<PAGE> 1
Registration Nos. 33-49098
811-06719
As filed with the Securities and Exchange Commission
on November 23, 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. 17 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 18 [X]
BB&T FUNDS
(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 Funds
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., Suite 800 East,
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on February 1, 2000 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
post-effective amendment No. __ filed on [date].
<PAGE> 2
BB&T FUNDS
- --------------------------------------------------------------------------------
----------
PROSPECTUS
----------
FEBRUARY 1, 2000
MONEY MARKET FUNDS
BB&T Prime Money Market Fund
BB&T U.S. Treasury Money Market Fund
BB&T Tax-Free Money Market Fund
CLASS A SHARES
CLASS B SHARES
TRUST SHARES
-----------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS Questions?
NOT APPROVED THE SHARES DESCRIBED IN THIS Call 1-800-228-1872
PROSPECTUS OR DETERMINED WHETHER THIS or your investment
PROSPECTUS IS ACCURATE OR COMPLETE. representative.
ANYONE WHO TELLS YOU OTHERWISE IS -----------------------
COMMITTING A CRIME.
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's Money Market Funds
investments, risks, past - Prime Money Market Fund
performance, and fees. - U.S. Treasury Money Market Fund
- Tax-Free Money Market Fund
Review this section for Investment Objectives, Policies and Risks
information and on investment
strategies and their risks. Money Market Funds
- Prime Money Market Fund
- U.S. Treasury Money Market Fund
- Tax-Free Money Market Fund
Review this section for Fund Management
details on the people and - The Investment Adviser
organizations who oversee the - The Investment Sub-Advisers
Funds. - Portfolio Managers
- The Distributor and Administrator
Review this section for Shareholder Information
details on how shares are - Choosing a Share Class
valued, how to purchase, sell - Pricing of Fund Shares
and exchange shares, related - Purchasing and Adding to Your Shares
charges and payments of - Selling Your Shares
dividends and distributions. - Exchanging Your Shares
- General Policies on Selling Shares
- Distribution Arrangements/Sales Charges
- Distribution and Service (12b-1) Fees and
Shareholder Servicing Fees
- Dividends, Distributions and Taxes
- Financial Highlights
Back Cover
- Where to learn more about this Fund
</TABLE>
2
<PAGE> 4
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
The Funds BB&T Funds is a mutual fund family
that offers different classes of
shares in separate investment
portfolios ("Funds"). The Funds have
individual investment goals and
strategies. This prospectus gives
you important information about the
Class A Shares, the Class B Shares
and the Trust Shares of the Money
Market Funds that you should know
before investing. Please read this
prospectus and keep it for future
reference.
Each of the Funds in this prospectus
is a mutual fund. A mutual fund
pools shareholders' money and, using
professional investment managers,
invests it in securities like stocks
and bonds. Before you look at
specific Funds, you should know a
few general basics about investing
in mutual funds.
The value of your investment in a
Fund is based on the market prices
of the securities the Fund holds.
These prices change daily due to
economic and other events that
affect securities markets generally,
as well as those that affect
particular companies or government
units. These price movements,
sometimes called volatility, will
vary depending on the types of
securities a Fund owns and the
markets where these securities
trade.
LIKE OTHER INVESTMENTS, YOU COULD
LOSE MONEY ON YOUR INVESTMENT IN A
FUND. YOUR INVESTMENT IN A FUND IS
NOT A DEPOSIT OR AN OBLIGATION OF
BRANCH BANKING AND TRUST COMPANY,
BB&T CORPORATION, THEIR AFFILIATES,
OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment
goal and strategies for reaching
that goal. However, it cannot be
guaranteed that a Fund will achieve
its goal. Before investing, make
sure that the Fund's goal matches
your own.
The portfolio manager invests each
Fund's assets in a way that the
manager believes will help the Fund
achieve its goal. A manager's
judgments about the stock markets,
economy and companies, or selecting
investments may cause a Fund to
underperform other funds with
similar objectives.
3
<PAGE> 5
DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
These Funds seek current income with
liquidity and stability of principal by
investing primarily in short-term debt
securities. The Funds seek to maintain a
stable price of $1.00 per share.
Who May Want to Invest Consider investing in these Funds if you are:
- seeking preservation of capital
- investing short-term reserves
- willing to accept lower potential returns
in exchange for a higher degree of safety
- in the case of the Tax-Free Money Market
Fund, seeking Federal tax-exempt income
These Funds may not be appropriate if you
are:
- seeking high total return
- pursuing a long-term goal or investing for
retirement
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level of
current interest income as is consistent with
maintaining liquidity and stability of
principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in
U.S. dollar-denominated, "high-quality"
short-term debt securities, including the
following:
- 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);
- "High quality" commercial paper and
other obligations issued or guaranteed
by U.S. and foreign corporations and
other issuers;
- Asset-backed securities;
- Securities issued or guaranteed as to
principal and interest by the U.S.
Government or by its agencies or
instrumentalities and related custodial
receipts;
- Securities issued or guaranteed by
foreign governments or their political
subdivisions; agencies or
instrumentalities;
- Guaranteed investment contracts issued
by highly-rated U.S. insurance
companies;
- Securities issued or guaranteed by state
or local government bodies; and
- Repurchase agreements relating to the
above instruments.
Additionally, the Fund concentrates its
investments in obligations issued by the
financial services industry.
"High-quality" debt securities are those
obligations which, at the time of purchase,
(i) possess the highest short-term rating
from at least two NRSROs (for example,
commercial paper rated "A-1" by Standard &
Poor's Corporation and "P-1" by Moody's
Investors Service, Inc.); or (ii) are single
rated and have received the highest
short-term rating by an NRSRO; or (iii) if
unrated, are determined by the portfolio
manager to be of comparable quality.
When selecting securities for the Fund's
portfolio, the manager first considers safety
of principal and the quality of an
investment. The manager then focuses on
generating a high-level of income. The
manager generally evaluates investments based
on interest rate sensitivity selecting those
securities whose maturities fit the Fund's
interest rate sensitivity target and which
the manager believes to be the best relative
values.
The Fund will maintain an average weighted
portfolio maturity of 90 days or less and
will limit the maturity of each security in
its portfolio to 397 days or less.
For a more complete description of the
securities in which the Fund may invest,
please see the Additional Investment
Strategies and Risks on page X or consult the
SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to
the following principal risks:
5
<PAGE> 7
INTEREST RATE RISK: The possibility that the
value of the Fund's investments will decline
due to an increase in interest rates or that
the Fund's yield will decrease due to a
decrease in interest rates. Interest rate
risk is generally high for longer-term debt
securities and low for shorter-term debt
securities.
CREDIT RISK: The possibility that an issuer
cannot make timely interest and principal
payments on its debt securities such as
bonds. The lower a security's rating, the
greater its credit risk.
CONCENTRATION RISK: The Fund's investments
are concentrated in the financial services
industry. This concentration increases the
risk of loss to the Fund by increasing its
exposure to economic, business, political or
regulatory developments that may be adverse
to the financial services industry.
For more information about these risks,
please see the Additional Investment
Strategies and Risks on page X.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR
AN OBLIGATION OF BRANCH BANKING AND TRUST
COMPANY, BB&T CORPORATION, THEIR AFFILIATES,
OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE
OF YOUR INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND.
6
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Prime Money Market Fund has
performed and how its performance has Year-by-Year
varied from year to year. The bar chart Total Returns as of 12/31 for Trust
gives some indication of risk by showing Shares(1)
changes in the Fund's yearly performance
over two years to demonstrate that the
Fund's value varied at different times.
The table below it shows the Fund's
performance over time. Of course, past
performance does not indicate how the
Fund will perform in the future.
The performance information shown
above is based on a calendar year.
The Fund's total return for the
nine-month period ended September 30,
1999 was ______%.
The returns for Class A Shares and -------------------------------------
Class B shares will differ from the Best quarter:
Trust share returns shown in the bar Worst quarter:
chart because of differences in -------------------------------------
expenses of each class. The table
assumes that Class B shareholders
redeem all of their fund shares at
the end of the period indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES 10/1/97
- ----------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND % %
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 9/2/98
Charge)
- ----------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND % %
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TRUST SHARES 10/1/97
- ----------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND % %
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Trust Shares was ___%, ___% and ________%, respectively. Without fee
waivers and expense reimbursements, the Fund's yield would have been ______%,
___% and _____%, respectively, for this time period. For current yield
information on the Fund, call 1-800-228-1872. The Fund's yield appears in The
Wall Street Journal each Thursday.
7
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C> <C>
As an investor in the Prime Money Shareholder
Market Fund, you will pay the Transaction
following fees and expenses when Expenses (fees
you buy and hold shares. paid by you
Shareholder transaction fees are directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
paid from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in Maximum Sales
the share price. Charge (load)
on Purchases None None None
-------------------------------------------------------------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(2) None
Redemption Fee(3) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES TRUST SHARES
-------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(4) 0.40% 0.40% 0.40%
Some Fund share classes impose a
back end sales charge (load) if
you sell your shares before a
certain period of time has elapsed.
This is called a Contingent Deferred
Sales Charge.
-------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00% 0.00%
-------------------------------------------------------------------------------
Other Expenses(4) % % %
-------------------------------------------------------------------------------
Total Fund
Operating Expenses(4) % % %
-------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A were
limited to ___% and other expenses were limited to ___%. Total expenses after
fee waivers and expense reimbursements for each class are: Class A shares, ___%;
Class B shares, ___%; and Trust Shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
8
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
USE THE TABLE AT RIGHT TO COMPARE PRIME MONEY MARKET FUND 1 3 5 10
FEES AND EXPENSES WITH THOSE OF Year Years Years Years
OTHER FUNDS. IT ILLUSTRATES THE Class A Shares
AMOUNT OF FEES AND EXPENSES YOU $ $ $ $
WOULD PAY, ASSUMING THE FOLLOWING: -----------------------------------------------------------------------
- $10,000 INVESTMENT Class B Shares
- 5% ANNUAL RETURN Assuming Redemption $ $ $ $
- REDEMPTION AT THE END OF EACH PERIOD
- NO CHANGES IN THE FUND'S OPERATING EXPENSES Assuming No Redemption $ $ $ $
BECAUSE THIS EXAMPLE IS -----------------------------------------------------------------------
HYPOTHETICAL AND FOR COMPARISON Trust Shares $ $ $ $
ONLY, YOUR ACTUAL COSTS WILL BE -----------------------------------------------------------------------
DIFFERENT.
</TABLE>
9
<PAGE> 11
RISK/RETURN SUMMARY AND FUND EXPENSES
- -----------------------------------
BB&T U.S. TREASURY MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks current income with
liquidity and stability of principal
by 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests exclusively in short-term
U.S. dollar-denominated obligations
issued by the U.S. Treasury ("U.S.
Treasury Securities"), and
repurchase agreements collateralized
by U.S. Treasury Securities.
Obligations purchased by the Fund
are limited to U.S.
dollar-denominated obligations which
the Board of Trustees has determined
present minimal credit risks.
In managing the Fund, the portfolio
manager focuses on generating a
high-level of income. The manager
generally evaluates investments
based on interest rate sensitivity
selecting those securities whose
maturities fit the Fund's interest
rate sensitivity target and which
the manager believes to be the best
relative values. Generally, the
portfolio manager buys and holds
securities until their maturity.
The Fund will maintain an average
weighted portfolio maturity of 90
days or less and will limit the
maturity of each security in its
portfolio to 397 days or less.
For a more complete description of
the securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the Fund's yield will decrease
due to a decrease in interest rates
or that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term debt securities and low
for shorter-term debt securities.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T
CORPORATION, THEIR AFFILIATES, OR
ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
10
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the U.S. Treasury Money Market
Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different
times. The table below it shows the
Fund's performance over time. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
_________%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES 10/5/92
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET FUND % % %
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/1/96
Charge)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET FUND % % %
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TRUST SHARES 10/5/92
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET FUND % % %
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Trust Shares was %, ___% and ___% respectively. Without fee waivers
and expense reimbursements, the Fund's yield would have been _____%, ___% and
___%, respectively for this time period. For current yield information on the
Fund, call 1-800-228-1872. The Fund's yield appears in The Wall Street Journal
each Thursday.
11
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
As an investor in the U.S. Shareholder
Treasury Money Market Fund, you Transaction
will pay the following fees and Expenses (fees
expenses when you buy and hold paid by you
shares. Shareholder transaction directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
fees are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets, and Maximum Sales
are reflected in the share price. Charge (load)
on Purchases None None None
----------------------------------------------------------------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(2) None
Redemption Fee(3) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES TRUST SHARES
----------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee 0.30% 0.30% 0.30%
Some Fund share classes impose a
back end sales charge (load) if you
sell your shares before a certain
period of time has elapsed.
This is called a Contingent
Deferred Sales Charge.
----------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00% 0.00%
----------------------------------------------------------------------------------
Other Expenses(4) % % %
----------------------------------------------------------------------------------
Total Fund
Operating Expenses(4) % % %
----------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary in year seven from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, distribution and service (12b-1) fees for Class
A Shares were limited to ___%. Additionally, other expenses for each class were
limited to ___%. Total expenses after fee waivers and expense reimbursements for
each class are: Class A shares, ___%; Class B shares, ___% and Trust shares,
___%. Any fee waiver or expense reimbursement arrangement is voluntary and may
be discontinued at any time.
12
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
USE THE TABLE AT RIGHT TO COMPARE FEES AND U.S. TREASURY MONEY MARKET FUND 1 3 5 10
EXPENSES WITH THOSE OF OTHER FUNDS. IT Year Years Years Years
ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES
YOU WOULD PAY, ASSUMING THE FOLLOWING: Class A Shares $ $ $ $
- $10,000 INVESTMENT -----------------------------------------------------------------------
- 5% ANNUAL RETURN Class B Shares
- REDEMPTION AT THE END OF EACH PERIOD Assuming Redemption $ $ $ $
- NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR Assuming No Redemption $ $ $ $
COMPARISON ONLY, YOUR ACTUAL COSTS WILL BE -----------------------------------------------------------------------
DIFFERENT. Trust Shares $ $ $ $
-----------------------------------------------------------------------
</TABLE>
13
<PAGE> 15
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T TAX-FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks as high a level of
current interest income exempt from
federal income tax as is consistent
with stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests in a broad range of
short-term tax-exempt obligations
issued by or on behalf of states,
territories, and possessions of the
United States, the District of
Columbia, 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 (collectively,
"Municipal Securities").
Although the Fund intends to invest
its assets in tax-exempt
obligations, the Fund is permitted
to invest in private activity bonds
and other securities which may be
subject to the federal alternative
minimum tax.
When selecting securities for the
Fund's portfolio, the manager first
focuses on generating a high-level
of income. The manager also
considers safety of principal and
the quality of an investment. The
manager generally evaluates
investments based on interest rate
sensitivity selecting those
securities whose maturities fit the
Fund's interest rate sensitivity
target and which the manager
believes to be the best relative
values.
The Fund will maintain an average
weighted portfolio maturity of 90
days or less and will limit the
maturity of each security in its
portfolio to 397 days or less.
The Fund may also invest in certain
other short-term debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the Fund's yield will decrease
due to a decrease in interest rates
or that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term debt securities and low
for shorter-term debt securities.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities such as bonds. The lower
a security's rating, the greater its
credit risk.
TAX RISK. The risk that the issuer
of the securities will fail to
comply with certain requirements of
the Internal Revenue Code, which
would cause adverse tax
consequences.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T
CORPORATION, THEIR AFFILIATES, OR
ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
14
<PAGE> 16
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar
chart and a table showing how the Tax-Free
Money Market Fund has performed and how its
performance has varied from year to year.
Because the Fund had not commenced
operations as of the date of this
Prospectus, the bar chart and table are not
shown.
15
<PAGE> 17
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<CAPTION>
As an investor in the Shareholder
Tax-Free Money Market Fund, Transaction
you will pay the following Expenses (fees
fees and expenses when you paid by you
buy and hold shares. directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
Shareholder transaction fees
are paid from your account.
Annual Fund operating Maximum Sales
expenses are paid out of Fund Charge (load)
assets, and are reflected in on Purchases None None None
the share price.
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Deferred
Sales Charge (load) None 5.00%(2) None
Redemption Fee(3) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES TRUST SHARES
-----------------------------------------------------------------------------
CONTINGENT DEFERRED SALES
CHARGE Management Fee(4) 0.40% 0.40% 0.40%
Some Fund share classes impose a
back end sales charge (load) if you
sell your shares before a certain
period of time has elapsed. This is
called a Contingent Deferred Sales
Charge.
-----------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00% 0.00%
-----------------------------------------------------------------------------
Other Expenses(4 % % %
-----------------------------------------------------------------------------
Total Fund
Operating Expenses(4) % % %
-----------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect distribution and service (12b-1) fees
for Class A shares to be limited to ___% and other expenses for each class to be
limited to ____%. Accordingly, we expect total expenses after fee waivers and
expense reimbursements for each class to be: Class A shares, ___%; Class B
shares, ___% and Trust shares, ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
16
<PAGE> 18
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND 1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C> <C>
USE THE TABLE AT RIGHT TO COMPARE Class A Shares $ $ $ $
FEES AND EXPENSES WITH THOSE OF
OTHER FUNDS. IT ILLUSTRATES THE
AMOUNT OF FEES AND EXPENSES YOU -----------------------------------------------------------------------
WOULD PAY, ASSUMING THE FOLLOWING: Class B Shares
-$10,000 INVESTMENT Assuming Redemption $ $ $ $
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF EACH PERIOD Assuming No Redemption $ $ $ $
- NO CHANGES IN THE FUND'S OPERATING EXPENSES -----------------------------------------------------------------------
BECAUSE THIS EXAMPLE IS Trust Shares $ $ $ $
HYPOTHETICAL AND FOR COMPARISON -----------------------------------------------------------------------
ONLY, YOUR ACTUAL COSTS WILL BE
DIFFERENT.
</TABLE>
17
<PAGE> 19
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
Money Market Funds
- ------------------
PRIME MONEY MARKET FUND - Under normal market conditions, at least 25% of the
Fund's total assets will be invested in obligations of issuers in the financial
services industry and repurchase agreements relating to such obligations.
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. The Fund
will not purchase securities issued by PNC Bank or BB&T or any of their
affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
TAX-FREE MONEY MARKET FUND - As a fundamental policy, except during periods of
unusual market conditions or during temporary defensive periods, the Fund will
invest substantially all, but in no event less than 80%, of its total assets in
Municipal Securities with remaining maturities of 397 days (thirteen months) or
less as determined in accordance with the rules of the SEC.
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods or if, in the opinion of the 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. The securities purchased by the Fund are also subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended, and other rules of the SEC. Pursuant to Rule
2a-7, the Fund generally will limit its purchase of any one issuer's securities
(other than U.S. Government securities, repurchase agreements collateralized by
such securities and securities subject to certain guarantees or otherwise
providing the right to demand payment) to 5% of the Fund's total assets, except
that up to 25% of its total assets may be invested in the first-tier securities
(securities that possess at least one rating in the highest category by an NRSRO
or, if unrated, determined by the Adviser to be of comparable quality) of one
issuer for a period of up to three business days; provided that the Fund may not
invest more than 25% of its total assets in the securities of more than one
issuer in accordance with the foregoing at any one time.
The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of such
securities) will be Eligible Securities. Applicable Eligible Securities are:
- - Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
- - securities that are issued or guaranteed by a person with such ratings;
- - securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
18
<PAGE> 20
- - shares of other open-end investment companies that invest in the type of
obligations in which the Fund may invest.
INVESTMENT PRACTICES
- --------------------
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk. Fixed
income securities are primarily influenced by market, credit and prepayment
risks, although certain securities may be subject to additional risks. Following
the table is a more complete discussion of risk. You may also consult the
Statement of Additional Information for additional details regarding these and
other permissible investments.
FUND NAME FUND CODE
- --------- ---------
Prime Money Market Fund 1
U.S. Treasury Money Market Fund 2
Tax-Free Money Market Fund 3
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
ASSET-BACKED SECURITIES: Securities secured by 1 Pre-payment
company receivables, home equity loans, truck and Market
auto loans, leases, credit card receivables and Credit
other securities backed by other types of Interest Rate
receivables or other assets. Income
Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time 1 Credit
drafts drawn on and accepted by a commercial bank. Liquidity
Maturities are generally six months or less. Market
Interest Rate
Income
BONDS: Interest-bearing or discounted government or 1 Market
corporate securities that obligate the issuer to pay Credit
the bondholder a specified sum of money, usually at Interest Rate
specific intervals, and to repay the principal Income
amount of the loan at maturity.
CERTIFICATES OF DEPOSIT: Negotiable instruments with 1 Market
a stated maturity. Credit
Liquidity
Interest Rate
Income
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C>
COMMERCIAL PAPER: Secured and unsecured short-term 1, 3 Credit
promissory notes issued by corporations and other Liquidity
entities. Maturities generally vary from a few days Market
to nine months. Interest Rate
Income
DERIVATIVES: Instruments whose value is derived 3 Management
from an underlying contract, index or security, or Market
any combination thereof, including futures, Credit
options (e.g., put and calls), options on futures, Liquidity
swap agreements, and some mortgage-backed securities. Leverage
Interest Rate
Income
FOREIGN SECURITIES: Stocks issued by foreign 1 Market
companies, as well as commercial paper of foreign Political
issuers and obligations of foreign banks, overseas Liquidity
branches of U.S. banks and supranational entities. Foreign Investment
INVESTMENT COMPANY SECURITIES: Shares of investment 1, 3 Market
companies. A Fund (except the Funds of Funds) may
invest up to 5% of its assets in the shares of any
one registered investment company, but may not own
more than 3% of the securities of any one registered
investment company or invest more than 10% of its
assets in the securities of other registered
investment companies. These registered investment
companies may include money market funds of BB&T
Funds and shares of other registered investment
companies for which the Adviser to a Fund or any of
their affiliates serves as investment adviser,
administrator or distributor. The Money Market
Funds may only invest in shares of other investment
companies with similar objectives.
MORTGAGE-BACKED SECURITIES: Debt obligations secured 1 Pre-payment
by real estate loans and pools of loans. These Market
include collateralized mortgage obligations and real Credit
estate mortgage investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state 3 Market
or political subdivision to obtain funds for various Credit
public purposes Municipal securities include private Political
activity bonds and industrial development bonds, as Tax
well as general obligation bonds, tax anticipation Regulatory
notes, bond anticipation notes, revenue anticipation
notes, project notes, other short-term tax-exempt
obligations, municipal leases, and obligations of
municipal housing authorities (single family
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C> <C>
revenue bonds).
There are two general types of municipal bonds:
General-obligations bonds, which are secured by the
taxing power of the issuer and revenue bonds, which
take many shapes and forms but are generally backed
by revenue from a specific project or tax. These
include, but are not limited, to certificates of
participation (COPs); utility and sales tax revenues;
tax increment or tax allocations; housing and special
tax, including assessment district and community
facilities district issues which are secured by
specific real estate parcels; hospital revenue; and
industrial development bonds that are secured by a
private company.
<S> <C> <C>
REPURCHASE AGREEMENTS: The purchase of a security 1-3 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price on an
agreed upon date. This is treated as a loan.
RESTRICTED SECURITIES: Securities not registered 1 Liquidity
under the Securities Act of 1933, such as privately Market
placed commercial paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of 1-3 Market
the Fund's total assets. In return the Fund will Leverage
receive cash, other securities, and/or letters of Liquidity
credit. Credit
STAND-BY COMMITMENTS: The Fund may acquire 3 Income
"stand-by commitments" with respect to Municipal
Securities held in its portfolio. The Fund will
acquire stand-by commitments solely to facilitate
portfolio liquidity.
TIME DEPOSITS: Non-negotiable receipts issued by a 1-3 Liquidity
bank in exchange for the deposit of funds. Credit
Market
Income
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 1 Interest Rate
by agencies and instrumentalities of the U.S. Credit
government. These include Ginnie Mae, Fannie Mae,
and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 2 Interest Rate
separately traded registered interest and principal
securities, and coupons under bank
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C> <C>
entry safekeeping.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations 1, 3 Credit
with interest rates which are reset daily, weekly, Liquidity
quarterly or some other period and which may be Market
payable to the Fund on demand.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 3 Market
Purchase or contract to purchase securities at a Leverage
fixed price for delivery at a future date. Under Liquidity
normal market conditions, when-issued purchases and Credit
forward commitments will not exceed 25% of the value
of a Fund's total assets.
</TABLE>
INVESTMENT RISKS
- ----------------
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Funds may fluctuate, as will the value
of your investment in the Funds. Certain investments and Funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade securities.
The price of a security can be adversely affected prior to actual default as its
credit status deteriorates and the probability of default rises.
FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also includes the risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. Exchange rate
volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk. Foreign securities may also be
affected by incomplete or inaccurate financial information on companies, social
upheavals or political actions ranging from tax code changes to governmental
collapse. These risks are more significant in emerging markets.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. A rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a rise
in values. Interest rate risk should be modest for shorter-term securities,
moderate for intermediate-term securities, and high for longer-term securities.
Generally, an increase in the average maturity of the Fund will make it more
sensitive to interest rate risk. The market prices of securities structured as
zero coupon or pay-in-kind securities are generally affected to a greater extent
by interest rate changes. These securities tend to be more volatile than
securities which pay interest periodically.
LEVERAGE RISK. The risk associated with securities or practices that multiply
small index or market movements into large changes in value. Leverage is often
associated with investments in derivatives, but also may be embedded directly in
the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Portfolio also holds, any loss generated by the
22
<PAGE> 24
derivative should be substantially offset by gains on the hedged
investment, and vice versa. Hedges are sometimes subject to imperfect
matching between the derivative and underlying security, and there can
be no assurance that a Portfolio's hedging transactions will be
effective.
SPECULATIVE. To the extent that a derivative is not used as a hedge,
the Portfolio is directly exposed to the risks of that derivative.
Gains or losses from speculative positions in a derivative may be
substantially greater than the derivatives original cost.
LIQUIDITY RISK. The risk that certain securities may be difficult or impossible
to sell at the time and the price that would normally prevail in the market. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on Portfolio
management or performance. This includes the risk of missing out on an
investment opportunity because the assets necessary to take advantage of it are
tied up in less advantageous investments.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
Incomplete matching can result in unanticipated risks.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industrial sector of
the economy or the market as a whole. There is also the risk that the current
interest rate may not accurately reflect existing market rates. For fixed income
securities, market risk is largely, but not exclusively, influenced by changes
in interest rates. A rise in interest rates typically causes a fall in values,
while a fall in rates typically causes a rise in values. Finally, key
information about a security or market may be inaccurate or unavailable. This is
particularly relevant to investments in foreign securities.
POLITICAL RISK. The risk of losses attributable to unfavorable governmental or
political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security will
occur at an unexpected time. Prepayment risk is the chance that the repayment of
a mortgage will occur sooner than expected. Call risk is the possibility that,
during times of declining interest rates, a bond issuer will "call" - or repay -
higher yielding bonds before their stated maturity. Changes in pre-payment rates
can result in greater price and yield volatility. Pre-payments and calls
generally accelerate when interest rates decline. When mortgage and other
obligations are pre-paid or called, a Fund may have to reinvest in securities
with a lower yield. In this event, the Fund would experience a decline in income
- - and the potential for taxable capital gains. Further, with early prepayment, a
Fund may fail to recover any premium paid, resulting in an unexpected capital
loss. Prepayment/call risk is generally low for securities with a short-term
maturity, moderate for securities with an intermediate-term maturity, and high
for securities with a long-term maturity.
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans. These
laws include restrictions on foreclosures, redemption rights after foreclosure,
Federal and state bankruptcy and debtor relief laws, restrictions on "due on
sale" clauses, and state usury laws.
TAX RISK. The risk that the issuer of the securities will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences.
23
<PAGE> 25
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer systems
in almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, BB&T Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. BB&T Funds has made inquiry of its service providers to determine whether
they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to BB&T Funds. While it is likely that such assurances will be
obtained, BB&T Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which BB&T Funds does business.
24
<PAGE> 26
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for the
Funds. 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,
1999, BB&T Corporation had assets of approximately $____ 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 17 years and currently manages assets of
more than $____ billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal year
ended:
<TABLE>
<CAPTION>
===================================================================
PERCENTAGE OF AVERAGE
NET ASSETS AS OF 09/30/99
- ------------------------------------------------------------------
<S> <C>
Prime Money Market Fund 0.30%
- ------------------------------------------------------------------
U.S. Treasury Money Market Fund 0.40%
- ------------------------------------------------------------------
Tax-Free Money Market Fund __%
- ------------------------------------------------------------------
</TABLE>
THE INVESTMENT SUB-ADVISERS
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. 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
25
<PAGE> 27
company. BIMC's principal business address is 400 Bellevue Parkway, 4th Floor,
Wilmington, Delaware 19809.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as each Fund's administrator. The administrative
services of the Administrator include providing office space, equipment and
clerical personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
26
<PAGE> 28
SHAREHOLDER INFORMATION
- -----------------------
CHOOSING A SHARE CLASS
- ----------------------
Class A Shares, Class B Shares and Trust Shares have different expenses and
other characteristics, allowing you to choose the class that best suits your
needs. You should consider the amount you want to invest, how long you plan to
have it invested, and whether you plan to make additional investments. Your
financial representative can help you decide which share class is best for you.
