE BB&T FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
<S> <S> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, OH 43219
Age: 53
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams; from
Fayetteville Street Mall 1985 to December, 1993, Vice
P.O. Box 109 Chairman, Carolina Power & Light
Raleigh, NC 27602 Company
Age: 69
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, NC 27106 Foundation
Age: 64
*W. Ray Long Trustee Retired; Executive Vice President,
605 Blenheim Drive Branch Banking and Trust Company
Raleigh, NC 27612 from 1974 to 1998
Age: 64
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of Engineered
Greenville, SC 29615 Custom Plastics Corporation from
Age: 66 1969 to 1990
</TABLE>
* Indicates an "interested person" of the BB&T Funds 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, Inc., BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the BB&T Funds for
acting as a Trustee. The officers of the BB&T Funds (see the Statement of
Additional Information) receive no compensation directly from the BB&T Funds for
performing the duties of their offices. BISYS Fund Services receives fees from
the BB&T Funds for acting as Administrator and BISYS Fund Services Ohio, Inc.
receives fees from the BB&T Funds for acting as Transfer Agent and for providing
fund accounting services to the BB&T Funds. Walter B. Grimm is an employee of
BISYS Fund Services.
INVESTMENT ADVISER
BB&T is the Investment Adviser of the Small Company Growth Fund. BB&T
is the oldest bank in North Carolina and is the principal bank affiliate of BB&T
Corporation, a bank holding company that is a North Carolina corporation,
headquartered in Winston-Salem, North
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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 BB&T Funds,
it has experience in managing collective investment funds with investment
portfolios and objectives comparable to those of the BB&T Funds. 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.
Under an investment advisory agreement between the BB&T Funds and BB&T,
the fee payable to BB&T by the Fund for investment advisory services is the
lesser of: (a) a fee computed daily and paid monthly at the annual rate of one
percent (1.00%) of the Small Company Growth Fund's average daily net assets; or
(b) such fee as may from time to time be agreed upon in writing by the BB&T
Funds and BB&T. A fee agreed to in writing from time to time by the BB&T Funds
and BB&T may be significantly lower than the fee calculated at the annual rate
and the effect of such lower fee would be to lower the Fund's expenses and
increase the net income of the Fund during the period when such lower fee is in
effect.
For the fiscal year ended September 30, 1998, the Small Company Growth
Fund paid as investment advisory fees 1.00% of its average daily net assets.
SUB-ADVISER
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 BB&T Funds' 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
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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
1800's. 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.
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>
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for the Small Company Growth
Fund and also acts as the BB&T Funds' principal underwriter and distributor (the
"Administrator" or the "Distributor," as the context indicates) under agreements
approved by the BB&T Funds' 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 the Small Company
Growth Fund's administration and operation. Under a management and
administration agreement between the
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BB&T Funds and the Administrator, the fee payable by the Fund to the
Administrator for management administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (0.20%) of
the Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon in writing by the BB&T Funds and the Administrator. A fee agreed to
in writing from time to time by the BB&T Funds and the Administrator may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower the Fund's expenses and increase the net income
of the Fund during the period when such lower fee is in effect.
For the fiscal year ended September 30, 1998, the Small Company Growth
Fund paid administration fees of 0.20% of its average daily net assets.
EXPENSES
BB&T and the Administrator each bear all expenses in connection with
the performance of their services as Adviser and Administrator, respectively,
other than the cost of securities (including brokerage commissions, if any)
purchased for the Small Company Growth Fund. The Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the BB&T Funds,
Securities and Exchange Commission fees, state securities qualification and
renewal fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to current Shareholders, outside auditing and
legal expenses, amortized organizational expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and the transfer agent,
fees and out-of-pocket expenses for fund accounting services, expenses incurred
for pricing securities owned by the Fund, certain insurance premiums, costs of
maintenance of the Fund's existence, costs and expenses of Shareholders' and
Trustees' reports and meetings, and any extraordinary expenses incurred in its
operation. As a general matter, expenses are allocated to the Class A, Class B
and Trust Class of the Fund on the basis of the relative net asset value of each
class. At present, the only expenses that will be borne solely by Class A and
Class B Shares, other than in accordance with the relative net asset value of
the class, are expenses under the BB&T Funds' 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, the Small Company Growth
Fund's total operating expenses for Trust Shares were 1.61% of its average daily
net assets.
BANKING LAWS
BB&T and BFMI each believes that it possesses the legal authority to
perform the investment advisory and sub-advisory services for the BB&T Funds
contemplated by its investment advisory agreement with the BB&T Funds 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 BB&T Funds. Future changes in federal
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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 BFMI could
continue to perform such services for the BB&T Funds. See "MANAGEMENT OF BB&T
FUNDS -- Glass Steagall Act" in the Statement of Additional Information for
further discussion of applicable banking laws and regulations.
DISTRIBUTION PLAN
The Distribution Plan contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Fund within the
context of Rule 12b-1 under the 1940 Act, such payment shall be deemed to be
authorized by the Distribution Plan.
PORTFOLIO BROKERAGE
When placing orders for the BB&T Funds' securities transactions, BB&T
or the Small Company Growth Fund's 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 the Fund's
Sub-Adviser may use a qualified affiliated broker or dealer of BB&T to execute
the BB&T Funds' 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 BB&T FUNDS AND ITS SHARES
The BB&T Funds was organized as a Massachusetts business trust on
October 1, 1987 and commenced active operation on September 24, 1992. The BB&T
Funds 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 eighteen 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
Intermediate Corporate 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 Virginia Intermediate Tax- Free Bond Fund,
the BB&T U.S. Treasury Money Market Fund, the BB&T Prime Money Market Fund, the
BB&T Tax-Free 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
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International Equity Fund, the BB&T Equity Index 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, the South Carolina Fund and the Virginia Fund
are not offering Class B Shares and the Equity Index Fund is not offering Class
A or 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 BB&T Funds
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 BB&T Funds 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 BB&T
Funds 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 BB&T Funds or such
Fund.
Overall responsibility for the management of the BB&T Funds is vested
in the Board of Trustees. See "MANAGEMENT OF BB&T FUNDS --Trustees of the BB&T
Funds." 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 BB&T Funds and Massachusetts law. See "ADDITIONAL INFORMATION --
Miscellaneous" in the Statement of Additional Information for further
information.
Although the BB&T Funds is not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the BB&T Funds' outstanding
Shares have the right to call a meeting to elect or remove one or more of the
Trustees of the BB&T Funds. Shareholder inquiries should be directed to the
Secretary of the BB&T Funds at 3435 Stelzer Road, Columbus, Ohio 43219.
As of February 18, 1999 BB&T owned of record substantially all of the
Trust Shares of the Small Company Growth Fund and held voting or investment
power with respect to more than 95% of the Trust Shares of the Fund. BB&T may
therefore be deemed to be a "controlling person" of the Trust Shares of the Fund
within the meaning of the 1940 Act.
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CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Firststar Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves
as Custodian for the Small Company Growth Fund.
BISYS Fund Services Ohio, Inc. serves as transfer agent for and
provides fund accounting services to the BB&T Funds.
OTHER CLASSES OF SHARES
In addition to Trust Shares, the Small Company Growth Fund also offers
Class A and Class B Shares. Class A Shares are offered to the general public at
net asset value plus an applicable sales charge. Class B shares are offered to
the general public at net asset value without a sales charge when purchased, but
are subject to a sales charge if a Shareholder redeems them prior to the sixth
anniversary of purchase. Class A and Class B Shares are also subject to a
Distribution and Shareholder Services Plan fee.
PERFORMANCE INFORMATION
From time to time performance information of the Small Company Growth
Fund showing its average annual total return, aggregate total return, and/or
yield may be presented in advertisements, sales literature and shareholder
reports. Such performance figures are based on historical earnings and are not
intended to indicate future performance. Average annual total return will be
calculated for the period since the establishment of the Fund and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. Average
annual total return is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the redemption value of an
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for the Fund earned
during a recent 30-day period by its per Share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the results.
The Small Company Growth 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 Small Company Growth Fund may also calculate a distribution rate.
Distribution rates will be computed by dividing the distribution per Share of a
class made by the Fund over a twelve-month period by the maximum offering price
per Share. The distribution rate includes both income and capital gain dividends
and does not reflect unrealized gains or losses. The calculation of income in
the distribution rate includes both income and capital gain
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dividends and does not reflect unrealized gains or losses, although the Fund may
also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital items
which are often non-recurring in nature, and may include returns of principal,
whereas yield does not include such items. The Fund does not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Trust Shares are not
subject to Distribution and Shareholder Services Plan fees, the yield and total
return for Trust Shares will be higher than that of the Class A or Class B
Shares for the same period.
Investors may also judge the performance of the Small Company Growth
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 the Small Company Growth Fund is
based on its record up to a certain date and is not intended to indicate future
performance. Yield and total return of any investment are generally functions of
portfolio quality and maturity, type of investments and operating expenses.
Yields and total returns of a Fund will fluctuate. Any fees charged by the
Participating Organizations to their customers in connection with investment in
the Fund are not reflected in the BB&T Funds' performance information.
Further information about the performance of the Small Company Growth
Fund is contained in the BB&T Funds' annual report to Shareholders, which may be
obtained without charge by calling (800) 228-1872.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Small Company Growth Fund and annual financial
statements audited by independent public accountants.
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<PAGE> 285
Inquiries regarding the Small Company Growth Fund may be directed in
writing to the BB&T Funds at the following address -- the BB&T Funds , P.O. Box
182533, Columbus, OH 43218-2533 or by calling toll free (800) 228-1872.
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<PAGE> 286
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
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
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<PAGE> 287
CROSS REFERENCE SHEET
PROSPECTUS FOR BB&T FUNDS
U.S. TREASURY MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
CLASS A, CLASS B AND TRUST SHARES
<TABLE>
<CAPTION>
<S> <C>
Part A Item Prospectus Caption
Cover Page.................................................... Cover Page
Financial
Highlights................................................. Selected Per Share Data and Ratios;
Performance
Synopsis...................................................... Fee Table
General Description
of Registrant.............................................. BB&T Funds; Investment Objective
and Policies; Investment Restrictions;
General Information - Description of
the BB&T Funds and Its Shares
Management of
THE Funds................................................ Management of the BB&T Funds;
General Information - Custodian and
Transfer Agent
Capital Stock and
Other Securities........................................... BB&T Funds; How to Purchase and
Redeem Shares; Dividends and Taxes;
General Information - Description of
the BB&T Funds and Its Shares;
General Information - Miscellaneous
Purchase of Securities
Being Offered.............................................. Valuation of Shares; How to Purchase
and Redeem Shares
Redemption or Repurchase...................................... How to Purchase and Redeem Shares
Legal Proceedings............................................. Inapplicable
</TABLE>
<PAGE> 288
U.S. Treasury Money Market Fund
Prime Money Market Fund
Tax-Free 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 May 17, 1999
<PAGE> 289
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................................................
BB&T Funds..............................................................................................
Fee Table...............................................................................................
Financial Highlights..................................................................................
Investment Objectives and Policies......................................................................
Investment Restrictions.................................................................................
Valuation of Shares.....................................................................................
How to Purchase and Redeem Shares.......................................................................
Dividends and Taxes.....................................................................................
Management of the BB&T Funds..........................................................................
General Information.....................................................................................
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BB&T
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
BB&T FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
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<PAGE> 290
BB&T FUNDS
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
THE BB&T FUNDS is an open-end management investment company offering to
the public eighteen separate investment funds (each, a "Fund"). Each Fund of the
BB&T Funds 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 BB&T Funds. The remaining fifteen Funds primarily invest in securities of
issuers unrelated to the BB&T Funds.
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.
THE BB&T TAX-FREE MONEY MARKET FUND (the "Tax-Free Money Market Fund")
seeks as high a level of current interest income exempt from federal income tax
as is consistent with stability of principal. The Tax-Free Money Market Fund
seeks to achieve this objective by investing substantially all of its assets in
short-term tax-exempt obligations issued by state and local governments.
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 , the Prime
Money Market Fund, and the Tax-Free 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.
<PAGE> 291
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, The BB&T Virginia Intermediate Tax-Free Fund, the
BB&T Intermediate Corporate Bond 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, THE BB&T EQUITY INDEX 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 BB&T FUNDS or by calling the BB&T FUNDS 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 FUND, THE Prime Money Market FUND, AND THE TAX-FREE MONEY MARKET FUND
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 , THE PRIME MONEY MARKET FUND,
AND THE TAX-FREE 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 FUNDS 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 May 17, 1999.
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<PAGE> 292
PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
<S> <C>
BB&T Funds The BB&T Funds, a Massachusetts business trust, is an
open-end management investment company which currently
consists of eighteen 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 BB&T Funds. The
remaining fifteen Funds primarily invest in securities of issuers
unrelated to the BB&T Funds. This prospectus relates to the
U.S. Treasury Fund, the Prime Money Market Fund, and
the Tax-Free 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, the
Prime Money Market Fund, or the Tax-Free 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
RESPECTIVE Fund within two years of purchase.
Investment Objective and THE U.S. TREASURY FUND seeks current income with liquidity
Policies and stability of principal through investing exclusively in
short-term obligations issued or guaranteed
by the U.S. Treasury, some of which may be
subject to repurchase agreements.
THE PRIME MONEY MARKET FUND seeks as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
THE TAX-FREE MONEY MARKET FUND seeks as high a level of
current interest income exempt from federal income tax as is
consistent with 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
</TABLE>
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<PAGE> 293
<TABLE>
<CAPTION>
<S> <C>
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, the Prime
Money Market Fund, and the Tax-Free 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 and the Tax-Free
Money Market Fund.
Dividends The U.S. Treasury Fund, the Prime Money Market Fund, and the
Tax-Free Money Market Fund declare dividends daily and pay such
dividends monthly.
Distributor BISYS Fund Services LP, Columbus, Ohio.
</TABLE>
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<PAGE> 294
BB&T FUNDS
The BB&T Funds is an open-end management investment company. The BB&T
Funds consist of eighteen series of units of beneficial interest ("Shares"),
each representing interests in one of eighteen 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 BB&T Funds. The remaining fifteen Funds primarily invest in securities of
issuers unrelated to the BB&T Funds. Each Fund is authorized to offer three
classes of Shares: Class A Shares, Class B Shares and Trust Shares.
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<PAGE> 295
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>
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND
CLASS A CLASS B 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% 5.00% 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) 0.20%(3) 0.20%(3) 0.20%(3)
12b-1 Fees (after voluntary fee
reductions) 0.25%(4) 1.00% 0%
====== ===== =======
Other Expenses (after voluntary fee
reductions) 0.45%(5) 0.45%(5) 0.45%(5)
Total Fund Operating Expenses
(after voluntary fee reductions) 0.90%(6) 1.65%(6) 0.65%(6)
</TABLE>
-6-
<PAGE> 296
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 BB&T Funds 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, Prime Money Market Fund, and Tax-Free Money Market Fund would
be 0.40%.
4 BISYS Fund Services has agreed with the BB&T Funds 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 FUNDS--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 Trust Shares of the Prime Money Market Fund, 0.36%
for class A shares, Class B Shares, and Trust Shares of the U.S. Treasury
Money Market Fund, AND 0.50% for Class A Shares, Class B Shares and Trust
Shares of the Tax-Free Market Fund. "Other Expenses" for the Tax-Free Money
Market Fund are based on estimated amounts for the current fiscal year.
6 As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of 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 1.26%
and 1.76%, respectively, for the U.S. Treasury Fund, 1.43% and 1.99%,
respectively, for the Prime Money Market Fund, and 1.40% and 1.90%,
respectively, for the Tax-Free 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,
the Prime Money Market Fund and the Tax-Free Money Market Fund would be
0.76% , 0.91%, AND 0.90%, respectively.
-7-
<PAGE> 297
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
Tax-Free Money Market Fund $7 $21 N/A N/A
</TABLE>
Trust Shares are not subject to a 12b-1 fee.
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
Tax-Free Money Market Fund $9 $29 N/A N/A
</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
Tax-Free Money Market Fund
Assuming a complete
redemption at end of period $67 $82 n/a n/a
Assuming no redemption $17 $52 n/a n/a
</TABLE>
-8-
<PAGE> 298
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 FUNDS" 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.
-9-
<PAGE> 299
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 BB&T Funds, 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
Tax-Free Money Market Fund had not commenced operations as of September 30,
1998.
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.
-10-
<PAGE> 300
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
ENDED ENDED ENDED ENDED ENDED TO
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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> 301
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
FOR THE YEAR FOR THE YEAR 01/01/96
ENDED ENDED TO
09/30/98 09/30/97 09/30/96(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 restrictions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-12-
<PAGE> 302
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 10/05/92
ended ended ended ended ended to
09/30/98 09/30/97 09/30/96 09/30/95 09/30/94 09/30/93(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>
* 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.
-13-
<PAGE> 303
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
10/01/97
to
09/30/98(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.
-14-
<PAGE> 304
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
09/02/98
TO
09/30/98(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.
-15-
<PAGE> 305
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
10/1/97
to
09/30/98 (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.
-16-
<PAGE> 306
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 BB&T Funds' Adviser or Sub-Adviser, under guidelines
established by the BB&T Funds' 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 A Nationally Recognized Statistical Ratings Organization ("Rating
Agency") 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.
-17-
<PAGE> 307
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 rating agencies (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 rating agency;
or (3) are unrated, but are determined to be of comparable quality by the
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;
(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.
-18-
<PAGE> 308
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.
TAX-FREE MONEY MARKET FUND
The investment objective of the Tax-Free Money Market Fund is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with stability of principal.
The Tax-Free Money Market Fund invests substantially all of its assets
in a diversified portfolio of short-term tax-exempt obligations issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions and tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests in
trusts and partnership interests ("municipal obligations"). As a fundamental
policy, except during periods of unusual market conditions or during temporary
defensive periods, the Tax-Free Money Market Fund will invest substantially all,
but in no event less than 80%, of its total assets in municipal obligations with
remaining maturities of 397 days (thirteen months) or less as determined in
accordance with the rules of the SEC. The Tax-Free Money Market Fund may hold
uninvested cash reserves pending investment, during temporary defensive periods
or if, in the opinion of the adviser or sub-adviser suitable tax-exempt
obligations are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested. Uninvested cash reserves will not earn
income.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the funds
from tax-exempt derivative securities are
-19-
<PAGE> 309
rendered by counsel to the respective sponsors of such securities. The Tax-Free
Money Market Fund and the adviser or sub-adviser will rely on such opinions and
will not review independently the underlying proceedings relating to the
issuance of municipal obligations, the creation of any tax-exempt derivative
securities, or the bases for such opinions.