CLASS A SHARES
- - No sales charges.
- - Distribution and service fees of 0.50% of average daily net assets.
- - OFFERED BY:
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund
CLASS B SHARES
- - No front-end sales charge; all your money goes to work for you right away.
- - Distribution and service (12b-1) fees of 1.00% of average daily net assets.
- - A deferred sales charge, as described on page X.
- - Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- - Maximum investment for all Class B purchases: $250,000.
- - OFFERED BY:
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund
NOTE: 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.
TRUST SHARES
- - No sales charges.
- - No distribution and service (12b-1) fees.
- - Available only to Branch Banking and Trust Company 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.
- - OFFERED BY:
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could end
up paying more expenses over the long term than if they had paid a sales charge.
27
<PAGE> 29
SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
- -----------------------------
NAV =
TOTAL ASSETS - LIABILITIES
- -----------------------------
Number of Shares
Outstanding
- -----------------------------
NAV is calculated separately
for each class of shares.
Money Market Funds
Per share net asset value (NAV) for each Fund is determined and its shares are
priced twice a day. The NAV for the Prime Money Market Fund, the U.S. Treasury
Money Market Fund and the Tax-Free Money Market Fund is determined at 12:00 p.m.
Eastern time and at the close of regular trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received. This is what is known as the offering
price.
Each Fund uses the amortized cost method of valuing its investments, which does
not take into account unrealized gains or losses. For further information
regarding the methods used in valuing the Fund's investments, please see the
SAI.
28
<PAGE> 30
SHAREHOLDER INFORMATION
- -----------------------
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<S> <C> <C> <C>
You may purchase Shares of the ACCOUNT TYPE MINIMUM MINIMUM
Funds through the Distributor or INITIAL INVESTMENT SUBSEQUENT
through banks, brokers and other CLASS A OR
investment representatives or CLASS B
institutions, which may charge Regular $ 1,000 $ 0
additional fees and may require Automatic Investment Plan $ 25 $ 25
higher minimum investments or
impose other limitations on buying --------------------------------------------------------
and selling shares. If you purchase
shares through an investment All purchases must be in U.S. dollars. A fee will be charged for
representative or institution, that any checks that do not clear. Third-party checks are not
party is responsible for accepted.
transmitting orders by close of
business and may have an earlier A Fund may waive its minimum purchase requirement. The
cut-off time for purchase and sale Distributor may reject a purchase order if it considers it in the
requests. Trust Shares may be best interest of the Fund and its shareholders.
purchased only 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 or other financial
service providers approved by the
Distributor. Consult your
investment representative or
institution for specific
information.
</TABLE>
- --------------------------------------------------------------------------------
Avoid 31% Tax Withholding
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------
29
<PAGE> 31
SHAREHOLDER INFORMATION
- -----------------------
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT - CLASS A AND B SHARES ONLY
BY REGULAR MAIL
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "BB&T Funds."
3. Mail to: BB&T Funds
P.O. Box 182533
Columbus, OH 43218-2533
Subsequent:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- BB&T Funds/Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: BB&T Funds
P.O. Box 182533
Columbus, OH 43218-2533
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
4. Send to: BB&T Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
U. S. Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-228-1872. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-228-1872 to arrange a transfer from your bank account.
30
<PAGE> 32
SHAREHOLDER INFORMATION
- -----------------------
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously. With
an electronic purchase or sale, the
transaction is made through the
Automated Clearing House (ACH) and
may take up to eight days to clear.
There is generally no fee for ACH
transactions.
------------------------------------
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Fax the completed application, along with a request for a confirmation number to
1-800-228-1872. Follow the instructions below after receiving your confirmation
number.
For initial and subsequent investments: Instruct your bank to wire transfer your
investment to:
[NAME OF BANK]
Routing Number: ABA #000000
DDA#
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call 1-800-228-1872 to advise us
of the amount being transferred and the name of your bank
- --------------------------------------------------------------------------------
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days notice.
- --------------------------------------------------------------------------------
31
<PAGE> 33
SHAREHOLDER INFORMATION
- -----------------------
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
<TABLE>
<CAPTION>
AUTOMATIC INVESTMENT PLAN - CLASS A AND B
SHARES ONLY
DIRECTED DIVIDEND OPTION
<S> <C>
You can make automatic investments in the Funds from your bank By By selecting the appropriate box in
selecting the appropriate box account, through payroll deduction the Account Application, you can
or from your federal in the Account Application, you employment, elect to receive your distributions
Social Security or other regular government can elect to receive in cash (check) or have
your checks. Automatic investments can be as little as $25, once distributions (capital gains and
distributions in cash (check) or you've invested the $25 minimum dividends) reinvested in another
required to open the account. BB&T Fund without a sales charge.
You must maintain the minimum
To invest regularly from your bank account: balance in each Fund into which you
- Complete the Automatic Investment Plan portion on your plan to reinvest dividends or the
Account Application or the supplemental sign-up form reinvestment will be suspended and
- Make sure you note: your dividends paid to you. The
- Your bank name, address and account number Fund may modify or terminate this
- The amount you wish to invest automatically reinvestment option without notice.
(minimum $25) You can change or terminate your
- How often you want to invest (every month, 4 participation in the reinvestment
times a year, twice a year or once a year) option at any time.
- Attach a voided personal check.
Call 1-800-228-1872 for an enrollment form or
consult the SAI for additional information. -------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Trust Shares than for Class A Shares and Class B
Shares, because Trust Shares have lower distribution expenses. Similarly,
dividends are higher for Class A Shares than for Class B Shares. Income
dividends for the Money Market Funds are declared daily and paid monthly.
Capital gains, if any, are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
- --------------------------------------------------------------------------------
32
<PAGE> 34
SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES
- -------------------
<TABLE>
<S> <C>
You may sell your shares at any WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
time. Your sales price will be the -------------------------------------------
next NAV after your sell order is As a mutual fund shareholder, you are
received by the Fund, its transfer technically selling shares when you
agent, or your investment request a withdrawal in cash. This is
representative. Normally you will also known as redeeming shares or a
receive your proceeds within a week redemption of shares.
after your request is received. See -------------------------------------------
section on "General Policies on
Selling Shares below." CONTINGENT DEFERRED SALES CHARGE
When you sell Class B shares, you will
be charged a fee for any shares that
have not been held for a sufficient
length of time. These fees will be
deducted from the money paid to you. See
the section on "Distribution
Arrangements/Sales Charges" below for
details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your
financial adviser or broker, ask him or
her for redemption procedures. Your
adviser and/or broker may have
transaction minimums and/or transaction
times which will affect your redemption.
For all other sales transactions, follow
the instructions below.
By telephone 1. Call 1-800-228-1872 with instructions
(unless you have declined as to how you wish to receive your funds
telephone sales privileges) (mail, wire, electronic transfer). (See
"General Policies on Selling Shares--
Verifying Telephone Redemptions" below)
- ------------------------------------------------------------------------------------------
By mail 1. Call 1-800-228-1872 to request
redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to:
BB&T Funds
P.O. Box 182533
Columbus, OH 43218-2533
- ------------------------------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General Policies on 2. Send to
Selling Shares--Redemptions in BB&T Funds
Writing Required" below) c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
33
<PAGE> 35
SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES - CONTINUED
<TABLE>
<S> <C>
Wire transfer Call 1-800-228-1872 to request a wire transfer.
You must indicate this option on
your application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next business day.
The Fund will charge a $7 wire
transfer fee for each wire
transfer request. Note: Your
financial institution may also
charge a separate fee.
- -------------------------------------------------------------------------------------------------------
Electronic Redemptions Call 1-800-228-1872 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares
the Automated Clearing House will normally be determined on the same day and the proceeds
(ACH) and must be a U.S. bank. credited within 7 days.
Your bank may charge for this
service.
</TABLE>
AUTO WITHDRAWAL PLAN - CLASS A AND B SHARES ONLY
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
- - Complete the supplemental sign-up form which you may obtain by calling
1-800-228-1872.
- - Include a voided personal check.
- - Your account must have a value of $5,000 or more to start withdrawals.
- - If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING - CLASS A AND B SHARES ONLY
You may write checks in amounts of $100 or more on your account in the Prime
Money Market Fund, U.S. Treasury Money Market Fund or Tax-Free Money Market
Fund. To obtain checks, complete the signature card section of the account
application or contact the Fund to obtain a signature card. Dividends and
distributions will continue to be paid up to the day the check is presented for
payment. The check writing feature may be modified or terminated upon 30-days'
written notice. You must maintain the minimum required account balance in the
Fund of $1,000 and you may not close your Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing and obtain a signature guarantee if:
- The check is not being mailed to the address on your account; or
- The check is not being made payable to the owner of the account.
A signature guarantee can be obtained from a financial institution, such
as a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion
Program). Members are subject to dollar limitations which must be
considered when requesting their guarantee. The Transfer Agent may reject
any signature guarantee if it believes the transaction would otherwise be
improper.
34
<PAGE> 36
SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES - CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000, the Fund may ask you to increase your
balance. If it is still below $1,000 after 60 days, the Fund may close your
account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the
appropriate Fund at the current NAV.
35
<PAGE> 37
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CALCULATION OF SALES CHARGES
- --------------------------------------------------------------------------------
Class A Shares
- --------------------------------------------------------------------------------
Class A shares are sold at their public offering price. This price equals NAV.
There is no sales charge on Class A shares of the Money Market Funds.
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Class B shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class B shares of the Fund before the sixth anniversary, you will have to
pay a contingent deferred sales charge at the time of redemption. The CDSC will
be based upon the lower of the NAV at the time of purchase or the NAV at the
time of redemption according to the schedule below.
There is no CDSC on reinvested dividends or distributions.
CLASS B SHARES
- ---------------------------------------------------------------------------
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- ---------------------------------------------------------------------------
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
- ---------------------------------------------------------------------------
If you sell some but not all of your Class B shares, certain shares not subject
to the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed
first, followed by shares subject to the lowest CDSC (typically shares held for
the longest time).
CONVERSION FEATURE - CLASS B SHARES
- - Class B shares automatically convert to Class A shares of the same Fund
after eight years from the end of the month of purchase.
- - After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares which will increase
your investment return compared to the Class B shares.
- - You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
- - If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B shares.
- - The dollar value of Class A shares you receive will equal the dollar value
of the Class B shares converted.
36
<PAGE> 38
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
CLASS B SHARES
- --------------
The CDSC will be waived under certain circumstances, including the following:
- - Minimum required distributions from an IRA or other qualifying retirement
plan to a shareholder who has attained age 70-1/2.
- - Redemptions from accounts following the death or disability of the
shareholder.
- - Investors who purchased through a participant directed defined benefit plan.
- - Returns of excess contributions to retirement plans.
- - Distributions of less than 12% of the annual account value under an Auto
Withdrawal Plan.
- - Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
- - Investors who purchased through the Cash Sweep Program and BB&T Treasury
Services Division.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment.
- The 12b-1 and shareholder servicing fees vary by share class as
follows:
- Class A shares pay a 12b-1 fee of up to .50% of the average daily
net assets of a Fund.
- Class B shares pay a 12b-1 fee of up to 1.00% of the average daily
net assets of the applicable Fund. This will cause expenses for
Class B shares to be higher and dividends to be lower than for
Class A shares.
- The higher 12b-1 fee on Class B shares, together with the CDSC, help
the Distributor sell Class B shares without an "up-front" sales charge.
In particular, these fees help to defray the Distributor's costs of
advancing brokerage commissions to investment representatives.
- The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
Over time shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees are
paid out of the Fund's assets on an on-going basis.
37
<PAGE> 39
SHAREHOLDER INFORMATION
- -----------------------
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of the same class of another
BB&T Fund, usually without paying additional sales charges (see "Notes" below).
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable. Class A Shares
and Class B Shares may also be exchanged for Trust Shares of the same Fund if
you become eligible to purchase Trust Shares. Additionally, Trust Shares may
also be exchanged for Class A Shares of the same Fund if you cease to be
eligible to purchase Trust Shares. Trust Shares may not be exchanged for Class B
Shares and Class A Shares may not be exchanged for Class B Shares. No
transaction fees are currently charged for exchanges. However, the exchange of
Trust Shares for Class A Shares will require payment of the sales charge unless
the sales charge is waived.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to BB&T Funds, P.O. Box
182533, Columbus OH 43218-2533, or by calling 1-800-228-1872. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security
number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made.
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four exchanges from a Fund
during a calendar year.
- --------------------------------------------------------------------------------
38
<PAGE> 40
AUTO EXCHANGE PLAN
CLASS B SHARES ONLY
You can use the Funds' Auto Exchange Plan to purchase Class B Shares of the
Funds at regular intervals through regular, automatic redemptions from the your
BB&T Fund account. To participate in the Automatic Exchange:
- - Complete the appropriate section of the Account Application.
- - Keep a minimum of $10,000 in your BB&T Funds account and $1,000 in the
Fund whose shares you are buying.
Shareholders investing in Class B Shares of the Money Market Funds, as opposed
to Shareholders obtaining Class B Shares of the Money Market Funds upon exchange
of Class B Shares of any of the other Funds, will be requested to participate in
the Auto Exchange Plan and set the time and amount of their regular, automatic
withdrawals in such a way that all of their Class B Shares will be withdrawn
from the U.S. Treasury, Prime, or Tax-Free Fund within 2 years of purchase.
To change the Auto Exchange Plan instructions or to discontinue the feature, you
must send a written request to BB&T Funds, P.O. Box 182533, Columbus, Ohio
43218-2533.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge to
a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
39
<PAGE> 41
SHAREHOLDER INFORMATION
- -----------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or gains
earned by the Fund before your investment (and thus were included in the price
you paid).
For the Tax-Free Money Market Fund, the income dividends that you receive are
expected to be exempt from federal income taxes. However, if you receive social
security or railroad retirement benefits, you should consult your tax adviser to
determine what effect, if any, an investment in the Tax-Free Money Market Fund
may have on the federal taxation of your benefits. In addition, an investment in
the Tax-Free Money Market Fund may result in liability for federal alternative
minimum tax, both for individual and corporate shareholders.
BB&T Funds will send you a statement each year showing the tax status of all
your distributions.
- - For each Fund, other than the Tax-Free Money Market Fund, the dividends that
you receive are considered ordinary income for tax purposes.
- - Generally, the Funds' advisers do not consider taxes when deciding to buy or
sell securities.
- - Distributions of dividends (or capital gains, if any) may be subject to
state and local income taxes as well.
- - Foreign governments may withhold taxes on dividends and interest paid, while
imposing taxes on other payments or gains, with respect to foreign
securities.
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.)
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
40
<PAGE> 42
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUNDS'
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS OR, IF SHORTER, THE PERIOD OF THE
FUNDS' OPERATIONS. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED [OR LOST] ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT
OF ALL DIVIDENDS AND DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY
_____________________, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS,
ARE INCLUDED IN THE SAI, WHICH IS AVAILABLE UPON REQUEST.
INSERT PAST 5 YEARS'
FINANCIAL HIGHLIGHTS
FROM ANNUAL REPORT.
41
<PAGE> 43
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, PROSPECTUSES OF OTHER MEMBERS OF
THE BB&T FUNDS FAMILY, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS
ABOUT THE FUND BY CONTACTING A BROKER OR BANK THAT SELLS THE FUND. OR CONTACT
THE FUND AT:
BB&T FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-228-1872
E-MAIL: _________
INTERNET: HTTP://WWW.BBTFUNDS.COM
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6719.
42
<PAGE> 44
BB&T FUNDS
- --------------------------------------------------------------------------------
------------
PROSPECTUS
------------
FEBRUARY 1, 2000
STOCK FUNDS
BB&T Growth and Income Stock Fund
BB&T Balanced Fund
BB&T Large Company Growth Fund
BB&T Small Company Growth Fund
BB&T International Equity Fund
BB&T Equity Index Fund
BOND FUNDS
TAXABLE BOND FUNDS
BB&T Short-Intermediate U.S. Government Income Fund
BB&T Intermediate U.S. Government Bond Fund
BB&T Intermediate Corporate Bond Fund
TAX-FREE BOND FUNDS
BB&T North Carolina Intermediate Tax-Free Fund
BB&T South Carolina Intermediate Tax-Free Fund
BB&T Virginia Intermediate Tax-Free Fund
MONEY MARKET FUNDS
BB&T Prime Money Market Fund
BB&T U.S. Treasury Money Market Fund
BB&T Tax-Free Money Market Fund
FUNDS OF FUNDS
BB&T Capital Manager Conservative Growth Fund
BB&T Capital Manager Moderate Growth Fund
BB&T Capital Manager Growth Fund
TRUST SHARES
----------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS QUESTIONS?
NOT APPROVED THE SHARES DESCRIBED IN THIS CALL 1-800-228-1872
PROSPECTUS OR DETERMINED WHETHER THIS OR YOUR INVESTMENT REPRESENTATIVE.
PROSPECTUS IS ACCURATE OR COMPLETE. ----------------------------------
ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
<PAGE> 45
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's Stock Funds
investments, risks, past 0 Growth and Income Stock Fund
performance, and fees. 0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
0 Equity Index Fund
Bond Funds
0 Short-Intermediate U.S. Government Income Fund
0 Intermediate U.S. Government Bond Fund
0 Intermediate Corporate Bond Fund
0 North Carolina Intermediate Tax-Free Fund
0 South Carolina Intermediate Tax-Free Fund
0 Virginia Intermediate Tax-Free Fund
Money Market Funds
0 Prime Money Market Fund
0 U.S. Treasury Money Market Fund
0 Tax-Free Money Market Fund
Funds of Funds
0 Capital Manager Conservative Growth Fund
0 Capital Manager Moderate Growth Fund
0 Capital Manager Growth Fund
Review this section for Investment Objectives, Policies and Risks
information and on investment
strategies and their risks. Stock Funds
0 Growth and Income Stock Fund
0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
0 Equity Index Fund
Bond Funds
0 Short-Intermediate U.S. Government Income Fund
0 Intermediate U.S. Government Bond Fund
0 Intermediate Corporate Bond Fund
0 North Carolina Intermediate Tax-Free Fund
</TABLE>
2
<PAGE> 46
<TABLE>
<CAPTION>
<S> <C>
0 South Carolina Intermediate Tax-Free Fund
0 Virginia Intermediate Tax-Free Fund
Money Market Funds
0 Prime Money Market Fund
0 U.S. Treasury Money Market Fund
0 Tax-Free Money Market Fund
Funds of Funds
0 Capital Manager Conservative Growth Fund
0 Capital Manager Moderate Growth Fund
0 Capital Manager Growth Fund
Review this section for Fund Management
details on the people and 0 The Investment Adviser
organizations who oversee the 0 The Investment Sub-Advisers
Funds. 0 Portfolio Managers
0 The Distributor and Administrator
Review this section for Shareholder Information
details on how shares are 0 Choosing a Share Class
valued, how to purchase, sell 0 Pricing of Fund Shares
and exchange shares, related 0 Purchasing and Adding to Your Shares
charges and payments of 0 Selling Your Shares
dividends and distributions. 0 Exchanging Your Shares
0 General Policies on Selling Shares
0 Distribution Arrangements/Sales Charges
0 Distribution and Service (12b-1) Fees and
Shareholder Servicing Fees
0 Dividends, Distributions and Taxes
0 Financial Highlights
Back Cover
0 Where to learn more about this Fund
</TABLE>
3
<PAGE> 47
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
The Funds BB&T Funds is a mutual fund family that offers
different classes of shares in separate investment
portfolios ("Funds"). The Funds have individual
investment goals and strategies. This prospectus
gives you important information about the Trust
Shares of the Stock Funds, the Bond Funds, the
Money Market Funds and the Funds of Funds that you
should know before investing. Each Fund also
offers two additional classes of shares called
Class A Shares and Class B Shares which are
offered in a separate prospectus. Please read this
prospectus and keep it for future reference.
Each of the Funds in this prospectus is a mutual
fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it
in securities like stocks and bonds. Before you
look at specific Funds, you should know a few
general basics about investing in mutual funds.
The value of your investment in a Fund is based on
the market prices of the securities the Fund
holds. These prices change daily due to economic
and other events that affect securities markets
generally, as well as those that affect particular
companies or government units. These price
movements, sometimes called volatility, will vary
depending on the types of securities a Fund owns
and the markets where these securities trade.
LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON
YOUR INVESTMENT IN A FUND. YOUR INVESTMENT IN A
FUND IS NOT A DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK. IT IS NOT INSURED BY THE
FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and
strategies for reaching that goal. However, it
cannot be guaranteed that a Fund will achieve its
goal. Before investing, make sure that the Fund's
goal matches your own.
The portfolio manager invests each Fund's assets
in a way that the manager believes will help the
Fund achieve its goal. A manager's judgments about
the stock markets, economy and companies, or
selecting investments may cause a Fund to
underperform other funds with similar objectives.
4
<PAGE> 48
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
STOCK FUNDS
These Funds seek long-term capital appreciation,
and in some cases current income, and invest
primarily in equity and equity-related securities,
principally common stocks.
Who May Want to Invest Consider investing in these Funds if you are:
- seeking a long-term goal such as retirement
- looking to add a growth component to your
portfolio
- willing to accept the risks of investing in the
stock markets
These Funds may not be appropriate if you are:
- pursuing a short-term goal or investing
emergency reserves
- uncomfortable with an investment that will
fluctuate in value
5
<PAGE> 49
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T GROWTH AND INCOME STOCK FUND
INVESTMENT OBJECTIVE The Fund seeks capital growth, current
income or both, primarily through
investment in stocks.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in domestically traded U.S.
common stocks, as well as American
Depository Receipts ("ADRs").
In managing the Fund, the portfolio
manager attempts to diversify across
different economic sectors selecting
those stocks that he believes are
undervalued and have a favorable
outlook. In choosing individual stocks
the portfolio manager uses a
quantitative process to examine the
value, growth and momentum
characteristics of a particular issuer.
While some stocks may be purchased
primarily for income, most stocks will
be purchased for capital appreciation.
The portfolio manager will favor stocks
of issuers which over a five-year period
have achieved cumulative income in
excess of the cumulative dividends paid
to shareholders.
The Fund may also invest in certain
other equity securities in addition to
those described above. For a more
complete description of the various
securities in which the Fund may invest,
please see the Additional Investment
Strategies and Risks on page X or
consult the Statement of Additional
Information ("SAI").
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that the
Fund's stock holdings will decline in
price because of a broad stock market
decline. Markets generally move in
cycles, with periods of rising prices
followed by periods of falling prices.
The value of your investment will tend
to increase or decrease in response to
these movements.
INVESTMENT STYLE RISK: The possibility
that the market segment on which this
Fund focuses - value stocks - will
underperform other kinds of investments
or market averages.
The Fund may trade securities actively,
which could increase its transaction
costs (thereby lowering its performance)
and may increase the amount of taxes
that you pay. If the Fund invests in
securities with additional risks, its
share price volatility accordingly could
be greater and its performance lower.
For more information about these risks,
please see the Additional Investment
Strategies and Risks on page X.
6
<PAGE> 50
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the Growth and
Income Stock Fund has
performed and how its Year-by-Year Total Returns as of 12/31 for
performance has varied from Trust Shares(1)
year to year. The bar chart
gives some indication of risk
by showing changes in the
Fund's yearly performance
over seven years to
demonstrate that the Fund's
value varied at different
times. The table below it
compares the Fund's
performance over time to that
of the S&P 500(R) Index, a
widely recognized, unmanaged
index of common stocks. Of
course, past performance does
not indicate how the Fund
will perform in the future.
The performance information shown above
is based on a calendar year. The Fund's
total return for the nine-month period
ended September 30, 1999 was _________%.
-------------------------------------------
Best quarter:
Worst quarter:
-------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES 10/9/92
- --------------------------------------------------------------------------------
GROWTH AND INCOME STOCK FUND % % %
- --------------------------------------------------------------------------------
S&P 500(R) INDex % % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
7
<PAGE> 51
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Growth and Shareholder
Income Stock Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.74%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense reimbursements were ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
4
<PAGE> 52
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO GROWTH AND INCOME STOCK 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. Trust Shares $ $ $ $
IT ILLUSTRATES THE AMOUNT -------------------------------------------------
OF FEES AND EXPENSES YOU
WOULD PAY, ASSUMING THE
FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR
ACTUAL COSTS WILL BE
DIFFERENT.
9
<PAGE> 53
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T BALANCED FUND
INVESTMENT OBJECTIVES The Fund's investment objectives are to seek
long-term capital growth and to produce
current income.
PRINCIPAL INVESTMENT STRATEGIES To pursue these goals, the Fund invests in a
broadly diversified portfolio of equity and
debt securities consisting primarily of
common stocks and bonds.
The Fund normally invests between 40-75% of
its assets in equity securities and at least
25% of its assets in fixed-income senior
securities. The portion of the Fund's assets
invested in equity and debt securities will
vary depending upon economic conditions, the
general level of stock prices, interest
rates and other factors, including the risks
associated with each investment. The Fund's
equity investments consist primarily of
common stocks of companies that the
portfolio manager believes are undervalued
and have a favorable outlook. Other equity
investments include convertible securities
and ADRs. The Fund's fixed-income
investments consist primarily of
"investment-grade" bonds, notes, debentures
(bonds, notes and debentures rated at the
time of purchase in one of the four highest
rating categories by a nationally recognized
statistical rating organizations (an
"NRSRO")) or are determined by the portfolio
manager to be of comparable quality) and
money market instruments. The average
dollar-weighted maturity of the fixed-income
portion of the Fund's portfolio will range
from one to thirty years.
In managing the equity portion of the Fund,
the portfolio manager examines a variety of
quantitative and qualitative factors in
formulating individual stock purchase and
sale decisions. The portfolio manager
selects investments that he believes are
reasonably priced relative to their growth
potential.
In managing the fixed income portion of the
Fund's portfolio, the portfolio manager uses
a "top down" investment management approach
focusing on a security's maturity. The
manager sets, and continually adjusts, a
target for the interest rate sensitivity of
the Fund based upon expectations about
interest rates and other economic factors.
The manager then selects individual
securities whose maturities fit this target
and which are deemed to be the best relative
values. The Fund may also invest in certain
other equity and debt securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may invest,
please see the Additional Investment
Strategies and Risks on page X or consult
the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
MARKET RISK: The possibility that the Fund's
stock holdings will decline in price because
of a broad stock market decline. Markets
generally move in cycles, with periods of
rising prices followed by periods of falling
prices. The value of your investment will
tend to increase or decrease in response to
these movements.
10
<PAGE> 54
INVESTMENT STYLE RISK: The possibility that
the market segment on which the equity
portion of this Fund focuses -- value stocks
-- will underperform other kinds of
investments or market averages.
INTEREST RATE RISK: The possibility that the
value of the Fund's investments will decline
due to an increase in interest rates.
Generally, an increase in the average
maturity of the fixed income portion of the
Fund will make it more sensitive to interest
rate risk.
CALL RISK: Call risk is the possibility
that, during periods of declining interest
rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their
stated maturity date. As a result, investors
receive their principal back and are
typically forced to reinvest it in bonds
that pay lower interest rates. Rapid changes
in call rates can cause bond prices and
yields to be volatile.
CREDIT RISK: The possibility that an issuer
cannot make timely interest and principal
payments on its debt securities, such as
bonds. The lower a security's rating, the
greater its credit risk.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price volatility
accordingly could be greater and its
performance lower. For more information
about these risks, please see the Additional
Investment Strategies and Risks on page X.
11
<PAGE> 55
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the Balanced
Fund has performed and how Year-by-Year Total Returns as of 12/31 for
its performance has varied Trust Shares(1)
from year to year. The bar
chart gives some indication
of risk by showing changes in
the Fund's yearly performance
over six years to demonstrate
that the Fund's value varied
at different times. The table
below it compares the Fund's
performance over time to that
of the S&P 500(R)Index, a
widely recognized, unmanaged
index of common stocks, and
the Lehman Brothers
Intermediate Government Bond
Index, an unmanaged index
representative of the total
return of government bonds
with maturities of less than The performance information shown above is
10 years. Of course, past based on a calendar year. The Fund's total
performance does not indicate return for the nine-month period ended
how the Fund will perform in September 30, 1999 was ______%.
the future.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
TRUST SHARES 7/1/93
BALANCED FUND % % %
- -------------------------------------------------------------------------------
S&P 500(R) INDex % % %
- -------------------------------------------------------------------------------
LEHMAN BROTHERS % % %
INTERMEDIATE GOVERNMENT BOND INDEX
- -------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
12
<PAGE> 56
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Balanced Fund,
you will pay the following fees and Shareholder
expenses when you buy and hold shares. Transaction
Shareholder transaction fees are paid Expenses (fees
from your account. Annual Fund paid by you
operating expenses are paid out of directly)(1) TRUST SHARES
Fund assets, and are reflected in the
share price.
Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.74%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense reimbursements were ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
13
<PAGE> 57
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO BALANCED FUND 1 3 5 10
COMPARE FEES AND EXPENSES Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT Trust Shares
ILLUSTRATES THE AMOUNT OF $ $ $ $
FEES AND EXPENSES YOU WOULD -------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF
EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
14
<PAGE> 58
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation by investing primarily in a
diversified portfolio of equity and
equity-related securities of large
capitalization growth companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in common stocks of large
capitalization companies that the
portfolio manager believes have attractive
potential for growth. Large capitalization
companies are those companies whose
weighted average capitalization is in
excess of the market median capitalization
of the S&P 500(R) Index.
In managing the Fund's portfolio, the
manager uses a variety of economic
projections, quantitative techniques, and
earnings projections in formulating
individual stock purchase and sale
decisions. In choosing individual stocks,
the portfolio manager uses a quantitative
process to identify companies with a
history of above average growth or
companies that are expected to enter
periods of above average growth. Some of
the criteria that the manager uses to
select these companies are return on
equity, price and earnings momentum,
earnings surprise, the company's
management and the company's position
within its industry.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
MARKET RISK: The possibility that the
Fund's stock holdings will decline in
price because of a broad stock market
decline. Markets generally move in cycles,
with periods of rising prices followed by
periods of falling prices. The value of
your investment will tend to increase or
decrease in response to these movements.
INVESTMENT STYLE RISK: The possibility
that the market segment on which this Fund
focuses - large cap growth stocks - will
underperform other kinds of investments or
market averages.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
15
<PAGE> 59
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the Large
Company Growth Fund has Year-by-Year Total Returns as of 12/31 for
performed and how its Trust Shares(1)
performance has varied from
year to year. The bar chart
gives some indication of
risk by showing changes in
the Fund's yearly
performance over two years
to demonstrate that the
Fund's value varied at
different times. The table
below it compares the
Fund's performance over
time to that of the S&P
500(R) Index, a widely
recognized, unmanaged index
of common stocks. Of
course, past performance
does not indicate how the
Fund will perform in the
future.
The performance information shown above is
based on a calendar year. The Fund's total
return for the nine-month period ended
September 30, 1999 was ________%.
-------------------------------------------
Best quarter:
-------------------------------------------
Worst quarter:
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
TRUST SHARES 10/3/97
- -------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND % %
- -------------------------------------------------------------------------------
S&P 500(R) INDEX % %
- -------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
16
<PAGE> 60
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Large Company Shareholder
Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.74%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution other expenses were limited to ___%. Total
expenses after fee waivers and expense reimbursements were ___%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at any
time.
17
<PAGE> 61
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO LARGE COMPANY GROWTH 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD -----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
18
<PAGE> 62
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation by investing primarily in a
diversified portfolio of equity and
equity-related securities of small
capitalization growth companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in common stocks of U.S. small
capitalization growth companies (market
capitalization under $2 billion) which the
portfolio manager believes have
above-average earnings growth potential.
In managing the Fund's portfolio, the
manager initially screens for "growth"
stocks from the universe of companies with
market capitalization under $2 billion.
The manager uses fundamental analysis to
examine each company for financial
strength before deciding to purchase the
stock.
The Fund generally will sell a stock when,
in the portfolio manager's opinion, there
is a deterioration in the company's
fundamentals, the company fails to meet
performance expectations or the stock's
relative price momentum declines
meaningfully.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risk
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
MARKET RISK: The possibility that the
Fund's stock holdings will decline in
price because of a broad stock market
decline. Markets generally move in cycles,
with periods of rising prices followed by
periods of falling prices. The value of
your investment will tend to increase or
decrease in response to these movements.
SMALL COMPANY RISK: Investing in smaller,
lesser-known companies involves greater
risk than investing in those that are more
established. A small company's financial
well-being may, for example, depend
heavily on just a few products or
services. In addition, investors may have
limited flexibility to buy or sell small
company stocks, which tend to trade less
frequently than those of larger firms.
INVESTMENT STYLE RISK: The possibility
that the market segment on which this Fund
focuses - small company growth stocks -
will underperform other kinds of
investments or market averages.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
19
<PAGE> 63
RISK/RETURN SUMMARY AND FUND EXPENSES
The table on this page shows PERFORMANCE BAR CHART AND TABLE
how the Small Company Growth
Fund has performed and how Year-by-Year Total Returns as of 12/31 for
its performance has varied Trust Shares(1)
from year to year. The bar
chart gives some indication
of risk by showing changes in
the Fund's yearly performance
over five years to
demonstrate that the Fund's
value varied at different
times. The table below it
compares the Fund's
performance over time to that
of the Russell 2000(R) Growth
Index, an unmanaged index
generally representative of
domestically funded common
stocks of small to mid-sized
companies. Of course, past
performance does not indicate
how the Fund will perform in
the future.
The performance information shown above is
based on a calendar year. The Fund's total
return for the nine-month period ended
September 30, 1999 was______%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
TRUST SHARES 12/7/94
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND % % %
- --------------------------------------------------------------------------------
RUSSELL 2000(R) GROWTH INDEX % % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
20
<PAGE> 64
Risk/Return Summary and Fund Expenses
FEES AND EXPENSES
- ------------------
As an investor in the Small Company
Growth Fund, you will pay the Shareholder
following fees and expenses when you Transaction
buy and hold shares. Shareholder Expenses (fees
transaction fees are paid from your paid by you
account. Annual Fund operating directly)(1) TRUST SHARES
expenses are paid out of Fund assets,
and are reflected in the share price.
Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from TRUST SHARES
Fund assets)
------------------------------------
Management Fee 1.00%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, other expenses were limited to ___%. Total
expenses after fee waivers and expense reimbursements were ___%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at any
time.
21
<PAGE> 65
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO SMALL COMPANY GROWTH 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT Trust Shares $ $ $ $
ILLUSTRATES THE AMOUNT OF ----------------------------------------------
FEES AND EXPENSES YOU WOULD
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
22
<PAGE> 66
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation through investment primarily
in equity securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in non-dollar denominated stocks
of foreign issuers located in countries
included in the Morgan Stanley Capital
International Europe, Australasia and the
Far East ("EAFE") Index. The Fund may also
invest its assets in countries with
emerging economies or securities markets.
The Fund primarily buys common stock but
also can invest in preferred stock and
securities convertible into common and
preferred stock.
In managing the Fund's portfolio, the
portfolio manager uses a "value" style to
select stocks which he believes are worth
more than is indicated by the current
market price. The manager screens for
"value" stocks by using proprietary
computer models to find stocks that meet
the value stock criteria. A security's
earnings trend and its price momentum will
also be factors considered in security
selection. The manager will also consider
factors such as 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 manager and his team
also examine each company for financial
soundness before deciding to purchase its
stock.
The Fund generally will sell a stock when
it reaches a target price, which is when
the manager believes it is fully valued or
when, in the manager's opinion, conditions
change such that the risk of continuing to
hold the stock is unacceptable when
compared to the growth potential.
In an attempt to reduce portfolio risk,
the manager will diversify investments
across countries, industry groups and
companies with investment at all times in
at least three foreign countries.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
MARKET RISK: The possibility that the
Fund's stock holdings will decline in
price because of a broad stock market
decline. Markets generally move in cycles,
with periods of rising prices followed by
periods of falling prices. The value of
your investment will tend to increase or
decrease in response to these movements.
INVESTMENT STYLE RISK: The possibility
that the market segment on which this Fund
focuses -- foreign value stocks -- will
underperform other kinds of investments or
market averages.
23
<PAGE> 67
FOREIGN INVESTMENT RISK: Investing in
foreign markets involves a greater risk
than investing in the United States.
Foreign securities may be adversely
affected by myriad factors, including
currency fluctuations and social, economic
or political instability.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X
24
<PAGE> 68
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the
International Equity Fund has Year-by-Year Total Returns as of 12/31 for
performed and how its Trust Shares(1)
performance has varied from
year to year. The bar chart
gives some indication of risk
by showing changes in the
Fund's yearly performance
over two years to demonstrate
that the Fund's value varied
at different times. The table
below it compares the Fund's
performance over time to that
of the Morgan Stanley Capital
International Europe,
Australasia and Far East
("EAFE") Index, a widely
recognized, unmanaged index
generally representative of
the performance of stock
markets in those regions. Of
course, past performance does
not indicate how the Fund
will perform in the future.
The performance information shown above is
based on a calendar year. The Fund's total
return for the nine-month period ended
September 30, 1999 was ________%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
TRUST SHARES 1/2/97
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND % %
- --------------------------------------------------------------------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
25
<PAGE> 69
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the International Shareholder
Equity Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee 1.00%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, other expenses were limited to ___%. Total
expenses after fee waivers and expense reimbursements were ___%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at any
time.
26
<PAGE> 70
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO INTERNATIONAL EQUITY 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT Trust Shares $ $ $ $
ILLUSTRATES THE AMOUNT OF ----------------------------------------------
FEES AND EXPENSES YOU WOULD
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
27
<PAGE> 71
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T EQUITY INDEX FUND
INVESTMENT OBJECTIVE The 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(R) Index.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
mainly in equity securities, primarily
common stocks, of companies that compose
the S&P 500(R). The S&P 500(R)Index is
made up of 500 common stocks, most of
which trade on the New York Stock Exchange
("NYSE"). The S&P 500(R)is a widely
recognized, unmanaged index of common
stock prices that generally represents the
performance of publicly traded common
stocks in the United States.
The Fund seeks to achieve a 95% or better
correlation between the performance of the
Fund and that of the S&P 500(R) Index
without taking into account the Fund's
expenses. The portfolio manager monitors
correlation between the performance of the
Fund and that of the S&P 500(R) Index on a
monthly basis. The Fund may not always
hold all of the same securities as the S&P
500(R). In managing the Fund's portfolio,
the manager 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 also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INDEX INVESTING: The Fund attempts to
track the performance of the S&P 500(R)
Index. Therefore, securities may be
purchased, retained and sold by the Fund
at times when an actively managed fund
would not do so. If the value of
securities that are heavily weighted in
the index changes, you can expect a
greater risk of loss than would be the
case if the Fund were not fully invested
in such securities.
MARKET RISK: The possibility that the
Fund's stock holdings will decline in
price because of a broad stock market
decline. Markets generally move in cycles,
with periods of rising prices followed by
periods of falling prices. The value of
your investment will tend to increase or
decrease in response to these movements.
INVESTMENT STYLE RISK: The possibility
that the market segment on which this Fund
focuses - stocks in the S&P 500(R) - will
underperform other kinds of investments or
market averages.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
28
<PAGE> 72
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally
include a bar chart and a
table showing how the Equity
Index Fund has performed and
how its performance has
varied from year to year.
Because the Fund had not
commenced operations prior to
the date of this Prospectus,
the bar chart and table are
not shown.
29
<PAGE> 73
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Equity Index Shareholder
Fund, you will pay the following fees Transaction
and expenses when you buy and hold Expenses (fees
shares. Shareholder transaction fees paid by you
are paid from your account. Annual directly)(1) TRUST SHARES
Fund operating expenses are paid out
of Fund assets, and are reflected in
the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.25%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect other expenses to be limited to
____%. Accordingly, we expect total expenses after fee waivers and expense
reimbursements to be ___%. Any fee waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any time..
30
<PAGE> 74
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO EQUITY INDEX FUND 1 3 5 10
COMPARE FEES AND EXPENSES Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT Trust Shares $ $ $ $
ILLUSTRATES THE AMOUNT OF --------------------------------------------
FEES AND EXPENSES YOU WOULD
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
31
<PAGE> 75
DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS The Short-Intermediate U.S. Government
Income Fund, the Intermediate U.S.
Government Bond Fund and the Intermediate
Corporate Bond Fund seek current income
consistent with the preservation of
capital and invest primarily in fixed
income securities, such as U.S. government
securities, or corporate, bank and
commercial obligations.
Who May Want to Invest Consider investing in these Funds if you
are:
- looking to add a monthly income
component to your portfolio
- willing to accept the risks of price and
dividend fluctuations
These Funds may not be appropriate if you
are:
- investing emergency reserves
- uncomfortable with an investment that
will fluctuate in value
TAX-FREE BOND FUNDS The North Carolina Intermediate Tax-Free
Fund, the South Carolina Intermediate
Tax-Free Fund and the Virginia
Intermediate Tax-Free Fund seek tax-exempt
income and invest primarily in municipal
securities which are exempt from Federal
and North Carolina, South Carolina or
Virginia income taxes, respectively.
Who May Want to Invest Consider investing in these Funds if you
are:
- looking to add a monthly income
component to your portfolio.
- seeking monthly Federal and North
Carolina, South Carolina or Virginia
tax-exempt dividends
- willing to accept the risks of price and
dividend fluctuations
These Funds may not be appropriate if you
are:
- investing through a tax-exempt
retirement plan
- uncomfortable with an investment that
will fluctuate in value
- investing emergency reserves
32
<PAGE> 76
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE The Fund seeks current income consistent
with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
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" (rated at the time of
purchase in one of the three highest
rating categories by an NRSRO or are
determined by the portfolio manager to be
of comparable quality) collateralized
mortgage obligations ("CMOs"). The Fund
may also invest in short-term obligations,
commercial bonds and the shares of other
investment companies. The dollar-weighted
average portfolio maturity of the Fund
will be from two to five years.
In managing the portfolio, the manager
uses a "top down" investment management
approach focusing on allocation among
sectors, interest rate risk, credit risk,
and individual securities selection. The
manager sets and continually adjusts, a
target for the interest rate sensitivity
of the Fund's holdings based upon
expectations about interest rates and
other economic factors. The manager then
selects individual securities consistent
with the target by looking for the best
relative values within particular sectors.
The Fund may also invest in certain other
debt securities. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
PREPAYMENT/CALL RISK: If a significant
number of the mortgages underlying a
mortgage-backed bond are refinanced, the
bond may be "prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond issuer
will "call" - or repay - higher-yielding
bonds before their stated maturity date.
In both cases, investors receive their
principal back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause bond
prices and yields to be volatile.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities,
such as bonds. The lower a security's
rating, the greater its credit risk.
33
<PAGE> 77
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
34
<PAGE> 78
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Short-Intermediate U.S.
Government Income Fund has performed Year-by-Year Total Returns as of 12/31
and how its performance has varied for Trust Shares(1)
from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance over seven years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
Merrill Lynch 1-5 Year U.S.
Government Index, an unmanaged index
representative of the total return of
government bonds with maturities
between 1 and 5 years. Of course, The performance information shown above
past performance does not indicate is based on a calendar year. The Fund's
how the Fund will perform in the total return for the nine-month period
future. ended September 30, 1999 was______%.
---------------------------------------
Best quarter:
Worst quarter:
---------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES 11/30/92
- --------------------------------------------------------------------------------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND % % %
- --------------------------------------------------------------------------------
MERRILL LYNCH 1-5 YEAR U.S. GOVERNMENT INDEX % % %
- --------------------------------------------------------------------------------
MERRILL LYNCH 1-3 YEAR U.S. GOVERNMENT INDEX(2) % % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Merrill Lynch 1-3 Year U.S. Government Index is an unmanaged index
representative of the total return of government bonds with maturities between 1
and 3 years. The benchmark index for the Short-Intermediate U.S. Government
Income Fund has changed from the Merrill Lynch 1-3 Year U.S. Government Index to
the Merrill Lynch 1-5 Year U.S. Government Index in order to better represent
the investment policies for comparison purposes.
35
<PAGE> 79
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Shareholder
Short-Intermediate U.S. Government Transaction
Income Fund, you will pay the Expenses (fees
following fees and expenses when you paid by you
buy and hold shares. Shareholder directly)(1) TRUST SHARES
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets, Maximum Sales
and are reflected in the share price. Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.60%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to _____%. Total expenses
after fee waivers and expense reimbursements were ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
36
<PAGE> 80
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO SHORT-INTERMEDIATE U.S. 1 3 5 10
COMPARE FEES AND EXPENSES GOVERNMENT INCOME FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD -----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
37
<PAGE> 81
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE The Fund seeks current income consistent
with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
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" (rated at the time of
purchase in one of the three highest
rating categories by an NRSRO or are
determined by the portfolio manager to be
of comparable quality) collateralized
mortgage obligations ("CMOs"). The Fund
may also invest in short-term obligations,
commercial bonds and the shares of other
investment companies. The dollar-weighted
average portfolio maturity of the Fund
will be from five to ten years.
In managing the portfolio, the manager
uses a "top down" investment management
approach focusing on allocation among
sectors, interest rate risk, credit risk,
and individual securities selection. The
manager sets and continually adjusts, a
target for the interest rate sensitivity
of the Fund's holdings based upon
expectations about interest rates and
other economic factors. The manager then
selects individual securities consistent
with the target by looking for the best
relative values within particular sectors.
The Fund may also invest in certain other
debt securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
PREPAYMENT/CALL RISK: If a significant
number of the mortgages underlying a
mortgage-backed bond are refinanced, the
bond may be "prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond issuer
will "call" - or repay - higher-yielding
bonds before their stated maturity date.
In both cases, investors receive their
principal back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause bond
prices and yields to be volatile.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities
such as bonds. The lower a security's
rating the greater its credit risk.
38
<PAGE> 82
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
39
<PAGE> 83
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Intermediate U.S. Government
Bond Fund has performed and how its Year-by-Year Total Returns as of 12/31
performance has varied from year to for Trust Shares(1)
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time to
that of the Merrill Lynch 5-10 Year
U.S. Government Index, an unmanaged
index generally representative of the
total return of government bonds with
maturities between 5 and 10 years.
Of course, past performance does not
indicate how the Fund will perform in
the future. The performance information shown
above is based on a calendar year. The
Fund's total return for the nine-month
period ended September 30, 1999 was
_______%.
--------------------------------------
Best quarter:
Worst quarter:
--------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRUST SHARES 10/9/92
- ------------------------------------------------------------------------------------------
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
- ------------------------------------------------------------------------------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX % % %
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(20 % % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Lehman Brothers Intermediate Government Bonds Index is an unmanaged
index representative of the performance of U.S. Government bonds with maturities
of less than 10 years. The benchmark index for the Intermediate U.S. Government
Bond Fund has changed from the Lehman Brothers Intermediate Government Bond
Index to the Merrill Lynch 5-10 Year U.S. Government Index in order to better
represent the investment policies for comparison purposes.
<PAGE> 84
`RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Intermediate Shareholder
U.S. Government Bond Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) TRUST SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(3) 0.60%
Some Fund share classes
impose a back end sales
charge (load) if you sell
your shares before a certain
period of time has elapsed.
This is called a Contingent
Deferred Sales Charge. ------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Total expenses after fee waivers and expense reimbursements were
___%. Any fee waiver or expense reimbursement arrangement is voluntary and may
be discontinued at any time.
41
<PAGE> 85
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO INTERMEDIATE U.S. 1 3 5 10
COMPARE FEES AND EXPENSES GOVERNMENT BOND FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD -----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
42
<PAGE> 86
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERMEDIATE CORPORATE BOND FUND
INVESTMENT OBJECTIVE The Fund seeks current income consistent
with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests in a
diversified portfolio of corporate bonds
and securities issued or guaranteed by the
U.S. government, its agencies or
instrumentalities. The Fund will
investment primarily in "investment grade"
corporate bonds (bonds rated at the time
of purchase in one of the four highest
rating categories by an NRSRO or are
determined by the portfolio manager to be
of comparable quality). The Fund may also
invest up to 15% of its assets in bonds
rated below investment grade. The
dollar-weighted average maturity of the
Fund is expected to be from three to ten
years.
In managing the portfolio, the manager
uses a "top down" investment management
approach focusing on interest rate risk,
allocation among sectors, credit risk, and
individual securities selection. The
manager sets and continually adjust, a
target for the interest rate sensitivity
of the Fund's holdings based upon
expectations about interest rates and
other economic factors. The manager then
selects individual securities consistent
with the target by looking for the best
relative values within particular sectors.
The Fund may also invest in certain other
debt securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities
such as bonds. The lower a security's
rating, the greater its credit risk.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
PREPAYMENT/CALL RISK: If a significant
number of the mortgages underlying a
mortgage-backed bond are refinanced, the
bond may be "prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond issuer
will "call" - or repay - higher-yielding
bonds before their stated maturity date.
In both cases, investors receive their
principal back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause bond
prices and yields to be volatile.
43
<PAGE> 87
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
44
<PAGE> 88
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally
include a bar chart and a
table showing how the
Intermediate Corporate Bond
Fund has performed and how
its performance has varied
from year to year. Because
the Fund had not commenced
operations prior to the date
of this prospectus, the bar
chart and table are not
shown.
45
<PAGE> 89
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Intermediate Shareholder
Corporate Bond Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.60%
------------------------------------
Distribution and
Service (12b-1) Fee 0.50%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect other expenses to be limited to
____%. Accordingly, we expect total expenses after fee waivers and expense
reimbursements to be: ___%. Any fee waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any time.
46
<PAGE> 90
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO INTERMEDIATE CORPORATE 1 3 5 10
COMPARE FEES AND EXPENSES BOND FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD ------------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
47
<PAGE> 91
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of
current interest income that is exempt
from both federal income tax and North
Carolina personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in municipal securities of the
State of North Carolina and its political
subdivisions, that provide income exempt
from both Federal personal income tax and
North Carolina personal income tax. The
Fund invests in North Carolina municipal
securities only if they are "high grade"
(rated at the time of purchase in one of
the three highest rating categories by an
NRSRO, or are determined by the portfolio
manager to be of comparable quality). The
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.
In managing the Fund's portfolio, the
manager uses a "top down" investment
management approach focusing on interest
rates and credit quality. The manager
sets, and continually adjusts, a target
for the interest rate sensitivity of the
Fund's portfolio based on expectations
about interest rate movements. The manager
then selects securities consistent with
this target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its investments
in a limited number of issuers. The Fund
may also invest in certain other debt
securities in addition to those described
above. For a more complete description of
the various securities in which the Fund
may invest, please see the Additional
Investment Strategies and Risks on page X
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its
investments in securities issued by North
Carolina and its municipalities, the Fund
may be more vulnerable to unfavorable
developments in North Carolina than funds
that are more geographically diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities,
such as bonds. The lower a security's
rating, the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is
non-diversified, it may invest a greater
percentage of its assets in a particular
issuer compared with other funds.
Accordingly, the Fund's portfolio may be
more sensitive to changes in the market
value of a single issuer or industry.
CALL RISK: Call risk is the possibility
that, during periods of declining interest
rates, a bond issuer will "call"--or
repay--higher-yielding bonds
48
<PAGE> 92
before their stated maturity date. As a
result, investors receive their principal
back and are typically forced to reinvest
it in bonds that pay lower interest rates.
Rapid changes in call rates can cause bond
prices and yields to be volatile.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
49
<PAGE> 93
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the North
Carolina Intermediate Year-by-Year Total Returns as of 12/31 Tax-
and how its performance has Free Fund has performed for Trust Shares(1)
varied from year to year. The
bar chart gives some
indication of risk by showing
changes in the Fund's yearly
performance over seven years
to demonstrate that the
Fund's value varied at
different times. The table
below it compares the Fund's
performance over time to that
of the Lehman Brothers 5-Year
General Obligations Index, an
unmanaged index generally
representative of the
performance of tax-exempt
municipal securities with an
average maturity of five
years. Of course, past The performance information shown above is
performance does not indicate based on a calendar year. The Fund's total
how the Fund will perform in return for the nine-month period ended
Fund's the future. September 30, 1999 was ______%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
TRUST SHARES 10/16/92
- --------------------------------------------------------------------------------
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND % % %
- --------------------------------------------------------------------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX % % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
50
<PAGE> 94
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the North Carolina Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) TRUST SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.60%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense reimbursements were ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
51
<PAGE> 95
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO NORTH CAROLINA 1 3 5 10
COMPARE FEES AND EXPENSES INTERMEDIATE TAX-FREE Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT FUND
ILLUSTRATES THE AMOUNT OF
FEES AND EXPENSES YOU WOULD Trust Shares $ $ $ $
PAY, ASSUMING THE FOLLOWING: -----------------------------------------------
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF
EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
52
<PAGE> 96
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of
current interest income that is exempt
from both federal income tax and South
Carolina personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in municipal securities of the
State of South Carolina and its political
subdivisions, that provide income exempt
from both Federal personal income tax and
South Carolina personal income tax. The
Fund invests in South Carolina municipal
securities only if they are "high grade"
(rated at the time of purchase in one of
the three highest rating categories by an
NRSRO, or are determined by the portfolio
manager to be of comparable quality). The
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.
In managing the Fund's portfolio, the
manager uses a "top down" investment
management approach focusing on interest
rates and credit quality. The manager
sets, and continually adjusts, a target
for the interest rate sensitivity of the
Fund's portfolio based on expectations
about interest rate movements. The manager
then selects securities consistent with
this target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its investments
in a limited number of issuers. The Fund
may also invest in certain other debt
securities in addition to those described
above. For a more complete description of
the various securities in which the Fund
may invest, please see the Additional
Investment Strategies and Risks on page X
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its
investments in securities issued by South
Carolina and its municipalities, the Fund
may be more vulnerable to unfavorable
developments in South Carolina than funds
that are more geographically diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities,
such as bonds. The lower a security's
rating, the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is
non-diversified, it may invest a greater
percentage of its assets in a particular
issuer compared with other funds.
Accordingly, the Fund's portfolio may be
more sensitive to changes in the market
value of a single issuer or industry.
CALL RISK: Call risk is the possibility
that, during periods of declining interest
rates, a bond issuer will "call"--or
repay--higher-yielding bonds
53
<PAGE> 97
before their stated maturity date. As a
result, investors receive their principal
back and are typically forced to reinvest
it in bonds that pay lower interest rates.
Rapid changes in call rates can cause bond
prices and yields to be volatile.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
54
<PAGE> 98
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the South
Carolina Intermediate Year-by-Year Total Returns as of 12/31 for
Tax-Free Fund has performed Trust Shares(1)
and how its performance has
varied from year to year. The
bar chart gives some
indication of risk by showing
changes in the Fund's yearly
performance over two years to
demonstrate that the Fund's
value varied at different
times. The table below it
compares the Fund's
performance over time to that
of the Lehman Brothers 5-Year
General Obligations Index, an
unmanaged index generally
representative of the
performance of tax-exempt
municipal securities with an The performance information shown above is
average maturity of five based on a calendar year. The Fund's total
years. Of course, past return for the nine-month period ended
performance does not indicate September 30, 1999 was the future.
how the Fund will perform in ______%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
TRUST SHARES 10/19/92
- --------------------------------------------------------------------------------
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND % %
- --------------------------------------------------------------------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
55
<PAGE> 99
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the South Carolina Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) TRUST SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
------------------------------------
Management Fee(3) 0.60%
------------------------------------
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
------------------------------------
Other Expenses(3) %
------------------------------------
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense reimbursements were ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
56
<PAGE> 100
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO SOUTH CAROLINA 1 3 5 10
COMPARE FEES AND EXPENSES INTERMEDIATE TAX-FREE Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT FUND
ILLUSTRATES THE AMOUNT OF
FEES AND EXPENSES YOU WOULD Trust Shares $ $ $ $
PAY, ASSUMING THE FOLLOWING: ----------------------------------------------
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
57
<PAGE> 101
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T VIRGINIA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of
current interest income that is exempt
from both federal income tax and Virginia
personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
primarily in municipal securities of the
Commonwealth of Virginia and its political
subdivisions, that provide income exempt
from both Federal personal income tax and
Virginia personal income tax. The Fund
invests in Virginia municipal securities
only if they are "high grade" (rated at
the time of purchase in one of the three
highest rating categories by an NRSRO, or
are determined by the portfolio manager to
be of comparable quality). The 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.
In managing the Fund's portfolio, the
manager uses a "top down" investment
management approach focusing on interest
rates and credit quality. The manager
sets, and continually adjusts, a target
for the interest rate sensitivity of the
Fund's portfolio based on expectations
about interest rate movements. The manager
then selects securities consistent with
this target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its investments
in a limited number of issuers. The Fund
may also invest in certain other debt
securities in addition to those described
above. For a more complete description of
the various securities in which the Fund
may invest, please see the Additional
Investment Strategies and Risks on page X
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its
investments in securities issued by
Virginia and its municipalities, the Fund
may be more vulnerable to unfavorable
developments in Virginia than funds that
are more geographically diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities,
such as bonds. The lower a security's
rating, the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is
non-diversified, it may invest a greater
percentage of its assets in a particular
issuer compared with other funds.
Accordingly, the Fund's portfolio may be
more sensitive to changes in the market
value of a single issuer or industry.
CALL RISK: Call risk is the possibility
that, during periods of declining interest
rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their
stated maturity date. As a result,
investors receive their
58
<PAGE> 102
principal back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in call
rates can cause bond prices and yields to
be volatile.