The Tax-Free Money Market Fund will purchase only municipal obligations
which are "eligible securities" (as defined by the SEC) and which present
minimal credit risks as determined by the adviser or sub-adviser pursuant to
guidelines approved by BB&T Funds' board of trustees. Eligible securities
consist of the following types of securities: (I) securities that have
short-term debt ratings at the time of purchase in the two highest rating
categories by at least two unaffiliated rating agencies (or one rating agency
if the security was rated by only one rating agency); (II) securities that are
issued by an issuer (or, in certain cases guaranteed by an issuer) with such
ratings; or (III) securities without such short-term ratings that have been
determined to be of comparable quality by the adviser or sub-adviser pursuant
to guidelines approved by BB&T Funds' board of trustees. The appendix to the
statement of additional information includes a description of applicable
ratings by rating agencies.
The Tax-Free Money Market Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation. Investment in the Tax-Free Money Market 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 Tax-Free Money Market Fund would be appropriate.
CORPORATE AND BANK OBLIGATIONS
To the extent consistent with their investment objectives, the Prime
Money Market Fund and the Tax-Free 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 and the
Tax-Free 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.
RESTRICTED SECURITIES
The Prime Money Market Fund and the Tax-Free 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)
-20-
<PAGE> 310
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 and the Tax-Free 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 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 and Tax-Free 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 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, a Fund relies 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. The Prime Money Market Fund's and the Tax-Free Money Market Fund's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of their total assets absent unusual market conditions.
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ASSET-BACKED SECURITIES
The Prime Money Market Fund may invest in asset-backed securities which
are securities created by the grouping of certain private loans, receivables and
other lender assets, such as automobile receivables and credit-card receivables,
into pools.
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.
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COLLATERALIZED MORTGAGE OBLIGATIONS
Although under normal market conditions it does not expect to do so,
except in connection with repurchase agreements, the Prime Money Market Fund,
may also invest in collateralized mortgage obligations ("CMOs"). CMOs are
mortgage-related securities which are structured pools of mortgage pass-through
certificates or mortgage loans. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Prime Money Market
Fund would have the same effect as the prepayment of mortgages underlying a
mortgage-backed pass-through security.
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 BB&T
Funds' 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.
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Unless stated otherwise, the Prime Money Market Fund will limit its
investment in CMOs to 25% of the value of its total assets.
Determining the Maturity of certain debt securities
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.
MUNICIPAL OBLIGATIONS
The Tax-Free Money Market Fund invests primarily in 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.
The two principal classifications of Municipal Obligations which may be
held by the Tax-Free Money Market Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Revenue securities include private activity
bonds
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which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The Tax-Free Money Market Fund's Portfolio may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds 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.
Although the Tax-Free Money Market Fund may invest more than 25% of its
net assets in (I) Municipal Obligations whose issuers are in the same state and
(II) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, it does not presently intend to do so on a regular basis. To
the extent the Tax-Free Money Market Fund's Assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Tax-Free Money Market Fund will be
subject to the peculiar risks presented by such projects and by the laws and
economic conditions relating to such states to a greater extent than it would be
if its assets were not so concentrated.
PRIVATE ACTIVITY BONDS
The Tax-Free Money Market Fund may invest its net assets in private
activity bonds ("Industrial Development Bonds" under prior law). While interest
paid on Private Activity Bonds will be exempt from regular federal income tax,
it may be treated as a specific tax preference item under the Federal
Alternative Minimum Tax. (See "Dividends and Taxes".) Investors should also be
aware of the possibility of state and local alternative minimum income tax or
minimum income tax liability on interest from private activity bonds.
FOREIGN INVESTMENTS
The Prime Money Market Fund may invest in debt obligations of foreign
corporations and banks. The Prime Money Market Fund may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank;
Canadian Time Deposits ("CTDs") which are essentially the same as ETDs except
they are issued by Canadian offices of major Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
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The Prime Money Market Fund will not invest in excess of 10% of its net
assets in time deposits, including ETDs and CTDs but not including certificates
of deposit, with maturities in excess of seven days which are subject to
penalties upon early withdrawal.
The Prime Money Market Fund may invest in commercial paper (including
variable amount master demand notes) issued by U.S. or foreign corporations. The
Prime Money Market Fund may also invest in Canadian Commercial Paper ("CCP"),
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may
subject the Prime Money Market Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of foreign withholding taxes on interest income,
possible seizure, currency blockage, nationalization, or expropriation of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely effect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks. The Prime Money Market Fund will acquire securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers only when the
Adviser or Sub-Adviser believes that the risks associated with such instruments
are minimal and only when such instruments are denominated and payable in United
States dollars.
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. 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 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
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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 and the Tax-Free 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 and Floating Rate Instruments may include Variable Rate Demand
Notes, which are unsecured demand notes that MAY permit the indebtedness
thereunder to vary, and that provide for periodic adjustments in the interest
rate according to the terms of the instrument. Such notes are frequently not
rated by credit rating agencies, but unrated notes purchased by a Fund will be
determined by the Adviser or Sub-Adviser to be of comparable quality at the time
of purchase to rated instruments purchasable by the Fund. While the notes are
not typically rated , 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.
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 an Eligible Security, the Tax-Free Money Market Fund will
require that the issuer's obligation to pay the principal of the note be backed
by a guarantee in accordance with SEC Rule 2A-7. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a Fund, a Fund may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding thirteen months, 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 rate demand note if the issuer were to default on its payment
obligation or during periods that a Fund is not entitled to exercise its demand
rights, and a Fund could, for this or other reasons, suffer a loss to the extent
of the default. these Notes will be considered liquid only if the period of time
remaining until the principal amount can be recovered under a variable master
demand note may not exceed seven days.
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MONEY MARKET FUNDS
In connection with the management of its daily cash positions, the
Prime Money Market Fund and the Tax-Free 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
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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 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 and the Tax-Free 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
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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
BB&T Funds' Board of Trustees. The BB&T Funds will employ one or more securities
lending agents to initiate and effect securities lending transactions for the
BB&T Funds. 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.
PUTS
The Tax-Free Money Market Fund may acquire "puts" with respect to
securities held in its portfolio. Under a put, the Fund would have the right to
sell a specified security within a specified period of time at a specified
price. A put would be sold, transferred, or assigned only with the underlying
security. The funds expect that it will generally acquire puts only where the
puts are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a put either separately
in cash or by paying a higher price for Fund securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities). The Fund will acquire puts solely to facilitate liquidity,
shorten the
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maturity of the underlying security, or permit the investment of funds at a more
favorable rate of return.
STAND-BY COMMITMENTS
In addition, the Tax-Free Money Market Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Tax-Free Money
Market Fund's option specified Municipal Obligations at a specified price. The
Tax-Free Money Market Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by the Tax-Free
Money Market Fund may also be referred to as "put" options.
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 BB&T Funds' principal service providers are taking steps the BB&T Funds
believe 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 BB&T Funds' business and have a
material adverse impact on the BB&T Funds' operations. In addition, year 2000
issues could have a negative effect on the portfolio securities in which the
Funds invest, thereby affecting the performance of the Funds.
INVESTMENT RESTRICTIONS
The U.S. Treasury Fund, the Prime Money Market Fund, and the Tax-Free
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 , the Prime Money Market Fund, and the Tax-Free
Money Market 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
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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, the Prime Money Market Fund and the Tax-Free Money
Market Fund will apply this restriction to 100% of its portfolio,
except that for the Prime Money Market Fund and the Tax-Free 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, the Prime Money Market Fund, and the Tax-Free Money Market Fund
and therefore subject to change without shareholder vote:
The U.S. Treasury Fund, the Prime Money Market Fund, and the Tax-Free
Money Market Fund each may not 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 , the Prime Money Market
Fund, and the Tax-Free 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 herein a "Business Day" constitutes any day on
which the New York Stock Exchange is open
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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 , the Prime Money Market Fund, and
the Tax-Free 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 BB&T Funds
seek to maintain the U.S. Treasury Fund's, the Prime Money Market Fund's, and
the Tax-Free 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 BB&T Funds' 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 BB&T
Funds 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
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one of its affiliates (individually a "Bank" and collectively the "Banks") or
other financial service providers approved by the Distributor.
Shares of the BB&T Funds 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 BB&T Funds in connection with the
purchase of the BB&T Funds' 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 BB&T Funds' Distribution and Shareholder
Services Plan (see "MANAGEMENT OF BB&T Funds --Distribution Plan").
Investors purchasing Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, or the Tax-Free 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 Prime Money Market Fund, the U.S. Treasury
Money Market Fund, or the Tax-Free Money Market Fund as opposed to Shareholders
obtaining Class B Shares of the Prime Money Market Fund, the U.S. Treasury Money
Market Fund, or the Tax-Free 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 Prime
Money Market Fund, the U.S. Treasury Money Market Fund, or the Tax-Free 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 BB&T Funds 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
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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 BB&T Funds, P.O. Box
182533, Columbus, OH 43218-2533. Investors may obtain an Account Registration
Form and additional information regarding the BB&T Funds 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 BB&T Funds 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 BB&T Funds' transfer
agent. To make payments electronically, investors must call the BB&T Funds 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 Money Market Funds 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.
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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 BB&T Funds. Compensation will also include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding one or more
of the Funds, and/or other dealer-sponsored special events. In some instances,
this compensation will be made available only to dealers whose representatives
have sold a significant amount of such Shares. Compensation will include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will also include the following types of non-cash
compensation offered through sales contests: (1) vacation trips, including the
provision of travel arrangements and lodging at luxury resorts at exotic
locations, (2) tickets for entertainment events (such as concerts, cruises and
sporting events) and (3) merchandise (such as clothing, trophies, clocks and
pens). Dealers may not use sales of a Fund's Shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or
its shareholders.
CLASS B SHARES
Class B Shares are not subject to a sales charge when they are
purchased, but are subject to a sales charge (the "Contingent Deferred Sales
Charge") if a Shareholder redeems them prior to the sixth anniversary of
purchase. When a Shareholder purchases Class B Shares, the full purchase amount
is invested directly in the applicable Fund. Class B Shares of each Fund are
subject to an ongoing distribution and Shareholder service fee at an annual rate
of 1.00% of such Fund's average daily net assets as provided in the Distribution
Plan (described below under "The Distributor"). This ongoing fee will cause
Class B Shares to have a higher expense ratio and to pay lower dividends than
Class A Shares. Class B Shares convert automatically to Class A Shares after
eight years, commencing from the end of the calendar month in which the purchase
order was accepted under the circumstances and subject to the qualifications
described in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and Shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.00% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission at its sole
discretion.
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CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth
anniversary of purchase, the Shareholder will pay a Contingent Deferred Sales
Charge at the rates set forth below. The Contingent Deferred Sales Charge is
assessed on an amount equal to the lesser of the then-current market value or
the cost of the Shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on Shares derived from reinvestment of dividends or
capital gain distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such Shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of Shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
-------- -----------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a
Contingent Deferred Sales Charge, it is assumed that the redemption is first of
any Class A Shares in the Shareholder's Fund account (unless the Shareholder
elects to have Class B Shares redeemed first) or Shares representing capital
appreciation, next of Shares acquired pursuant to reinvestment of dividends and
capital gain distributions, and finally of other Shares held by the Shareholder
for the longest period of time. This method should result in the lowest possible
sales charge.
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
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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 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 , Class B Shares of the U.S. Treasury Fund, or Class
B Shares of the Tax-Free Money Market 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 BB&T Funds 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.
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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 BB&T Funds during the eight-year period, the BB&T Funds will
aggregate the holding periods for the shares of each Fund of the BB&T Funds 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 Funds 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 BB&T Funds' 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 Funds, 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 FUNDS INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A BB&T Funds 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 Funds 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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All BB&T Funds IRA distribution requests must be made in writing to
BISYS Fund Services. Any additional deposits to a BB&T Funds IRA must
distinguish the type and year of the contribution.
For more information on a BB&T Funds IRA call the BB&T Funds at (800)
228-1872. Shareholders are advised to consult a tax adviser on BB&T Funds 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 a 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 BB&T Funds' 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 BB&T Funds' 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 BB&T Funds. Information
concerning this Prospectus should be read in conjunction with any such
information received from the Participating Organizations or Banks.
The BB&T Funds reserve 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.
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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 BB&T Funds do not impose a charge for processing exchanges of its
Trust Shares. However, the exchange of Trust Shares for Class A Shares will
require payment of the sales charge unless the sales charge is waived.
Shareholders may exchange their Trust Shares for Trust Shares of another Fund on
the basis of the relative net asset value of the Shares exchanged.
CLASS A
Class A Shares of each Money Market Fund may be exchanged for Class A
Shares of the other Funds, provided that the Shareholder making the exchange is
eligible on the date of the exchange to purchase Class A Shares (with certain
exceptions and subject to the terms and conditions described in this
prospectus). Class A Shares may not be exchanged for Class B Shares of the other
Funds, and may be exchanged for Trust Shares of the other Funds only if the
Shareholder becomes eligible to purchase Trust Shares. Only residents of North
Carolina may exchange the Class A Shares of the 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.
Only residents of Virginia may exchange their Class A shares of the other Funds
for Class A shares of the Virginia 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.
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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, the South
Carolina Fund, or the Virginia 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 BB&T Funds may do so by contacting the BB&T Funds 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
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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
BB&T Funds reserve the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days' written notice.
The BB&T Funds' 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 Funds Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Class B Shares of a BB&T Fund and use those proceeds
to benefit from dollar-cost- averaging by automatically making purchases of
shares of another BB&T Fund. With shareholder authorization, the BB&T Funds'
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 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 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, the Prime Money Market Fund, or the Tax-Free Money Market Fund, as
opposed to Shareholders obtaining Class B Shares of the U.S. Treasury Fund, the
Prime Money Market Fund, or the Tax-Free 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, the Prime Money Market Fund, or the Tax-Free 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
Funds, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Exchange may be
amended or terminated without notice at any time by the Distributor.
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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 BB&T Funds 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
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redemptions, call the BB&T Funds 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 BB&T Funds' transfer agent,
BB&T or the BB&T Funds 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 BB&T Funds' telephone transaction procedures,
upon instructions reasonably believed to be genuine. The BB&T Funds will employ
procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
BB&T Funds 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 BB&T Funds.
CHECK WRITING SERVICE
Shareholders of Class A Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, and the Tax-Free 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 Funds Auto Withdrawal Plan enables Shareholders to make regular
redemptions of Class A Shares and Class B Shares of a Fund. With Shareholder
authorization, the BB&T Funds' 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.
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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 Funds ,
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 Money Market Funds will attempt to honor
requests from its Shareholders for same day payment upon redemption of Shares if
the request for redemption is received by the Transfer Agent before 12:00 noon
Eastern Time, on a Business Day or, if the request for redemption is received
after 12:00 noon Eastern Time, to honor requests for payment on the next
Business Day, unless it would be disadvantageous to a Fund or its Shareholders
to sell or liquidate portfolio securities in an amount sufficient to satisfy
requests for payments in that manner.
At various times, a Fund may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the BB&T Funds 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 BB&T Funds intend to
pay cash for all Shares redeemed, but under abnormal conditions which may make
payment in cash unwise, the BB&T FUNDS 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 BB&T
Funds reserve 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 BB&T Funds exercise their 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.
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See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement
of Additional Information for examples of when the BB&T Funds may suspend the
right of redemption or redeem Shares involuntarily if it appears appropriate to
do so in light of the BB&T Funds' 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 elects to receive
such dividends or distributions in cash. Such election, or any revocation
thereof, must be made in writing to the BB&T Funds , 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
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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.
Tax Considerations Relating to the Tax-Free Money Market Fund
The Tax-Exempt Money Market Fund can only pay its shareholders exempt-
interest dividends if, at the close of every quarter of the Fund's taxable year,
at least 50% of the total value of the Tax-Exempt Money Market Fund's assets
consist of obligations, the interest on which is exempt from Federal Income Tax.
Distributions designated as exempt-interest dividends by the Tax-Exempt Money
Market Fund generally are not subject to Federal Income Tax. Any loss on the
sale or exchange of shares in the Tax-
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Exempt Money Market Fund held for six months or less will be disallowed to the
extent of any Exempt-Interest Dividend received by the shareholders with respect
to such shares. In addition, an investment in the Fund may result in liability
for Federal Alternative Minimum Tax, both for individual and corporate
shareholders.
MANAGEMENT OF BB&T FUNDS
Trustees of the BB&T Funds
Overall responsibility for management of the BB&T Funds rests with the
Board of Trustees of the BB&T Funds, who are elected by the Shareholders of the
BB&T Funds. There are currently five Trustees, two of whom are "interested
persons" of the BB&T Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of the BB&T Funds to supervise
actively its day-to-day operations. The Trustees of the BB&T Funds, 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 BB&T Funds THE PAST 5 YEARS
- ---------------- ------------------- ----------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June, 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
AGE: 53
From January 1994 to present,
William E. Graham, Jr. Trustee Counsel, Hunton & Williams;
1 Hannover Square from 1985 to December, 1993,
Fayetteville Street Mall Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
AGE: 69
Thomas W. Lambeth Trustee From 1978 to present,
101 Reynolda Village Executive Director, Z. Smith
Winston-Salem, NC 27106 Reynolds Foundation
AGE: 64
*W. Ray Long Trustee Retired; Executive Vice
605 BLENHEIM DRIVE President, Branch Banking and
RALEIGH, NC 27612 Trust Company from 1974 to
AGE: 64 1998
</TABLE>
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T Funds THE PAST 5 YEARS
- ---------------- ------------------- ----------------
<S> <C> <C>
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of
Greenville, SC 29615 Engineered Custom Plastics
AGE: 66 Corporation from 1969 to 1990
</TABLE>
* Indicates an "interested person" of the BB&T Funds 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 BB&T Funds for
acting as a Trustee. The officers of the BB&T Funds (see the Statement of
Additional Information) receive no compensation directly from the BB&T Funds for
performing the duties of their offices. BISYS Fund Services receives fees from
the BB&T Funds for acting as Administrator and BISYS Fund Services Ohio, Inc.
receives fees from the BB&T Funds for acting as Transfer Agent and for providing
fund accounting services to the BB&T Funds. Walter B. Grimm is an employee of
BISYS Fund Services.