INCOME RISK: The possibility that the
Fund's income will decline due to a
decrease in interest rates. Income risk is
generally high for shorter-term bonds and
low for longer-term bonds.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
59
<PAGE> 103
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally
include a bar chart and a
table showing how the
Virginia Intermediate
Tax-Free Fund has performed
and how its performance has
varied from year to year.
Because the Fund has not been
in operation for a full
calendar year, the bar chart
and table are not shown.
60
<PAGE> 104
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Virginia Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) TRUST SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
------------------------------------
Management Fee(3) 0.60%
------------------------------------
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
------------------------------------
Other Expenses(3) %
------------------------------------
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) For the period beginning _________ and ending September 30, 1999, management
fees paid by the Fund were limited to _____%. Additionally, other expenses were
limited to ___%. Total expenses after fee waivers and expense reimbursements
were ___%. Any fee waiver or expense reimbursement arrangement is voluntary and
may be discontinued at any time.
61
<PAGE> 105
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO VIRGINIA INTERMEDIATE 1 3 5 10
COMPARE FEES AND EXPENSES TAX-FREE FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD -----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF
EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
62
<PAGE> 106
DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
These Funds seek current income with
liquidity and stability of principal by
investing primarily in short-term debt
securities. The Funds seek to maintain a
stable price of $1.00 per share.
Who May Want to Invest Consider investing in these Funds if you
are:
- seeking preservation of capital
- investing short-term reserves
- willing to accept lower potential
returns in exchange for a higher degree
of safety
- in the case of the Tax-Free Money Market
Fund, seeking Federal tax-exempt income
These Funds may not be appropriate if you
are:
- seeking high total return
- pursuing a long-term goal or investing
for retirement
63
<PAGE> 107
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level
of current interest income as is
consistent with maintaining liquidity and
stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only
in U.S. dollar-denominated, "high-quality"
short-term debt securities, including the
following:
- 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);
- "High quality" commercial paper and
other obligations issued or guaranteed
by U.S. and foreign corporations and
other issuers;
- Asset-backed securities;
- Securities issued or guaranteed as to
principal and interest by the U.S.
Government or by its agencies or
instrumentalities and related custodial
receipts;
- Securities issued or guaranteed by
foreign governments or their political
subdivisions; agencies or
instrumentalities;
- Guaranteed investment contracts issued
by highly-rated U.S. insurance
companies;
- Securities issued or guaranteed by state
or local government bodies; and
- Repurchase agreements relating to the
above instruments.
Additionally, the Fund concentrates its
investments in obligations issued by the
financial services industry.
"High-quality" debt securities are those
obligations which, at the time of
purchase, (i) possess the highest
short-term rating from at least two NRSROs
(for example, commercial paper rated "A-1"
by Standard & Poor's Corporation and "P-1"
by Moody's Investors Service, Inc.); or
(ii) are single rated and have received
the highest short-term rating by an NRSRO;
or (iii) if unrated, are determined by the
portfolio manager to be of comparable
quality.
When selecting securities for the Fund's
portfolio, the manager first considers
safety of principal and the quality of an
investment. The manager then focuses on
generating a high-level of income. The
manager generally evaluates investments
based on interest rate sensitivity
selecting those securities whose
maturities fit the Fund's interest rate
sensitivity target and which the manager
believes to be the best relative values.
The Fund will maintain an average weighted
portfolio maturity of 90 days or less and
will limit the maturity of each security
in its portfolio to 397 days or less.
For a more complete description of the
securities in which the Fund may invest,
please see the Additional Investment
Strategies and Risks on page X or consult
the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
64
<PAGE> 108
INTEREST RATE RISK: The possibility that
the value of the Fund's investments will
decline due to an increase in interest
rates or that the Fund's yield will
decrease due to a decrease in interest
rates. Interest rate risk is generally
high for longer-term debt securities and
low for shorter-term debt securities.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities
such as bonds. The lower a security's
rating, the greater its credit risk.
CONCENTRATION RISK: The Fund's investments
are concentrated in the financial services
industry. This concentration increases the
risk of loss to the Fund by increasing its
exposure to economic, business, political
or regulatory developments that may be
adverse to the financial services
industry.
For more information about these risks,
please see the Additional Investment
Strategies and Risks on page X.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT
OR AN OBLIGATION OF BRANCH BANKING AND
TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK, AND IT IS NOT
INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS
TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
65
<PAGE> 109
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page show how the Prime Money
Market Fund has performed and Year-by-Year Total Returns as of 12/31
how its performance has for Trust Shares(1)
varied from year to year. The
bar chart gives some
indication of risk by showing
changes in the Fund's yearly
performance over two years to
demonstrate that the Fund's
value varied at different
times. The table below it
shows the Fund's performance
over time. Of course, past
performance does not indicate
how the Fund will perform in
the future.
The performance information shown above is
based on a calendar year. The Fund's total
return for the nine-month period ended
September 30, 1999 was ________%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES 10/1/97
- --------------------------------------------------------------------------------
PRIME MONEY MARKET FUND % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Trust Shares was % and.
Without fee waivers and expense reimbursements, the Fund's yield would have been
for this time period. For current yield information on the Fund, call
1-800-228-1872. The Fund's yield appears in The Wall Street Journal each
Thursday.
66
<PAGE> 110
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Prime Money Shareholder
Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.40%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense reimbursements were ___%; and Class B shares,
___%. Any fee waiver or expense reimbursement arrangement is voluntary and may
be discontinued at any time.
67
<PAGE> 111
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO PRIME MONEY MARKET 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD ----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
68
<PAGE> 112
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T U.S. TREASURY MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks current income with
liquidity and stability of principal by
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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests
exclusively in short-term U.S.
dollar-denominated obligations issued by
the U.S. Treasury ("U.S. Treasury
Securities"), and repurchase agreements
collateralized by U.S. Treasury
Securities. Obligations purchased by the
Fund are limited to U.S.
dollar-denominated obligations which the
Board of Trustees has determined present
minimal credit risks.
In managing the Fund, the portfolio
manager focuses on generating a high-level
of income. The manager generally evaluates
investments based on interest rate
sensitivity selecting those securities
whose maturities fit the Fund's interest
rate sensitivity target and which the
manager believes to be the best relative
values. Generally, the portfolio manager
buys and holds securities until their
maturity.
The Fund will maintain an average weighted
portfolio maturity of 90 days or less and
will limit the maturity of each security
in its portfolio to 397 days or less.
For a more complete description of the
securities in which the Fund may invest,
please see the Additional Investment
Strategies and Risks on page X or consult
the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the Fund's yield will decrease due to a
decrease in interest rates or that the
value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term debt securities and
low for shorter-term debt securities.
For more information about these risks,
please see the Additional Investment
Strategies and Risks on page X.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT
OR AN OBLIGATION OF BRANCH BANKING AND
TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK, AND IT IS NOT
INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS
TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
69
<PAGE> 113
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the U.S. Treasury Money Market
Fund has performed and how its Year-by-Year Total Returns as of 12/31
performance has varied from year to for Trust Shares(1)
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different
times. The table below it shows the
Fund's performance over time. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The performance information shown above is
based on a calendar year. The Fund's total
return for the nine-month period ended
September 30, 1999 was______%.
------------------------------------------
Best quarter:
Worst quarter:
------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES 10/5/92
- --------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET FUND % % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Trust Shares and was % and
___%. Without fee waivers and expense reimbursements, the Fund's yield would
have been % for this time period. For current yield information on the Fund,
call 1-800-228-1872. The Fund's yield appears in The Wall Street Journal each
Thursday.
70
<PAGE> 114
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the U.S. Treasury Shareholder
Money Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee 0.30%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, were limited to ___%. Total expenses after fee
waivers and expense reimbursements were ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
71
<PAGE> 115
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO U.S. TREASURY MONEY 1 3 5 10
COMPARE FEES AND EXPENSES MARKET FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD ---------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
72
<PAGE> 116
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T TAX-FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks as high a level of current
interest income exempt from federal income
tax as is consistent with stability of
principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests in a
broad range of short-term tax-exempt
obligations issued by or on behalf of
states, territories, and possessions of
the United States, the District of
Columbia, 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 (collectively, "Municipal
Securities").
Although the Fund intends to invest its
assets in tax-exempt obligations, the Fund
is permitted to invest in private activity
bonds and other securities which may be
subject to the federal alternative minimum
tax.
When selecting securities for the Fund's
portfolio, the manager first focuses on
generating a high-level of income. The
manager also considers safety of principal
and the quality of an investment. The
manager generally evaluates investments
based on interest rate sensitivity
selecting those securities whose
maturities fit the Fund's interest rate
sensitivity target and which the manager
believes to be the best relative values.
The Fund will maintain an average weighted
portfolio maturity of 90 days or less and
will limit the maturity of each security
in its portfolio to 397 days or less. The
Fund may also invest in certain other
short-term debt securities in addition to
those described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INTEREST RATE RISK: The possibility that
the Fund's yield will decrease due to a
decrease in interest rates or that the
value of the Fund's investments will
decline due to an increase in interest
rates. Interest rate risk is generally
high for longer-term debt securities and
low for shorter-term debt securities.
CREDIT RISK: The possibility that an
issuer cannot make timely interest and
principal payments on its debt securities
such as bonds. The lower a security's
rating, the greater its credit risk.
TAX RISK. The risk that the issuer of the
securities will fail to comply with
certain requirements of the Internal
Revenue Code, which would cause adverse
tax consequences.
For more information about these risks,
please see the Additional Investment
Strategies and Risks on page X.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT
OR AN OBLIGATION OF BRANCH BANKING AND
TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK, AND IT IS NOT
INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS
TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
73
<PAGE> 117
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally
include a bar chart and a
table showing how the
Tax-Free Money Market Fund
has performed and how its
performance has varied from
year to year. Because the
Fund had not commenced
operations as of the date of
this Prospectus, the bar
chart and table are not
shown.
74
<PAGE> 118
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- ------------------
As an investor in the Tax-Free Money Shareholder
Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.40%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect other expenses to be limited to
____%. Accordingly, we expect total expenses after fee waivers and expense
reimbursements to be ___%. Any fee waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any time.
75
<PAGE> 119
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO TAX-FREE MONEY MARKET 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD -----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF
EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
76
<PAGE> 120
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
FUND OF FUNDS
These Funds invest substantially all of
their assets in Trust shares of the BB&T
Funds described earlier in this
prospectus.
Who May Want to Invest Consider investing in these Funds if you
are:
- seeking to spread your investment among
many different mutual funds that match
your goals in one simple package
- seeking investment professionals to
select and maintain a portfolio of
mutual funds for you
- seeking the benefits of asset allocation
and multiple levels of risk reducing
diversification
These Funds may not be appropriate if you
are:
- pursuing a short-term goal or investing
emergency reserves
- uncomfortable with an investment that
will fluctuate in value
77
<PAGE> 121
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER CONSERVATIVE GROWTH FUND
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund allocates
its assets among the Underlying Funds
within predetermined strategy ranges set
forth below. The portfolio manager will
make allocation decisions according to his
outlook for the economy, financial markets
and relative market valuation of the
Underlying Funds.
The 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. The Fund
will invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of the
Fund's total assets) indicated below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
------------------------------------------------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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>
The Underlying Funds are described earlier
in this Prospectus.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated
78
<PAGE> 122
in the Underlying Funds, so the Fund's
investment performance is directly related
to the performance of those Underlying
Funds. Before investing in the Fund,
investors should assess the risks
associated with the Underlying Funds in
which the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund must
allocate its investments among the
Underlying Funds, the Fund does not have
the same flexibility to invest as a mutual
fund without these constraints. As a
result, you could lose money by investing
in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
FIXED INCOME FUNDS: The Fund invests in
Underlying Funds that invest primarily in
fixed income securities, which are subject
to interest rate and credit risk. Interest
rate risk is the potential for a decline
in bond prices due to rising interest
rates. Credit risk is the possibility that
the issuer of a fixed-income security will
fail to make timely payments of interest
or principal, or that the security will
have its credit rating downgraded.
EQUITY FUNDS: The Fund also invests in
Underlying Funds that invest primarily in
equity securities, which are subject to
market risk. Stocks and other equity
securities fluctuate in price, often based
on factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk which is
the risk that the particular market
segment on which a Fund focuses will
underperform other kinds of investments.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
79
<PAGE> 123
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page shows how the Capital
Manager Conservative Growth Year-by-Year Total Returns as of 12/31 for
Fund has performed and how Trust Shares(1)
its performance has varied
from year to year. The bar
chart gives some indication
of risk by showing changes in
the Fund's yearly performance
over two years to demonstrate
that the Fund's value varied
at different times. The table
below it compares the Fund's
performance over time to that
of the S&P 500(R) Index, a
widely recognized, unmanaged The performance information shown above is
index of common stocks, and based on a calendar year. The Fund's total
the Lehman Brothers return for the nine-month period ended
Intermediate Government Bond September 30, 1999 was ______%.
Index, an unmanaged index
representative of the total
return of government bonds ------------------------------------------
with maturities of less than Best quarter:
10 years. Of course, past
performance does not indicate Worst quarter:
how the Fund will perform in ------------------------------------------
the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES 10/2/97
- --------------------------------------------------------------------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- --------------------------------------------------------------------------------
S&P 500(R) INDEX % %
- --------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
80
<PAGE> 124
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Capital Manager Shareholder
Conservative Growth Fund, you will pay Transaction
the following fees and expenses when Expenses (fees
you buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.25%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3,4) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense were ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
(4) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio is ___%.
81
<PAGE> 125
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO CAPITAL MANAGER 1 3 5 10
COMPARE FEES AND EXPENSES CONSERVATIVE GROWTH Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT FUND
ILLUSTRATES THE AMOUNT OF
FEES AND EXPENSES YOU WOULD Trust Shares $ $ $ $
PAY, ASSUMING THE FOLLOWING: ----------------------------------------------
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END OF
EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
82
<PAGE> 126
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER MODERATE GROWTH FUND
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund allocates
its assets among the Underlying Funds
within predetermined strategy ranges set
forth below. The portfolio manager will
make allocation decisions according to his
outlook for the economy, financial markets
and relative market valuation of the
Underlying Funds.
The 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. The Fund
will invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of the
Fund's total assets) indicated below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
--------------- ---------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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>
The Underlying Funds are described earlier
in this Prospectus.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated
83
<PAGE> 127
in the Underlying Funds, so the Fund's
investment performance is directly related
to the performance of those Underlying
Funds. Before investing in the Fund,
investors should assess the risks
associated with the Underlying Funds in
which the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund must
allocate its investments among the
Underlying Funds, the Fund does not have
the same flexibility to invest as a mutual
fund without these constraints. As a
result, you could lose money by investing
in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
EQUITY FUNDS: The Fund invests in
Underlying Funds that invest primarily in
equity securities, which are subject to
market risk. Stocks and other equity
securities fluctuate in price, often based
on factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk which is
the risk that the particular market
segment on which a Fund focuses will
underperform other kinds of investments.
FIXED INCOME FUNDS: The Fund also invests
in Underlying Funds that invest primarily
in fixed income securities, which are
subject to interest rate and credit risk.
Interest rate risk is the potential for a
decline in bond prices due to rising
interest rates. Credit risk is the
possibility that the issuer of a
fixed-income security will fail to make
timely payments of interest or principal,
or that the security will have its credit
rating downgraded.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
84
<PAGE> 128
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this PERFORMANCE BAR CHART AND TABLE
page shows how the Capital
Manager Moderate Growth Fund Year-by-Year Total Returns as of 12/31 for
has performed and how its Trust Shares(1)
performance has varied from
year to year. The bar chart
gives some indication or risk
by showing changes in the
Fund's yearly performance
over two years to demonstrate
that the Fund's value varied
at different times. The table
below it compares the Fund's
performance over time to that
of the S&P 500(R) Index, a
widely recognized, unmanaged
index of common stocks, and The performance information shown above is
the Lehman Brothers based on a calendar year. The Fund's total
Intermediate Government Bond return for the nine-month period ended
Index, an unmanaged index September 30, 1999 was ______%.
representative of the total
return of government bonds
with The maturities of less ------------------------------------------
than 10 years. Of course, Best quarter:
past performance does not
indicate how the Fund will Worst quarter:
perform in the future. ------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
TRUST SHARES (with 4.50% sales charge) 10/2/97
- --------------------------------------------------------------------------------
CAPITAL MANAGER MODERATE GROWTH FUND % %
- --------------------------------------------------------------------------------
S&P 500(R) INDex % %
- --------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- --------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
85
<PAGE> 129
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Capital Manager Shareholder
Moderate Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.25%
------------------------------------
Distribution and
Service (12b-1) Fee 0.50%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3,4) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses were limited to ___%. Total expenses
after fee waivers and expense were ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
(4) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio is ___%.
86
<PAGE> 130
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO CAPITAL MANAGER 1 3 5 10
COMPARE FEES AND EXPENSES MODERATE GROWTH FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD ----------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
87
<PAGE> 131
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks capital appreciation by
investing primarily in a group of
diversified BB&T Funds which invest
primarily in equity securities.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund allocates
its assets among the Underlying Funds
within predetermined strategy ranges set
forth below. The portfolio manager will
make allocation decisions according to his
outlook for the economy, financial markets
and relative market valuation of the
Underlying Funds.
The 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. The Fund
will invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of the
Fund's total assets) indicated below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
--------------- ---------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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 Underlying Funds are described earlier
in this Prospectus.
The Fund may also invest in certain other
equity securities in addition to those
described above. For a more complete
description of the various securities in
which the Fund may invest, please see the
Additional Investment Strategies and Risks
on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated in the
Underlying Funds, so the Fund's investment
performance is
88
<PAGE> 132
directly related to the performance of
those Underlying Funds. Before investing
in the Fund, investors should assess the
risks associated with the Underlying Funds
in which the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund must
allocate its investments among the
Underlying Funds, the Fund does not have
the same flexibility to invest as a mutual
fund without these constraints. As a
result, you could lose money by investing
in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
EQUITY FUNDS: The Fund invests in
Underlying Funds that invest primarily in
equity securities, which are subject to
market risk. Stocks and other equity
securities fluctuate in price, often based
on factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk which is
the risk that the particular market
segment on which a Fund focuses will
underperform other kinds of investments.
FIXED INCOME FUNDS: The Fund also invests
in Underlying Funds that invest primarily
in fixed income securities, which are
subject to interest rate and credit risk.
Interest rate risk is the potential for a
decline in bond prices due to rising
interest rates. Credit risk is the
possibility that the issuer of a
fixed-income security will fail to make
timely payments of interest or principal,
or that the security will have its credit
rating downgraded.
The Fund may trade securities actively,
which could increase its transaction costs
(thereby lowering its performance) and may
increase the amount of taxes that you pay.
If the Fund invests in securities with
additional risks, its share price
volatility accordingly could be greater
and its performance lower. For more
information about these risks, please see
the Additional Investment Strategies and
Risks on page X.
89
<PAGE> 133
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page PERFORMANCE BAR CHART AND TABLE
shows how the Capital Manager Growth
Fund has performed and how its Year-by-Year Total Returns as of 12/31
performance has varied from year to for Trust Shares(1)
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
two years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time to
that of the S&P 500(R)Index, a widely
recognized, unmanaged index of common
stocks, and the Lehman Brothers
Intermediate Government Bond Index,
an unmanaged index representative of
the total return of government bonds
with maturities of less than 10 The performance information shown above
years. Of course, past performance is based on a calendar year. The Fund's
does not indicate how the Fund will total return for the nine-month period
perform in the future. ended September 30, 1999 was ______%.
----------------------------------------
Best quarter:
Worst quarter:
----------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR SINCE INCEPTION
TRUST SHARES (with 4.50% sales charge) 10/2/97
- -------------------------------------------------------------------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- -------------------------------------------------------------------------------
S&P 500(R) INDex % %
- -------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- -------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
90
<PAGE> 134
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
As an investor in the Capital Manager Shareholder
Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) TRUST SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None
------------------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(2) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) TRUST SHARES
------------------------------------
Management Fee(3) 0.25%
------------------------------------
Distribution and
Service (12b-1) Fee 0.00%
------------------------------------
Other Expenses(3) %
------------------------------------
Total Fund
Operating Expenses(3,4) %
------------------------------------
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(3) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, other expenses for each class were limited to ___%.
Total expenses after fee waivers and expense reimbursements were ___%. Any fee
waiver or expense reimbursement arrangement is voluntary and may be discontinued
at any time.
(4) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio is ___%.
91
<PAGE> 135
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO CAPITAL MANAGER GROWTH 1 3 5 10
COMPARE FEES AND EXPENSES FUND Year Years Years Years
WITH THOSE OF OTHER FUNDS. IT
ILLUSTRATES THE AMOUNT OF Trust Shares $ $ $ $
FEES AND EXPENSES YOU WOULD ------------------------------------------------
PAY, ASSUMING THE FOLLOWING:
- $10,000 INVESTMENT
- 5% ANNUAL RETURN
- REDEMPTION AT THE END
OF EACH PERIOD
- NO CHANGES IN THE FUND'S
OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS
HYPOTHETICAL AND FOR
COMPARISON ONLY, YOUR ACTUAL
COSTS WILL BE DIFFERENT.
92
<PAGE> 136
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
Stock Funds
- -----------
GROWTH AND INCOME STOCK FUND - Under normal market conditions, the Fund will
invest at least 65% of its total assets in stocks, which may include common
stock, preferred stock, warrants, or debt instruments that are convertible to
common stock. Equity securities purchased by the Growth and Income Stock Fund
will be either traded on a domestic securities exchange or quoted in the
NASDAQ/NYSE system.
BALANCED FUND - The Fund will normally invest in equity securities consisting of
common stocks but may also invest in other equity-type securities such as
warrants, preferred stocks and convertible securities.
As a fundamental policy, the Fund will invest at least 25% of its total assets
in fixed-income senior securities. Fixed-income 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 Fund may also invest in collateralized mortgage
obligations ("CMOs").
The Fund may only invest in bonds, notes and debentures that are investment
grade, which are those securities rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO") at the time of purchase, or if not rated, found by the Advisor under
guidelines established by the Trust's Board of Trustees to be of comparable
quality. If the rating of any debt securities held by the Fund falls below the
fourth highest rating, the Fund will not have to dispose of those obligations
and may continue to hold them if the portfolio manager considers it to be
appropriate.
The Fund may invest in short-term obligations in order to acquire interest
income combined with liquidity. For temporary defensive purposes, these
investments may constitute 100% of the Fund's portfolio.
LARGE COMPANY GROWTH FUND - 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(R) Index").1
SMALL COMPANY GROWTH FUND - At least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $2 billion at the
time of purchase.
INTERNATIONAL EQUITY FUND - The Fund normally invests at least 65% of its total
assets in the equity securities of foreign issuers and normally invests at least
80% of its total assets in equity securities. The Fund invests primarily in
equity securities of issuers located in countries included in the Morgan Stanley
Capital International Europe, Australasia and the Far East ("EAFE") Index. The
EAFE Index is an index composed of a sample of companies representative of the
market structure of 20 European and Pacific Basin countries. Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom are currently included in the EAFE Index.
(1) THE "S&P 500(R)" IS A REGISTERED SERVICE MARK OF STANDARD & POOR'S
CORPORATION, WHICH DOES NOT SPONSOR AND IS IN NO WAY AFFILIATED WITH THE FUND.
93
<PAGE> 137
From time to time the 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.
The Fund may invest in both sponsored and unsponsored ADRs, European Depository
Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments.
The Fund may also invest its assets in equity securities of issuers located in
countries with emerging economies or securities markets. The Fund intends to
limit its investment in such countries to 20% of its total assets. The 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.
EQUITY INDEX FUND - The Fund normally invests at least 80% of its assets in
equity securities of companies that compose the S&P 500(R). The Fund seeks to
achieve a 95% or better correlation between its total return and thE total
return (before expenses) of the S&P 500(R). The Adviser monitors correlation
between the performance of thE Fund and that of the S&P 500(R) on a monthly
basis. Correlation is measured by comparing the Fund's monthlY returns to those
of the S&P 500(R) 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 Fund may not track the S&P 500(R)
perfectly. Differences between the S&P 500(R) and the Fund's portfolio may cause
differences in performance. Even if the Fund's investments match the S&P 500(R)
exactly, its returns could differ on a day-to-daY basis because of differences
in how the Fund and the S&P 500(R) are valued. 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.
ALL STOCK FUNDS (EXCEPT THE INTERNATIONAL EQUITY FUND): FOREIGN SECURITIES -
Each Fund may invest in foreign securities through the purchase of ADRs or the
purchase of securities on the New York Stock Exchange. However, a Fund will not
do so if immediately after a purchase and as a result of the purchase the total
value of foreign securities owned by the Fund would exceed 25% of the value of
its total assets.
Bond Funds
- ----------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND - At least 65% of the Fund's
assets will be invested on U.S. Government Securities. The Fund may invest up to
35% of its total assets in bonds, notes and debentures of corporate issuers. The
Fund invests in bonds, notes and debentures only if they are high grade (rated
at time of purchase in one of the three highest rating categories by an NRSRO,
or are determined by the portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
INTERMEDIATE U.S. GOVERNMENT BOND FUND - The 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 include both bonds (maturities of ten
years or more) and notes (maturities of one to ten years) of the U.S.
Government. The Fund may invest up to 35% of its total assets in bonds, notes
and debentures of corporate issuers. The Fund may also invest in short-term
obligations, commercial bonds and the shares of other investment companies. The
Fund invests in bonds, notes and debentures only if they are high grade (rated
at time of purchase in one of the three highest rating categories by an NRSRO),
or are determined by the portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
94
<PAGE> 138
INTERMEDIATE CORPORATE BOND FUND - At least 65% of the Fund's total assets will
be invested in investment grade corporate bonds (rated in one of the top four
rating categories by an NRSRO, 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 Fund's assets will normally be invested in a
combination of investment grade corporate bonds and U.S.
Government Securities.
The Fund may invest up to 15% of its total 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 Fund
may invest in non-investment grade securities by investing in other investment
companies that primarily invest in such securities.
The Fund may invest in debt obligations of foreign corporations, banks and
governments that are denominated either in U.S. dollars or foreign currency. The
Fund will not invest more than 25% of its total assets in such obligations.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
ALL TAXABLE BOND FUNDS - Mortgage-related securities purchased by the Taxable
Bond Funds will be either (i) issued by U.S. Government-owned or sponsored
corporations or (ii) rated in the highest category by an NRSRO at the time of
purchase, (for example, rated Aaa by Moody's or AAA by S&P), or, if not rated,
are of comparable quality as determined by the Advisor.
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to over
10% of its assets.
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than South Carolina tax-exempt obligations to over
10% of its assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the 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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than Virginia tax-exempt obligations to over 10% of
its assets.
95
<PAGE> 139
ALL TAX-FREE BOND FUNDS - Each Fund will invest in Tax-Exempt Obligations which
are rated at the time of purchase in one of the three highest categories by an
NRSRO in the case of bonds; one of the two highest categories by an NRSRO in the
case of notes; rated "SP-1" or higher by S&P or "MIG-2" or higher by Moody's or
rated at a comparable level of quality by another NRSRO in the case of
tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's or rated at
a comparable level of quality by another NRSRO in the case of variable rate
demand obligations or, if unrated, determined to be of comparable quality.
Each Fund may invest up to 10% of its total 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 BOND FUNDS: PORTFOLIO MATURITY - 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 these securities will be
used.
Money Market Funds
- ------------------
PRIME MONEY MARKET FUND - Under normal market conditions, at least 25% of the
Fund's total assets will be invested in obligations of issuers in the financial
services industry and repurchase agreements relating to such obligations.
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. The Fund
will not purchase securities issued by PNC Bank or BB&T or any of their
affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
TAX-FREE MONEY MARKET FUND - As a fundamental policy, except during periods of
unusual market conditions or during temporary defensive periods, the Fund will
invest substantially all, but in no event less than 80%, of its total assets in
Municipal Securities with remaining maturities of 397 days (thirteen months) or
less as determined in accordance with the rules of the SEC.
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods or if, in the opinion of the 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. The securities purchased by the Fund are also subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended, and other rules of the SEC. Pursuant to Rule
2a-7, the Fund generally will limit its purchase of any one issuer's securities
(other than U.S. Government securities, repurchase agreements collateralized by
such securities and securities subject to certain guarantees or otherwise
providing the right to demand payment) to 5% of the Fund's total assets, except
that up to 25% of its total assets may be invested in the first-tier securities
(securities that possess at least one rating in the highest category by an NRSRO
or, if unrated, determined by the Adviser to be of comparable quality) of one
issuer for a period of up to three business days;
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<PAGE> 140
provided that the Fund may not invest more than 25% of its total assets in the
securities of more than one issuer in accordance with the foregoing at any one
time.
The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of such
securities) will be Eligible Securities. Applicable Eligible Securities are:
- - Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
- - securities that are issued or guaranteed by a person with such ratings;
- - securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
- - shares of other open-end investment companies that invest in the type of
obligations in which the Fund may invest.
Funds of Funds
- --------------
The Funds of Funds' net asset values 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 may also hold cash for liquidity purposes.
ALL STOCK FUNDS, BOND FUNDS AND FUNDS OF FUNDS: TEMPORARY DEFENSIVE MEASURES -
If deemed appropriate under the circumstances, each Stock Fund, Bond Fund, and
Fund of Funds may increase its holdings in short-term obligations to up to 100%
of its total assets. Under normal market conditions, each Stock Fund (except the
Small Company Growth Fund and International Equity Fund) and the Taxable Bond
Funds will limit its investment in short-term obligations to 35% of its assets,
while the Small Company Growth Fund will limit its investment in short-term
obligations to 20% of its assets.
INVESTMENT PRACTICES
- --------------------
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk. Fixed
income securities are primarily influenced by market, credit and prepayment
risks, although certain securities may be subject to additional risks. Following
the table is a more complete discussion of risk. You may also consult the
Statement of Additional Information for additional details regarding these and
other permissible investments.
FUND NAME FUND CODE
- --------- ---------
Growth and Income Stock Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
Equity Index Fund 6
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<PAGE> 141
Short Intermediate U.S. Government Income Fund 7
Intermediate U.S. Government Bond Fund 8
Intermediate Corporate Bond Fund 9
North Carolina Intermediate Tax-Free Fund 10
South Carolina Intermediate Tax-Free Fund 11
Virginia Intermediate Tax-Free Fund 12
Prime Money Market Fund 13
U.S. Treasury Money Market Fund 14
Tax-Free Money Market Fund 15
Capital Manager Conservative Growth Fund 16
Capital Manager Moderate Growth Fund 17
Capital Manager Growth Fund 18
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are 1-6 Market
foreign shares of a company held by a U.S. bank that Political
issues a receipt evidencing ownership. Foreign Investment
ASSET-BACKED SECURITIES: Securities secured by 2, 7-9, 13 Pre-payment
company receivables, home equity loans, truck and Market
auto loans, leases, credit card receivables and Credit
other securities backed by other types of Interest Rate
receivables or other assets. Income
Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time 2, 13 Credit
drafts drawn on and accepted by a commercial bank. Liquidity
Maturities are generally six months or less. Market
Interest Rate
Income
BONDS: Interest-bearing or discounted government or 2, 7-9, 13 Market
corporate securities that obligate the issuer to pay Credit
the bondholder a specified sum of money, usually at Interest Rate
specific intervals, and to repay the principal Income
amount of the loan at maturity.
CALL AND PUT OPTIONS: A call option gives the buyer 1-6 Management
the right to buy, and obligates the seller of the Liquidity
option to sell, a security at a specified price. A Credit
put option gives the buyer the right to sell, and Market
obligates the seller of the option to buy a security Leverage
at a specified price. The Funds will sell only
covered call and secured put options.
</TABLE>
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<TABLE>
<S> <C> <C>
CERTIFICATES OF DEPOSIT: Negotiable instruments with 2, 13 Market
a stated maturity. Credit
Liquidity
Interest Rate
Income
COMMERCIAL PAPER: Secured and unsecured short-term 1-3, 13, 15-18 Credit
promissory notes issued by corporations and other Liquidity
entities. Maturities generally vary from a few days Market
to nine months. Interest Rate
Income
COMMON STOCK: Shares of ownership of a company. 1-6 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock 1-6, 9 Market
that convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived 1-12, 15-18 Management
from an underlying contract, index or security, or Market
any combination thereof, including futures, Credit
options (e.g., put and calls), options on futures, Liquidity
swap agreements, and some mortgage-backed securities. Leverage
Interest Rate
Income
FOREIGN SECURITIES: Stocks issued by foreign 1-6, 9, 13 Market
companies, as well as commercial paper of foreign Political
issuers and obligations of foreign banks, overseas Liquidity
branches of U.S. banks and supranational entities. Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing 1-6, 16-18 Management
for the future sale and purchase of a specified Market
amount of a specified security, class of securities, Credit
or an index at a specified time in the future and at Liquidity
a specified price. Leverage
HIGH-YIELD/HIGH-RISK/DEBT SECURITIES: High-yield/ 9 Credit
high-risk/debt securities are securities that are Market
rated below investment grade by the primary rating Liquidity
agencies (e.g., BB or lower by Standard & Poor's and
Ba or lower by Moody's). These securities are
considered speculative and involve greater risk of
loss than investment grade debt securities. Other
terms commonly used to describe such securities
include "lower rated bonds," "non-investment grade
bonds" and "junk bonds."
INDEX-BASED SECURITIES: Index-based securities such 1-6 Market
as Standard & Poor's Depository Receipts ("SPDRs")
and NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"),
represent ownership in a long-term unit investment
trust that holds a
</TABLE>
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<TABLE>
<S> <C> <C>
portfolio of common stocks designed to track the
price performance and dividend yield of an index,
such as the S&P 500 Index or the NASDAQ-100 Index.
Index-based securities entitle a holder to receive
proportionate quarterly cash distributions
corresponding to the dividends that accrue to the
index stocks in the underlying portfolio, less trust
expenses.
INVESTMENT COMPANY SECURITIES: Shares of investment 1-13, 15-18 Market
companies. A Fund (except the Funds of Funds) may
invest up to 5% of its assets in the shares of any
one registered investment company, but may not own
more than 3% of the securities of any one registered
investment company or invest more than 10% of its
assets in the securities of other registered
investment companies. These registered investment
companies may include money market funds of BB&T
Funds and shares of other registered investment
companies for which the Adviser to a Fund or any of
their affiliates serves as investment adviser,
administrator or distributor. The Money Market
Funds may only invest in shares of other investment
companies with similar objectives.
MORTGAGE-BACKED SECURITIES: Debt obligations secured 7-9, 13 Pre-payment
by real estate loans and pools of loans. These Market
include collateralized mortgage obligations and real Credit
estate mortgage investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state 10-12, 15 Market
or political subdivision to obtain funds for various Credit
public purposes Municipal securities include private Political
activity bonds and industrial development bonds, as Tax
well as general obligation bonds, tax anticipation Regulatory
notes, bond anticipation notes, revenue anticipation
notes, project notes, other short-term tax-exempt
obligations, municipal leases, and obligations of
municipal housing authorities (single family revenue
bonds).
There are two general types of municipal bonds:
General-obligations bonds, which are secured by the
taxing power of the issuer and revenue bonds, which
take many shapes and forms but are generally backed
by revenue from a specific project or tax. These
include, but are not limited, to certificates of
participation (COPs); utility and sales tax
revenues; tax increment or tax allocations;
</TABLE>
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<PAGE> 144
<TABLE>
<S> <C> <C>
housing and special tax, including assessment
district and community facilities district issues
which are secured by specific real estate parcels;
hospital revenue; and industrial development bonds
that are secured by a private company.
PREFERRED STOCKS: Preferred Stocks are equity 1-6 Market
securities that generally pay dividends at a
specified rate and have preference over common stock
in the payment of dividends and liquidation.
Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a security 1-18 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price on an
agreed upon date. This is treated as a loan.
RESTRICTED SECURITIES: Securities not registered 2, 7-9, 13 Liquidity
under the Securities Act of 1933, such as privately Market
placed commercial paper and Rule 144A securities.
REVERSE REPURCHASE AGREEMENT: The sale of a security 4, 5, 16-18 Market
and the simultaneous commitment to buy the security Leverage
back at an agreed upon price on an agreed upon
date. This is treated as a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33 1/3% of 1-18 Market
the Fund's total assets. In return the Fund will Leverage
receive cash, other securities, and/or letters of Liquidity
credit. Credit
SHORT-TERM OBLIGATIONS: High quality U.S. 1-12, 16-18 Market
dollar-denominated debt securities that have
remaining Credit maturities of one year or less.
These securities may include U.S. government
obligations, 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. These investments are limited
to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings
from at least two NRSROs (for example, commercial
paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2"
by Moody's), or (ii) do not possess a rating (i.e.,
are unrated) but are determined by the Adviser or
</TABLE>
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<PAGE> 145
<TABLE>
<S> <C> <C>
Sub-Adviser to be of comparable quality.
STAND-BY COMMITMENTS: The Fund may acquire 15 Income
"stand-by commitments" with respect to Municipal
Securities held in its portfolio. The Fund will
acquire stand-by commitments solely to facilitate
portfolio liquidity.
TIME DEPOSITS: Non-negotiable receipts issued by a 13-15, 17 Liquidity
bank in exchange for the deposit of funds. Credit
Market
Income
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 1-13, 16-18 Interest Rate
by agencies and instrumentalities of the U.S. Credit
government. These include Ginnie Mae, Fannie Mae,
and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-14, 16-18 Interest Rate
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured 3 Credit
demand notes that permit the indebtedness to vary Liquidity
and provide for periodic adjustments in the interest Interest Rate
rate according to the terms of the instrument. Income
Because master demand notes are direct lending
arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary
market in these notes, the Fund may demand payment
of principal and accrued interest at specified
intervals.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations 10-13, 15 Credit
with interest rates which are reset daily, weekly, Liquidity
quarterly or some other period and which may be Market
payable to the Fund on demand.
WARRANTS: Securities, typically issued with 1-6 Market
preferred stock or bonds, that give the holder the Credit
right to buy a proportionate amount of common stock
at a specified price.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 2, 3, 10-13, 15 Market
Purchase or contract to purchase securities at a Leverage
fixed price for delivery at a future date. Under Liquidity
normal market conditions, when-issued purchases and Credit
forward commitments will not exceed 25% of the value
</TABLE>
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<PAGE> 146
<TABLE>
<S> <C> <C>
of a Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. 9 Market
dollar denominated bonds issued by foreign Credit
corporations or governments. Sovereign bonds are Interest Rate
those issued by the government of a foreign Income
country. Supranational bonds are those issued by
supranational entities, such as the World Bank and
European Investment Bank. Canadian bonds are those
issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt 2, 8-12 Credit
that pay no interest, but are issued at a discount Market
from their value at maturity. When held to Interest Rate
maturity, their entire return equals the difference Income
between their issue price and their maturity value.
</TABLE>
INVESTMENT RISKS
- ----------------
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Funds may fluctuate, as will the value
of your investment in the Funds. Certain investments and Funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade securities.
The price of a security can be adversely affected prior to actual default as its
credit status deteriorates and the probability of default rises.
FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also includes the risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. Exchange rate
volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk. Foreign securities may also be
affected by incomplete or inaccurate financial information on companies, social
upheavals or political actions ranging from tax code changes to governmental
collapse. These risks are more significant in emerging markets.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. A rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a rise
in values. Interest rate risk should be modest for shorter-term securities,
moderate for intermediate-term securities, and high for longer-term securities.
Generally, an increase in the average maturity of the Fund will make it more
sensitive to interest rate risk. The market prices of securities structured as
zero coupon or pay-in-kind securities are generally affected to a greater extent
by interest rate changes. These securities tend to be more volatile than
securities which pay interest periodically.
INVESTMENT STYLE RISK. The risk that returns from a particular class or group of
stocks (e.g., value, growth, small cap, large cap) will trail returns from other
asset classes or the overall stock market. Groups or asset classes of stocks
tend to go through cycles of doing better - or worse - than common
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<PAGE> 147
stocks in general. These periods can last for periods as long as several years.
Additionally, a particular asset class or group of stocks could fall out of
favor with the market, causing the Fund to underperform funds that focus on
other types of stocks.
LEVERAGE RISK. The risk associated with securities or practices that multiply
small index or market movements into large changes in value. Leverage is often
associated with investments in derivatives, but also may be embedded directly in
the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Portfolio also holds, any loss generated by the derivative should
be substantially offset by gains on the hedged investment, and vice
versa. Hedges are sometimes subject to imperfect matching between the
derivative and underlying security, and there can be no assurance that
a Portfolio's hedging transactions will be effective.
SPECULATIVE. To the extent that a derivative is not used as a hedge,
the Portfolio is directly exposed to the risks of that derivative.
Gains or losses from speculative positions in a derivative may be
substantially greater than the derivatives original cost.
LIQUIDITY RISK. The risk that certain securities may be difficult or impossible
to sell at the time and the price that would normally prevail in the market. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on Portfolio
management or performance. This includes the risk of missing out on an
investment opportunity because the assets necessary to take advantage of it are
tied up in less advantageous investments.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
Incomplete matching can result in unanticipated risks.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industrial sector of
the economy or the market as a whole. There is also the risk that the current
interest rate may not accurately reflect existing market rates. For fixed income
securities, market risk is largely, but not exclusively, influenced by changes
in interest rates. A rise in interest rates typically causes a fall in values,
while a fall in rates typically causes a rise in values. Finally, key
information about a security or market may be inaccurate or unavailable. This is
particularly relevant to investments in foreign securities.
POLITICAL RISK. The risk of losses attributable to unfavorable governmental or
political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security will
occur at an unexpected time. Prepayment risk is the chance that the repayment of
a mortgage will occur sooner than expected. Call risk is the possibility that,
during times of declining interest rates, a bond issuer will "call" - or repay -
higher yielding bonds before their stated maturity. Changes in pre-payment rates
can result in greater price and yield volatility. Pre-payments and calls
generally accelerate when interest rates decline. When mortgage and other
obligations are pre-paid or called, a Fund may have to reinvest in securities
with a lower yield. In this event, the Fund would experience a decline in income
- - and the potential for taxable capital gains. Further, with early prepayment, a
Fund may fail to recover any premium paid, resulting in an unexpected capital
loss. Prepayment/call risk is generally low for securities with a short-term
maturity, moderate for securities with an intermediate-term maturity, and high
for securities with a long-term maturity.
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<PAGE> 148
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans. These
laws include restrictions on foreclosures, redemption rights after foreclosure,
Federal and state bankruptcy and debtor relief laws, restrictions on "due on
sale" clauses, and state usury laws.
SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky than
stocks of larger companies and may be more vulnerable than larger companies to
adverse business or economic developments. Many of these companies are young and
have a limited track record. Small cap companies may also have limited product
lines, markets, or financial resources. Securities of such companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general and, therefore, may involve greater risk than investing in
larger companies. In addition, small cap companies may not be well-known to the
investing public, may not have institutional ownership, and may have only
cyclical, static, or moderate growth prospects. If a Fund concentrates on
small-capitalization companies, its performance may be more volatile than that
of a fund that invests primarily in larger companies.
TAX RISK. The risk that the issuer of the securities will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer systems
in almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, BB&T Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. BB&T Funds has made inquiry of its service providers to determine whether
they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to BB&T Funds. While it is likely that such assurances will be
obtained, BB&T Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which BB&T Funds does business.
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<PAGE> 149
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for the
Funds. 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,
1999, BB&T Corporation had assets of approximately $____ 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 17 years and currently manages assets of
more than $____ billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal year
ended:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF 09/30/99
- -------------------------------------------------------------------------
<S> <C>
Growth and Income Stock Fund .50%
- -------------------------------------------------------------------------
Balanced Fund .50%
- -------------------------------------------------------------------------
Large Company Growth Fund .50%
- -------------------------------------------------------------------------
Small Company Growth Fund 1.00%
- -------------------------------------------------------------------------
Equity Index Fund ___%
- -------------------------------------------------------------------------
International Equity Fund 1.00%
- -------------------------------------------------------------------------
Short-Intermediate U.S. Government Income Fund .50%
- -------------------------------------------------------------------------
Intermediate U.S. Government Bond Fund .50%
- -------------------------------------------------------------------------
Intermediate Corporate Bond Fund .50%
- -------------------------------------------------------------------------
North Carolina Intermediate Tax-Free Fund .50%
- -------------------------------------------------------------------------
South Carolina Intermediate Tax-Free Fund .50%
- -------------------------------------------------------------------------
</TABLE>
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<PAGE> 150
- -------------------------------------------------------------------------
Virginia Intermediate Tax-Free Fund .50%
- -------------------------------------------------------------------------
Prime Money Market Fund .30%
- -------------------------------------------------------------------------
U.S. Treasury Money Market Fund .40%
- -------------------------------------------------------------------------
Tax-Free Money Market Fund __%
- -------------------------------------------------------------------------
Capital Manager Conservative Growth Fund __%
- -------------------------------------------------------------------------
Capital Manager Moderate Growth Fund __%
- -------------------------------------------------------------------------
Capital Manager Growth Fund __%
- -------------------------------------------------------------------------
THE INVESTMENT SUB-ADVISERS
SMALL COMPANY GROWTH FUND. 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.
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, 1999, BFMI had approximately $__ billion in discretionary assets
under management, including $____ billion in mutual fund portfolios. PNC Bank is
a wholly-owned indirect subsidiary of PNC Bank Corp.
INTERNATIONAL EQUITY FUND. 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.
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. 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.
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<PAGE> 151
PORTFOLIO MANAGERS
The primary portfolio manager for each Fund is as follows:
GROWTH AND INCOME STOCK FUND - Richard B. Jones has been the portfolio manager
for the Growth and Income Stock Fund since February 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.
BALANCED FUND AND THE FUND OF FUNDS - David R. Ellis has been the portfolio
manager for the Balanced Fund and the Fund of Funds since their inception. Since
1986, Mr. Ellis has been a portfolio manager in the BB&T Trust Division. He
holds a B.S. degree in Business Administration from the University of North
Carolina at Chapel Hill.
LARGE COMPANY GROWTH FUND - Daniel J. Rivera has been the portfolio manager for
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.
SMALL COMPANY GROWTH FUND - William J. Wykle, has been the portfolio manager for
the Small Company Growth Fund since its inception. Mr. Wykle has been an
investment manager with BFMI since 1995 and has been a Portfolio Manager of the
BlackRock Funds(SM) Small Cap Growth Equity Portfolio since its inception. From
1986 to 1995, he was an investment manager at PNC Bank and its predecessor,
Provident National Bank.
INTERNATIONAL EQUITY FUND - Gordon Anderson has been the portfolio manager of
the International Equity Fund since its inception. Mr. Anderson has served as
Managing and Investment Director of BlackRock International since 1996. Prior to
joining BlackRock International, Mr. Anderson was the Investment Director of
Dunedin Fund Managers Ltd. Mr. Anderson. has been the Portfolio Manager for the
BlackRock Funds(SM) International Equity Portfolio since 1996.
EQUITY INDEX FUND - [INSERT PORTFOLIO MANAGER INFO.]
TAXABLE BOND FUNDS -Keith F. Karlawish has been the portfolio manager for the
Intermediate U.S. Government Bond Fund and Short-Intermediate U.S. Government
Income 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.
TAX-FREE BOND FUNDS - C. Steven Brennaman has been the portfolio manager for the
North Carolina Intermediate Tax-Free Fund since January 1988 and manager of the
South Carolina Intermediate Tax-Free Fund and the Virginia Intermediate Tax-Free
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.
THE DISTRIBUTOR AND ADMINISTRATOR
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<PAGE> 152
BISYS Fund Services, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as each Fund's administrator. The administrative services of
the Administrator include providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
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<PAGE> 153
SHAREHOLDER INFORMATION
- -----------------------
CHOOSING A SHARE CLASS
- ----------------------
BB&T Funds offer different classes of Fund shares, which have different expenses
and other characteristics. Only one class of Funds here, Trust Shares, is
offered in this prospectus. To choose the one that is best suited to your needs
and goals, consider the amount of money you want to invest, how long you expect
to invest it and whether you plan to make additional investments. The following
are some of the main characteristics of the Trust Shares:
TRUST SHARES
- - No sales charges.
- - No distribution and service (12b-1) fees.
- - Available only to Branch Banking and Trust Company 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.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
The Funds also offer Class A Shares and Class B Shares, each of which has its
own expense structure. Class A Shares and Class B Shares are available to
investors who are not fiduciary clients of Branch Banking and Trust Company and
who are not otherwise eligible for Trust Shares. Distributor for more
information (see back cover of this prospectus).
110
<PAGE> 154
SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
- ---------------------------
NAV =
TOTAL ASSETS - LIABILITIES
- --------------------------
Number of Shares
Outstanding
- ---------------------------
Generally, for Funds other than the Money Market Funds, you can find the Fund's
NAV daily in The Wall Street Journal and other newspapers. NAV is calculated
separately for each class of shares.
Money Market Funds
Per share net asset value (NAV) for each Fund is determined and its shares are
priced twice a day. The NAV for the Prime Money Market Fund, the U.S. Treasury
Money Market Fund and the Tax-Free Money Market Fund is determined at 12:00 p.m.
Eastern time and at the close of regular trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received. This is what is known as the offering
price.
Each Fund uses the amortized cost method of valuing its investments, which does
not take into account unrealized gains or losses. For further information
regarding the methods used in valuing the Fund's investments, please see the
SAI.
Other Funds
Per share net asset value (NAV) for each Fund is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund. This is what is known as
the offering price. For further information regarding the methods used in
valuing the Fund's investments, please see the SAI.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees. For further information regarding the methods used in
valuing the Fund's investments, please see the SAI.
/
111
<PAGE> 155
SHAREHOLDER INFORMATION
- -----------------------
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Trust Shares of the Funds 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 or other financial
service providers approved by the Distributor.
These parties are responsible for transmitting orders by close of business.
Consult your investment representative or institution for specific information.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Income dividends for the Money Market Funds and the Bond Funds are declared
daily and paid monthly. Income dividends for the Growth and Income Stock Fund
and the Balanced Fund are declared and paid monthly. The Large Company Growth,
the Small Company Growth, the International Equity, the Equity Index Fund, and
the Fund of Funds declare and pay income dividends quarterly. Capital gains are
distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
- --------------------------------------------------------------------------------
Avoid 31% Tax Withholding
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------
112
<PAGE> 156
SHAREHOLDER INFORMATION
- -----------------------
<TABLE>
<CAPTION>
SELLING YOUR SHARES
- -------------------
<S> <C>
You may sell your shares at any WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
time. Your sales price will be the ----------------------------------------------------------------
next NAV after your sell order is As a mutual fund shareholder, you are technically selling shares
received by the Fund, its transfer when you request a withdrawal in cash. This is also known as
agent, or your investment redeeming shares or a redemption of shares.
representative. Normally you will ----------------------------------------------------------------
receive your proceeds within a week
after your request is received. See INSTRUCTIONS FOR SELLING SHARES
section on "General Policies on If selling your shares through a financial institution or your
Selling Shares below." financial adviser or broker, ask them for their redemption
procedures. Your adviser and/or broker may have transaction
minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the
instructions below.
By telephone 1. Call 1-800-228-1872 with instructions as to how you wish to
(unless you have declined receive your funds (mail, wire, electronic transfer). (See
telephone sales privileges) "General Policies on Selling Shares--Verifying Telephone
Redemptions" below)
- --------------------------------------------------------------------------------------------------------
By mail 1. Call 1-800-228-1872 to request redemption forms or write a
letter of instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds P.O.
Box 182533
Columbus, OH 43218-2533
- --------------------------------------------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General Policies on 2. Send to
Selling Shares--Redemptions in BB&T Funds
Writing Required" below) c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
113
<PAGE> 157
SHAREHOLDER INFORMATION
- -----------------------
<TABLE>
<CAPTION>
SELLING YOUR SHARES - CONTINUED
<S> <C>
Wire transfer Call 1-800-228-1872 to request a wire transfer.
You must indicate this option on
your application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next business day.
The Fund will charge a $7 wire
transfer fee for each wire
transfer request. Note: Your
financial institution may also
charge a separate fee.
- --------------------------------------------------------------------------------------------------------
Electronic Redemptions Call 1-800-228-1872 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares
the Automated Clearing House will normally be determined on the same day and the proceeds
(ACH) and must be a U.S. bank. credited within 7 days.
Your bank may charge for this
service.
- --------------------------------------------------------------------------------------------------------
</TABLE>
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing and obtain a signature guarantee if:
- The check is not being mailed to the address on your
account; or
- The check is not being made payable to the owner of the
account.
A signature guarantee can be obtained from a financial
institution, such as a bank, broker-dealer, or credit union,
or from members of the STAMP (Securities Transfer Agents
Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion
Program). Members are subject to dollar limitations which
must be considered when requesting their guarantee. The
Transfer Agent may reject any signature guarantee if it
believes the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
114
<PAGE> 158
SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES - CONTINUED
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the
appropriate Fund at the current NAV.
115
<PAGE> 159
SHAREHOLDER INFORMATION
- -----------------------
EXCHANGING YOUR SHARES
- ----------------------
<TABLE>
<CAPTION>
<S> <C>
INSTRUCTIONS FOR EXCHANGING SHARES
You can exchange your shares in one Exchanges may be made by sending a
Fund for shares of the same class written request to BB&T Funds, P.O.
of another BB&T Fund, usually Box 182533, Columbus OH 43218-2533,
without paying additional sales or by calling 1-800-228-1872.
charges (see "Notes" below). You Please provide the following
must meet the minimum investment information:
requirements for the Fund into
which you are exchanging. Exchanges - Your name and telephone
from one Fund to another are number
taxable. Trust Shares may also be - The exact name on your
exchanged for Class A Shares of the account and account number
same Fund if you cease to be - Taxpayer identification
eligible to purchase Trust Shares. number (usually your
Trust Shares of each Fund may not Social Security number)
be exchanged for Class B Shares. No - Dollar value or number of
transaction fees are currently shares to be exchanged
charged for exchanges. However, the - The name of the Fund from
exchange of Trust Shares for Class which the exchange is to
A Shares will require payment of be made.
the sales charge unless the sales - The name of the Fund into
charge is waived. Please consult which the exchange is
the Class A and Class B Shares being made.
prospectus for more information. ----------------------------------------
See "Selling your Shares" for important
information about telephone
transactions.
To prevent disruption in the management
of the Funds, due to market timing
strategies, exchange activity may be
limited to four exchanges from a Fund
during a calendar year.
----------------------------------------
NOTES ON EXCHANGES
When exchanging from a Fund that has no
sales charge or a lower sales charge to
a Fund with a higher sales charge, you
will pay the difference.
The registration and tax identification
numbers of the two accounts must be
identical.
The Exchange Privilege (including
automatic exchanges) may be changed or
eliminated at any time upon a 60-day
notice to shareholders.
Be sure to read carefully the Prospectus
of any Fund into which you wish to
exchange shares.
</TABLE>
116
<PAGE> 160
SHAREHOLDER INFORMATION
- -----------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or gains
earned by the Fund before your investment (and thus were included in the price
you paid).
For the Tax-Free Bond Funds and Tax-Free Money Market Fund, the income dividends
that you receive are expected to be exempt from federal income taxes and, in the
case of the North Carolina Intermediate Tax-Free Fund, South Carolina
Intermediate Tax-Free Fund and Virginia Intermediate Tax-Free Fund, North
Carolina, South Carolina and Virginia income taxes, respectively. However, if
you receive social security or railroad retirement benefits, you should consult
your tax adviser to determine what effect, if any, an investment in the Tax-Free
Bond Funds or Tax-Free Money Market Fund may have on the federal taxation of
your benefits. In addition, an investment in the Tax-Free Bond Funds or Tax-Free
Money Market Fund may result in liability for federal alternative minimum tax,
both for individual and corporate shareholders.
A Fund's investments in foreign securities may be subject to foreign withholding
taxes. In that case, a Fund's yield on those securities would be decreased.
Shareholders generally will not be entitled to claim a credit or deduction with
respect to foreign taxes. In addition, a Fund's investments in foreign
securities or foreign currencies may increase or accelerate a Fund's recognition
of ordinary income and may affect the timing or amount of a Fund's
distributions.
Any gain resulting from the sale or exchange of your Fund Shares (even if the
income from which is tax exempt) will generally be subject to tax. You should
consult your tax adviser for more information on your own tax situation,
including possible state and local taxes.
BB&T Funds will send you a statement each year showing the tax status of all
your distributions.
- - For each Fund, other than the Tax-Free Bond Funds and Tax-Free Money Market
Fund, the dividends and short-term capital gains that you receive are
considered ordinary income for tax purposes. For the Tax-Free Bond Funds
and Tax-Free Money Market Fund, any short-term capital gains that you
receive are taxable to you as ordinary dividend income for Federal income
tax purposes.
- - Any distributions of net long-term capital gains by a Fund are taxable to
you as long-term capital gains for tax purposes, no matter how long you've
owned shares in the Fund.
- - Generally, the Funds' advisers do not consider taxes when deciding to buy
or sell securities. Capital gains are realized from time to time as
by-products of ordinary investment activities. Distributions may vary
considerably from year to year.
- - If you sell or exchange shares, any gain or loss you have is a taxable
event. This means that you may have a capital gain to report as income, or
a capital loss to report as a deduction, when you complete your federal
income tax return.
- - Distributions of dividends or capital gains, and capital gains or losses
from your sale or exchange of Fund shares, may be subject to state and
local income taxes as well.
117
<PAGE> 161
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.)
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
118
<PAGE> 162
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUNDS'
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS OR, IF SHORTER, THE PERIOD OF THE
FUNDS' OPERATIONS. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED [OR LOST] ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT
OF ALL DIVIDENDS AND DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY
_____________________, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS,
ARE INCLUDED IN THE SAI, WHICH IS AVAILABLE UPON REQUEST.