INVESTMENT ADVISER
BB&T is the Investment Adviser of the U.S. Treasury Fund, the Prime
Money Market Fund and the Tax-Free 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 BB&T Funds,
it has experience in managing collective investment funds with investment
portfolios and objectives comparable to those of the BB&T Funds. 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
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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 BB&T Funds' 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 and the Tax-Free 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 BB&T Funds 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 (0.40%) 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 BB&T Funds and BB&T. A fee agreed to in writing
from time to time by the BB&T Funds 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. The Tax-Free Money Market Fund had not commenced operations as
of September 30, 1998.
SUB-ADVISER
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) serves as the Investment Sub-Adviser to
the Prime Money Market Fund and the Tax-Free Money Market Fund pursuant to a
Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, BIMC manages
EACH Fund, selects investments and places all orders for purchases and sales of
EACH Fund's securities, subject to the general supervision of the BB&T Funds'
Board of Trustees and BB&T and in accordance with the Prime Money Market Fund's
and the Tax-Free 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.
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As Sub-Adviser, BIMC is responsible for the day-to-day management of
the Prime Money Market Fund and the Tax-Free 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 and eleven
one-hundredths of one percent (0.11%) of the Tax-Free 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 BB&T Funds' principal underwriter and distributor
(the "Administrator" or the "Distributor," as the context indicates) under
agreements approved by the BB&T Funds' 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 BB&T Funds 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 (0.20%) 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 BB&T Funds and the Administrator. A fee agreed to
in writing from time to time by the BB&T Funds 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,
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 BB&T Funds,
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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 BB&T Funds' 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 BB&T Funds
contemplated by its investment advisory agreement with the BB&T Funds 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 BB&T Funds. 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 BB&T Funds. See "MANAGEMENT OF BB&T FUNDS --Glass
Steagall Act" in the Statement of Additional Information for further discussion
of applicable banking laws and regulations.
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DISTRIBUTION PLAN
The BB&T Funds' Class A and Class B Shares are sold on a continuous
basis by the Distributor. Under the BB&T Funds' 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 BB&T Funds 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. 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
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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 BB&T 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 BB&T Funds 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 BB&T Funds 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 BB&T FUNDS AND ITS SHARES
The BB&T Funds were organized as a Massachusetts business trust on
October 1, 1987 and commenced active operation on September 24, 1992. The BB&T
Funds have 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 eighteen 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 B&T
Intermediate Corporate 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 Virginia Intermediate Tax-Free Fund, the
BB&T Prime Money Market Fund, the BB&T U.S. Treasury Money Market Fund, the BB&T
Tax-Free 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 Equity Index Fund, the BB&T Capital Manager
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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 , the South Carolina Fund, and the Virginia Fund
are not offering Class B Shares, and the Equity Index Fund is not offering Class
A Shares or Class B Shares. Shareholders investing directly in Class B Shares of
the U.S. Treasury Fund , The Prime Money Market Fund, or the Tax-Free Money
Market Fund, as opposed to Shareholders obtaining Class B Shares of the U.S.
Treasury Fund , the Prime Money Market Fund, or the Tax-Free 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 , the Prime Money Market Fund, or
the Tax-Free 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 BB&T Funds
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 BB&T Funds 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 BB&T
FUNDS 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 BB&T Funds or such
Fund.
Overall responsibility for the management of the BB&T Funds is vested
in the Board of Trustees. See "MANAGEMENT OF BB&T FUNDS --Trustees of the BB&T
Funds." 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 BB&T Funds and Massachusetts law. See "ADDITIONAL INFORMATION--
Miscellaneous" in the Statement of Additional Information for further
information.
Although the BB&T Funds are not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the BB&T Funds' outstanding
Shares
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have the right to call a meeting to elect or remove one or more of the Trustees
of the BB&T Funds. Shareholder inquiries should be directed to the Secretary of
the BB&T Funds at 3435 Stelzer Road, Columbus, Ohio 43219.
As of February 18, 1999, 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.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Firststar 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 BB&T Funds.
PERFORMANCE INFORMATION
From time to time, Each 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 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 BB&T Funds 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
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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 BB&T Funds' performance
information.
Further information about the performance of each Fund of the BB&T
Funds is contained in the BB&T Funds' 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 BB&T Funds may be directed in writing to the
BB&T Funds at the following address: the BB&T Funds , P.O. Box 182533, Columbus,
OH 43218-2533 or by calling toll free (800) 228-1872.
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<PAGE> 348
INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
SUB-ADVISER
(Prime Money Market Fund AND Tax-Free Money Market Fund)
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
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CROSS REFERENCE SHEET
BB&T FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
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<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History Additional Information -Description of Shares
Investment Objectives and Policies Investment objectives and policies
Management of the Funds Management of BB&T Funds
Control Persons and Principal
Holders of Securities Miscellaneous
Investment Advisory and Other Services Management of BB&T Funds
Brokerage Allocation Management of the BB&T Funds
Capital Stock and Other Securities Valuation; Additional Purchase and Redemption
Information; Management of BB&T Funds ;
Redemptions; Additional Information
Purchase, Redemption and Pricing
of Securities Being Offered Valuation; Additional Purchase and Redemption
Information; Management of BB&T Funds
Tax Status Additional Purchase and Redemption Information
Underwriters Management of BB&T Funds
Calculation of Performance Data Performance Information
Financial Statements Financial Statements
</TABLE>
<PAGE> 350
BB&T FUNDS
Statement of Additional Information
May 17, 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 Tax-Free Money Market Fund, the BB&T
Short-Intermediate U.S. Government Income Fund, the BB&T Intermediate U.S.
Government Bond Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the
BB&T South Carolina Intermediate Tax-Free Fund, the BB&T Virginia Intermediate
Tax-Free Fund, the BB&T Intermediate Corporate Bond Fund, the BB&T Growth and
Income Stock 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
Equity Index 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 Funds at 3435 Stelzer Road,
Columbus, Ohio 43219, or by telephoning toll free (800) 228-1872.
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<PAGE> 351
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
BB&T FUNDS.................................................................................................. B-1
INVESTMENT OBJECTIVES AND POLICIES..............................................................................B-1
Additional Information on Portfolio Instruments.............................................................B-1
Puts ................................................................................................B- 16
Investment Restrictions..................................................................................B- 21
Portfolio Turnover.......................................................................................B- 24
VALUATION....................................................................................................B- 25
Valuation of the Money Market Funds......................................................................B- 26
Valuation of the Growth and Income Fund, the North Carolina Fund,
the South Carolina Fund, the Virginia Fund, the Short-Intermediate Fund,
the Intermediate U.S. Government Bond Fund, the Intermediate
Corporate Bond Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, the Equity Index Fund,
and the Funds of Funds..........................................................................B- 26
Valuation of the International Equity Fund...............................................................B- 27
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................................................B- 28
Purchase of Class A and Class B Shares...................................................................B- 28
Matters Affecting Redemption.............................................................................B- 29
ADDITIONAL TAX INFORMATION...................................................................................B- 30
Additional Tax Information Concerning the International Equity Fund......................................B- 33
Additional Tax Information Concerning the North Carolina, South Carolina
and Virginia Funds..............................................................................B- 33
Special Considerations Regarding Investment in South Carolina
Tax-Exempt Obligations.........................................................................B- 39
MANAGEMENT OF BB&T FUNDS................................................................................. B- 48
Officers ................................................................................................B- 48
Investment Adviser.......................................................................................B- 50
Investment Sub-Advisers..................................................................................B- 51
Portfolio Transactions...................................................................................B- 54
Glass-Steagall Act.......................................................................................B- 57
Manager and Administrator................................................................................B- 58
Distributor..............................................................................................B- 60
Custodian................................................................................................B- 62
Independent Auditors.....................................................................................B- 62
Legal Counsel............................................................................................B- 62
PERFORMANCE INFORMATION......................................................................................B- 63
</TABLE>
<PAGE> 352
<TABLE>
<CAPTION>
<S> <C>
Yields of the Money Market Funds.........................................................................B- 63
Yields of the Other Funds of the BB&T Funds............................................................B- 64
Calculation of Total Return..............................................................................B- 65
Performance Comparisons..................................................................................B- 68
ADDITIONAL INFORMATION.......................................................................................B- 77
Organization and Description of Shares...................................................................B- 77
Shareholder and Trustee Liability........................................................................B- 78
Miscellaneous............................................................................................B- 79
FINANCIAL STATEMENTS.........................................................................................B- 88
Audited Financial Statements as of September 30, 1998....................................................B- 88
APPENDIX.....................................................................................................B- 89
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
BB&T FUNDS
BB&T Funds is an open-end management investment company. The BB&T Funds
consist of eighteen series of units of beneficial interest ("Shares") offered to
the public, each representing interests in one of eighteen 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"), the BB&T Tax-Free Money Market Fund (the "Tax-Free Money Market Fund"
and together with the U.S. Treasury Fund and the Prime Money Market 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 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 Virginia
Intermediate Tax-Free Bond Fund (the "Virginia Fund"), the BB&T Intermediate
Corporate Bond Fund (the "Intermediate Corporate Bond Fund"), the BB&T Growth
and Income Stock Fund (the "Growth and Income 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 Equity Index Fund (the "Equity Index 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 BB&T Funds (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 , the South Carolina Fund and the Virginia Fund, and Class A
Shares and Class B Shares were not yet being offered in the Equity Index 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.
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<PAGE> 354
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("Rating Agencies") 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 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 Rating Agency. A rating by A Rating
Agency may be used only where the Rating Agency 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
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<PAGE> 355
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, the Tax-Free Money Market Fund, the
Growth and Income Fund, the Large Company Growth Fund, the Small Company Growth
Fund, the Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund,
the Intermediate Corporate Bond Fund, the International Equity Fund, the
Balanced Fund and the Equity Index Fund (the Short-Intermediate Fund , the
Intermediate U.S. Government Bond Fund and the Intermediate Corporate 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 Intermediate
Corporate Bond Fund, the Growth and Income Fund, the Balanced Fund, the Large
Company Growth Fund, the Small Company Growth Fund, the Equity Index 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
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<PAGE> 356
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. The Intermediate Corporate Bond Fund may also invest
in debt obligations of foreign issuers denominated in foreign currencies.
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 Intermediate Corporate Bond Fund,
the Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, the Equity Index 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
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<PAGE> 357
forward foreign currency exchange contract for the amount of the purchase or
sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.
Second, when the Fund's Sub-Adviser anticipates that a particular
foreign currency may decline relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. With respect to any forward foreign currency contract, it will not
generally be possible to match precisely the amount covered by the contract and
the value of the securities involved due to the changes in the values of such
securities resulting from market movements between the date the forward contract
is entered into and the date it matures. In addition, while forward contracts
may offer protection from losses resulting from declines in the value of a
particular foreign currency, they also limit potential gains which might result
from increases in the value of such currency. The Fund will also incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
A separate account of a Fund consisting of liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the 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.
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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
BB&T FUNDS' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. As discussed in the 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.
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Supranational Organizational Obligations. The Large Company Growth
Fund, the Small Company Growth Fund, the Equity Index 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 Intermediate Corporate Bond
Fund, the Large Company Growth Fund, the Small Company Growth Fund, the Equity
Index Fund, and the International Equity Fund may invest in "investment grade
securities," which are securities rated in the four highest rating categories of
a rating agency. It should be noted that debt obligations rated in the lowest of
the top four ratings (i.e., "Baa" by 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.
Noninvestment Grade Securities. The Intermediate Corporate Bond Fund
may invest in debt securities rated below investment grade, also know as junk
bonds. These securities are regarded as predominantly speculative. Securities
rated below investment grade generally provide a higher yield than higher rated
securities of similar maturity, but are subject to a greater degree of risk that
the issuer may not be able to make principal and interest payments. Issuers of
these securities may not be as strong financially as those issuing higher rated
securities. Such high yield issuers may include smaller, less creditworthy
companies or highly indebted firms.
The market value of high yield securities may fluctuate more than the
market value of higher rated securities, since high yield securities tend to
reflect short-term corporate and market developments to a greater extent than
higher rated securities. Thus, periods of economic uncertainty and change can
result in the increased volatility of market prices of high yield bonds and of
the Fund's net asset value. Additional risks of high yield securities include
limited liquidity and secondary market support. As a result, the prices of high
yield securities may decline rapidly in the event that a significant number of
holders decide to sell. Issuers of high yield securities also are more
vulnerable to real or perceived economic changes, political changes or adverse
developments specific to the issuer. A projection of an economic downturn, for
example, could cause the price of these securities to decline because a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. In the event of a
default, the Intermediate Corporate Bond Fund would experience a decline in the
market value of its investment. In addition, a long-term track record on bond
default rates, such as that for Investment Grade Corporate Bonds, does not exist
for the high yield market. It may be that future default rates on high-yield
bonds will be more widespread and higher than in the past, especially during
periods of deteriorating economic conditions.
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The market prices of debt securities generally fluctuate with changes
in interest rates so that these Funds' net asset values can be expected to
decrease as long-term interest rates rise and to increase as long-term rates
fall. The market prices of high yield securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically.
Credit quality in the High Yield Market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular High-Yield Security. The Intermediate
Corporate Bond Fund will limit its investments in noninvestment grade securities
to 15% of its total assets. Subject to SEC restrictions, the Intermediate
Corporate Bond Fund may invest in such securities by investing in investment
companies that primarily invest in noninvestment grade securities.
Rights Offerings and Warrants to Purchase. The Large Company Growth
Fund, the Small Company Growth Fund, the Equity Index 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.
Municipal Obligations. Municipal Obligations include debt obligations
issued by governmental entities to obtain funds for various public purposes,
including 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 public institutions and facilities. Private activity bonds
that are or were issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal Obligations
if the interest paid thereon is exempt from federal income tax. Opinions
relating to the validity of Municipal Obligations and to the exemption of
interest thereon from federal income taxes are rendered by counsel to the
issuers or bond counsel to the respective issuing authorities at the time of
issuance. Neither the Tax-Free Money Market Fund nor the adviser or BIMC will
review independently the underlying proceedings relating to the issuance of
Municipal Obligations or the bases for such opinions.
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The Tax-Free Money Market Fund may hold tax-exempt derivatives which
may be in the form of tender option bonds, participations, beneficial interests
in a trust, partnership interests or other forms. A number of different
structures have been used. For example, interests in long-term fixed-rate
Municipal Obligations, held by a bank as trustee or custodian, are coupled with
tender option, demand and other features when the tax-exempt derivatives are
created. Together, these features entitle the holder of the interest to tender
(or put) the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to receive
specific future interest payments, principal payments, or both, on the
underlying municipal securities held by the custodian. Under such arrangements,
the holder of the custodial receipt has the option to tender the underlying
municipal securities at its face value to the sponsor (usually a bank or broker
dealer or other financial institution), which is paid periodic fees equal to the
difference between the bond's fixed coupon rate and the rate that would cause
the bond, coupled with the tender option, to trade at par on the date of a rate
adjustment. The Tax-Free Money Market Fund may hold tax-exempt derivatives, such
as participation interests and custodial receipts, for Municipal Obligations
which give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinion of counsel
to the sponsors of such derivative securities. Neither the Tax-Free Money Market
Fund nor the Adviser or BIMC will review independently the underlying
proceedings related to the creation of any tax-exempt derivatives or the bases
for such opinions.
As described in the Tax-Free Money Market Fund prospectus, the two
principal classifications of Municipal Obligations consist of "general
obligation" and "revenue" issues, and the Tax-Free Money Market Fund's portfolio
may include "moral obligation" issues, which are normally issued by special
purpose authorities. There are, of course, variations in the quality of
Municipal Obligations both within a particular classification and between
classifications, and the yields on Municipal 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 rating agencies represent their opinions as to the quality
of Municipal Obligations. It should be recognized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate, and rating may have different yields
while Municipal Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by the
Tax-Free Money Market Fund, an issue of Municipal Obligations may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser or BIMC will consider such an event in
determining whether the Tax-Free Money Market Fund should continue to hold the
obligation.
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An issuer's obligations under its Municipal 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 federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon 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 Municipal Obligations may be
materially adversely affected by litigation or other conditions.
Among other instruments, the Tax-Free Money Market Fund may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes, and other forms of short-term loans. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements, or other revenues. In addition, the Tax-Free Money Market Fund
may invest in other types of tax-exempt instruments such as municipal bonds,
private activity bonds, and pollution control bonds, provided they have
remaining maturities of thirteen months or less at the time of purchase.
The payment of principal and interest on most securities purchased by
the Tax-Free Money Market Fund will depend upon the ability of the issuers to
meet their obligations. The District of Columbia, each state, each of their
political subdivisions, agencies, instrumentalities, and authorities and each
multi-state agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
Taxable Obligations. Under normal market conditions, the Tax-Free Money
Market Fund may invest up to 20% of its total assets in obligations, the
interest on which is either subject to regular federal income tax or treated as
a preference item for purposes of the federal alternative minimum tax for
individuals ("Taxable Obligations"). At times, the Adviser or BIMC may determine
that, because of unstable conditions in the markets for Municipal Obligations,
pursuing the Tax-Free Money Market Fund's investment objective is inconsistent
with the best interests of the Shareholders of the Tax-Free Money Market Fund.
At such times, the Adviser or BIMC may use temporary defensive strategies
differing from those designed to achieve the Tax-Free Money Market Fund's
investment objective, by increasing the Tax-Free Money Market Fund's holdings in
short- term Taxable Obligations to over 20% of the Tax-Free Money Market Fund's
total assets and by holding uninvested cash reserves pending investment. Taxable
obligations may include obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities (some of which may be subject to repurchase
agreements), certificates of deposit and bankers' acceptances of selected banks,
and commercial paper meeting the Tax-Free Money Market Fund's quality standards
for tax-exempt commercial paper.