INSERT PAST 5 YEARS'
FINANCIAL HIGHLIGHTS
FROM ANNUAL REPORT.
119
<PAGE> 163
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, PROSPECTUSES OF OTHER MEMBERS OF
THE BB&T FUNDS FAMILY, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS
ABOUT THE FUND BY CONTACTING A BROKER OR BANK THAT SELLS THE FUND. OR CONTACT
THE FUND AT:
BB&T FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-228-1872
E-MAIL: _________
INTERNET: HTTP://www.bbtfunds.com
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6719.
120
<PAGE> 164
BB&T FUNDS
================================================================================
----------
PROSPECTUS
----------
FEBRUARY 1, 2000
STOCK FUNDS
BB&T Growth and Income Stock Fund
BB&T Balanced Fund
BB&T Large Company Growth Fund
BB&T Small Company Growth Fund
BB&T International Equity Fund
BOND FUNDS
TAXABLE BOND FUNDS
BB&T Short-Intermediate U.S. Government Income Fund
BB&T Intermediate U.S. Government Bond Fund
BB&T Intermediate Corporate Bond Fund
TAX-FREE BOND FUNDS
BB&T North Carolina Intermediate Tax-Free Fund
BB&T South Carolina Intermediate Tax-Free Fund
BB&T Virginia Intermediate Tax-Free Fund
MONEY MARKET FUNDS
BB&T Prime Money Market Fund
BB&T U.S. Treasury Money Market Fund
BB&T Tax-Free Money Market Fund
FUNDS OF FUNDS
BB&T Capital Manager Conservative Growth Fund
BB&T Capital Manager Moderate Growth Fund
BB&T Capital Manager Growth Fund
CLASS A SHARES
CLASS B SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THE SHARES DESCRIBED IN THIS PROSPECTUS
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
- ----------------------------------
QUESTIONS?
CALL 1-800-228-1872
OR YOUR INVESTMENTS REPRESENTATIVE
- ----------------------------------
<PAGE> 165
TABLE OF CONTENTS
<TABLE>
<S> <C>
Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's Stock Funds
investments, risks, past 0 Growth and Income Stock Fund
performance, and fees. 0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
Bond Funds
0 Short-Intermediate U.S. Government Income Fund
0 Intermediate U.S. Government Bond Fund
0 Intermediate Corporate Bond Fund
0 North Carolina Intermediate Tax-Free Fund
0 South Carolina Intermediate Tax-Free Fund
0 Virginia Intermediate Tax-Free Fund
Money Market Funds
0 Prime Money Market Fund
0 U.S. Treasury Money Market Fund
0 Tax-Free Money Market Fund
Funds of Funds
0 Capital Manager Conservative Growth Fund
0 Capital Manager Moderate Growth Fund
0 Capital Manager Growth Fund
Review this section for Investment Objectives, Policies and Risks
information and on investment
strategies and their risks. Stock Funds
0 Growth and Income Stock Fund
0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
Bond Funds
0 Short-Intermediate U.S. Government Income Fund
0 Intermediate U.S. Government Bond Fund
0 Intermediate Corporate Bond Fund
0 North Carolina Intermediate Tax-Free Fund
0 South Carolina Intermediate Tax-Free Fund
0 Virginia Intermediate Tax-Free Fund
</TABLE>
2
<PAGE> 166
<TABLE>
<S> <C>
Money Market Funds
0 Prime Money Market Fund
0 U.S. Treasury Money Market Fund
0 Tax-Free Money Market Fund
Funds of Funds
0 Capital Manager Conservative Growth Fund
0 Capital Manager Moderate Growth Fund
0 Capital Manager Growth Fund
Review this section for Fund Management
details on the people and 0 The Investment Adviser
organizations who oversee the 0 The Investment Sub-Advisers
Funds. 0 Portfolio Managers
0 The Distributor and Administrator
Review this section for Shareholder Information
details on how shares are 0 Choosing a Share Class
valued, how to purchase, sell 0 Pricing of Fund Shares
and exchange shares, related 0 Purchasing and Adding to Your Shares
charges and payments of 0 Selling Your Shares
dividends and distributions. 0 Exchanging Your Shares
0 General Policies on Selling Shares
0 Distribution Arrangements/Sales Charges
0 Distribution and Service (12b-1) Fees and
Shareholder Servicing Fees
0 Dividends, Distributions and Taxes
0 Financial Highlights
Back Cover
0 Where to learn more about this Fund
</TABLE>
3
<PAGE> 167
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
The Funds BB&T Funds is a mutual fund family
that offers different classes of
shares in separate investment
portfolios ("Funds"). The Funds have
individual investment goals and
strategies. This prospectus gives
you important information about the
Class A Shares and the Class B
Shares of the Stock Funds, the Bond
Funds, the Money Market Funds and
the Funds of Funds that you should
know before investing. Each Fund
also offers a third class of shares
called Trust Shares which is offered
in a separate prospectus. Please
read this prospectus and keep it for
future reference.
Each of the Funds in this prospectus
is a mutual fund. A mutual fund
pools shareholders' money and, using
professional investment managers,
invests it in securities like stocks
and bonds. Before you look at
specific Funds, you should know a
few general basics about investing
in mutual funds.
The value of your investment in a
Fund is based on the market prices
of the securities the Fund holds.
These prices change daily due to
economic and other events that
affect securities markets generally,
as well as those that affect
particular companies or government
units. These price movements,
sometimes called volatility, will
vary depending on the types of
securities a Fund owns and the
markets where these securities
trade.
LIKE OTHER INVESTMENTS, YOU COULD
LOSE MONEY ON YOUR INVESTMENT IN A
FUND. YOUR INVESTMENT IN A FUND IS
NOT A DEPOSIT OR AN OBLIGATION OF
BRANCH BANKING AND TRUST COMPANY,
BB&T CORPORATION, THEIR AFFILIATES,
OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment
goal and strategies for reaching
that goal. However, it cannot be
guaranteed that a Fund will achieve
its goal. Before investing, make
sure that the Fund's goal matches
your own.
The portfolio manager invests each
Fund's assets in a way that the
manager believes will help the Fund
achieve its goal. A manager's
judgments about the stock markets,
economy and companies, or selecting
investments may cause a Fund to
underperform other funds with
similar objectives.
4
<PAGE> 168
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
STOCK FUNDS
These Funds seek long-term capital
appreciation, and in some cases
current income, and invest primarily
in equity and equity-related
securities, principally common
stocks.
Who May Want to Invest Consider investing in these Funds
if you are:
o seeking a long-term goal such as
retirement
o looking to add a growth component
to your portfolio
o willing to accept the risks of
investing in the stock markets
These Funds may not be appropriate
if you are:
o pursuing a short-term goal or
investing emergency reserves
o uncomfortable with an investment
that will fluctuate in value
5
<PAGE> 169
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T GROWTH AND INCOME STOCK FUND
INVESTMENT OBJECTIVE The Fund seeks capital growth,
current income or both, primarily
through investment in stocks.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in domestically
traded U.S. common stocks, as
well as American Depository
Receipts ("ADRs").
In managing the Fund, the
portfolio manager attempts to
diversify across different
economic sectors selecting those
stocks that he believes are
undervalued and have a favorable
outlook. In choosing individual
stocks the portfolio manager uses
a quantitative process to examine
the value, growth and momentum
characteristics of a particular
issuer. While some stocks may be
purchased primarily for income,
most stocks will be purchased for
capital appreciation. The
portfolio manager will favor
stocks of issuers which over a
five-year period have achieved
cumulative income in excess of the
cumulative dividends paid to
shareholders.
The Fund may also invest in
certain other equity securities in
addition to those described above.
For a more complete description of
the various securities in which
the Fund may invest, please see
the Additional Investment
Strategies and Risks on page X or
consult the Statement of
Additional Information ("SAI").
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that
the Fund's stock holdings will
decline in price because of a
broad stock market decline.
Markets generally move in cycles,
with periods of rising prices
followed by periods of falling
prices. The value of your
investment will tend to increase
or decrease in response to these
movements.
INVESTMENT STYLE RISK: The
possibility that the market
segment on which this Fund focuses
- value stocks - will underperform
other kinds of investments or
market averages.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby
lowering its performance) and may
increase the amount of taxes that
you pay. If the Fund invests in
securities with additional risks,
its share price volatility
accordingly could be greater and
its performance lower. For more
information about these risks,
please see the Additional
Investment Strategies and Risks on
page X.
6
<PAGE> 170
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Growth and Income Stock Fund
has performed and how its performance Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
has varied from year to year. The bar
chart gives some indication of risk by
showing changes in the Fund's yearly
performance over seven years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
S&P 500(R) Index, a widely recognized,
unmanaged index of common stocks. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The bar chart above does not reflect the impact of any applicable sales
The returns for Class B shares will charges or account fees which would reduce returns. Additionally, the
differ from the Class A share returns performance information shown above is based on a calendar year. The
shown in the bar chart because of Fund's total return for the nine-month period ended September 30, 1999 was
differences in expenses of each ______%.
class. The table assumes that Class B ----------------------------------------------------------------------------
shareholders redeem all of their fund Best quarter:
shares at the end of the period Worst quarter:
indicated. ----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------- ------------------------------------------- ----------------------
CLASS A SHARES (with 4.50% sales charge) 10/9/92
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
GROWTH AND INCOME STOCK FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/1/96
Charge)
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
GROWTH AND INCOME STOCK FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
</TABLE>
7
<PAGE> 171
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Growth and Shareholder
Income Stock Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.74% 0.74%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
8
<PAGE> 172
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
o $10,000 INVESTMENT
o 5% ANNUAL RETURN
o REDEMPTION AT THE END OF EACH PERIOD
o NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
GROWTH AND INCOME STOCK FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
9
<PAGE> 173
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T BALANCED FUND
INVESTMENT OBJECTIVES The Fund's investment objectives
are to seek long-term capital growth
and to produce current income.
PRINCIPAL INVESTMENT STRATEGIES To pursue these goals, the Fund
invests in a broadly diversified
portfolio of equity and debt
securities consisting primarily of
common stocks and bonds.
The Fund normally invests between
40-75% of its assets in equity
securities and at least 25% of its
assets in fixed-income senior
securities. The portion of the
Fund's assets invested in equity and
debt securities will vary depending
upon economic conditions, the
general level of stock prices,
interest rates and other factors,
including the risks associated with
each investment. The Fund's equity
investments consist primarily of
common stocks of companies that the
portfolio manager believes are
undervalued and have a favorable
outlook. Other equity investments
include convertible securities and
ADRs. The Fund's fixed-income
investments consist primarily of
"investment-grade" bonds, notes,
debentures (bonds, notes and
debentures rated at the time of
purchase in one of the four highest
rating categories by a nationally
recognized statistical rating
organizations (an "NRSRO")) or are
determined by the portfolio manager
to be of comparable quality) and
money market instruments. The
average dollar-weighted maturity of
the fixed-income portion of the
Fund's portfolio will range from one
to thirty years.
In managing the equity portion of
the Fund, the portfolio manager
examines a variety of quantitative
and qualitative factors in
formulating individual stock
purchase and sale decisions. The
portfolio manager selects
investments that he believes are
reasonably priced relative to their
growth potential.
In managing the fixed income portion
of the Fund's portfolio, the
portfolio manager uses a "top down"
investment management approach
focusing on a security's maturity.
The manager sets, and continually
adjusts, a target for the interest
rate sensitivity of the Fund based
upon expectations about interest
rates and other economic factors.
The manager then selects individual
securities whose maturities fit this
target and which are deemed to be
the best relative values. The Fund
may also invest in certain other
equity and debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that
the Fund's stock holdings will
decline in price because of a broad
stock market decline. Markets
generally move in cycles, with
periods of rising prices followed by
periods of falling prices. The value
of your investment will tend to
increase or decrease in response to
these movements.
10
<PAGE> 174
INVESTMENT STYLE RISK: The
possibility that the market segment
on which the equity portion of this
Fund focuses -- value stocks -- will
underperform other kinds of
investments or market averages.
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates.
Generally, an increase in the
average maturity of the fixed income
portion of the Fund will make it
more sensitive to interest rate
risk.
CALL RISK: Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call"--or
repay--higher-yielding bonds before
their stated maturity date. As a
result, investors receive their
principal back and are typically
forced to reinvest it in bonds that
pay lower interest rates. Rapid
changes in call rates can cause bond
prices and yields to be volatile.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities, such as bonds. The lower
a security's rating, the greater its
credit risk.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
11
<PAGE> 175
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Balanced Fund has performed
and how its performance has varied Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance over six years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
S&P 500(R)Index, a widely recognized,
unmanaged index of common stocks, and
the Lehman Brothers Intermediate
Government Bond Index, an unmanaged
index representative of the total
return of government bonds with
maturities of less than 10 years. Of
course, past performance does not
indicate how the Fund will perform in The bar chart above does not reflect the impact of any applicable sales
the future. charges or account fees which would reduce returns. Additionally, the
performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
The returns for Class B shares will ----------------------------------------------------------------------------
differ from the Class A share returns Best quarter:
shown in the bar chart because of Worst quarter:
differences in expenses of each ----------------------------------------------------------------------------
class. The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS A SHARES (with 4.50% sales charge) 7/1/93
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
<S> <C> <C> <C>
BALANCED FUND % % %
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
S&P 500(R) INDEX % % %
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
LEHMAN BROTHERS % % %
INTERMEDIATE GOVERNMENT BOND INDEX
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/1/96
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
BALANCED FUND % % %
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
S&P 500(R) INDEX % % %
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX % % %
- ------------------------------------------------------------------ ------------------- -------------------- ---------------------
(1) Both charts assume reinvestment of dividends and distributions.
</TABLE>
12
<PAGE> 176
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C> <C> <C>
FEES AND EXPENSES
- -----------------
As an investor in the Balanced Fund,
you will pay the following fees and Shareholder
expenses when you buy and hold shares. Transaction
Shareholder transaction fees are paid Expenses (fees
from your account. Annual Fund paid by you
operating expenses are paid out of directly)(1) CLASS A SHARES CLASS B SHARES
Fund assets, and are reflected in the
share price.
Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.74% 0.74%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
13
<PAGE> 177
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
o $10,000 INVESTMENT
o 5% ANNUAL RETURN
o REDEMPTION AT THE END OF EACH PERIOD
o NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
BALANCED FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
14
<PAGE> 178
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation by investing primarily
in a diversified portfolio of equity
and equity-related securities of
large capitalization growth
companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in common stocks
of large capitalization companies
that the portfolio manager believes
have attractive potential for
growth. Large capitalization
companies are those companies whose
weighted average capitalization is
in excess of the market median
capitalization of the S&P 500 Index.
In managing the Fund's portfolio,
the manager uses a variety of
economic projections, quantitative
techniques, and earnings projections
in formulating individual stock
purchase and sale decisions. In
choosing individual stocks, the
portfolio manager uses a
quantitative process to identify
companies with a history of above
average growth or companies that are
expected to enter periods of above
average growth. Some of the criteria
that the manager uses to select
these companies are return on
equity, price and earnings momentum,
earnings surprise, the company's
management and the company's
position within its industry.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that
the Fund's stock holdings will
decline in price because of a broad
stock market decline. Markets
generally move in cycles, with
periods of rising prices followed by
periods of falling prices. The value
of your investment will tend to
increase or decrease in response to
these movements.
INVESTMENT STYLE RISK: The
possibility that the market segment
on which this Fund focuses - large
cap growth stocks - will
underperform other kinds of
investments or market averages.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
15
<PAGE> 179
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Large Company Growth Fund has
performed and how its performance has Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
varied from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance over two years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
S&P 500(R) Index, a widely recognized,
unmanaged index of common stocks. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The returns for Class B shares will The bar chart above does not reflect the impact of any applicable sales
differ from the Class A share returns charges or account fees which would reduce returns. Additionally, the
shown in the bar chart because of performance information shown above is based on a calendar year. The
differences in expenses of each Fund's total return for the nine-month period ended September 30, 1999 was
class. The table assumes that Class B ______%.
shareholders redeem all of their fund ----------------------------------------------------------------------------
shares at the end of the period Best quarter:
indicated. Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 10/3/97
- -------------------------------------------------------------- -------------------- ----------------------
LARGE COMPANY GROWTH FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
S&P 500(R) INDEX % %
- -------------------------------------------------------------- -------------------- ----------------------
- -------------------------------------------------------------- -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 10/3/97
Charge)
- -------------------------------------------------------------- -------------------- ----------------------
LARGE COMPANY GROWTH FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
S&P 500(R) INDEX % %
- -------------------------------------------------------------- -------------------- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
</TABLE>
16
<PAGE> 180
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Large Company Shareholder
Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.74% 0.74%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
17
<PAGE> 181
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
LARGE COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
18
<PAGE> 182
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation by investing primarily
in a diversified portfolio of equity
and equity-related securities of
small capitalization growth
companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in common stocks
of U.S. small capitalization growth
companies (market capitalization
under $2 billion) which the
portfolio manager believes have
above-average earnings growth
potential.
In managing the Fund's portfolio,
the manager initially screens for
"growth" stocks from the universe of
companies with market capitalization
under $2 billion. The manager uses
fundamental analysis to examine each
company for financial strength
before deciding to purchase the
stock.
The Fund generally will sell a stock
when, in the portfolio manager's
opinion, there is a deterioration in
the company's fundamentals, the
company fails to meet performance
expectations or the stock's relative
price momentum declines
meaningfully.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risk on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that
the Fund's stock holdings will
decline in price because of a broad
stock market decline. Markets
generally move in cycles, with
periods of rising prices followed by
periods of falling prices. The value
of your investment will tend to
increase or decrease in response to
these movements.
SMALL COMPANY RISK: Investing in
smaller, lesser-known companies
involves greater risk than investing
in those that are more established.
A small company's financial
well-being may, for example, depend
heavily on just a few products or
services. In addition, investors may
have limited flexibility to buy or
sell small company stocks, which
tend to trade less frequently than
those of larger firms.
INVESTMENT STYLE RISK: The
possibility that the market segment
on which this Fund focuses - small
company growth stocks - will
underperform other kinds of
investments or market averages.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
19
<PAGE> 183
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The table on this page shows how the PERFORMANCE BAR CHART AND TABLE
Small Company Growth Fund has performed
and how its performance has varied from Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
year to year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
five years to demonstrate that the
Fund's value varied at different times.
The table below it compares the Fund's
performance over time to that of the
Russell 2000(R) Growth Index, an
unmanaged index generally
representative of domestically funded
common stocks of small to mid-sized
companies. Of course, past performance
does not indicate how the Fund will
perform in the future.
The bar chart above does not reflect the impact of any applicable sales
charges or account fees which would reduce returns. Additionally, the
performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
The returns for Class B shares will
differ from the Class A share returns
shown in the bar chart because of
differences in expenses of each
class. The table assumes that Class B
shareholders redeem all of their
fund shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 12/7/94
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 2000(R) GROWTH INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/1/96
Charge)
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 2000(R) GROWTH INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
</TABLE>
20
<PAGE> 184
Risk/Return Summary and Fund Expenses
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Small Company
Growth Fund, you will pay the Shareholder
following fees and expenses when you Transaction
buy and hold shares. Shareholder Expenses (fees
transaction fees are paid from your paid by you
account. Annual Fund operating directly)(1) CLASS A SHARES CLASS B SHARES
expenses are paid out of Fund assets,
and are reflected in the share price.
Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
------------------------------ ------------------------ ---------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from CLASS A SHARES CLASS B SHARES
Fund assets)
------------------------------ ------------------------ ---------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee 1.00% 1.00%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
------------------------------ ------------------------ ---------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
------------------------------ ------------------------ ---------------------------
Other Expenses(5) % %
------------------------------ ------------------------ ---------------------------
Total Fund
Operating Expenses(5) % %
------------------------------ ------------------------ ---------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
21
<PAGE> 185
(5) During the last fiscal year, distribution and service (12b-1) fees for Class
A Shares were limited to ____%. Additionally, other expenses for each class were
limited to ___%. Total expenses after fee waivers and expense reimbursements for
each class are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at any
time.
22
<PAGE> 186
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
SMALL COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
23
<PAGE> 187
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE The Fund seeks long-term capital
appreciation through investment
primarily in equity securities of
foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in non-dollar
denominated stocks of foreign
issuers located in countries
included in the Morgan Stanley
Capital International Europe,
Australasia and the Far East
("EAFE") Index. The Fund may also
invest its assets in countries with
emerging economies or securities
markets. The Fund primarily buys
common stock but also can invest in
preferred stock and securities
convertible into common and
preferred stock.
In managing the Fund's portfolio,
the portfolio manager uses a "value"
style to select stocks which he
believes are worth more than is
indicated by the current market
price. The manager screens for
"value" stocks by using proprietary
computer models to find stocks that
meet the value stock criteria. A
security's earnings trend and its
price momentum will also be factors
considered in security selection.
The manager will also consider
factors such as 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 manager
and his team also examine each
company for financial soundness
before deciding to purchase its
stock.
The Fund generally will sell a stock
when it reaches a target price,
which is when the manager believes
it is fully valued or when, in the
manager's opinion, conditions change
such that the risk of continuing to
hold the stock is unacceptable when
compared to the growth potential.
In an attempt to reduce portfolio
risk, the manager will diversify
investments across countries,
industry groups and companies with
investment at all times in at least
three foreign countries.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
MARKET RISK: The possibility that
the Fund's stock holdings will
decline in price because of a broad
stock market decline. Markets
generally move in cycles, with
periods of rising prices followed by
periods of falling prices. The value
of your investment will tend to
increase or decrease in response to
these movements.
INVESTMENT STYLE RISK: The
possibility that the market segment
on which this Fund focuses --
foreign value stocks -- will
underperform other kinds of
investments or market averages.
24
<PAGE> 188
FOREIGN INVESTMENT RISK: Investing
in foreign markets involves a
greater risk than investing in the
United States. Foreign securities
may be adversely affected by myriad
factors, including currency
fluctuations and social, economic or
political instability.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X
25
<PAGE> 189
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the International Equity Fund has
performed and how its performance has Year by Year Total Returns as of 12/31 for Class A Shares(1)
varied from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance over two years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
Morgan Stanley Capital International
Europe, Australasia and Far East
("EAFE") Index, a widely recognized,
unmanaged index generally
representative of the performance of
stock markets in those regions. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The returns for Class B shares will
differ from the Class A share returns The bar chart above does not reflect the impact of any applicable sales
shown in the bar chart because of charges or account fees which would reduce returns. Additionally, the
differences in expenses of each performance information shown above is based on a calendar year. The
class. The table assumes that Class B Fund's total return for the nine-month period ended September 30, 1999 was
shareholders redeem all of their fund ______%.
shares at the end of the period ----------------------------------------------------------------------------
indicated. Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 4.50% sales charge) 1/2/97
- -------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX % %
- -------------------------------------------------------------- -------------------- ----------------------
- -------------------------------------------------------------- -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/2/97
Charge)
- -------------------------------------------------------------- -------------------- ----------------------
INTERNATIONAL EQUITY FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX % %
- -------------------------------------------------------------- -------------------- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
</TABLE>
26
<PAGE> 190
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the International Shareholder
Equity Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee 1.00% 1.00%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, distribution and service (12b-1) fees for Class
A Shares were limited to _____%. Additionally, other expenses for each class
were limited to ___%. Total expenses after fee waivers and expense
reimbursements for each class are: Class A shares, ___%; and Class B shares,
___%. Any fee waiver or expense reimbursement arrangement is voluntary and may
be discontinued at any time.
27
<PAGE> 191
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
INTERNATIONAL EQUITY FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
28
<PAGE> 192
DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
The Short-Intermediate U.S.
Government Income Fund, the
Intermediate U.S. Government Bond
Fund and the Intermediate Corporate
Bond Fund seek current income
consistent with the preservation of
capital and invest primarily in
fixed income securities, such as
U.S. government securities, or
corporate, bank and commercial
obligations.
Who May Want to Invest Consider investing in these Funds if
you are:
o looking to add a monthly income
component to your portfolio
o willing to accept the risks of
price and dividend fluctuations
These Funds may not be appropriate
if you are:
o investing emergency reserves
o uncomfortable with an investment
that will fluctuate in value
TAX-FREE BOND FUNDS The North Carolina Intermediate
Tax-Free Fund, the South Carolina
Intermediate Tax-Free Fund and the
Virginia Intermediate Tax-Free Fund
seek tax-exempt income and invest
primarily in municipal securities
which are exempt from Federal and,
respectively, North Carolina, South
Carolina or Virginia income taxes.
Who May Want to Invest Consider investing in these Funds if
you are:
o looking to add a monthly income
component to your portfolio.
o seeking monthly Federal and North
Carolina, South Carolina or
Virginia tax-exempt dividends
o willing to accept the risks of
price and dividend fluctuations
These Funds may not be appropriate
if you are:
o investing through a tax-exempt
retirement plan
o uncomfortable with an investment
that will fluctuate in value
o investing emergency reserves
29
<PAGE> 193
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE The Fund seeks current income
consistent with the preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests 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" (rated at the time
of purchase in one of the three
highest rating categories by an
NRSRO or are determined by the
portfolio manager to be of
comparable quality) collateralized
mortgage obligations ("CMOs"). The
Fund may also invest in short-term
obligations, commercial bonds and
the shares of other investment
companies. The dollar-weighted
average portfolio maturity of the
Fund will be from two to five years.
In managing the portfolio, the
manager uses a "top down" investment
management approach focusing on
allocation among sectors, interest
rate risk, credit risk, and
individual securities selection. The
manager sets and continually
adjusts, a target for the interest
rate sensitivity of the Fund's
holdings based upon expectations
about interest rates and other
economic factors. The manager then
selects individual securities
consistent with the target by
looking for the best relative values
within particular sectors.
The Fund may also invest in certain
other debt securities. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK:
The possibility that the value of
the Fund's investments will decline
due to an increase in interest
rates. Interest rate risk is
generally high for longer-term bonds
and low for shorter-term bonds.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a
significant number of the mortgages
underlying a mortgage-backed bond
are refinanced, the bond may be
"prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call" - or repay -
higher-yielding bonds before their
stated maturity date. In both cases,
investors receive their principal
back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause
bond prices and yields to be
volatile.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities, such as bonds. The lower
a security's rating, the greater its
credit risk.
30
<PAGE> 194
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
31
<PAGE> 195
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Short-Intermediate U.S.
Government Income Fund has performed Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
and how its performance has varied
from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance over seven years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
Merrill Lynch 1-5 Year U.S.
Government Index, an unmanaged index
representative of the total return of
government bonds with maturities
between 1 and 5 years. Of course,
past performance does not indicate The bar chart above does not reflect the impact of any applicable sales
how the Fund will perform in the charges or account fees which would reduce returns. Additionally, the
future. performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES (with 2.00% sales charge) 11/30/92
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
MERRILL LYNCH 1-5 YEAR U.S. GOVERNMENT INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
MERRILL LYNCH 1-3 YEAR U.S. GOVERNMENT INDEX(2) % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Merrill Lynch 1-3 Year U.S. Government Index is an unmanaged index
representative of the total return of government bonds with maturities between 1
and 3 years. The benchmark index for the Short-Intermediate U.S. Government
Income Fund has changed from the Merrill Lynch 1-3 Year U.S. Government Index to
the Merrill Lynch 1-5 Year U.S. Government Index in order to better represent
the investment policies for comparison purposes.
32
<PAGE> 196
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Shareholder
Short-Intermediate U.S. Government Transaction
Income Fund, you will pay the Expenses (fees
following fees and expenses when you paid by you
buy and hold shares. Shareholder directly)(1) CLASS A SHARES
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets, Maximum Sales
and are reflected in the share price. Charge (load)
on Purchases 2.00%(2)
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(3) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES
----------------------------- ------------------------- -------------------------
Management Fee(4) 0.60%
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50%
----------------------------- ------------------------- -------------------------
Other Expenses(4) %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees were limited to
___% and other expenses were limited to _____%. Total expenses after fee waivers
and expense reimbursements were ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
33
<PAGE> 197
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
SHORT-INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT INCOME FUND Year Years Years Years
Class A Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
34
<PAGE> 198
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE The Fund seeks current income
consistent with the preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests 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" (rated at the time
of purchase in one of the three
highest rating categories by an
NRSRO or are determined by the
portfolio manager to be of
comparable quality) collateralized
mortgage obligations ("CMOs"). The
Fund may also invest in short-term
obligations, commercial bonds and
the shares of other investment
companies. The dollar-weighted
average portfolio maturity of the
Fund will be from five to ten years.
In managing the portfolio, the
manager uses a "top down" investment
management approach focusing on
allocation among sectors, interest
rate risk, credit risk, and
individual securities selection. The
manager sets and continually
adjusts, a target for the interest
rate sensitivity of the Fund's
holdings based upon expectations
about interest rates and other
economic factors. The manager then
selects individual securities
consistent with the target by
looking for the best relative values
within particular sectors.
The Fund may also invest in certain
other debt securities in addition to
those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term bonds and low for
shorter-term bonds.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a
significant number of the mortgages
underlying a mortgage-backed bond
are refinanced, the bond may be
"prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call" - or repay -
higher-yielding bonds before their
stated maturity date. In both cases,
investors receive their principal
back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause
bond prices and yields to be
volatile.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities such as bonds. The lower
a security's rating the greater its
credit risk.
35
<PAGE> 199
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
36
<PAGE> 200
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Intermediate U.S. Government
Bond Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time to
that of the Merrill Lynch 5-10 Year
U.S. Government Index, an unmanaged
index generally representative of the
total return of government bonds with
maturities between 5 and 10 years.
Of course, past performance does not
indicate how the Fund will perform in
the future. The bar chart above does not reflect the impact of any applicable sales
charges or account fees which would reduce returns. Additionally, the
performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
The returns for Class B shares will ----------------------------------------------------------------------------
differ from the Class A share returns Best quarter:
shown in the bar chart because of Worst quarter:
differences in expenses of each ----------------------------------------------------------------------------
class. The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS A SHARES (with 4.50% sales charge) 10/9/92
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
<S> <C> <C> <C>
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(2) % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/1/96
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(2) % % %
- ------------------------------------------------------------------ ------------------ -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Lehman Brothers Intermediate Government Bonds Index is an unmanaged
index representative of the performance of U.S. Government bonds with maturities
of less than 10 years. The benchmark index for the Intermediate U.S. Government
Bond Fund has changed from the Lehman Brothers Intermediate Government Bond
Index to the Merrill Lynch 5-10 Year U.S. Government Index in order to better
represent the investment policies for comparison purposes.
37
<PAGE> 201
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Intermediate Shareholder
U.S. Government Bond Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) CLASS A SHARES CLASS B SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.60% 0.60%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
shares were limited to ___%. Total expenses after fee waivers and expense
reimbursements for each class are: Class A shares, ___%; and Class B shares,
___%. Any fee waiver or expense reimbursement arrangement is voluntary and may
be discontinued at any time.
38
<PAGE> 202
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
INTERMEDIATE U.S. GOVERNMENT 1 3 5 10
BOND FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
39
<PAGE> 203
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T INTERMEDIATE CORPORATE BOND FUND
INVESTMENT OBJECTIVE The Fund seeks current income
consistent with the preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests in a diversified portfolio
of corporate bonds and securities
issued or guaranteed by the U.S.
government, its agencies or
instrumentalities. The Fund will
investment primarily in "investment
grade" corporate bonds (bonds rated
at the time of purchase in one of
the four highest rating categories
by an NRSRO or are determined by the
portfolio manager to be of
comparable quality). The Fund may
also invest up to 15% of its assets
in bonds rated below investment
grade. The dollar-weighted average
maturity of the Fund is expected to
be from three to ten years.
In managing the portfolio, the
manager uses a "top down" investment
management approach focusing on
interest rate risk, allocation among
sectors, credit risk, and individual
securities selection. The manager
sets and continually adjust, a
target for the interest rate
sensitivity of the Fund's holdings
based upon expectations about
interest rates and other economic
factors. The manager then selects
individual securities consistent
with the target by looking for the
best relative values within
particular sectors.
The Fund may also invest in certain
other debt securities in addition to
those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term bonds and low for
shorter-term bonds.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities such as bonds. The lower
a security's rating, the greater its
credit risk.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a
significant number of the mortgages
underlying a mortgage-backed bond
are refinanced, the bond may be
"prepaid." Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call" - or repay -
higher-yielding bonds before their
stated maturity date. In both cases,
investors receive their principal
back and are typically forced to
reinvest it in bonds that pay lower
interest rates. Rapid changes in
prepayment and call rates can cause
bond prices and yields to be
volatile.
40
<PAGE> 204
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
41
<PAGE> 205
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Intermediate Corporate Bond Fund has performed and how its performance has
varied from year to year. Because the Fund had not commenced operations prior to
the date of this prospectus, the bar chart and table are not shown.
42
<PAGE> 206
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Intermediate Shareholder
Corporate Bond Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.60% 0.60%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect distribution and service (12b-1) fees
for Class A shares to be limited to ___% and other expenses for each class to be
limited to ____%. Accordingly, we expect total expenses after fee waivers and
expense reimbursements for each class to be: Class A shares, ___%; and Class B
shares, ___%. Any fee waiver or expense reimbursement arrangement is voluntary
and may be discontinued at any time.
43
<PAGE> 207
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
INTERMEDIATE CORPORATE BOND 1 3 5 10
FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
44
<PAGE> 208
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high
level of current interest income
that is exempt from both federal
income tax and North Carolina
personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in municipal
securities of the State of North
Carolina and its political
subdivisions, that provide income
exempt from both Federal personal
income tax and North Carolina
personal income tax. The Fund
invests in North Carolina municipal
securities only if they are "high
grade" (rated at the time of
purchase in one of the three highest
rating categories by an NRSRO, or
are determined by the portfolio
manager to be of comparable
quality). The 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.
In managing the Fund's portfolio,
the manager uses a "top down"
investment management approach
focusing on interest rates and
credit quality. The manager sets,
and continually adjusts, a target
for the interest rate sensitivity of
the Fund's portfolio based on
expectations about interest rate
movements. The manager then selects
securities consistent with this
target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its
investments in a limited number of
issuers. The Fund may also invest in
certain other debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By
concentrating its investments in
securities issued by North Carolina
and its municipalities, the Fund may
be more vulnerable to unfavorable
developments in North Carolina than
funds that are more geographically
diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities, such as bonds. The lower
a security's rating, the greater its
credit risk.
NON-DIVERSIFIED RISK: Because the
Fund is non-diversified, it may
invest a greater percentage of its
assets in a particular issuer
compared with other funds.
Accordingly, the Fund's portfolio
may be more sensitive to changes in
the market value of a single issuer
or industry.
CALL RISK: Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call"--or
repay--higher-yielding bonds
45
<PAGE> 209
before their stated maturity date.
As a result, investors receive their
principal back and are typically
forced to reinvest it in bonds that
pay lower interest rates. Rapid
changes in call rates can cause bond
prices and yields to be volatile.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
46
<PAGE> 210
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the North Carolina Intermediate
Tax-Free Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different times.
The table below it compares the Fund's
performance over time to that of the
Lehman Brothers 5-Year General
Obligations Index, an unmanaged index
generally representative
of the performance of tax-exempt
municipal securities with an average
maturity of five years. Of course, past
performance does not indicate how
the Fund will perform in the future. The bar chart above does not reflect the impact of any applicable sales
charges or account fees which would reduce returns. Additionally, the
performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES (with 2.00% sales charge) 10/16/92
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
47
<PAGE> 211
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C>
As an investor in the North Carolina Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) CLASS A SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases 2.00%(2)
----------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(3) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES
----------------------------- -------------------------
Management Fee(4) 0.60%
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50%
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees were limited to
____% and other expenses were limited to ___%. Total expenses after fee waivers
and expense reimbursements were ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
48
<PAGE> 212
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
NORTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
49
<PAGE> 213
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high
level of current interest income
that is exempt from both federal
income tax and South Carolina
personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in municipal
securities of the State of South
Carolina and its political
subdivisions, that provide income
exempt from both Federal personal
income tax and South Carolina
personal income tax. The Fund
invests in South Carolina municipal
securities only if they are "high
grade" (rated at the time of
purchase in one of the three highest
rating categories by an NRSRO, or
are determined by the portfolio
manager to be of comparable
quality). The 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.
In managing the Fund's portfolio,
the manager uses a "top down"
investment management approach
focusing on interest rates and
credit quality. The manager sets,
and continually adjusts, a target
for the interest rate sensitivity of
the Fund's portfolio based on
expectations about interest rate
movements. The manager then selects
securities consistent with this
target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its
investments in a limited number of
issuers. The Fund may also invest in
certain other debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By
concentrating its investments in
securities issued by South Carolina
and its municipalities, the Fund may
be more vulnerable to unfavorable
developments in South Carolina than
funds that are more geographically
diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities, such as bonds. The lower
a security's rating, the greater its
credit risk.
NON-DIVERSIFIED RISK: Because the
Fund is non-diversified, it may
invest a greater percentage of its
assets in a particular issuer
compared with other funds.
Accordingly, the Fund's portfolio
may be more sensitive to changes in
the market value of a single issuer
or industry.
CALL RISK: Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call"--or
repay--higher-yielding bonds
50
<PAGE> 214
before their stated maturity date.
As a result, investors receive their
principal back and are typically
forced to reinvest it in bonds that
pay lower interest rates. Rapid
changes in call rates can cause bond
prices and yields to be volatile.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
51
<PAGE> 215
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the South Carolina Intermediate
Tax-Free Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
two years to demonstrate that the
Fund's value varied at different times.
The table below it compares the Fund's
performance over time to that of the
Lehman Brothers 5-Year General
Obligations Index, an unmanaged index
generally representative of the
performance of tax-exempt municipal
securities with an average maturity of
five years. Of course, past performance
does not indicate how the Fund will The bar chart above does not reflect the impact of any applicable sales
perform in the future. charges or account fees which would reduce returns. Additionally, the
performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 2.00% sales charge) 10/19/92
- -------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX % %
- -------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
52
<PAGE> 216
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C>
As an investor in the South Carolina Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) CLASS A SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases 2.00%(2)
----------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(3) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES
----------------------------- -------------------------
Management Fee(4) 0.60%
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50%
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees were limited to
____% and other expenses were limited to ___%. Total expenses after fee waivers
and expense reimbursements were ___%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
53
<PAGE> 217
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
SOUTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares
$ $ $ $
------------------------------- -------- --------- ---------- ----------
54
<PAGE> 218
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T VIRGINIA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks to produce a high
level of current interest income
that is exempt from both federal
income tax and Virginia personal
income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in municipal
securities of the Commonwealth of
Virginia and its political
subdivisions, that provide income
exempt from both Federal personal
income tax and Virginia personal
income tax. The Fund invests in
Virginia municipal securities only
if they are "high grade" (rated at
the time of purchase in one of the
three highest rating categories by
an NRSRO, or are determined by the
portfolio manager to be of
comparable quality). The 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.
In managing the Fund's portfolio,
the manager uses a "top down"
investment management approach
focusing on interest rates and
credit quality. The manager sets,
and continually adjusts, a target
for the interest rate sensitivity of
the Fund's portfolio based on
expectations about interest rate
movements. The manager then selects
securities consistent with this
target based on their individual
characteristics.
The Fund is non-diversified and,
therefore, may concentrate its
investments in a limited number of
issuers. The Fund may also invest in
certain other debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term bonds and low for
shorter-term bonds.
STATE SPECIFIC RISK: By
concentrating its investments in
securities issued by Virginia and
its municipalities, the Fund may be
more vulnerable to unfavorable
developments in Virginia than funds
that are more geographically
diversified.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities, such as bonds. The lower
a security's rating, the greater its
credit risk.
NON-DIVERSIFIED RISK: Because the
Fund is non-diversified, it may
invest a greater percentage of its
assets in a particular issuer
compared with other funds.
Accordingly, the Fund's portfolio
may be more sensitive to changes in
the market value of a single issuer
or industry.
CALL RISK: Call risk is the
possibility that, during periods of
declining interest rates, a bond
issuer will "call"--or
repay--higher-yielding bonds before
their stated maturity date. As a
result, investors receive their
55
<PAGE> 219
principal back and are typically
forced to reinvest it in bonds that
pay lower interest rates. Rapid
changes in call rates can cause bond
prices and yields to be volatile.
INCOME RISK: The possibility that
the Fund's income will decline due
to a decrease in interest rates.
Income risk is generally high for
shorter-term bonds and low for
longer-term bonds.
If the Fund invests in securities
with additional risks, its share
price volatility accordingly could
be greater and its performance
lower. For more information about
these risks, please see the
Additional Investment Strategies and
Risks on page X.
56
<PAGE> 220
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Virginia Intermediate Tax-Free Fund has performed and how its performance has
varied from year to year. Because the Fund has not been in operation for a full
calendar year, the bar chart and table are not shown.
57
<PAGE> 221
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C>
As an investor in the Virginia Shareholder
Intermediate Tax-Free Fund, you will Transaction
pay the following fees and expenses Expenses (fees
when you buy and hold shares. paid by you
Shareholder transaction fees are paid directly)(1) CLASS A SHARES
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the Maximum Sales
share price. Charge (load)
on Purchases 2.00%(2)
----------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None
Redemption Fee(3) 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES
----------------------------- -------------------------
Management Fee(4) 0.60%
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50%
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) For the period beginning _________ and ending September 30, 1999, management
fees paid by the Fund were limited to _____%. Additionally, distribution and
service (12b-1) fees were limited to ____% and other expenses were limited to
___%. Total expenses after fee waivers and expense reimbursements were ___%. Any
fee waiver or expense reimbursement arrangement is voluntary and may be
discontinued at any time.
58
<PAGE> 222
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
VIRGINIA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares $ $ $ $
----------------------------- ------ ------ ------ -------
59
<PAGE> 223
DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
These Funds seek current income
with liquidity and stability of
principal by investing primarily
in short-term debt securities.
The Funds seek to maintain a
stable price of $1.00 per share.
Who May Want to Invest Consider investing in these Funds
if you are:
o seeking preservation of
capital
o investing short-term reserves
o willing to accept lower
potential returns in exchange
for a higher degree of
safety
o in the case of the Tax-Free
Money Market Fund, seeking
Federal tax-exempt income
These Funds may not be
appropriate if you are:
o seeking high total return
o pursuing a long-term goal or
investing for retirement
60
<PAGE> 224
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks to provide as high a
level of current interest income as
is consistent with maintaining
liquidity and stability of
principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests only in U.S.
dollar-denominated, "high-quality"
short-term debt securities,
including the following:
o 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);
o High quality commercial paper
and other obligations issued or
guaranteed by U.S. and foreign
corporations and other issuers;
o Asset-backed securities;
o Securities issued or guaranteed
as to principal and interest
by the U.S. Government or by
its agencies or
instrumentalities and related
custodial receipts;
o Securities issued or guaranteed
by foreign governments or their
political subdivisions;
agencies or instrumentalities;
o Guaranteed investment contracts
issued by highly-rated U.S.
insurance companies;
o Securities issued or guaranteed
by state or local government
bodies; and
o Repurchase agreements relating
to the above instruments.
Additionally, the Fund concentrates
its investments in obligations
issued by the financial services
industry.
"High-quality" debt securities are
those obligations which, at the time
of purchase, (i) possess the highest
short-term rating from at least two
NRSROs (for example, commercial
paper rated "A-1" by Standard &
Poor's Corporation and "P-1" by
Moody's Investors Service, Inc.); or
(ii) are single rated and have
received the highest short-term
rating by an NRSRO; or (iii) if
unrated, are determined by the
portfolio manager to be of
comparable quality.
When selecting securities for the
Fund's portfolio, the manager first
considers safety of principal and
the quality of an investment. The
manager then focuses on generating a
high-level of income. The manager
generally evaluates investments
based on interest rate sensitivity
selecting those securities whose
maturities fit the Fund's interest
rate sensitivity target and which
the manager believes to be the best
relative values.
The Fund will maintain an average
weighted portfolio maturity of 90
days or less and will limit the
maturity of each security in its
portfolio to 397 days or less.
For a more complete description of
the securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
61
<PAGE> 225
INTEREST RATE RISK: The possibility
that the value of the Fund's
investments will decline due to an
increase in interest rates or that
the Fund's yield will decrease due
to a decrease in interest rates.
Interest rate risk is generally high
for longer-term debt securities and
low for shorter-term debt
securities.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities such as bonds. The lower
a security's rating, the greater its
credit risk.
CONCENTRATION RISK: The Fund's
investments are concentrated in the
financial services industry. This
concentration increases the risk of
loss to the Fund by increasing its
exposure to economic, business,
political or regulatory developments
that may be adverse to the financial
services industry.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T
CORPORATION, THEIR AFFILIATES, OR
ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
62
<PAGE> 226
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Prime Money Market Fund has
performed and how its performance has
varied from year to year. The bar chart Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
gives some indication of risk by
showing changes in the Fund's yearly
performance over two years to
demonstrate that the Fund's value
varied at different times. The table
below it shows the Fund's performance
over time. Of course, past performance
does not indicate how the Fund will
perform in the future.
The performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999
was ______%.
The returns for Class B shares will ----------------------------------------------------------------------------
differ from the Class A share returns Best quarter:
shown in the bar chart because of Worst quarter:
differences in expenses of each ----------------------------------------------------------------------------
class. The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES 10/1/97
- -------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
PRIME MONEY MARKET FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
- -------------------------------------------------------------- -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 9/2/98
Charge)
- -------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
- -------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Class A Shares and Class B
Shares was ___% and ___%, respectively. Without fee waivers and expense
reimbursements, the Fund's yield would have been ___% and ___%, respectively,
for this time period. For current yield information on the Fund, call
1-800-228-1872. The Fund's yield appears in The Wall Street Journal each
Thursday.
63
<PAGE> 227
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Prime Money Shareholder
Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(2)
Redemption Fee(3) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(4) 0.40% 0.40%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(4) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(4) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A were
limited to ___% and other expenses were limited to ___%. Total expenses after
fee waivers and expense reimbursements for each class are: Class A shares, ___%;
and Class B shares, ___%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
64
<PAGE> 228
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
PRIME MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
------------------------------- -------- --------- ---------- ---------
65
<PAGE> 229
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T U.S. TREASURY MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks current income with
liquidity and stability of principal
by 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests exclusively in short-term
U.S. dollar-denominated obligations
issued by the U.S. Treasury ("U.S.
Treasury Securities"), and
repurchase agreements collateralized
by U.S. Treasury Securities.
Obligations purchased by the Fund
are limited to U.S.
dollar-denominated obligations which
the Board of Trustees has determined
present minimal credit risks.
In managing the Fund, the portfolio
manager focuses on generating a
high-level of income. The manager
generally evaluates investments
based on interest rate sensitivity
selecting those securities whose
maturities fit the Fund's interest
rate sensitivity target and which
the manager believes to be the best
relative values. Generally, the
portfolio manager buys and holds
securities until their maturity.
The Fund will maintain an average
weighted portfolio maturity of 90
days or less and will limit the
maturity of each security in its
portfolio to 397 days or less.
For a more complete description of
the securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the Fund's yield will decrease
due to a decrease in interest rates
or that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term debt securities and low
for shorter-term debt securities.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T
CORPORATION, THEIR AFFILIATES, OR
ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
66
<PAGE> 230
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the U.S. Treasury Money Market
Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance over
seven years to demonstrate that the
Fund's value varied at different
times. The table below it shows the
Fund's performance over time. Of
course, past performance does not
indicate how the Fund will perform in
the future.
The performance information shown above is based on a calendar year.
The Fund's total return for the nine-month period ended September 30,
1999 was ______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES 10/5/92
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
U.S. TREASURY MONEY MARKET FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/1/96
Charge)
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
U.S. TREASURY MONEY MARKET FUND % % %
- -------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Class A Shares and Class B
Shares was % and ___% respectively. Without fee waivers and expense
reimbursements, the Fund's yield would have been ___% and ___%, respectively for
this time period. For current yield information on the Fund, call
1-800-228-1872. The Fund's yield appears in The Wall Street Journal each
Thursday.
67
<PAGE> 231
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the U.S. Treasury Shareholder
Money Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(2)
Redemption Fee(3) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee 0.30% %
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(4) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(4) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary in year seven from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) During the last fiscal year, distribution and service (12b-1) fees for Class
A Shares were limited to ___%. Additionally, other expenses for each class were
limited to ___%. Total expenses after fee waivers and expense reimbursements for
each class are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at any
time.
68
<PAGE> 232
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
U.S. TREASURY MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
69
<PAGE> 233
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T TAX-FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE The Fund seeks as high a level of
current interest income exempt from
federal income tax as is consistent
with stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests in a broad range of
short-term tax-exempt obligations
issued by or on behalf of states,
territories, and possessions of the
United States, the District of
Columbia, 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 (collectively,
"Municipal Securities").
Although the Fund intends to invest
its assets in tax-exempt
obligations, the Fund is permitted
to invest in private activity bonds
and other securities which may be
subject to the federal alternative
minimum tax.
When selecting securities for the
Fund's portfolio, the manager first
focuses on generating a high-level
of income. The manager also
considers safety of principal and
the quality of an investment. The
manager generally evaluates
investments based on interest rate
sensitivity selecting those
securities whose maturities fit the
Fund's interest rate sensitivity
target and which the manager
believes to be the best relative
values.
The Fund will maintain an average
weighted portfolio maturity of 90
days or less and will limit the
maturity of each security in its
portfolio to 397 days or less. The
Fund may also invest in certain
other short-term debt securities in
addition to those described above.
For a more complete description of
the various securities in which the
Fund may invest, please see the
Additional Investment Strategies and
Risks on page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INTEREST RATE RISK: The possibility
that the Fund's yield will decrease
due to a decrease in interest rates
or that the value of the Fund's
investments will decline due to an
increase in interest rates. Interest
rate risk is generally high for
longer-term debt securities and low
for shorter-term debt securities.
CREDIT RISK: The possibility that an
issuer cannot make timely interest
and principal payments on its debt
securities such as bonds. The lower
a security's rating, the greater its
credit risk.
TAX RISK. The risk that the issuer
of the securities will fail to
comply with certain requirements of
the Internal Revenue Code, which
would cause adverse tax
consequences.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH
BANKING AND TRUST COMPANY, BB&T
CORPORATION, THEIR AFFILIATES, OR
ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
70
<PAGE> 234
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Tax-Free Money Market Fund has performed and how its performance has varied from
year to year. Because the Fund had not commenced operations as of the date of
this Prospectus, the bar chart and table are not shown.
71
<PAGE> 235
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Tax-Free Money Shareholder
Market Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases None None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(2)
Redemption Fee(3) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(4) 0.40% 0.40%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(4) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(4) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(3) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(4) Other expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect management fees paid by the Fund to be
limited to _____%. Additionally, we expect distribution and service (12b-1) fees
for Class A shares to be limited to ___% and other expenses for each class to be
limited to ____%. Accordingly, we expect total expenses after fee waivers and
expense reimbursements for each class to be: Class A shares, ___%; and Class B
shares, ___%. Any fee waiver or expense reimbursement arrangement is voluntary
and may be discontinued at any time.
72
<PAGE> 236
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
TAX-FREE MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
------------------------------- -------- --------- ---------- ---------
73
<PAGE> 237
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------------------------
FUND OF FUNDS
These Funds invest substantially all
of their assets in Trust shares of
the BB&T Funds described earlier in
this prospectus.
Who May Want to Invest Consider investing in these Funds
if you are:
o seeking to spread your
investment among many different
mutual funds that match your
goals in one simple package
o seeking investment
professionals to select and
maintain a portfolio of mutual
funds for you
o seeking the benefits of asset
allocation and multiple levels
of risk reducing diversification
These Funds may not be appropriate
if you are:
o pursuing a short-term goal or
investing emergency reserves
o uncomfortable with an investment
that will fluctuate in value
74
<PAGE> 238
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER CONSERVATIVE GROWTH FUND
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
allocates its assets among the
Underlying Funds within
predetermined strategy ranges set
forth below. The portfolio manager
will make allocation decisions
according to his outlook for the
economy, financial markets and
relative market valuation of the
Underlying Funds.
The 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. The Fund will
invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of
the Fund's total assets) indicated
below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
-------------------------------------------------------------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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>
The Underlying Funds are described
earlier in this Prospectus.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
75
<PAGE> 239
in the Underlying Funds, so the
Fund's investment performance is
directly related to the performance
of those Underlying Funds. Before
investing in the Fund, investors
should assess the risks associated
with the Underlying Funds in which
the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund
must allocate its investments among
the Underlying Funds, the Fund does
not have the same flexibility to
invest as a mutual fund without
these constraints. As a result, you
could lose money by investing in the
Fund, particularly if there is a
sudden decline in the share prices
of the Underlying Fund's holdings.
FIXED INCOME FUNDS: The Fund invests
in Underlying Funds that invest
primarily in fixed income
securities, which are subject to
interest rate and credit risk.
Interest rate risk is the potential
for a decline in bond prices due to
rising interest rates. Credit risk
is the possibility that the issuer
of a fixed-income security will fail
to make timely payments of interest
or principal, or that the security
will have its credit rating
downgraded.
EQUITY FUNDS: The Fund also invests
in Underlying Funds that invest
primarily in equity securities,
which are subject to market risk.
Stocks and other equity securities
fluctuate in price, often based on
factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk
which is the risk that the
particular market segment on which a
Fund focuses will underperform other
kinds of investments.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
76
<PAGE> 240
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page shows PERFORMANCE BAR CHART AND TABLE
how the Capital Manager Conservative
Growth Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart shows the
performance of the Fund's Class A
Shares for its first full calendar year
of operations. The table below it
compares the Fund's performance over
time to that of the S&P 500(R) Index, a
widely recognized, unmanaged index of
common stocks, and the Lehman Brothers
Intermediate Government Bond Index, an
unmanaged index representative of the
total return of government bonds with
maturities of less than 10 years. Of The bar chart above does not reflect the impact of any applicable sales
course, past performance does not charges or account fees which would reduce returns. Additionally, the
indicate how the Fund will perform in performance information shown above is based on a calendar year. The
the future. Fund's total return for the nine-month period ended September 30, 1999 was
------%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
The returns for Class B shares will
differ from the Class A share returns
shown in the bar chart because of
differences in expenses of each class.
The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------- ------------------- --------------------
CLASS A SHARES (with 4.50% sales charge) 1/29/98
- ----------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDEX % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
- ----------------------------------------------------------------- ------------------- --------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/29/98
Charge)
- ----------------------------------------------------------------- ------------------- --------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDEX % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
77
<PAGE> 241
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Capital Manager Shareholder
Conservative Growth Fund, you will pay Transaction
the following fees and expenses when Expenses (fees
you buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.25% 0.25%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5), (6) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
78
<PAGE> 242
(6) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio for each class of shares is
as follows: Class A Shares, __%; and Class B Shares, ___%.
79
<PAGE> 243
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
CAPITAL MANAGER CONSERVATIVE 1 3 5 10
GROWTH FUND Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
80
<PAGE> 244
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER MODERATE GROWTH FUND
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
allocates its assets among the
Underlying Funds within
predetermined strategy ranges set
forth below. The portfolio manager
will make allocation decisions
according to his outlook for the
economy, financial markets and
relative market valuation of the
Underlying Funds.
The 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. The Fund will
invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of
the Fund's total assets) indicated
below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
--------------- ---------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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>
The Underlying Funds are described
earlier in this Prospectus.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
81
<PAGE> 245
in the Underlying Funds, so the
Fund's investment performance is
directly related to the performance
of those Underlying Funds. Before
investing in the Fund, investors
should assess the risks associated
with the Underlying Funds in which
the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund
must allocate its investments among
the Underlying Funds, the Fund does
not have the same flexibility to
invest as a mutual fund without
these constraints. As a result, you
could lose money by investing in the
Fund, particularly if there is a
sudden decline in the share prices
of the Underlying Fund's holdings.
EQUITY FUNDS: The Fund invests in
Underlying Funds that invest
primarily in equity securities,
which are subject to market risk.
Stocks and other equity securities
fluctuate in price, often based on
factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk
which is the risk that the
particular market segment on which a
Fund focuses will underperform other
kinds of investments.
FIXED INCOME FUNDS: The Fund also
invests in Underlying Funds that
invest primarily in fixed income
securities, which are subject to
interest rate and credit risk.
Interest rate risk is the potential
for a decline in bond prices due to
rising interest rates. Credit risk
is the possibility that the issuer
of a fixed-income security will fail
to make timely payments of interest
or principal, or that the security
will have its credit rating
downgraded.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
82
<PAGE> 246
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page shows PERFORMANCE BAR CHART AND TABLE
how the Capital Manager Moderate Growth
Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart shows the
performance of the Fund's Class A
Shares for its first full calendar year
of operations. The table below it
compares the Fund's performance over
time to that of the S&P 500(R) Index, a
widely recognized, unmanaged index of
common stocks, and the Lehman Brothers
Intermediate Government Bond Index, an
unmanaged index representative of the
total return of government bonds with The bar chart above does not reflect the impact of any applicable sales
maturities of less than 10 years. Of charges or account fees which would reduce returns. Additionally, the
course, past performance does not performance information shown above is based on a calendar year. The
indicate how the Fund will perform in Fund's total return for the nine-month period ended September 30, 1999 was
the future. ______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
The returns for Class B shares will
differ from the Class A share returns
shown in the bar chart because of
differences in expenses of each class.
The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------- ------------------- --------------------
CLASS A SHARES (with 4.50% sales charge) 1/29/98
- ----------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
CAPITAL MANAGER MODERATE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDEX % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
- ----------------------------------------------------------------- ------------------- --------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/29/98
Charge)
- ----------------------------------------------------------------- ------------------- --------------------
CAPITAL MANAGER MODERATE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDEX % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
83
<PAGE> 247
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Capital Manager Shareholder
Moderate Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.25% 0.25%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5), (6) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
84
<PAGE> 248
(6) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio for each class of shares is
as follows: Class A Shares, __%; and Class B Shares, ___%.