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Variable and Floating Rate Notes. The Prime Money Market Fund, the
Tax-Free Money Market Fund, the North Carolina Fund , the South Carolina Fund
and the Virginia 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, the South Carolina Fund and the Virginia Fund, (or BIMC with
respect to the Prime Money Market Fund and the Tax-Free Money Market Fund) under
guidelines established by the BB&T Funds' Board of Trustees to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
a Fund's investment policies. In making such determinations, BB&T with respect
to the North Carolina Fund, the South Carolina Fund and the Virginia Fund (or
BIMC with respect to the Prime Money Market Fund and the Tax-Free 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, the South Carolina Fund, or the Virginia Fund, a
Fund may resell a note at any time to a third party. The absence of an active
secondary market, however, could make it difficult for a Fund to dispose of a
variable or floating rate note in the event the issuer of the note defaulted on
its payment obligations and a Fund could, as a result or for other reasons,
suffer a loss to the extent of the default. Variable or floating rate notes may
be secured by bank letters of credit.
For purposes of the North Carolina Fund, the South Carolina Fund , the
Virginia Fund, the Prime Money Market Fund and the Tax-Free 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
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tax and not treated as a preference item for purposes of the federal alternative
minimum tax for individuals ("South Carolina Tax-Exempt Obligations"). Under
normal market conditions, the Virginia Fund will invest at least 90% of its
total assets in high grade obligations issued by or on behalf of the State of
Virginia and its political subdivisions, the interest on which, in the opinion
of the issuer's head counsel at the time of issuance, is exempt both from
federal income tax and Virginia personal income tax and not treated as a
preference item for purposes of the federal alternative minimum tax for
individuals ("Virginia Tax-Exempt Obligations"). In addition to North Carolina
Tax-Exempt Obligations, South Carolina Tax-Exempt Obligations and Virginia
Tax-Exempt Obligations, the North Carolina Fund, the South Carolina Fund and the
Virginia Fund may invest in Tax-Exempt Obligations issued by or on behalf of
states other than North Carolina, South Carolina and Virginia, 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 , South Carolina Tax-Exempt
Obligations and Virginia 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.
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,
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the South Carolina Fund and the Virginia 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 , South Carolina nor Virginia 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, the South Carolina Fund and the Virginia 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, the South Carolina Fund's or the Virginia 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, the South Carolina Fund or the Virginia 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,
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
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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
Equity Index Fund, the International Equity Fund, the Prime Money Market Fund
and the Tax-Free 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, the Equity Index 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 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
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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
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.
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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 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.
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Puts. The North Carolina Fund , the South Carolina Fund and the
Virginia Fund may acquire "puts" with respect to Tax-Exempt Obligations held in
their portfolios, the Tax-Free Money Market Fund may acquire puts with respect
to Municipal Obligations held in its portfolio, 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, the South Carolina
Fund, the Virginia Fund, the Tax-Free Money Market 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, the Virginia Fund,
the Tax-Free Money Market 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, the Virginia Fund,
the Tax-Free Money Market 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.
Stand-By Commitments. The North Carolina Fund, the South Carolina Fund
and the Virginia Fund may acquire "stand-by commitments" with respect to
Tax-Exempt Obligations held in their portfolios and the Tax-Free Money Market
Fund may acquire "stand-by commitments" with respect to Municipal Obligations
held in its portfolio. Under a stand-by commitment, a dealer would agree to
purchase at a Fund's option specified securities at their amortized cost value
to the Fund plus accrued interest, if any. (Stand-by commitments acquired by a
fund may also be referred to as "put" options.) Stand-by commitments may be
exercisable by a Fund at any time before the maturity of
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the underlying securities and may be sold, transferred, or assigned only with
the instruments involved. A Fund's right to exercise stand-by commitments will
be unconditional and unqualified.
The amount payable to a Fund upon its exercise of a stand-by commitment
will normally be (i) the Fund's acquisition cost of the securities (excluding
any accrued interest which the Fund paid on their 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 the period.
Each Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
standby commitment is acquired.
Each Fund intends to enter into stand-by commitments only with dealers,
banks, and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. A Fund's reliance upon the credit of these dealers, banks,
and broker-dealers will be secured by the value of the underlying securities
that are subject to the commitment.
A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities, which would continue
to be valued in accordance with the amortized cost method. Stand-by commitments
acquired by a Fund would by valued at zero in determining net asset value. Where
the Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by that Fund.
Risk Factors Relating to Options. There are several risks associated
with transactions in put and call options. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may be
insufficient trading interest in certain options, restrictions may be imposed by
an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying
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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 BB&T Funds
(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.
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
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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, Small Company Growth Fund and Equity Index 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 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
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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.
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. The
Intermediate Corporate Bond Fund may invest in investment companies that invest
primarily in debt securities. Under the 1940 Act, the Balanced Fund and the
Intermediate Corporate Bond Fund will each limit investments in each such
investment company to the lesser of 5% of the Balanced Fund's or the
Intermediate Corporate Bond Fund's total assets or 3% of the Investment
Company's outstanding voting securities. Furthermore, each of the Balanced
Fund's and the Intermediate Corporate Bond Fund's investments in all investment
companies may not exceed 10% of the respective Fund's total assets.
CONVERTIBLE SECURITIES
The Intermediate Corporate Bond Fund, the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund, the Small Company Growth Fund, and
the Equity Index Fund may invest 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. 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 BB&T Funds (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 Intermediate Corporate Bond
Fund, the Large Company Growth Fund, the Small Company Growth Fund, the Equity
Index 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 Virginia Fund, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond Fund, the Intermediate Corporate Bond Fund, the Balanced
Fund, the Large Company Growth Fund, the Small Company Growth Fund, the Equity
Index 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 Virginia Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, the
Intermediate Corporate Bond Fund, the Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund, the International Equity Fund and the
Equity Index Fund may purchase securities of a money market fund, including
securities of the U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free Money Market Fund; (ii) the North Carolina Fund, the South Carolina
Fund and the Virginia 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
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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 Intermediate Corporate Bond Fund, the Large Company Growth
Fund, the Small Company Growth Fund, the International Equity Fund, the Equity
Index Fund the Prime Money Market Fund and the Tax-Free 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 is not fundamental with
respect to the Intermediate Corporate Bond Fund, Large Company Growth Fund, the
Small Company Growth Fund, the International Equity Fund, the Equity Index Fund,
the Prime Money Market Fund and the Tax-Free Money Market Fund and may therefore
be changed by a vote of a majority of the Trustees of the BB&T Funds.
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 Virginia Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund and the
Intermediate Corporate 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 , the Intermediate U.S. Government Bond Fund and the
Intermediate Corporate 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
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(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.
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"
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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 BB&T
Funds:
The Prime Money Market Fund , the U.S. Treasury Fund and the Tax-Free
Money Market Fund may not 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 FUND of the BB&T 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 Fund of the BB&T 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."
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Because the U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free 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.
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 , the Prime Money Market Fund and the Tax-Free
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, the Prime Money Market Fund and the Tax-Free Money
Market Fund would receive if it sold the instrument. The value of securities in
the U.S. Treasury Fund, the Prime Money Market Fund and the Tax-Free 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
BB&T Funds' Board of Trustees has also undertaken to establish procedures
reasonably
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designed, taking into account current market conditions and each Money Market
Fund's investment objective, to stabilize the net asset value per Share of each
Money Market Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of the Money Market Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Trustees promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from a Money Market Fund's $1.00 amortized cost price
per Share may result in material dilution or other unfair results to new or
existing investors, they will take such steps as they consider appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average portfolio maturity, withholding
or reducing dividends, reducing the number of the Fund's outstanding Shares
without monetary consideration, or utilizing a net asset value per Share
determined by using available market quotations.
Valuation of the Growth and Income Fund, the North Carolina Fund, the South
Carolina Fund, the Virginia Fund, the Short-Intermediate Fund, the Intermediate
U.S. Government Bond Fund, the Intermediate Corporate Bond Fund, the Balanced
Fund, the Large Company Growth Fund, the Small Company Growth Fund, the Equity
Index 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 BB&T Funds' Board of Trustees. The Funds of Funds
will value their investments in mutual funds securities at the redemption price,
which is net asset value.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair market value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
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The BB&T Funds 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 BB&T Funds under the
general supervision of the BB&T Funds' 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.
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.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares of each Fund of the BB&T 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 BB&T Funds may include officers, directors, or
employees of BB&T or BB&T's affiliated or correspondent banks.
Purchase of Class A and Class B Shares
As stated in the Class A and Class B Prospectus, the public offering
price of Class A Shares of the Growth and Income Fund, the North Carolina Fund,
the South Carolina Fund, the Virginia Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Intermediate Corporate Bond Fund,
the Balanced Fund, the Large Company Growth Fund, and the Small Company Growth
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 BB&T Funds 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, the Prime Money Market Fund and the
Tax-Free 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 BB&T Funds have business relationships, and because the sales effort,
if any, involved in making such sales is negligible.
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As the BB&T Funds' principal underwriter, BISYS acts as principal in
selling Class A and Class B Shares of the BB&T Funds 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 BB&T Funds may suspend the right of redemption or postpone the date
of payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists as
a result of which (i) disposal by the BB&T Funds 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 BB&T Funds may redeem any class of Shares involuntarily if
redemption appears appropriate in light of the BB&T Funds' responsibilities
under the 1940 Act. See "Valuation of the Money Market Funds" above.
ADDITIONAL TAX INFORMATION
It is the policy of each Fund of the BB&T 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 Fund of the BB&T 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
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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 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
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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 Fund of the BB&T 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 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.
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Although each Fund expects to qualify as a "regulated investment
company" (a "RIC") and to be relieved of all or substantially all Federal income
taxes, depending upon the extent of their activities in states and localities in
which their offices are maintained, in which their agents or independent
contractors are located, or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or localities.
If for any taxable year a Fund does not qualify for the special Federal tax
treatment afforded a RIC, all of its taxable income will be subject to Federal
income tax at regular corporate rates at the Fund level (without any deduction
for distributions to its Shareholders). In addition, distributions to
Shareholders will be taxed as ordinary income even if the distributions are
attributable to capital gains or exempt interest earned by the Fund.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the BB&T 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, South Carolina and
Virginia
Funds
As indicated in the Prospectuses, the North Carolina Fund, the South
Carolina Fund and the Virginia Fund are designed to provide North Carolina,
South Carolina and Virginia 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, the South Carolina Fund and the Virginia 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
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Fund, the South Carolina Fund and the Virginia 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, South
Carolina and Virginia 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, the South Carolina Fund and the
Virginia Fund may not be appropriate investments for Shareholders who are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his trade or business, and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds represent more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities, or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
person" includes certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders. Each
Shareholder who may be considered a "substantial user" should consult a tax
adviser with respect to whether exempt-interest dividends would retain the
exclusion under Section 103 of the Code if the Shareholder were treated as a
"substantial user" or a "related person."
The Code permits a RIC which invests at least 50% of its total assets
in Tax-Exempt Obligations to pass through to its investors, tax-free, net
Tax-Exempt Obligations interest income. The policy of the North Carolina Fund,
the South Carolina Fund and the Virginia 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, the South
Carolina Fund and the Virginia 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, the South Carolina Fund and
the Virginia Fund, respectively, during such year, regardless of the period for
which the Shares were held.
While the North Carolina Fund, the South Carolina Fund and the
Virginia Fund do not expect to realize any significant amount of long-term
capital gains, any net realized long
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term capital gains will be distributed annually. The North Carolina Fund, the
South Carolina Fund and the Virginia 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, the
South Carolina Fund or the Virginia Fund. Such distributions will be designated
as a capital gains dividend in a written notice mailed by the North Carolina
Fund, the South Carolina Fund and the Virginia 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, South Carolina and Virginia Tax-Exempt
Obligations and to interest on direct obligations of the United States
(including territories thereof), are not subject to North Carolina, South
Carolina or Virginia (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, 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, the South Carolina Fund and the
Virginia Fund do not expect to earn any significant amount of investment company
taxable income, taxable income earned by the North Carolina Fund, the South
Carolina Fund and the Virginia 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, the South Carolina Fund and the Virginia 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, the South Carolina Fund and the Virginia Fund
could acquire under the 1940 Act. Therefore, although the North Carolina Fund,
the South Carolina Fund and the Virginia Fund will only acquire a put after
concluding that such put will have the tax consequences described above, the
Internal Revenue
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Service could reach a different conclusion from that of the North Carolina Fund,
the South Carolina Fund and the Virginia Fund. If the North Carolina Fund, the
South Carolina Fund or the Virginia 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, the South Carolina Fund and the Virginia Fund. No attempt has been made
to present a detailed explanation of the Federal or state income tax treatment
of the North Carolina Fund, the South Carolina Fund and the Virginia 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, the South Carolina Fund and the Virginia Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS
The concentration of investments in North Carolina Tax-Exempt
Obligations by the North Carolina Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
North Carolina and its political subdivisions, agencies, instrumentalities, and
authorities could adversely affect the value of the North Carolina Fund and its
portfolio securities. This section briefly describes current economic trends in
North Carolina. The information set forth below is derived from official
statements prepared in connection with the issuance of North Carolina Tax-Exempt
Obligations and other sources that are generally available to investors. The
BB&T Funds 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
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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.
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.
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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 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.
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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 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.
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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.
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
BB&T Funds 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.
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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, 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
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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 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
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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.
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
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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 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.
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Special Considerations Regarding Investment in Virginia Tax-Exempt Obligations
The Virginia Fund will invest primarily in Virginia Tax-Exempt
Obligations. For this reason, the Fund is affected by political, economic,
regulatory or other developments that constrain the taxing, revenue-collecting
and spending authority of Virginia issuers or otherwise affect the ability of
Virginia issuers to pay interest, principal, or any premium. The following
information constitutes only a brief summary of certain of these developments
and does not purport to be a complete description of them. The information has
been obtained from recent official statements prepared by the Commonwealth of
Virginia relating to its securities, and no independent investigation has been
undertaken to verify its accuracy. Moreover, the information relates only to the
state itself and not to the numerous special purpose or local government units
whose issues may also be held by the Virginia Fund. The credits represented by
such issues may be affected by a wide variety of local factors or structuring
concerns, and no disclosure is made here relating to such matters.
The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. Per capita income in Virginia has been
consistently above national levels during that time. The services sector in
Virginia generates the largest number of jobs, followed by wholesale and retail
trade, manufacturing and state and local government. Because of Northern
Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has
the nation's largest concentration of military installations, the Federal
government has a greater economic impact on Virginia relative to its size than
any states other than Alaska and Hawaii.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation. This
is generally attributed to the balance among the various sectors represented in
the economy. Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by the
Governor, assisted by the Secretary of Finance and the Department of Planning
and Budget, to ensure that a balanced budget is maintained. If projected revenue
collections fall below amounts appropriated at any time, the Governor must
reduce expenditures and withhold allotments of appropriations (other than for
debt service and other specified purposes) to restore balance. An amendment to
the Constitution, effective January 1, 1993, established a Revenue Stabilization
Fund. This Fund is used to offset a portion of anticipated shortfalls in
revenues in years when
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appropriations based on previous forecasts exceed expected revenues in
subsequent forecasts. The Revenue Stabilization Fund consists of an amount not
to exceed 10 percent of Virginia's average annual tax revenues derived from
taxes on income and retail sales for the three preceding fiscal years.
General Fund revenues are principally composed of direct taxes. In
recent fiscal years most of the total tax revenues have been derived from five
major taxes imposed by Virginia on individual and fiduciary income, sales and
use, corporate income, public service corporations and premiums of insurance
companies.
In September 1991, the Debt Capacity Advisory Committee was created by
the Governor through an executive order. The committee is charged with annually
estimating the amount of tax-supported debt that may prudently be authorized,
consistent with the financial goals, capital needs and policies of Virginia. The
committee annually reviews the outstanding debt of all agencies, institutions,
boards and authorities of Virginia for which Virginia has either a direct or
indirect pledge of tax revenues or moral obligation. The Committee provides its
recommendations on the prudent use of such obligations to the Governor and the
General Assembly.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of Virginia that is backed by Virginia's full faith and credit, except as
provided in Section 9 of Article X. Section 9 of Article X contains several
different provisions for the issuance of general obligation and other debt, and
Virginia is well within its limit for each:
Section 9(a)(2) provides that the General Assembly may incur general
obligation debt to meet certain types of emergencies, subject to limitations on
amount and duration; to meet casual deficits in the revenue or in anticipation
of the collection of revenues of Virginia; and to redeem a previous debt
obligation of Virginia. Total indebtedness issued pursuant to this Section may
not exceed 30 percent of an amount equal to 1.15 times the annual tax revenues
derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize the
creation of general obligation debt for capital projects. Such debt is required
to be authorized by an affirmative vote of a majority of each house of the
General Assembly and approved in a statewide election. The outstanding amount of
such debt is limited to an amount equal to 1.15 times the average annual tax
revenues derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts for the three preceding fiscal years less the total
amount of bonds outstanding. The amount of 9(b) debt that may be authorized in
any single fiscal year is limited to 25 percent of the limit on all 9(b) debt
less the amount of 9(b) debt authorized in the current and prior three fiscal
years.
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Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-producing capital projects
(so-called "double-barrel" debt). Such debt is required to be authorized by an
affirmative vote of two-thirds of each house of the General Assembly and
approved by the Governor. The Governor must certify before the enactment of the
authorizing legislation and again before the issuance of the debt that the net
revenues pledged are expected to be sufficient to pay principal of and interest
on the debt. The outstanding amount of 9(c) debt is limited to an amount equal
to 1.15 times the average annual tax revenues derived from taxes on income and
retail sales, as certified by the Auditor of Public Accounts for the three
preceding fiscal years. While the debt limits under Sections 9(b) and 9(c) are
each calculated as the same percentage of the same average tax revenues, these
debt limits are separately computed and apply separately to each type of debt.
Section 9(d) provides that the restrictions of Section 9 are not
applicable to any obligation incurred by Virginia or any of its institutions,
agencies or authorities if the full faith and credit of Virginia is not pledged
or committed to the payment of such obligation. There are currently outstanding
various types of such 9(d) revenue bonds. Certain of these bonds, however, are
paid in part or in whole from revenues received as appropriations by the General
Assembly from general tax revenues, while others are paid solely from revenues
of the applicable project. The repayment of debt issued by the Virginia Public
Building Authority, the Virginia Port Authority, the Virginia College Building
Authority Equipment Leasing Program, the Virginia College Building Authority
21st Century Program, The Innovative Technology Authority and the Virginia
Biotechnology Research Park Authority is supported in large part by General Fund
appropriations.
The Commonwealth Transportation Board is a substantial issuer of bonds
for highway projects. These bonds are secured by and are payable from funds
appropriated by the General Assembly from the Transportation Trust Fund for such
purpose. The Transportation Trust Fund was established by the General Assembly
in 1986 as a special non-reverting fund administered and allocated by the
Transportation Board to provide increased funding for construction, capital and
other needs of state highways, airports, mass transportation and ports. The
Virginia Port Authority has also issued bonds that are secured by a portion of
the Transportation Trust Fund.
Virginia is involved in numerous leases that are subject to
appropriation of funding by the General Assembly. Virginia also finances the
acquisition of certain personal property and equipment through installment
purchase agreements.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion of
the Virginia Housing Development Authority and Virginia Public School Authority
bonds and all of the
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Virginia Resources Authority bonds are secured in part by a moral obligation
pledge of Virginia. Should the need arise, Virginia may consider funding
deficiencies in the respective debt service reserves for such moral obligation
debt. To date, none of these authorities has advised Virginia that any such
deficiencies exist.
Local government in Virginia is comprised of 95 counties, 40
incorporated cities, and 190 incorporated towns. Virginia is unique among the
several states in that cities and counties are independent, and their land areas
do not overlap. The largest expenditures by local governments in Virginia are
for education, but local governments also provide other services such as water
and sewer, police and fire protection and recreational facilities. The Virginia
Constitution imposes numerous restrictions on local indebtedness, affecting both
its incurrence and amount.
In Davis v. Michigan (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional states' exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the Federal government. At that time, Virginia
exempted state and local retirement benefits but not Federal retirement
benefits. At a Special Session held in April 1989, the General Assembly repealed
the exemption of state and local retirement benefits. Following Davis, at least
five suits, some with multiple plaintiffs, for refunds of Virginia income taxes,
were filed by Federal retirees. These suits were consolidated under the name of
Harper v. Virginia Department of Taxation.
In a Special Session in 1994, the Virginia General Assembly passed
emergency legislation to provide payments in five annual installments to Federal
retirees in settlement of their claims as a result of Davis. In 1995 and 1996,
the General Assembly passed legislation allowing more retirees to participate in
the settlement. As of June 30, 1997, the estimated total cost to Virginia for
the settlement was approximately $316.2 million.
On September 15, 1995, the Supreme Court of Virginia rendered its
decision in Harper, reversing the judgement of the trial court, entering final
judgement in favor of the taxpayers, and directing that the amounts unlawfully
collected be refunded with statutory interest. Virginia issued refund checks on
November 9, 1995, and interest stopped accruing as of November 3, 1995. The cost
of refunding all Virginia income taxes paid on Federal government pensions for
taxable years 1985, 1986, 1987 and 1988 to Federal government pensioners who
opted out of the settlement was approximately $78.7 million, including interest
earnings.
The total cost of refunding all Virginia income taxes paid on Federal
pensions on account of the settlement (approximately $316.2 million) and the
judgment ($78.7 million) is approximately $394.9 million, of which $329 million
($250.2 million in respect of the settlement and the entire $78.7 million in
respect of the judgment) has been paid as of June 30, 1998, leaving $66 million
payable in respect of the settlement. During the 1998
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Session of the Virginia General Assembly, legislation was approved providing for
early payment on the remaining balance on September 20, 1998 (subject to
appropriation) provided that undesignated and unreserved general fund balances
were met on August 15, 1998. Since such balances were not met, a special
installment payment of the remaining balance (approximately $34.88 million) was
made on September 30, 1998, with a payment of the final balance ($31.1 million)
occurring no later than March 31, 1999.
Most recently, Moody's has rated the long-term general obligation bonds
of Virginia Aaa, and Standard & Poor's has rated such bonds AAA. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic or political conditions.
MANAGEMENT OF BB&T FUNDS
Officers
The officers of each Fund of the BB&T FUNDS, 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 BB&T During the Past 5 Years
Funds
<S> <C> <C>
Walter B. Grimm Chairman of the From June 1992 to present, employee of
Age: 53 Board and President BISYS Fund Services.
Preston Lofton Secretary From April 1995 to present, employee of
Age: 52 BISYS Fund Services; from May 1992 TO
April 1995, Employee of Concorde
Financial.
Gary Tenkman Treasurer From April 1998 to present, Director,
Age: 28 Financial Services, BISYS Fund Services;
from 1990 to March 1998, Audit
Manager, Ernst & Young LLP.
Penny Grandominico Vice President From April 1995 to present, employee of
Age: 49 BISYS Fund Services ; From 1992 to April
1995, employee of Salomon Smith Barney.
George Landreth Vice President From December 1992 to present,
Age: 56 Employee of BISYS Fund Services.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Bob Tuch Assistant Secretary From June 1991 to present, employee of
Age: 47 BISYS Fund Services.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee,
Age: 31 BISYS Fund Services;
from May 1989 - June 1995, Supervisor,
Mutual Fund Legal Department, Alliance
Capital Management.
</TABLE>
The Officers of the BB&T Funds receive no compensation directly from
the BB&T Funds for performing the duties of their offices. BISYS Fund Services,
Inc. receives fees from the BB&T FUNDS for acting as Administrator and BISYS
Fund Services Ohio, Inc. receives fees from the BB&T Funds for acting as
Transfer Agent and for providing fund accounting services to the BB&T Funds.
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Compensation Retirement Benefits Annual Compensation
Name of Person, from the Accrued As Part Benefits Upon from the BB&T
Funds
Position BB&T Funds 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 BB&T
Funds includes eighteen separate series.
Investment Adviser
Investment advisory and management services are provided to each Fund
of the BB&T Funds by BB&T pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated October 1, 1992.
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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 BB&T Funds
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 BB&T Funds' 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 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).
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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.
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.
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 BB&T
Funds 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
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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 BB&T Funds' 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 and the Tax-Free Money Market 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 BB&T FUNDS' 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
SUB-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 and the Tax-Free Money Market Fund. For the fiscal year ended
September 30, 1998, and for the period from the commencement of operations,
January 2, 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.
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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 BB&T Funds' 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.
Investment sub-advisory and management services are provided to the
Equity Index Fund by __________________________________________________________
pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of
___________, 1999 between BB&T and ________________________________________.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until __________, 200__ and thereafter will continue from year to year if
such continuance is approved at least annually by the BB&T Funds' 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 ____________________________, 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
________________ are borne exclusively by BB&T as Adviser to the Equity Index
Fund. The Equity Index Fund had not commenced operations as of September 30,
1998.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the BB&T Funds
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.
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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
BB&T Funds 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 Virginia
Fund, the Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund,
The Intermediate Corporate Bond Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the Equity Index Fund, and the Funds of Funds usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include (but not in the case of mutual fund shares purchased by the Funds of
Funds) a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the BB&T Funds, 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
BB&T FUNDS 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
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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 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.
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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 BB&T Funds 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 BB&T Funds.
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.
Investment decisions for each Fund of the BB&T Funds 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 BB&T FUNDS. 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 BB&T Funds, 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 BB&T
Funds, 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 BB&T Funds
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 BB&T Funds.
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.
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Subsequently, the Board of Governors of the Federal Reserve System (the "Board")
issued a regulation and interpretation to the effect that the Glass-Steagall Act
and such decision: (a) forbid a bank holding company registered under the
Federal Bank Holding Company Act of 1956 (the "Holding Company Act") or any
non-bank affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, but (b) do not prohibit such a holding company or affiliate from
acting as investment adviser, transfer agent, and custodian to such an
investment company. In 1981, the United States Supreme Court held in Board of
Governors of the Federal Reserve System v. Investment Company Institute that the
Board did not exceed its authority under the Holding Company Act when it adopted
its regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies. In the Board of Governors case, the Supreme Court also
stated that if a bank complied with the restrictions imposed by the Board in its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to investment companies, a
bank performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
BB&T and PNC Bank Corp. subsidiaries, BFMI, BIMC, BlackRock
International, and ______________ 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 BB&T
Funds. 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
BB&T Funds would review the BB&T Funds' 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 BB&T Funds, 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 BB&T Funds' 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
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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 BB&T Funds and those
performed by BISYS Fund Services Ohio, Inc. under its transfer agency and
shareholder service and fund accounting agreements with the BB&T Funds). 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, the Prime Money Market
Fund, and the Tax-Free Money Market Fund, to maintain office facilities for the
BB&T Funds, to maintain the BB&T Funds' financial accounts and records, and to
furnish the BB&T Funds statistical and research data and certain bookkeeping
services, and certain other services required by the BB&T Funds. 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 BB&T Funds' 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 Bank, N.A. and Bank of New York under its
custodial services agreements with the BB&T Funds and those performed by BISYS
Fund Services Ohio, Inc. under its transfer agency and shareholder service and
fund accounting agreements with the BB&T Funds). 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 (0.20%) 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 BB&T
Funds and the Administrator. A fee agreed to in writing from time to time by the
BB&T Funds 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:
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$53,810 (which is $17,942 less than the maximum amount of administration fees,
if charged), $121,183, and $121,009 (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 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 BB&T Funds' Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the BB&T Funds 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 BB&T
FUNDS 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 BB&T Funds' Board of
Trustees or by the vote of a majority of the outstanding Shares of the
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Funds or Fund subject to such Distribution Agreement, and (ii) by the vote of a
majority of the Trustees of the BB&T Funds 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 0.50% of average daily
net assets of Class A Shares of each Fund (which has been voluntarily reduced to
0.25% 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 BB&T Funds 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
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).
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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 by the Board of Trustees of the
BB&T Funds, 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 BB&T Funds' 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
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The BB&T Funds 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 behalf of the BB&T Funds. Cantor Fitzgerald has
employed BISYS to provide certain administrative services relating to securities
lending transactions entered into on behalf of the BB&T Funds. Cantor
Fitzgerald, rather than the BB&T Funds, will compensate BISYS for those
services.
Custodian
Firststar Bank, N.A. serves as the Custodian to the BB&T Funds. 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 BB&T Funds pursuant to a Transfer Agency Agreement with the BB&T Funds.
BISYS Fund Services Ohio, Inc. also provides fund accounting services
to each of the Funds pursuant to a Fund Accounting Agreement with the BB&T
Funds. Under the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc.
receives a fee from each Fund at the annual rate of 0.03% of such Fund's average
daily net assets, subject to a minimum annual fee.
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 BB&T Funds.
PERFORMANCE INFORMATION
Yields of the Money Market Funds
As summarized in the Prospectuses of the U.S. Treasury Fund, the Prime
Money Market Fund and the Tax-Free Money Market Fund under the heading
"Performance Information," the "yield" of the U.S. Treasury Fund, the Prime
Money Market Fund and the Tax-Free 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
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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%.
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 BB&T Funds
As summarized in the Prospectuses under the heading "Performance
Information," yields of the Growth and Income Fund, North Carolina Fund, South
Carolina Fund, Virginia Fund, Short-Intermediate Fund, Intermediate U.S.
Government Bond Fund, Intermediate Corporate Bond Fund, Balanced Fund, Large
Company Growth Fund, Small Company Growth Fund, International Equity Fund,
Equity Index 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
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<PAGE> 417
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 BB&T Funds
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, the South Carolina Fund and the Virginia 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, South Carolina and Virginia Funds' yield which is tax-exempt by
the difference between one and a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax-exempt. The
tax equivalent effective yield for the North Carolina Fund, the South Carolina
Fund and the Virginia Fund is computed by dividing that portion of the effective
yield of the North Carolina, South Carolina and Virginia 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
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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 Virginia Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Intermediate Corporate Bond Fund,
the Balanced Fund, the Large Company Growth Fund, the Small Company Growth Fund,
the International Equity Fund, the Equity Index 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
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%,
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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)%.
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)%.
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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 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% (commencement of operations on November 30, 1992), Intermediate Bond --
6.17% (commencement of operations on October 9, 1992), Growth and Income --
14.95% (commencement of operations on October 9, 1992), North Carolina -- 4.37%
(commencement of operations on October 16, 1992), Balanced -- 10.46%
(commencement of operations on October 5, 1992), Small Company Growth -- 14.92%
(commencement of operations on December 7, 1994) and International Equity Funds
- -- (1.48)% (commencement of operations on January 2, 1997). 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% (commencement of
operations on November 30, 1992), Intermediate Bond -- 7.27% (commencement of
operations on October 9, 1992), Growth and Income -- 16.13% (commencement of
operations on October 9, 1992), North Carolina - -4.87% (commencement of
operations on October 16, 1992), U.S. Treasury -- 4.21% (commencement of
operations on October 5, 1992), Balanced -- 11.67% (commencement of operations
on October 9, 1992), Small Company Growth -- 16.64% (commencement of operations
on December 7, 1994) and International Equity Funds -- 1.50% (commencement of
operations on January 2, 1997).
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%
(commencement of operations on January 1, 1996), Growth and Income -- 15.88%
(commencement of operations on January 1, 1996), U.S. Treasury -- 3.45%
(commencement of operations on January 1, 1996), Balanced -- 10.95%
(commencement of operations on January 1, 1996), Small
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Company Growth -- 3.55% (commencement of operations on January 1, 1996) and
International Equity Funds -- (1.74)% (commencement of operations on January 2,
1997). 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. No yield or total return information is available
for the Tax-Free Money Market Fund, the Virginia Fund, the Intermediate
Corporate Bond Fund and the Equity Index Fund, which had not commenced
operations as of the date of this Statement of Additional Information.
At any time in the future, yields and total return may be higher or
lower than past yields, there can be no assurance that any historical results
will continue.
Performance Comparisons
Yield and Total Return. From time to time, performance information for
the Funds showing their average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may from time to time be included in
advertisements.
From time to time, the BB&T Funds 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 BB&T Funds, (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.
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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 Rating Agency.
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
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affiliated or correspondent banks for cash management services will reduce a
Fund's effective yield to Customers.
In addition, with respect to the North Carolina Fund, the South
Carolina Fund and the Virginia 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, the South Carolina Fund and the Virginia
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.
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APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<TABLE>
<CAPTION>
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ................... TAX-EXEMPT YIELDS .................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$12,751 TO
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$25,351 TO
$60,000 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$60,001 TO
$61,400 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28%
FROM
$60,401 TO
$128,100 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64%
FROM
$128,101 TO
$278,450 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32%
OVER
$278,450 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87%
</TABLE>
<TABLE>
<CAPTION>
SINGLE RETURN
SAMPLE
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$12,750 7.51% 8.14% 8.76%
FROM
$12,751 TO
$25,350 7.59% 8.22% 8.86%
FROM
$25,351 TO
$60,000 8.96% 9.71% 10.45%
FROM
$60,001 TO
$61,400 9.03% 9.79% 10.54%
FROM
$60,401 TO
$128,100 9.43% 10.21% 11.00%
FROM
$128,101 TO
$278,450 10.16% 11.01% 11.86%
OVER
$278,450 10.77% 11.67% 12.56%
</TABLE>
B-72
<PAGE> 425
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<TABLE>
<CAPTION>
MARRIED
FILING JOINTLY COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. ................... TAX-EXEMPT YIELDS ..................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$21,251 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$42,351 TO
$100,000 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$100,001 TO
$102,300 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28%
FROM
$102,301 TO
$155,950 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64%
FROM
$155,951 TO
$278,450 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32%
OVER
$278,450 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87%
</TABLE>
<TABLE>
<CAPTION>
MARRIED
FILING JOINTLY
SAMPLE
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$21,250 7.51% 8.14% 8.76%
FROM
$21,251 TO
$42,350 7.59% 8.22% 8.86%
FROM
$42,351 TO
$100,000 8.96% 9.71% 10.45%
FROM
$100,001 TO
$102,300 9.03% 9.79% 10.54%
FROM
$102,301 TO
$155,950 9.43% 10.21% 11.00%
FROM
$155,951 TO
$278,450 10.16% 11.01% 11.86%
OVER
$278,450 10.77% 11.67% 12.56%
</TABLE>
B-73
<PAGE> 426
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<CAPTION>
SINGLE RETURN COMBINED
SAMPLE SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. ................... TAX-EXEMPT YIELDS ............
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,310 15.00% 2.50% 17.13% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67%
FROM
$4,621 TO
$6,930 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74%
FROM
$6,931 TO
$9,240 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81%
FROM
$9,241 TO
$11,550 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$11,551 TO
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$25,351 TO
$61,400 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$61,401 TO
$128,100 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57%
FROM
$128,101 TO
$278,450 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.56% 8.40% 9.24%
OVER
$278,450 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79%
</TABLE>
<TABLE>
<CAPTION>
SINGLE RETURN
SAMPLE
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$2,310 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 7.35% 7.97% 8.58%
FROM
$6,931 TO
$9,240 7.43% 8.05% 8.67%
FROM
$9,241 TO
$11,550 7.51% 8.14% 8.76%
FROM
$11,551 TO
$25,350 7.59% 8.22% 8.86%
FROM
$25,351 TO
$61,400 8.96% 9.71% 10.45%
FROM
$61,401 TO
$128,100 9.35% 10.13% 10.91%
FROM
$128,101 TO
$278,450 10.08% 10.92% 11.76%
OVER
$278,450 10.68% 11.57% 12.46%
</TABLE>
B-74
<PAGE> 427
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<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%
<S> <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%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67%
FROM
$4,621 TO
$6,930 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74%
FROM
$6,931 TO
$9,240 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81%
FROM
$9,241 TO
$11,550 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
FROM
$11,551 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96%
FROM
$42,351 TO
$102,300 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21%
FROM
$102,301 TO
$155,950 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57%
FROM
$155,951 TO
$278,450 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.50% 8.40% 9.24%
OVER
$278,450 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79%
</TABLE>
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$2,310 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 7.35% 7.97% 8.58%
FROM
$6,931 TO
$9,240 7.43% 8.05% 8.67%
FROM
$9,241 TO
$11,550 7.51% 8.14% 8.76%
FROM
$11,551 TO
$42,350 7.59% 8.22% 8.86%
FROM
$42,351 TO
$102,300 8.96% 9.71% 10.45%
FROM
$102,301 TO
$155,950 9.35% 10.13% 10.91%
FROM
$155,951 TO
$278,450 10.08% 10.92% 11.76%
OVER
$278,450 10.68% 11.57% 12.46%
</TABLE>
B-75
<PAGE> 428
APPROXIMATE YIELD TABLE: VIRGINIA FUND
<TABLE>
<CAPTION>
COMBINED
SINGLE FEDERAL AND
TAXABLE FEDERAL VIRGINIA VIRGINIA ................... 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%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,999 15.00% 2.00% 16.70% 3.60% 4.20% 4.80% 5.40% 6.00% 6.60%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81%
FROM
$17,000 TO
$25,350 15.00% 5.75% 19.89% 3.74% 4.37% 4.99% 5.62% 6.24% 6.87%
FROM
$25,351 TO
$61,400 28.00% 5.75% 32.14% 4.42% 5.16% 5.89% 6.63% 7.37% 8.10%
FROM
$61,401 TO
$128,001 31.00% 5.75% 34.97% 4.61% 5.38% 6.15% 6.92% 7.69% 8.46%
FROM
$128,101 TO
$278,450 36.00% 5.75% 39.68% 4.97% 5.80% 6.63% 7.46% 8.29% 9.12%
OVER
278,450 39.60% 5.75% 43.07% 5.27% 6.15% 7.03% 7.90% 8.78% 9.66%
</TABLE>
<TABLE>
<CAPTION>
SINGLE
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$2,999 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 7.43% 8.05% 8.67%
FROM
$17,000 TO
$25,350 7.49% 8.11% 8.74%
FROM
$25,351 TO
$61,400 8.84% 9.58% 10.32%
FROM
$61,401 TO
$128,001 9.23% 10.00% 10.76%
FROM
$128,101 TO
$278,450 9.95% 10.78% 11.60%
OVER
278,450 10.54% 11.42% 12.30%
</TABLE>
B-76
<PAGE> 429
APPROXIMATE YIELD TABLE: VIRGINIA FUND
<TABLE>
<CAPTION>
MARRIED FILING COMBINED
JOINTLY FEDERAL AND
TAXABLE FEDERAL VIRGINIA VIRGINIA ................... 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%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,999 15.00% 2.00% 16.70% 3.60% 4.20% 4.80% 5.40% 6.00% 6.60%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81%
FROM
$17,000 TO
$42,350 15.00% 5.75% 19.89% 3.74% 4.37% 4.99% 5.62% 6.24% 6.87%
FROM
$42,351 TO
$102,300 28.00% 5.75% 32.14% 4.42% 5.16% 5.89% 6.63% 7.37% 8.10%
FROM
$102,301 TO
$155,950 31.00% 5.75% 34.97% 4.61% 5.38% 6.15% 6.92% 7.69% 8.46%
FROM
$155,951 TO
$278,450 36.00% 5.75% 39.68% 4.97% 5.80% 6.63% 7.46% 8.29% 9.12%
OVER
$278,450 39.60% 5.75% 43.07% 5.27% 6.15% 7.03% 7.90% 8.78% 9.66%
</TABLE>
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY
TAXABLE
INCOME
(1998) 6.00% 6.50% 7.00%
<S> <C> <C> <C>
FROM
$0 TO
$2,999 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 7.43% 8.05% 8.67%
FROM
$17,000 TO
$42,350 7.49% 8.11% 8.74%
FROM
$42,351 TO
$102,300 8.84% 9.58% 10.32%
FROM
$102,301 TO
$155,950 9.23% 10.00% 10.76%
FROM
$155,951 TO
$278,450 9.95% 10.78% 11.60%
OVER
$278,450 10.54% 11.42% 12.30%
</TABLE>
B-77
<PAGE> 430
The "combined Federal and N.C., S.C., OR VA Marginal Tax Rate"
represents the combined federal and North Carolina, South Carolina and Virginia
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, South
Carolina AND VIRGINIA 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 BB&T Funds (Previously The BB&T Mutual Funds 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 BB&T
Funds' Agreement and Declaration of Trust has been amended three times: (1) on
June 25, 1992 to change the Trust's name, (2) on August 18, 1992, to provide for
the issuance of multiple classes of shares, and (3) on May 17, 1999 to
change the Trust's name. A copy of the BB&T FUNDS' 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 BB&T Funds presently has eighteen
series of Shares offered to the public which represent interests in the U.S.
Treasury Fund, the Prime Money Market Fund, the Tax-Free Money Market Fund, the
Growth and Income Fund, the North Carolina Fund, the South Carolina Fund, the
Virginia Fund, the Short-Intermediate Fund, the Intermediate U.S. Government
Bond Fund, the Intermediate Corporate Bond Fund, the Balanced Fund, the Large
Company Growth Fund, the Small Company Growth Fund, the International Equity
Fund, and Equity Index Fund, the Capital Manager Conservative Growth Fund, the
Capital Manager Moderate Growth Fund, and the Capital Manager Growth Fund,
respectively. The BB&T Funds' Declaration of Trust authorizes the Board of
Trustees to divide or redivide any unissued Shares of the BB&T Funds 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 BB&T Funds' Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the BB&T
Funds, Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon
B-78
<PAGE> 431
the relative asset values of the respective Funds, of any general assets not
belonging to any particular Fund which are available for distribution.
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the BB&T Funds and its Shares," shares of
the BB&T Funds 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 BB&T Funds and filed with the BB&T
Funds' custodian or by vote of the holders of two-thirds of the outstanding
shares of the BB&T Funds 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 BB&T Funds.
However, the BB&T Funds' Declaration of Trust disclaims Shareholder liability
for acts or obligations of the BB&T Funds and requires that notice of such
disclaimer be given in every agreement, obligation or instrument entered into or
executed by the BB&T Funds 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 BB&T Funds shall be personally liable in connection with
the administration or preservation of the assets of the BB&T Funds or the
conduct of the BB&T Funds' 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 BB&T Funds shall look
solely to the assets of the BB&T Funds for payment.
B-79
<PAGE> 432
Miscellaneous
The BB&T Funds 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 BB&T Funds, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
Shareholders of the activities of the BB&T Funds for the most recent fiscal year
or half-year and to provide the views of the Adviser and/or BB&T Funds officers
regarding expected trends and strategies.
The organizational expenses of each Fund of the BB&T Funds 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
BB&T FUNDS 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 BB&T Funds 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 BB&T Funds 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 BB&T Funds.
As of February 18, 1999, the following persons owned of record or
beneficially 5% or more of the Class A, Class B, or Trust Shares of the listed
Funds:
U.S. Treasury Money Market Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
National Financial Services Corp. 33,273,594.970 78.15%
For the Exclusive Benefit of
Our Customers
P.O. Box 3752 Church Street Station
New York, NY 10008-3752
</TABLE>
B-80
<PAGE> 433
U.S. Treasury Money Market Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Burleigh J. Withers 129,336.600 6.72% 6.72%
IRA
424 Sinclair Street
Gastonia, NC 28054-7410
Burleigh J. Withers 129,336.800 6.72% 6.72%
IRA
424 Sinclair Street
Gastonia, NC 28054-7410
BISYS Fund Services 433,051.240 22.51%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
U.S. TREASURY MONEY MARKET FUND - TRUST SHARES
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Benefit Service Corporation 16,860,138.419 6.08%
BB&T Savings & Thrift Plans
1375 Peachtree Street, Suite 300
Atlanta, GA 30309-0000
</TABLE>
PRIME MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
French Family Properties 224,876.790 7.98% 7.98%
4310 Ludgate Street
Lumberton, NC 28358
Dorothy M. Doumar 238,185.380 8.45% 8.45%
7337 Barberry Lane
Norfolk, VA 23505
</TABLE>
B-81
<PAGE> 434
<TABLE>
<CAPTION>
<S> <C> <C> <C>
John P. Parker 200,332.560 7.11% 7.11%
1220 Graydon Ave.
Norfolk, VA 23507
William E. Humes 221,957.730 7.88% 7.88%
4 King Arthur Pl
Asheville, NC 28806
Daniel P. Sorrell 150,178.160 5.33% 5.33%
567 Winding Creek Road
Apt. E
Fayetteville, NC 28305-5171
</TABLE>
Prime Money Market Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Bisys Fund Services 959,273.220 85.97%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Rd.
Columbus, OH 43219
Scott Adams 84,866.910 7.61% 7.61%
1971 Morrisville Carpenter Rd
Morrisville, NC 27560
</TABLE>
Short-Intermediate U.S. Government Income Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
<S> <C> <C> <C>
Henry Fibers, Inc. 81,460.686 18.08% 18.08%
P.O. Box 1675
Gastonia, NC 28053
</TABLE>
B-82
<PAGE> 435
Short-Intermediate U.S. Government Income Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BB&T Capital Mgr. 816,893.298 5.24% 5.24%
Conservative Growth
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
</TABLE>
Intermediate U.S. Government Bond Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
<S> <C> <C> <C>
Raymond H. Parks 19,973.188 5.57% 5.57%
Merril Parks
4818 Vickery Chapel Rd
Greensboro, NC 27407
Atlantic Coast Contractors Inc. 19,695.364 5.49% 5.49%
7680 Townsend Dr.
Denver, NC 28037
</TABLE>
Intermediate U.S. Government Bond Fund - TRUST Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Benefit Service Corporation 967,636.850 5.53%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
</TABLE>
B-83
<PAGE> 436
North Carolina Intermediate Tax-Free Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owed
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Helen H. Hendricks 71,616.650 5.88% 5.88%
277 Beechwood Dr.
Mocksville, NC 27028
RL Honbarrier Co. 201,301.693 16.52% 16.52%
1507 Crestlin Road
High Point, NC 27260
</TABLE>
South Carolina Intermediate Tax-Free - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Sheldonia B. Whitby 4,833.180 7.37% 7.37%
120 S. Bendenbaugh
Leesville, SC 29070
Cheryl K. Boone 14,639.981 22.32% 22.32%
Wilt C. Boone
1901 Martin Rd.
Chapin, SC 29036
Cheryl K. Boone 16,572.497 25.27% 25.27%
George D. Boone
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 4,364.741 6.65% 6.65%
2010 Morningside Dr.
West Columbia, SC 29169
</TABLE>
B-84
<PAGE> 437
<TABLE>
<CAPTION>
<S> <C> <C> <C>
George S. Morgan 13,737.506 20.95% 20.95%
4477 Mandi Drive
Little River, SC 29566
</TABLE>
Balanced Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Louisburg College Inc. 82,081.936 5.12% 5.12%
501 N Main Street
Louisburg, NC 27549-2335
NFSC FEBO 142,741.602 8.91% 8.91%
NFSC FMTC IRA
277 Beechwood Drive
Mocksville, NC 27028
</TABLE>
Balanced Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Benefit Service Corporation 627,281.179 7.36%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
Corelink Financial Inc 444,236.267 5.21%
PO Box 4054
Concord, CA 94524
BB&T Capital Manager 457,124.408 5.36% 5.36%
Conservative Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
</TABLE>
B-85
<PAGE> 438
Growth and Income Stock Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Benefit Service Corporation 1,985,962.451 10.15%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
</TABLE>
International Equity Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
NFSC FEBO 9,005.272 6.68%
Jerald T. Howell
628 Walnut Creek Drive
Goldsboro, NC 27530
Poindexter Lumber Company 8,983.803 6.66%
P.O. Box 769
Clemmons, NC 27012-0769
</TABLE>
Large Company Growth Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BB&T Capital Manager 311,308.370 5.44% 5.44%
Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
</TABLE>
B-86
<PAGE> 439
Small Company Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
<S> <C> <C> <C>
Sanwa Bank California 58,886.076 10.37%
Cust. Wilshire Associates
Incorporated
444 Market Street, Fl. 23
San Francisco, CA 94111
</TABLE>
Small Company Growth Fund - Trust Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
Benefit Service Corporation 436,113.898 10.74%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
</TABLE>
Capital Manager Conservative Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
<S> <C> <C> <C>
NFSC FEBO 2,383.222 11.52% 11.52%
Horace J. Traylor
500 Pacific Ave., Apt. 403
Virginia Beach, VA 23451
Carol C. Watts 2,706.384 13.08% 13.08%
IRA
401 McAuthor St.
Tabor City, NC 28463
Lorraine K. Cauthen 6,369.791 30.79% 30.79%
108 Strawberry Lane
Clemson, SC 29631
</TABLE>
B-87
<PAGE> 440
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cheryl B. Cobb 6,737.523 32.57% 32.57%
Linda Z. Greer
214 Park Road
Lexington, SC 29072
Melton Ellerby 1,900.474 9.19% 9.19%
Route 1 Box 34
Wadesboro, NC 28170
</TABLE>
Capital Manager Conservative Growth Fund - B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BISYS Fund Services Ohio Inc. 94.877 100% 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Capital Manager Moderate Growth Fund - Class A Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
William H. Peeler 92,394.294 61.69% 61.69%
Betty P. Peeler
3802 Old Sptg Hwy
Moore, SC 29369
Leslie L. Keeter 17,892.589 11.93% 11.93%
1704 Hodges Ferry Rd.
Portsmouth, VA 23701
James B. Cranford 7,680.128 5.12% 5.12%
Chadwick Kyle Cranford
Memorial Scholarship Fund
9413 Cove Dr
Myrtle Beach, SC 29572 7,680.128 5.12% 5.12%
</TABLE>
B-88
<PAGE> 441
Capital Manager Moderate Growth Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BISYS Fund Services Ohio Inc. 93.985 100% 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Capital Manager Growth Fund - Class A Shares
<TABLE>
<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
Elham B. Makam 9,755.558 12.68% 12.68%
and Adly A. Girgis
JTWROS
110 Sedgefield Dr.
Clemson, SC 29631
Greg Hope 4,213.944 5.48% 5.48%
117 Fruit Ridge Rd.
Whiteville, NC 28472
Susan M. Bowman 12,027.627 15.63% 15.63%
301 Compton Rd.
Raleigh, NC 27609
Amanda M. Baughman 6,398.832 8.32% 8.32%
293 Ferndale Dr.
Spartanburg, SC 29316
</TABLE>
B-89
<PAGE> 442
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Carnell Construction Inc. 15,028.609 19.53% 19.53%
1705 E. Pamplico Hwy.
Florence, SC 29505
</TABLE>
Capital Manager Growth Fund - Class B Shares
<TABLE>
<CAPTION>
Percent Owned
Name and Address Total Shares Record Beneficially
- ---------------- ------------ ------ ------------
<S> <C> <C> <C>
BISYS Fund Services Ohio Inc. 93.545 100% 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
As of February 18, 1999 , 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 90% 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-90
<PAGE> 443
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-91
<PAGE> 444
APPENDIX
The nationally recognized statistical rating organizations
(individually, A "Rating Agency") 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 Rating Agency. The Rating
Agencies that may be utilized by the Funds and the description of each Rating
Agency'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-92
<PAGE> 445
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.
B-93
<PAGE> 446
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.
B-94
<PAGE> 447
-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.
B-95
<PAGE> 448
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.
B-96
<PAGE> 449
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.
B-97
<PAGE> 450
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 GROUP 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,
C-1
<PAGE> 451
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
Filed Herewith.
(c) Sub-Advisory Agreement between Branch
Banking and Trust Company and
CastleInternational Asset Management
Limited
C-2
<PAGE> 452
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 filed herewith.
(7) None.
(8) (a) Custody Agreement between the Registrant
and Star Bank, N.A. is incorporated by
reference to Exhibit 8(a) to Post- Effective
Amendment No. 11 to the Registration
Statement of the Registrant on Form N-1A
(filed February 14, 1997).
(b) Amended Appendix B to the Custody Agreement
between the Registrant and Firststar Bank,
N.A. (formerly Star Bank,N.A.) is filed
herewith.
(c) Custody Agreement between the Registrant and
Bank of New York is incorporated by
reference to Exhibit 8(c) to Post- Effective
Amendment No. 11 to the Registration
Statement of the Registrant on Form N-1A
(filed February 14, 1997).
C-3
<PAGE> 453
(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 filed herewith.
(f) Amended Schedule A to the Transfer Agency
Agreement between the Registrant and BISYS
Fund Services Ohio, Inc.
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(formerly The Winsbury Service Corporation)
is filed herewith.
(g) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and BISYS
Fund Services Ohio, Inc. (formerly The
Winsbury Service Corporation) is filed
herewith.
(10) Opinion of Ropes & Gray is filed herewith.
(11) (a) Consent of KPMG 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 on
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).
(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 filed
herewith.
(c) Servicing Agreement with respect to
Shareholder Services between Branch Banking
and Trust Company and BISYS Fund Services
Limited Partnership (formerly The Winsbury
Company Limited Partnership) is incorporated
by reference to Exhibit 15(b) to
Post-Effective Amendment No. 1 to the
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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 filed herewith.
(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 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)
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(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)
(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).
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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).
Item 27. Indemnification
Article VIII, Sections 1 and 2 of the Registrant's Declaration of
Trust provides as follows:
"Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid
in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered
Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or
with which such Covered Person may be or may have been threatened,
while in office or thereafter, by reason of being or having been
such a Covered Person except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding to be liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including
counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), shall be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article, provided, however, that either (a)
such Covered Person shall have provided appropriate security for
such undertaking, (b) the Trust shall be insured against losses
arising from any such advance payments
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or (c) either a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees
then in office act on the matter), or independent legal counsel in
a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person either (a) did not
act in good faith in the reasonable belief that his action was in
the best interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if
(a) approved as in the best interests of the Trust, after notice
that it involves such indemnification, by at least a majority of
the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the
matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such
Covered Person acted in good faith in the reasonable belief that
his action was in the best interests of the Trust and is not liable
to the Trust or its Shareholders by reasons of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been
obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person appears
to have 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."
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<PAGE> 459
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer,
or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Indemnification for the Group's principal underwriter is provided
for in the Distribution Agreement incorporated herein by reference
as Exhibit 6(a).
In addition, the Trust maintains a directors and officer liability
insurance policy with a maximum coverage of $3,000,000.
Item 28. Business and Other Connections of Investment Adviser and Investment
Sub-Advisers.
BB&T is the investment adviser to each fund. BB&T is the oldest
bank in North Carolina and is the principal bank affiliate of 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.
C-10
<PAGE> 460
Set forth below is information as to any other business, vocation
or employment of a substantial nature (other than service in
wholly-owned subsidiaries or the parent corporation of BB&T) in
which each director or senior officer of the Registrant's
investment adviser is, or at any time during the past two fiscal
years has been, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson, Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
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.
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Dr. Lloyd Vincent Hackley President
Director NC System of Community Colleges
Raleigh, N.C.
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, V.A.
James A. Hardison
Director
Dr. Richard Janeway Executive Vice President for Health Affairs
Director Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate Diagnostics
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc., McCauley
Moving & Storage of Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
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.
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A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
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
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<PAGE> 463
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).
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:
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
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
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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) 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)
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<PAGE> 465
(7) Firststar 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-16
<PAGE> 466
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.
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<PAGE> 467
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(a) under the 1933 Act and has duly caused this Post-
Effective Amendment No. 16 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 3rd day of March, 1999.
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. 16 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
- -------- ----- ----
/s/ Walter B. Grimm Chairman March 3, 1999
- -------------------
*Walter B. Grimm
/s/ William E. Graham Trustee March 3, 1999
- ---------------------
*William E. Graham
/s/ Thomas W. Lambeth Trustee March 3, 1999
- ---------------------
*Thomas W. Lambeth
/s/ Gary R. Tenkman Treasurer March 3, 1999
- -------------------
*Gary R. Tenkman
/s/ W. Ray Long Trustee March 3, 1999
- ---------------
*W. Ray Long
/s/ Robert W. Stewart Trustee March 3, 1999
- ---------------------
*Robert W. Stewart
*By:/S/Alan G. Priest
------------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
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<PAGE> 468
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> 469
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> 470
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> 471
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> 472
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> 473
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> 474
EXHIBIT INDEX
.
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
(5)(b) Revised Schedule A to Investment Advisory Agreement
(6)(b) Revised Schedules A-D to the Distribution Agreement
(8)(b) Amended Appendix B to the Custody Agreement
(9)(e) Revised Schedule A to Management and Administration
Agreement
(9)(f) Revised Schedule A to Transfer Agency Agreement
(9)(g) Revised Schedule A to Fund Accounting Agreement
(10) Opinion of Ropes & Gray
(11)(a) Consent of KPMG LLP
(11)(b) Consent of Ropes & Gray
(15)(b) Revised Schedule A to Amended and Restated
Distribution and Shareholder Services Plan
(15)(d) Revised Schedule A to Servicing Agreement
(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)
</TABLE>
<PAGE> 475
<TABLE>
<S> <C> <C>
(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 Obligations Fund (Class A)
(x) Prime Obligations 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 5(b)
Revised Schedule A to Investment Advisory Agreement
<PAGE> 2
Dated: February 5, 1999
Schedule A
to the
Investment Advisory Agreement between
The BB&T Mutual Funds Group
and Branch Banking and Trust Company
dated October 1, 1992
Name of Fund Compensation*
- ------------ -------------
BB&T U.S. Treasury Money Market Fund Annual rate of forty
one-hundredths of
one percent (.40%)
of the BB&T U.S.
Treasury Money
Market Fund's
average daily net
assets.
BB&T Short-Intermediate U.S. Annual rate of sixty
Government Income Fund one-hundredths of
one percent (.60%)
of the BB&T Short-
Intermediate U.S.
Government Income
Fund's average daily
net assets.
BB&T Intermediate U.S. Government Bond Annual rate of sixty
Fund one-hundredths of
one percent (.60%)
of the BB&T
Intermediate U.S.
Government Bond
Fund's average daily
assets. BB&T Growth
and Income Stock
Fund Annual rate of
seventy-four
one-hundredths of
one percent (.74%)
of the BB&T Growth
and Income Stock
Fund's average daily
net assets.
BB&T North Carolina Intermediate Tax- Annual rate of sixty
Free Fund one-hundredths of
one percent (.60%)
of the BB&T North
Carolina
Intermediate
Tax-Free Fund's
average daily net
assets.
BB&T Balanced Fund Annual rate of
seventy-four
one-hundredths of
one percent (.74%)
of the BB&T Balanced
Fund's average daily
net assets.
BB&T Small Company Growth Fund Annual rate of one
percent (1.00%) of
the BB&T Small
Company Growth
Fund's average daily
net assets.
<PAGE> 3
BB&T International Equity Fund Annual rate of one
percent (1.00%)of
the BB&T
International Equity
Fund's average daily
assets.
BB&T Capital Manager Conservative Annual rate of
Growth Fund twenty-five
one-hundredths of
one percent (.25%)
of the BB&T Capital
Manager Conservative
Growth Fund's
average daily net
assets.
BB&T Capital Manager Moderate Growth Fund Annual rate of
twenty-five
one-hundredths of
one percent (.25%)
of the BB&T Capital
Manager Moderate
Growth Fund's
average daily net
assets.
BB&T Capital Manager Growth Annual rate of
Fund twenty-five
one-hundredths of
one percent (.25%)
of the BB&T Capital
Manager Growth
Fund's average daily
net assets.
BB&T Prime Money Market Annual rate of forty
Fund one-hundredths of
one percent (.40%)
of the BB&T Prime
Money Market Fund's
average daily net
assets.
BB&T Large Company Growth Fund Annual rate of
seventy-four
one-hundredths of
one percent (.74%)
of the BB&T Large
Company Growth
Fund's average daily
net assets.
BB&T South Carolina Annual rate of sixty
Intermediate Tax-Free Fund one-hundredths of
one percent (.60%)
of the BB&T South
Carolina
Intermediate
Tax-Free Fund's
average daily net
assets.
BB&T Virginia Intermediate Tax-Free Fund Annual Rate of fifty
one-hundredths of
one percent (.50%)
of the BB&T Virginia
Intermediate
Tax-Free Fund's
average daily assets
BB&T Equity Index Fund Annual Rate of fifty
one-hundredths of
one percent (.50%)
of the BB&T Equity
Index Fund's average
daily assets
<PAGE> 4
BB&T Intermediate Corporate Bond Fund Annual Rate of fifty
one-hundredths of
one percent (.50%)
of the BB&T
Intermediate
Corporate Bond
Fund's average daily
assets
BB&T Tax-Free Money Market Fund Annual Rate of fifty
one-hundredths of
one percent (.50%)
of the BB&T Tax-Free
Money Market Fund's
average daily assets
BB&T MUTUAL FUNDS GROUP
By: /s/
-----------------------
Title:
---------------------
BRANCH BANKING AND TRUST COMPANY
By: /s/
-----------------------
Title:
---------------------
* All fees are computed daily and paid monthly.
<PAGE> 1
EXHIBIT 6(b)
Revised Schedules A-D to the Distribution Agreement
<PAGE> 2
Dated: February 5, 1999
Schedule A
to the
Distribution Agreement
between The BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
Name of Fund
------------
BB&T U.S. Treasury
Money Market Fund
BB&T Short-Intermediate
U.S. Government Income Fund
BB&T Intermediate U.S.
Government Bond Fund
BB&T North Carolina
Intermediate Tax-Free Fund
BB&T Growth and
Income Stock Fund
BB&T Balanced Fund
BB&T Small Company
Growth Fund
BB&T International
Equity Fund
BB&T Capital Manager
Conservative Growth Fund
BB&T Capital Manager
Moderate Growth Fund
BB&T Capital Manager
Growth Fund
<PAGE> 3
BB&T Prime Money Market
Fund
BB&T Large Company
Growth Fund
BB&T South Carolina
Intermediate Tax-Free Fund
BB&T Virginia Intermediate
Tax-Free Fund
BB&T Equity Index Fund
BB&T Intermediate Corporate Bond Fund
BB&T Tax-Free Money Market Fund
BB&T Mutual Funds Group
By:/s/
-----------------------
Title:
---------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:/s/
-----------------------
Title:
---------------------
<PAGE> 4
Dated: February 5, 1999
Schedule B
to the
Distribution Agreement
between The BB&T Mutual Funds Group and
BISYS Fund Services, Inc. (formerly The Winsbury Company Limited Partnership)
Class A Shares of
BB&T U.S. Treasury
Money Market Fund
Class A Shares of
BB&T Short-Intermediate
U.S. Government Income Fund
Class A Shares of
BB&T Intermediate U.S.
Government Bond Fund
Class A Shares of
BB&T North Carolina
Intermediate Tax-Free Fund
Class A Shares of
BB&T Growth and
Income Stock Fund
Class A Shares of
BB&T Balanced Fund
Class A Shares of
BB&T Small
Company Growth Fund
Class A Shares of
BB&T International
Equity Fund
Class A Shares of
BB&T Capital Manager
Conservative Growth Fund
Class A Shares of
BB&T Capital Manager
Moderate Growth Fund
Class B Shares of
BB&T U.S. Treasury
Money Market Fund
Class B Shares of
BB&T Short-Intermediate
U.S. Government Income Fund
Class B Shares of
BB&T Intermediate U.S.
Government Bond Fund
Class B Shares of
BB&T North Carolina
Intermediate Tax-Free Fund
Class B Shares of
BB&T Growth and
Income Stock Fund
Class B Shares of
BB&T Balanced Fund
Class B Shares of
BB&T Small
Company Growth Fund
Class B Shares of
BB&T International
Equity Fund
Class B Shares of
BB&T Capital Manager
Conservative Growth Fund
Class B Shares of
BB&T Capital Manager
Moderate Growth Fund
B-1
<PAGE> 5
Class A Shares of
BB&T Capital Manager
Growth Fund
Class A Shares of
BB&T Prime
Money Market Fund
Class A Shares of
BB&T Large Company
Growth Fund
Class A Shares of
BB&T South Carolina
Intermediate Tax-Free Fund
Class A Shares of
BB&T Virginia Intermediate
Tax-Free Fund
Class A Shares of
BB&T Equity Index Fund
Class A Shares of
BB&T Intermediate Corporate
Bond Fund
Class A Shares of
BB&T Tax-Free Money Market Fund
Class B Shares of
BB&T Capital Manager
Growth Fund
Class B Shares of
BB&T Prime
Money Market Fund
Class B Shares of
BB&T Large Company
Growth Fund
Class B Shares of
BB&T South Carolina
Intermediate Tax-Free Fund
Class B Shares of
BB&T Virginia Intermediate
Tax-Free Fund
Class B Shares of
BB&T Equity Index Fund
Class B Shares of
BB&T Intermediate Corporate
Bond Fund
Class B Shares of
BB&T Tax-Free Money Market Fund
BB&T MUTUAL FUNDS GROUP
By:/s/
------------------------
Title:
---------------------
B-2
<PAGE> 6
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:/s/
------------------------
Title:
---------------------
B-3
<PAGE> 7
Dated: February 5, 1999
Schedule C
to the
Distribution Agreement
between The BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
Class A Shares of
BB&T U.S. Treasury Money Market Fund
Class A Shares of
BB&T Short-Intermediate
U.S. Government Income Fund
Class A Shares of
BB&T Intermediate U.S.
Government Bond Fund
Class A Shares of
BB&T North Carolina
Intermediate Tax-Free Fund
Class A Shares of
BB&T Growth and Income Stock Fund
Class A Shares of
BB&T Balanced Fund
Class A Shares of
BB&T Small Company Growth Fund
Class A Shares of
BB&T International Equity Fund
Class A Shares of
BB&T Capital Manager
Conservative Growth Fund
Class A Shares of
BB&T Capital Manager Moderate Growth Fund
Class A Shares of
BB&T Prime Money Market Fund
C-1
<PAGE> 8
Class A Shares of
BB&T Capital Manager
Growth Fund
Class A Shares of
BB&T Large
Company Growth Fund
Class A Shares of
BB&T South Carolina
Intermediate Tax-Free Fund
Class A Shares of
BB&T Virginia Intermediate
Tax-Free Fund
Class A Shares of
BB&T Equity Index Fund
Class A Shares of
BB&T Intermediate Corporate
Bond Fund
Class A Shares of
BB&T Tax-Free Money Market Fund
BB&T MUTUAL FUNDS GROUP
By:/s/
-------------------------
Title:
-----------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:/s/
-------------------------
Title:
-----------------------
C-2
<PAGE> 9
Dated: February 5, 1999
Schedule D
to the
Distribution Agreement
between The BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
Class B Shares of
BB&T U.S. Treasury Money Market Fund
Class B Shares of
BB&T Short-Intermediate U.S. Government Income Fund
Class B Shares of
BB&T Intermediate U.S. Government Bond Fund
Class B Shares of
BB&T North Carolina Intermediate Tax-Free Fund
Class B Shares of
BB&T Growth and Income Stock Fund
Class B Shares of
BB&T Balanced Fund
Class B Shares of
BB&T Small Company Growth Fund
Class B Shares of
BB&T International Equity Fund
Class B Shares of
BB&T Capital Manager Conservative Growth Fund
Class B Shares of
BB&T Capital Manager Moderate Growth Fund
Class B Shares of
<PAGE> 10
The BB&T Capital Manager Growth Fund
Class B Shares of
The BB&T Prime Money Market Fund
Class B Shares of
The BB&T Large Company Growth Fund
Class B Shares of
The BB&T South Carolina Intermediate Tax-Free Fund
Class B Shares of
The BB&T Virginia Intermediate Tax-Free Fund
Class B Shares of
The BB&T Equity Index Fund
Class B Shares of
The BB&T Intermediate Corporate Bond Fund
Class B Shares of
The BB&T Tax-Free Money Market Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
---------------------------
Title:
------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/
---------------------------
Title:
------------------------
<PAGE> 1
EXHIBIT 8(b)
Amended Appendix B to the Custody Agreement
<PAGE> 2
Dated: February 5, 1999
APPENDIX B
NAME OF FUND
BB&T U. S. Treasury Money Market Fund
BB&T Short-Intermediate U. S. Government Income Fund
BB&T Intermediate U. S. Government Bond Fund
BB&T North Carolina Intermediate Tax-Free Fund
BB&T Growth and Income Stock Fund
BB&T Capital Manager Growth Fund
BB&T Capital Manager Moderate Growth Fund
BB&T Capital Manager Conservative Growth Fund
BB&T Prime Money Market Fund
BB&T Balanced Fund
BB&T Large Company Growth Fund
BB&T South Carolina Intermediate Tax-Free Fund
BB&T International Equity Fund
BB&T Small Company Growth Fund
BB&T Virginia Intermediate Tax-Free Fund
BB&T Equity Index Fund
BB&T Intermediate Corporate Bond Fund
BB&T Tax-Free Money Market Fund
BB&T Mutual Funds Group
By: /s/
------------------------------------
Title:
---------------------------------
Firststar Bank, N.A.
By: /s/
------------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 9(e)
Revised Schedule A to Management and Administration Agreement
<PAGE> 2
Dated: February 5, 1999
Schedule A
to the
Management and Administration Agreement
between The BB&T Mutual Funds Group and
BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
<TABLE>
<CAPTION>
Name of Fund Compensation*
------------ -------------
<S> <C>
BB&T U.S. Treasury Money Market Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Short-Intermediate U.S. Government Annual Rate of twenty
Income Fund one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Intermediate U.S. Government Bond Annual Rate of twenty
Fund one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Growth and Income Stock Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T North Carolina Intermediate Annual Rate of twenty
Tax-Free Fund one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Balanced Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Small Company Growth Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
BB&T International Equity Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Capital Manager Annual Rate of five one-hundredths
Conservative Growth Fund of one percent (.05%) of each such
Fund's average daily assets
BB&T Capital Manager Moderate Annual Rate of five one-hundredths
Growth Fund of one percent (.05%) of each such
Fund's average daily assets
BB&T Capital Manager Growth Fund Annual Rate of five one-hundredths
of one percent (.05%) of each such
Fund's average daily assets
BB&T Prime Money Market Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Large Company Growth Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T South Carolina Intermediate Tax-Free Annual Rate of twenty
Fund one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Virginia Intermediate Tax-Free Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Equity Index Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
</TABLE>
A-2
<PAGE> 4
<TABLE>
<S> <C>
BB&T Intermediate Corporate Bond Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
BB&T Tax-Free Money Market Fund Annual Rate of twenty
one-hundredths of one percent
(.20%) of each such Fund's average
daily assets
</TABLE>
BB&T MUTUAL FUNDS GROUP
By: /s/
--------------------------------
Title:
----------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
(formerly The Winsbury Company Limited
Partnership)
By: BISYS Fund Services, Inc.
General Partner
By: /s/
--------------------------------
Title:
----------------------------
- ----------
*All fees are computed daily and paid periodically.
A-3
<PAGE> 1
EXHIBIT 9(f)
Revised Schedule A to Transfer Agency Agreement
<PAGE> 2
Dated: February 5, 1999
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
FUND PORTFOLIOS
U.S. Treasury Money Market Fund
Short Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
Growth and Income Stock Fund
North Carolina Intermediate Tax-Free Fund
Balanced Fund
Small Company Growth Fund
International Equity Fund
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund
Prime Money Market Fund
Large Company Growth Fund
South Carolina Intermediate Tax-Free Fund
Virginia Intermediate Tax-Free Fund
Equity Index Fund
Intermediate Corporate Bond Fund
Tax-Free Money Market Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
---------------------------------------
Title:
------------------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /s/
---------------------------------------
Title:
------------------------------------
A-1
<PAGE> 3
Dated: February 5, 1999
Schedule A
to the
Transfer Agency Agreement for Qualified Plan Accounts
Fund Portfolios
U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
Growth and Income Stock Fund
North Carolina Intermediate Tax-Free Fund
Balanced Fund
Small Company Growth Fund
International Equity Fund
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund
Prime Money Market Fund
Large Company Growth Fund
South Carolina Intermediate Tax-Free Fund
Virginia Intermediate Tax-Free Fund
Equity Index Fund
Intermediate Corporate Bond Fund
Tax-Free Money Market Fund
<PAGE> 1
EXHIBIT 9(g)
Revised Schedule A to Fund Accounting Agreement
<PAGE> 2
Dated: February 5, 1999
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
THE BB&T MUTUAL FUNDS GROUP
AND
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
NAME OF FUND
BB&T U.S. Treasury Money Market Fund
BB&T Short Intermediate U.S. Government Income Fund
BB&T Intermediate U.S. Government Bond Fund
BB&T Growth and Income Stock Fund
BB&T North Carolina Intermediate Tax-Free Fund
BB&T Balanced Fund
BB&T Small Company Growth Fund
BB&T International Equity Fund
BB&T Capital Manager Conservative Growth Fund
BB&T Capital Manager Moderate Growth Fund
BB&T Capital Manager Growth Fund
BB&T Prime Money Market Fund
BB&T Large Company Growth Fund
BB&T South Carolina Intermediate Tax-Free Fund
BB&T Virginia Intermediate Tax-Free Fund
BB&T Equity Index Fund
BB&T Intermediate Corporate Bond Fund
BB&T Tax-Free Money Market Fund
BB&T MUTUAL FUNDS GROUP
By: /s/
----------------------------------------
Title:
------------------------------------
BISYS FUND SERVICES OHIO, INC.
(formerly The Winsbury Service Corporation)
By: /s/
----------------------------------------
Title:
------------------------------------
<PAGE> 1
EXHIBIT 10
Opinion of Ropes & Gray
<PAGE> 2
WRITER'S DIRECT DIAL NUMBER: (202) 626-3967
March 3, 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 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
March 3, 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 AUDITORS' 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
March 3, 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. 16 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.
March 3, 1999
<PAGE> 1
Exhibit 15(b)
Revised Schedule A to Amended and Restated Distribution and Shareholder Services
Plan
<PAGE> 2
Dated: February 5, 1999
Schedule A to the
Distribution and Shareholder Services Plan
dated October 1, 1992
As Amended and Restated February 7, 1997
<TABLE>
<CAPTION>
Name of Funds Compensation*
- ------------- -------------
<S> <C>
BB&T U.S. Treasury Money Market Fund Annual rate of fifty one-hundredths of
- -- A Shares one percent (.50%) of the average daily
net assets of the BB&T U.S. Treasury
Money Market Fund.
BB&T Short-Intermediate U.S. Annual rate of fifty one-hundredths of
Government Income Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T
Short-Intermediate U.S. Government
Income Fund.
BB&T Intermediate U.S. Government Annual rate of fifty one-hundredths of
Bond Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Intermediate U.S.
Government Bond Fund.
BB&T Growth and Income Stock Fund Annual rate of fifty one-hundredths of
- -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Growth and Income
Stock Fund.
BB&T North Carolina Intermediate Annual rate of fifty one-hundredths of
Tax-Free Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T North Carolina
Intermediate Tax-Free Fund.
BB&T Balanced Fund -- A Shares Annual rate of fifty one-hundredths of
one percent (.50%) of the average daily
net assets of the BB&T Balanced Fund.
BB&T Small Company Growth Fund -- A Annual rate of fifty one-hundredths of
Shares one percent (.50%) of the average daily
net assets of the BB&T Small Company
Growth Fund.
BB&T International Equity Fund -- A Annual rate of fifty one-hundredths of
Shares one percent (.50%) of the average daily
net assets of the BB&T International
Equity Fund.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<S> <C>
BB&T Capital Manager Conservative Annual rate of fifty one-hundredths of
Growth Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Conservative Growth Fund.
BB&T Capital Manager Moderate Growth Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Moderate Growth Fund.
BB&T Capital Manager Growth Fund -- Annual rate of fifty one-hundredths of
A Shares one percent (.50%) of the average daily
net assets of the BB&T Capital Manager
Growth Fund.
BB&T Prime Money Market Fund -- A Annual rate of fifty one-hundredths of
Shares one percent (.50%) of the average daily
net assets of the BB&T Prime Money
Market Fund.
BB&T Large Company Growth Fund -- A Annual rate of fifty one-hundredths of
Shares one percent (.50%) of the average daily
net assets of the BB&T Large Company
Growth Fund
BB&T South Carolina Intermediate Annual rate of fifty one-hundredths of
Tax-Free Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T South Carolina
Intermediate Tax-Free Fund
BB&T Virginia Intermediate Tax-Free Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Virginia
Intermediate Tax-Free Fund
BB&T Equity Index Fund -- A Shares Annual rate of fifty one-hundredths of
one percent (.50%) of the average daily
net assets of the BB&T Equity Index Fund
BB&T Intermediate Corporate Bond Annual rate of fifty one-hundredths of
Fund -- A Shares one percent (.50%) of the average daily
net assets of the BB&T Intermediate
Corporate Bond Fund
BB&T Tax-Free Money Market Fund -- Annual rate of fifty one-hundredths of
A Shares one percent (.50%) of the average daily
net assets of the BB&T Tax-Free Money
Market Fund
BB&T U.S. Treasury Money Market Fund Annual rate of one percent (1.00%) of
- -- B Shares the average daily net assets of the BB&T
U.S. Treasury Money Market Fund.
</TABLE>
A-2
<PAGE> 4
<TABLE>
<S> <C>
BB&T Short-Intermediate U.S. Annual rate of one percent (1.00%) of
Government Fund -- B Shares the average daily net assets of the BB&T
Short-Intermediate U.S. Government Fund.
BB&T Intermediate U.S. Government Annual rate of one percent (1.00%) of
Bond Fund -- B Shares the average daily net assets of the BB&T
Intermediate U.S. Government Bond Fund.
BB&T Growth and Income Stock Fund -- Annual rate of one percent (1.00%) of
B Shares the average daily net assets of the BB&T
Growth and Income Stock Fund.
BB&T North Carolina Intermediate Annual rate of one percent (1.00%) of
Tax-Free Fund -- B Shares the average daily net assets of the BB&T
North Carolina Tax-Free Fund.
BB&T Balanced Fund -- B Shares Annual rate of one percent (1.00%) of
the average daily net assets of the BB&T
Balanced Fund.
BB&T Small Company Growth Fund -- B Annual rate of one percent (1.00%) of
Shares the average daily net assets of the BB&T
Small Company Growth Fund.
BB&T International Equity Fund -- B Annual rate of one percent (1.00%) of
Shares the average daily net assets of the BB&T
International Equity Fund.
BB&T Capital Manager Conservative Annual rate of one percent (1.00%) of
Growth Fund -- B Shares the average daily net assets of the BB&T
Capital Manager Conservative Growth
Fund.
BB&T Capital Manager Moderate Growth Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the BB&T
Capital Manager Moderate Growth Fund.
BB&T Capital Manager Growth Fund -- Annual rate of one percent (1.00%) of
B Shares the average daily net assets of the BB&T
Capital Manager Growth Fund.
BB&T Prime Money Market Fund -- B Annual rate of one percent (1.00%) of
Shares the average daily net assets of the BB&T
Prime Money Market Fund.
BB&T Large Company Growth Fund -- B Annual rate of one percent (1.00%) of
Shares the average daily net assets of the BB&T
Large Company Growth Fund
</TABLE>
A-3
<PAGE> 5
<TABLE>
<S> <C>
BB&T South Carolina Intermediate Annual rate of one percent (1.00%) of
Tax-Free Fund -- B Shares the average daily net assets of the BB&T
South Carolina Intermediate Tax-Free
Fund
BB&T Virginia Intermediate Tax-Free Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the BB&T
Virginia Intermediate Tax-Free Fund
BB&T Equity Index Fund -- B Shares Annual rate of one percent (1.00%) of
the average daily net assets of the BB&T
Equity Index Fund
BB&T Intermediate Corporate Bond Annual rate of one percent (1.00%) of
Fund -- B Shares the average daily net assets of the BB&T
Intermediate Corporate Bond Fund
BB&T Tax-Free Money Market Fund -- B Annual rate of one percent (1.00%) of
Shares the average daily net assets of the BB&T
Tax-Free Money Market Fund
</TABLE>
BB&T MUTUAL FUNDS GROUP
[SEAL]
By: /s/
-----------------------------------------
Title:
--------------------------------------
BISYS FUND SERVICES
By: /s/
-----------------------------------------
Title:
--------------------------------------
- ----------
* All fees are computed and paid monthly.
A-4
<PAGE> 1
EXHIBIT 15(d)
Revised Schedule A to Servicing Agreement
<PAGE> 2
Dated: February 5, 1999
Schedule A
to the
Servicing Agreement With Respect To
Distribution Assistance and Shareholder Services
between BISYS Fund Services, Inc.
(formerly The Winsbury Company Limited Partnership)
and Branch Banking and Trust Company
<TABLE>
<CAPTION>
Name of the Fund Compensation*
- ---------------- -------------
<S> <C>
BB&T U.S. Treasury Money Market Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T U.S. Treasury Money Market Fund's
Class A Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
BB&T Short-Intermediate U.S. Annual rate of twenty-five
Government Income Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Short-Intermediate U.S. Government
Income Fund's Class A Shares held of
record by the Participating Organization
from time to time on behalf of
Customers.
BB&T Intermediate U.S. Government Annual rate of twenty-five
Bond Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Intermediate U.S. Government Bond
Fund's Class A Shares held of record by
the Participating Organization from time
to time on behalf of Customers.
BB&T Growth and Income Stock Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Growth and Income Stock Fund's
Class A Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
BB&T North Carolina Intermediate Annual rate of twenty-five
Tax-Free Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T North Carolina Intermediate
Tax-Free Fund's Class A Shares held of
record by the Participating Organization
from time to time on behalf of
Customers.
BB&T Balanced Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Balanced Fund's Class A Shares held
of record by the Participating
Organization from time to time on behalf
of the Customers.
BB&T Small Company Growth Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Small Company Growth Fund's Class A
Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
BB&T International Equity Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T International Equity Fund's Class A
Shares held of record by the
Participating Organization from time to
time on behalf of customers.
BB&T Capital Manager Conservative Annual rate of twenty-five
Growth Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Capital Manager Conservative Growth
Fund's Class A Shares held of record by
the Participating Organization from time
to time on behalf of customers.
BB&T Capital Manager Moderate Growth Annual rate of twenty-five
Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Capital Manager Moderate Growth
Fund's Class A Shares held of record by
the Participating Organization from time
to time on behalf of customers.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
BB&T Capital Manager Growth Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Capital Manager Growth Fund's Class
A Shares held of record by the
Participating Organization from time to
time on behalf of customers.
BB&T Prime Money Market Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Prime Money Market Fund's Class A
Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
BB&T Large Company Growth Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Large Company Growth Fund's Class A
Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
BB&T South Carolina Intermediate Annual rate of twenty-five
Tax-Free Fund one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T South Carolina Intermediate
Tax-Free Fund's Class A Shares held of
record by the Participating Organization
from time to time on behalf of
Customers.
BB&T Virginia Intermediate Tax-Free Annual rate of sixty one-hundredths of
Fund one percent (.60%) of the average daily
net asset value of the BB&T Virginia
Intermediate Tax-Free Fund's Class A
Shares held of record by the
Participating Organization from time to
time on behalf of Customers.
BB&T Equity Index Fund Annual rate of twenty-five
one-hundredths of one percent (.25%) of
the average daily net asset value of the
BB&T Equity Index Fund's Class A Shares
held of record by the Participating
Organization from time to time on behalf
of Customers.
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
BB&T Intermediate Corporate Bond Fund Annual rate of sixty one-hundredths of
one percent (.60%) of the average daily
net asset value of the BB&T Intermediate
Corporate Bond Fund's Class A Shares
held of record by the Participating
Organization from time to time on behalf
of Customers.
BB&T Tax-Free Money Market Fund Annual rate of forty one-hundredths of
one percent (.40%) of the average daily
net asset value of the BB&T Tax-Free
Money Market Fund's Class A Shares held
of record by the Participating
Organization from time to time on behalf
of Customers.
</TABLE>
BISYS FUND SERVICES ACCEPTED AND AGREED TO:
LIMITED PARTNERSHIP
(formerly The Winsbury Company
Limited Partnership)
By: BISYS FUND SERVICES GENERAL BRANCH BANKING AND TRUST COMPANY
PARTNER
By: /s/ By: /s/
-------------------------------- --------------------------------
Title: Title:
---------------------------- ----------------------------
- ----------------
* All fees are computed daily and paid monthly.
<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>
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<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
<DISTRIBUTIONS-OF-INCOME> 1750905<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 487187835
<NUMBER-OF-SHARES-REDEEMED> 513879583
<SHARES-REINVESTED> 4337585
<NET-CHANGE-IN-ASSETS> (22354163)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 246
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1155223
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2381928
<AVERAGE-NET-ASSETS> 37676979<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .046<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> .046<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .86<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> 012
<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> 1255164<F2>
<SHARES-COMMON-PRIOR> 1501923<F2>
<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
<DISTRIBUTIONS-OF-INCOME> 48142<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 487187835
<NUMBER-OF-SHARES-REDEEMED> 513879583
<SHARES-REINVESTED> 4337585
<NET-CHANGE-IN-ASSETS> (22354163)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 246
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1155223
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2381928
<AVERAGE-NET-ASSETS> 1235887<F2>
<PER-SHARE-NAV-BEGIN> 1.00<F2>
<PER-SHARE-NII> .039<F2>
<PER-SHARE-GAIN-APPREC> 0<F2>
<PER-SHARE-DIVIDEND> .039<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 1.00<F2>
<EXPENSE-RATIO> 1.61<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F2>B Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 013
<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> 235796160<F3>
<SHARES-COMMON-PRIOR> 266839762<F3>
<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
<DISTRIBUTIONS-OF-INCOME> 12235260<F3>
<DISTRIBUTIONS-OF-GAINS> 0<F3>
<DISTRIBUTIONS-OTHER> 0<F3>
<NUMBER-OF-SHARES-SOLD> 487187835
<NUMBER-OF-SHARES-REDEEMED> 513879583
<SHARES-REINVESTED> 4337585
<NET-CHANGE-IN-ASSETS> (22354163)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 246
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1155223
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2381928
<AVERAGE-NET-ASSETS> 249892775<F3>
<PER-SHARE-NAV-BEGIN> 1.00<F3>
<PER-SHARE-NII> .049<F3>
<PER-SHARE-GAIN-APPREC> 0<F3>
<PER-SHARE-DIVIDEND> .049<F3>
<PER-SHARE-DISTRIBUTIONS> 0<F3>
<RETURNS-OF-CAPITAL> 0<F3>
<PER-SHARE-NAV-END> 1.00<F3>
<EXPENSE-RATIO> .61<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> 021
<NAME> SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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<INVESTMENTS-AT-VALUE> 160456731
<RECEIVABLES> 2138912
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162595643
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 790568
<TOTAL-LIABILITIES> 790568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158567418
<SHARES-COMMON-STOCK> 444684<F1>
<SHARES-COMMON-PRIOR> 527627<F1>
<ACCUMULATED-NII-CURRENT> 157106
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1612584)
<ACCUM-APPREC-OR-DEPREC> 4693135
<NET-ASSETS> 161805075
<DIVIDEND-INCOME> 83600
<INTEREST-INCOME> 9481501
<OTHER-INCOME> 0
<EXPENSES-NET> 1259540
<NET-INVESTMENT-INCOME> 8305561
<REALIZED-GAINS-CURRENT> (29919)
<APPREC-INCREASE-CURRENT> 4916929
<NET-CHANGE-FROM-OPS> 13192571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 236423<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 7530796
<NUMBER-OF-SHARES-REDEEMED> 2646733
<SHARES-REINVESTED> 55526
<NET-CHANGE-IN-ASSETS> 53130958
<ACCUMULATED-NII-PRIOR> 75292
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1500851)
<GROSS-ADVISORY-FEES> 924919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1466741
<AVERAGE-NET-ASSETS> 4591478<F1>
<PER-SHARE-NAV-BEGIN> 9.76<F1>
<PER-SHARE-NII> .51<F1>
<PER-SHARE-GAIN-APPREC> .30<F1>
<PER-SHARE-DIVIDEND> .51<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.06<F1>
<EXPENSE-RATIO> 1.06<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> 023
<NAME> SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME 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> 155763596
<INVESTMENTS-AT-VALUE> 160456731
<RECEIVABLES> 2138912
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162595643
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 790568
<TOTAL-LIABILITIES> 790568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158567418
<SHARES-COMMON-STOCK> 15619359<F3>
<SHARES-COMMON-PRIOR> 10596827<F3>
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<F3>TRUST Class
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<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 031
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
<S> <C>
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<F1>A Class
</FN>
</TABLE>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 032
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND 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> 033
<NAME> INTERMEDIATE U.S. GOVERNMENT BOND FUND
<S> <C>
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<F3>TRUST Class
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<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 041
<NAME> NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
<S> <C>
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
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<NAME> NORTH CAROLINA INTERMEDIATE TAX-FREE 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
<SERIES>
<NUMBER> 051
<NAME> GROWTH AND INCOME STOCK FUND
<S> <C>
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 052
<NAME> GROWTH AND INCOME STOCK FUND
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<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
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<NAME> GROWTH AND INCOME STOCK FUND
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<FN>
<F2>B Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 113
<NAME> LARGE COMPANY GROWTH FUND
<S> <C>
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<FN>
<F3>TRUST Class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
<NUMBER> 121
<NAME> CAPITAL MANAGER CONSERVATIVE GROWTH FUND
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<F1>A Class
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000889284
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<SERIES>
<NUMBER> 123
<NAME> CAPITAL MANAGER CONSERVATIVE GROWTH FUND
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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> 131
<NAME> CAPITAL MANAGER MODERATE GROWTH FUND
<S> <C>
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<F1>A Class
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000889284
<NAME> BB&T MUTUAL FUNDS GROUP
<SERIES>
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<NAME> CAPITAL MANAGER MODERATE GROWTH FUND
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<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>
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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> 143
<NAME> CAPITAL MANAGER GROWTH FUND
<S> <C>
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<FN>
<F3>TRUST Class
</FN>
</TABLE>