85
<PAGE> 249
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
CAPITAL MANAGER MODERATE 1 3 5 10
GROWTH FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
86
<PAGE> 250
RISK/RETURN SUMMARY AND FUND EXPENSES
- --------------------------------------------------------------------------------
BB&T CAPITAL MANAGER GROWTH FUND
INVESTMENT OBJECTIVE The Fund seeks capital appreciation
by investing primarily in a group of
diversified BB&T Funds which invest
primarily in equity securities.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
allocates its assets among the
Underlying Funds within
predetermined strategy ranges set
forth below. The portfolio manager
will make allocation decisions
according to his outlook for the
economy, financial markets and
relative market valuation of the
Underlying Funds.
The 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. The Fund will
invest its assets in the following
Underlying Funds within the strategy
ranges (expressed as a percentage of
the Fund's total assets) indicated
below:
<TABLE>
<CAPTION>
Investment Range
Underlying Fund (Percentage of Fund Assets)
--------------- ---------------------------
<S> <C>
Stock Funds
Growth and Income Stock 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%
Bond Funds
Short-Intermediate U.S. Government Income 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 Underlying Funds are described
earlier in this Prospectus.
The Fund may also invest in certain
other equity securities in addition
to those described above. For a more
complete description of the various
securities in which the Fund may
invest, please see the Additional
Investment Strategies and Risks on
page X or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
in the Underlying Funds, so the
Fund's investment performance is
87
<PAGE> 251
directly related to the performance
of those Underlying Funds. Before
investing in the Fund, investors
should assess the risks associated
with the Underlying Funds in which
the Fund invests and the types of
investments made by those Underlying
Funds. In addition, since the Fund
must allocate its investments among
the Underlying Funds, the Fund does
not have the same flexibility to
invest as a mutual fund without
these constraints. As a result, you
could lose money by investing in the
Fund, particularly if there is a
sudden decline in the share prices
of the Underlying Fund's holdings.
EQUITY FUNDS: The Fund invests in
Underlying Funds that invest
primarily in equity securities,
which are subject to market risk.
Stocks and other equity securities
fluctuate in price, often based on
factors unrelated to the issuers'
value, and such fluctuations can be
pronounced. Equity Funds may also be
subject to investment style risk
which is the risk that the
particular market segment on which a
Fund focuses will underperform other
kinds of investments.
FIXED INCOME FUNDS: The Fund also
invests in Underlying Funds that
invest primarily in fixed income
securities, which are subject to
interest rate and credit risk.
Interest rate risk is the potential
for a decline in bond prices due to
rising interest rates. Credit risk
is the possibility that the issuer
of a fixed-income security will fail
to make timely payments of interest
or principal, or that the security
will have its credit rating
downgraded.
The Fund may trade securities
actively, which could increase its
transaction costs (thereby lowering
its performance) and may increase
the amount of taxes that you pay. If
the Fund invests in securities with
additional risks, its share price
volatility accordingly could be
greater and its performance lower.
For more information about these
risks, please see the Additional
Investment Strategies and Risks on
page X.
88
<PAGE> 252
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<S> <C>
The chart and table on this page PERFORMANCE BAR CHART AND TABLE
shows how the Capital Manager Growth
Fund has performed and how its Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performance has varied from year to
year. The bar chart shows the
performance of the Fund's Class A
Shares for its first full calendar
year of operations. The table below
it compares the Fund's performance
over time to that of the S&P 500(R)
Index, a widely recognized, unmanaged
index of common stocks, and the
Lehman Brothers Intermediate
Government Bond Index, an unmanaged
index representative of the total
return of government bonds with
maturities of less than 10 years. Of
course, past performance does not The bar chart above does not reflect the impact of any applicable sales
indicate how the Fund will perform in charges or account fees which would reduce returns. Additionally, the
the future. performance information shown above is based on a calendar year. The
Fund's total return for the nine-month period ended September 30, 1999 was
______%.
----------------------------------------------------------------------------
Best quarter:
Worst quarter:
----------------------------------------------------------------------------
The returns for Class B shares will
differ from the Class A share returns
shown in the bar chart because of
differences in expenses of each class.
The table assumes that Class B
shareholders redeem all of their fund
shares at the end of the period
indicated.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------- ------------------- --------------------
CLASS A SHARES (with 4.50% sales charge) 1/29/98
- ----------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDex % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
- ----------------------------------------------------------------- ------------------- --------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/29/98
Charge)
- ----------------------------------------------------------------- ------------------- --------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
S&P 500(R) INDex % %
- ----------------------------------------------------------------- ------------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
- ----------------------------------------------------------------- ------------------- --------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
89
<PAGE> 253
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
<TABLE>
<S> <C> <C> <C>
As an investor in the Capital Manager Shareholder
Growth Fund, you will pay the Transaction
following fees and expenses when you Expenses (fees
buy and hold shares. Shareholder paid by you
transaction fees are paid from your directly)(1) CLASS A SHARES CLASS B SHARES
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price. Maximum Sales
Charge (load)
on Purchases 4.50%(2) None
----------------------------- ------------------------- -------------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES
----------------------------- ------------------------- -------------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) 0.25% 0.25%
Some Fund share classes impose a back end
sales charge (load) if you sell your
shares before a certain period of time has
elapsed. This is called a Contingent
Deferred Sales Charge.
----------------------------- ------------------------- -------------------------
Distribution and
Service (12b-1) Fee(5) 0.50% 1.00%
----------------------------- ------------------------- -------------------------
Other Expenses(5) % %
----------------------------- ------------------------- -------------------------
Total Fund
Operating Expenses(5), (6) % %
----------------------------- ------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customer's account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(5) During the last fiscal year, management fees paid by the Fund were limited
to _____%. Additionally, distribution and service (12b-1) fees for Class A
Shares were limited to ___% and other expenses for each class were limited to
___%. Total expenses after fee waivers and expense reimbursements for each class
are: Class A shares, ___%; and Class B shares, ___%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
90
<PAGE> 254
(6) In addition to the expenses shown above, if you buy and hold shares of the
Fund you will indirectly bear your pro rata share of fees and expenses incurred
by the Underlying Funds in which the Fund invests, so that the investment
returns of the Fund will be net of the expenses of the Underlying Funds. After
combining the total operating expenses of the Fund with those of the Underlying
Funds, the estimated average weighted expense ratio for each class of shares is
as follows: Class A Shares, __%; and Class B Shares, ___%.
91
<PAGE> 255
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
- ---------------
USE THE TABLE AT RIGHT TO COMPARE FEES AND EXPENSES WITH THOSE OF OTHER FUNDS.
IT ILLUSTRATES THE AMOUNT OF FEES AND EXPENSES YOU WOULD PAY, ASSUMING THE
FOLLOWING:
O $10,000 INVESTMENT
O 5% ANNUAL RETURN
O REDEMPTION AT THE END OF EACH PERIOD
O NO CHANGES IN THE FUND'S OPERATING EXPENSES
BECAUSE THIS EXAMPLE IS HYPOTHETICAL AND FOR COMPARISON ONLY, YOUR ACTUAL COSTS
WILL BE DIFFERENT.
CAPITAL MANAGER GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
- -----------
GROWTH AND INCOME STOCK FUND - Under normal market conditions, the Fund will
invest at least 65% of its total assets in stocks, which may include common
stock, preferred stock, warrants, or debt instruments that are convertible to
common stock. Equity securities purchased by the Growth and Income Stock Fund
will be either traded on a domestic securities exchange or quoted in the
NASDAQ/NYSE system.
BALANCED FUND - The Fund will normally invest in equity securities consisting of
common stocks but may also invest in other equity-type securities such as
warrants, preferred stocks and convertible securities.
As a fundamental policy, the Fund will invest at least 25% of its total assets
in fixed-income senior securities. Fixed-income 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 Fund may also invest in collateralized mortgage
obligations ("CMOs").
The Fund may only invest in bonds, notes and debentures that are investment
grade, which are those securities rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO") at the time of purchase, or if not rated, found by the Advisor under
guidelines established by the Trust's Board of Trustees to be of comparable
quality. If the rating of any debt securities held by the Fund falls below the
fourth highest rating, the Fund will not have to dispose of those obligations
and may continue to hold them if the portfolio manager considers it to be
appropriate.
The Fund may invest in short-term obligations in order to acquire interest
income combined with liquidity. For temporary defensive purposes, these
investments may constitute 100% of the Fund's portfolio.
LARGE COMPANY GROWTH FUND - 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(R) Index").1
SMALL COMPANY GROWTH FUND - At least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $2 billion at the
time of purchase.
INTERNATIONAL EQUITY FUND - The Fund normally invests at least 65% of its total
assets in the equity securities of foreign issuers and normally invests at least
80% of its total assets in equity securities. The Fund invests primarily in
equity securities of issuers located in countries included in the Morgan Stanley
Capital International Europe, Australasia and the Far East ("EAFE") Index. The
EAFE Index is an index composed of a sample of companies representative of the
market structure of 20 European and Pacific Basin countries. Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom are currently included in the EAFE Index.
From time to time the 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.
The Fund may invest in both sponsored and unsponsored ADRs, European Depository
Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments.
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The Fund may also invest its assets in equity securities of issuers located in
countries with emerging economies or securities markets. The Fund intends to
limit its investment in such countries to 20% of its total assets. The 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 Euro
relative to the U.S. dollar in connection with specific portfolio transactions
or with respect to portfolio positions.
ALL STOCK FUNDS (EXCEPT THE INTERNATIONAL EQUITY FUND): FOREIGN SECURITIES -
Each Fund may invest in foreign securities through the purchase of ADRs or the
purchase of securities on the New York Stock Exchange. However, a Fund will not
do so if immediately after a purchase and as a result of the purchase the total
value of foreign securities owned by the Fund would exceed 25% of the value of
its total assets.
Bond Funds
- ----------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND - At least 65% of the Fund's
assets will be invested on U.S. Government Securities. The Fund may invest up to
35% of its total assets in bonds, notes and debentures of corporate issuers. The
Fund invests in bonds, notes and debentures only if they are high grade (rated
at time of purchase in one of the three highest rating categories by an NRSRO,
or are determined by the portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
INTERMEDIATE U.S. GOVERNMENT BOND FUND - The 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 include both bonds (maturities of ten
years or more) and notes (maturities of one to ten years) of the U.S.
Government. The Fund may invest up to 35% of its total assets in bonds, notes
and debentures of corporate issuers. The Fund may also invest in short-term
obligations, commercial bonds and the shares of other investment companies. The
Fund invests in bonds, notes and debentures only if they are high grade (rated
at time of purchase in one of the three highest rating categories by an NRSRO),
or are determined by the portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
INTERMEDIATE CORPORATE BOND FUND - At least 65% of the Fund's total assets will
be invested in investment grade corporate bonds (rated in one of the top four
rating categories by an NRSRO, 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 Fund's assets will normally be invested in a
combination of investment grade corporate bonds and U.S. Government Securities.
The Fund may invest up to 15% of its total 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 Fund
may invest in non-investment grade securities by investing in other investment
companies that primarily invest in such 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.
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The Fund may invest in debt obligations of foreign corporations, banks and
governments that are denominated either in U.S. dollars or foreign currency. The
Fund will not invest more than 25% of its total assets in such obligations.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
ALL TAXABLE BOND FUNDS - Mortgage-related securities purchased by the Taxable
Bond Funds will be either (i) issued by U.S. Government-owned or sponsored
corporations or (ii) rated in the highest category by an NRSRO at the time of
purchase, (for example, rated Aaa by Moody's or AAA by S&P), or, if not rated,
are of comparable quality as determined by the Advisor.
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to over
10% of its assets.
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than South Carolina tax-exempt obligations to over
10% of its assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the 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").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than Virginia tax-exempt obligations to over 10% of
its assets.
ALL TAX-FREE BOND FUNDS - Each Fund will invest in Tax-Exempt Obligations which
are rated at the time of purchase in one of the three highest categories by an
NRSRO in the case of bonds; one of the two highest categories by an NRSRO in the
case of notes; rated "SP-1" or higher by S&P or "MIG-2" or higher by Moody's or
rated at a comparable level of quality by another NRSRO in the case of
tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's or rated at
a comparable level of quality by another NRSRO in the case of variable rate
demand obligations or, if unrated, determined to be of comparable quality.
Each Fund may invest up to 10% of its total assets in taxable obligations or
debt securities, the interest income from which may be subject to the federal
alternative minimum tax for individual shareholders.
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ALL BOND FUNDS: PORTFOLIO MATURITY - 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 these securities will be
used.
Money Market Funds
- ------------------
PRIME MONEY MARKET FUND - Under normal market conditions, at least 25% of the
Fund's total assets will be invested in obligations of issuers in the financial
services industry and repurchase agreements relating to such obligations.
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. The Fund
will not purchase securities issued by PNC Bank or BB&T or any of their
affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
TAX-FREE MONEY MARKET FUND - As a fundamental policy, except during periods of
unusual market conditions or during temporary defensive periods, the Fund will
invest substantially all, but in no event less than 80%, of its total assets in
Municipal Securities with remaining maturities of 397 days (thirteen months) or
less as determined in accordance with the rules of the SEC.
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods or if, in the opinion of the 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. The securities purchased by the Fund are also subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended, and other rules of the SEC. Pursuant to Rule
2a-7, the Fund generally will limit its purchase of any one issuer's securities
(other than U.S. Government securities, repurchase agreements collateralized by
such securities and securities subject to certain guarantees or otherwise
providing the right to demand payment) to 5% of the Fund's total assets, except
that up to 25% of its total assets may be invested in the securities of one
issuer for a period of up to three business days; provided that the Fund may not
invest more than 25% of its total assets in the securities of more than one
issuer in accordance with the foregoing at any one time.
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The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of such
securities) will be Eligible Securities. Applicable Eligible Securities are:
o Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
o securities that are issued or guaranteed by a person with such ratings;
o securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
o shares of other open-end investment companies that invest in the type of
obligations in which the Fund may invest.
Funds of Funds
- --------------
The Funds of Funds' net asset values 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 may also hold cash for liquidity purposes.
ALL STOCK FUNDS, BOND FUNDS AND FUNDS OF FUNDS: TEMPORARY DEFENSIVE MEASURES -
If deemed appropriate under the circumstances, each Stock Fund, Bond Fund, and
Fund of Funds may increase its holdings in short-term obligations to up to 100%
of its total assets. Under normal market conditions, each Stock Fund (except the
Small Company Growth Fund and International Equity Fund) and the Taxable Bond
Funds will limit its investment in short-term obligations to 35% of its assets,
while the Small Company Growth Fund will limit its investment in short-term
obligations to 20% of its assets.
INVESTMENT PRACTICES
- --------------------
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk. Fixed
income securities are primarily influenced by market, credit and prepayment
risks, although certain securities may be subject to additional risks. Following
the table is a more complete discussion of risk. You may also consult the
Statement of Additional Information for additional details regarding these and
other permissible investments.
FUND NAME FUND CODE
- --------- ---------
Growth and Income Stock Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
Short Intermediate U.S. Government Income Fund 6
Intermediate U.S. Government Bond Fund 7
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Intermediate Corporate Bond Fund 8
North Carolina Intermediate Tax-Free Fund 9
South Carolina Intermediate Tax-Free Fund 10
Virginia Intermediate Tax-Free Fund 11
Prime Money Market Fund 12
U.S. Treasury Money Market Fund 13
Tax-Free Money Market Fund 14
Capital Manager Conservative Growth Fund 15
Capital Manager Moderate Growth Fund 16
Capital Manager Growth Fund 17
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are 1-5 Market
foreign shares of a company held by a U.S. bank that Political
issues a receipt evidencing ownership. Foreign Investment
ASSET-BACKED SECURITIES: Securities secured by 2, 6-8, 12 Pre-payment
company receivables, home equity loans, truck and Market
auto loans, leases, credit card receivables and Credit
other securities backed by other types of Interest Rate
receivables or other assets. Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time 2, 12 Credit
drafts drawn on and accepted by a commercial bank. Liquidity
Maturities are generally six months or less. Market
Interest Rate
BONDS: Interest-bearing or discounted government or 2, 6-8, 12 Market
corporate securities that obligate the issuer to pay Credit
the bondholder a specified sum of money, usually at Interest Rate
specific intervals, and to repay the principal
amount of the loan at maturity.
CALL AND PUT OPTIONS: A call option gives the buyer 1-5 Management
the right to buy, and obligates the seller of the Liquidity
option to sell, a security at a specified price. A Credit
put option gives the buyer the right to sell, and Market
obligates the seller of the option to buy a security Leverage
at a specified price. The Funds will sell only
covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments with 2, 12 Market
a stated maturity. Credit
Liquidity
Interest Rate
</TABLE>
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<TABLE>
<S> <C> <C>
COMMERCIAL PAPER: Secured and unsecured short-term 1-3, 12, 14-17 Credit
promissory notes issued by corporations and other Liquidity
entities. Maturities generally vary from a few days Market
to nine months. Interest Rate
COMMON STOCK: Shares of ownership of a company. 1-5 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock 1-5, 8 Market
that convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived 1-11, 14-17 Management
from an underlying contract, index or security, or Market
any combination thereof, including futures, Credit
options (e.g., put and calls), options on futures, Liquidity
swap agreements, and some mortgage-backed securities. Leverage
Interest Rate
FOREIGN SECURITIES: Stocks issued by foreign 1-5, 8, 12 Market
companies, as well as commercial paper of foreign Political
issuers and obligations of foreign banks, overseas Liquidity
branches of U.S. banks and supranational entities. Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing 1-5, 15-17 Management
for the future sale and purchase of a specified Market
amount of a specified security, class of securities, Credit
or an index at a specified time in the future and at Liquidity
a specified price. Leverage
HIGH-YIELD/HIGH-RISK/DEBT SECURITIES: High-yield/ 8 Credit
high-risk/debt securities are securities that are Market
rated below investment grade by the primary rating Liquidity
agencies (e.g., BB or lower by Standard & Poor's and Interest Rate
Ba or lower by Moody's). These securities are
considered speculative and involve greater risk of
loss than investment grade debt securities. Other
terms commonly used to describe such securities
include "lower rated bonds," "non-investment grade
bonds" and "junk bonds."
INDEX-BASED SECURITIES: Index-based securities such 1-5 Market
as Standard & Poor's Depository Receipts ("SPDRs")
and NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"),
represent ownership in a long-term unit investment
trust that holds a portfolio of common stocks
designed to track the price performance and dividend
yield of an index, such as the S&P 500 Index or the
NASDAQ-100 Index. Index-based securities entitle a
holder to receive proportionate quarterly cash
distributions corresponding to the dividends that
accrue to the index stocks in the
</TABLE>
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<TABLE>
<S> <C> <C>
underlying portfolio, less trust expenses.
INVESTMENT COMPANY SECURITIES: Shares of investment 1-12, 14-17 Market
companies. A Fund (except the Funds of Funds) may
invest up to 5% of its assets in the shares of any
one registered investment company, but may not own
more than 3% of the securities of any one registered
investment company or invest more than 10% of its
assets in the securities of other registered
investment companies. These registered investment
companies may include money market funds of BB&T
Funds and shares of other registered investment
companies for which the Adviser to a Fund or any of
their affiliates serves as investment adviser,
administrator or distributor. The Money Market
Funds may only invest in shares of other investment
companies with similar objectives.
SHORT-TERM OBLIGATIONS: High quality U.S. 1-11, 15-17 Market
dollar-denominated debt securities that have remaining Credit
maturities of one year or less. These securities may
include U.S. government obligations, 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. These investments
are limited to those obligations which, at the time of
purchase, (i) possess one of the two highest short-term
ratings from at least two NRSROs (for example,
commercial paper rated "A-1" or "A-2" by S&P and "P-1"
or "P-2" by Moody's), or (ii) do not possess a rating
(i.e., are unrated) but are determined by the Adviser
or Sub-Adviser to be of comparable quality.
MORTGAGE-BACKED SECURITIES: Debt obligations secured 6-8, 12 Pre-payment
by real estate loans and pools of loans. These Market
include collateralized mortgage obligations and real Credit
estate mortgage investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state 9-11, 14 Market
or political subdivision to obtain funds for various Credit
public purposes Municipal securities include private Political
activity bonds and industrial development bonds, as Tax
well as general obligation bonds, tax anticipation Regulatory
notes, bond anticipation notes, revenue anticipation
notes, project notes, other short-term tax-exempt
obligations, municipal leases, and obligations
</TABLE>
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<TABLE>
<S> <C> <C>
of municipal housing authorities (single family
revenue bonds).
There are two general types of municipal bonds:
General-obligations bonds, which are secured by the
taxing power of the issuer and revenue bonds, which
take many shapes and forms but are generally backed
by revenue from a specific project or tax. These
include, but are not limited, to certificates of
participation (COPs); utility and sales tax
revenues; tax increment or tax allocations; housing
and special tax, including assessment district and
community facilities district issues which are
secured by specific real estate parcels; hospital
revenue; and industrial development bonds that are
secured by a private company.
PREFERRED STOCKS: Preferred Stocks are equity 1-5 Market
securities that generally pay dividends at a
specified rate and have preference over common stock
in the payment of dividends and liquidation.
Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a security 1-17 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price on an
agreed upon date. This is treated as a loan.
RESTRICTED SECURITIES: Securities not registered 2, 6, 7, 8, 12 Liquidity
under the Securities Act of 1933, such as privately Market
placed commercial paper and Rule 144A securities.
REVERSE REPURCHASE AGREEMENT: The sale of a security 4, 5, 15-17 Market
and the simultaneous commitment to buy the security Leverage
back at an agreed upon price on an agreed upon
date. This is treated as a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33 1/3% of 1-17 Market
the Fund's total assets. In return the Fund will Leverage
receive cash, other securities, and/or letters of Liquidity
credit. Credit
STAND-BY COMMITMENTS: The Fund may acquire 14
"stand-by commitments" with respect to Municipal
Securities held in its portfolio. The Fund will
acquire stand-by commitments solely to facilitate
portfolio liquidity.
</TABLE>
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<TABLE>
<S> <C> <C>
TIME DEPOSITS: Non-negotiable receipts issued by a 12-14, 16 Liquidity
bank in exchange for the deposit of funds. Credit
Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 1-12, 15-17 Interest Rate
by agencies and instrumentalities of the U.S. Credit
government. These include Ginnie Mae, Fannie Mae,
and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-13, 15-17 Interest Rate
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured 2 Credit
demand notes that permit the indebtedness to vary Liquidity
and provide for periodic adjustments in the interest Interest Rate
rate according to the terms of the instrument.
Because master demand notes are direct lending
arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary
market in these notes, the Fund may demand payment
of principal and accrued interest at specified
intervals.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations 9-12, 14 Credit
with interest rates which are reset daily, weekly, Liquidity
quarterly or some other period and which may be Market
payable to the Fund on demand.
WARRANTS: Securities, typically issued with 1-5 Market
preferred stock or bonds, that give the holder the Credit
right to buy a proportionate amount of common stock
at a specified price.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 2, 3, 9-12, 14 Market
Purchase or contract to purchase securities at a Leverage
fixed price for delivery at a future date. Under Liquidity
normal market conditions, when-issued purchases and Credit
forward commitments will not exceed 25% of the value
of a Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. 8 Market
dollar denominated bonds issued by foreign Credit
corporations or governments. Sovereign bonds are Interest Rate
those issued by the government of a foreign
country. Supranational bonds are those issued by
supranational entities, such as the World Bank and
European Investment Bank. Canadian
</TABLE>
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<TABLE>
<S> <C> <C>
bonds are those issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt 2, 7-11 Credit
that pay no interest, but are issued at a discount Market
from their value at maturity. When held to Interest Rate
maturity, their entire return equals the difference
between their issue price and their maturity value.
</TABLE>
INVESTMENT RISKS
- ----------------
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Funds may fluctuate, as will the value
of your investment in the Funds. Certain investments and Funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade securities.
The price of a security can be adversely affected prior to actual default as its
credit status deteriorates and the probability of default rises.
FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments. This
also includes the risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. Exchange rate
volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk. Foreign securities may also be
affected by incomplete or inaccurate financial information on companies, social
upheavals or political actions ranging from tax code changes to governmental
collapse. These risks are more significant in emerging markets.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. A rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a rise
in values. Interest rate risk should be modest for shorter-term securities,
moderate for intermediate-term securities, and high for longer-term securities.
Generally, an increase in the average maturity of the Fund will make it more
sensitive to interest rate risk. The market prices of securities structured as
zero coupon or pay-in-kind securities are generally affected to a greater extent
by interest rate changes. These securities tend to be more volatile than
securities which pay interest periodically.
INVESTMENT STYLE RISK. The risk that returns from a particular class or group of
stocks (e.g., value, growth, small cap, large cap) will trail returns from other
asset classes or the overall stock market. Groups or asset classes of stocks
tend to go through cycles of doing better - or worse - than common stocks in
general. These periods can last for periods as long as several years.
Additionally, a particular asset class or group of stocks could fall out of
favor with the market, causing the Fund to underperform funds that focus on
other types of stocks.
LEVERAGE RISK. The risk associated with securities or practices that multiply
small index or market movements into large changes in value. Leverage is often
associated with investments in derivatives, but also may be embedded directly in
the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Portfolio also holds, any loss generated by the
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derivative should be substantially offset by gains on the hedged
investment, and vice versa. Hedges are sometimes subject to imperfect
matching between the derivative and underlying security, and there can
be no assurance that a Portfolio's hedging transactions will be
effective.
SPECULATIVE. To the extent that a derivative is not used as a hedge,
the Portfolio is directly exposed to the risks of that derivative.
Gains or losses from speculative positions in a derivative may be
substantially greater than the derivatives original cost.
LIQUIDITY RISK. The risk that certain securities may be difficult or impossible
to sell at the time and the price that would normally prevail in the market. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on Portfolio
management or performance. This includes the risk of missing out on an
investment opportunity because the assets necessary to take advantage of it are
tied up in less advantageous investments.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
Incomplete matching can result in unanticipated risks.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industrial sector of
the economy or the market as a whole. There is also the risk that the current
interest rate may not accurately reflect existing market rates. For fixed income
securities, market risk is largely, but not exclusively, influenced by changes
in interest rates. A rise in interest rates typically causes a fall in values,
while a fall in rates typically causes a rise in values. Finally, key
information about a security or market may be inaccurate or unavailable. This is
particularly relevant to investments in foreign securities.
POLITICAL RISK. The risk of losses attributable to unfavorable governmental or
political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security will
occur at an unexpected time. Prepayment risk is the chance that the repayment of
a mortgage will occur sooner than expected. Call risk is the possibility that,
during times of declining interest rates, a bond issuer will "call" - or repay -
higher yielding bonds before their stated maturity. Changes in pre-payment rates
can result in greater price and yield volatility. Pre-payments and calls
generally accelerate when interest rates decline. When mortgage and other
obligations are pre-paid or called, a Fund may have to reinvest in securities
with a lower yield. In this event, the Fund would experience a decline in income
- - and the potential for taxable capital gains. Further, with early prepayment, a
Fund may fail to recover any premium paid, resulting in an unexpected capital
loss. Prepayment/call risk is generally low for securities with a short-term
maturity, moderate for securities with an intermediate-term maturity, and high
for securities with a long-term maturity.
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans. These
laws include restrictions on foreclosures, redemption rights after foreclosure,
Federal and state bankruptcy and debtor relief laws, restrictions on "due on
sale" clauses, and state usury laws.
SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky than
stocks of larger companies and may be more vulnerable than larger companies to
adverse business or economic developments. Many of these companies are young and
have a limited track record. Small cap companies may also have limited product
lines, markets, or financial resources. Securities of such companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general and, therefore, may involve greater risk than investing in
larger companies. In addition, small
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cap companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate growth
prospects. If a Fund concentrates on small-capitalization companies, its
performance may be more volatile than that of a fund that invests primarily in
larger companies.
TAX RISK. The risk that the issuer of the securities will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer systems
in almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, BB&T Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. BB&T Funds has made inquiry of its service providers to determine whether
they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to BB&T Funds. While it is likely that such assurances will be
obtained, BB&T Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which BB&T Funds does business.
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FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for the
Funds. 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,
1999, BB&T Corporation had assets of approximately $____ 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 17 years and currently manages assets of
more than $____ billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal year
ended:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- --------------------------
- ---------------------------------------------------------------------------------- --------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF 09/30/99
- ---------------------------------------------------------------------------------- --------------------------
<S> <C>
Growth and Income Stock Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Balanced Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Large Company Growth Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Small Company Growth Fund 1.00%
- ---------------------------------------------------------------------------------- --------------------------
International Equity Fund 1.00%
- ---------------------------------------------------------------------------------- --------------------------
Short-Intermediate U.S. Government Income Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Intermediate U.S. Government Bond Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Intermediate Corporate Bank Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
North Carolina Intermediate Tax-Free Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
South Carolina Intermediate Tax-Free Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
Virginia Intermediate Tax-Free Fund .50%
- ---------------------------------------------------------------------------------- --------------------------
</TABLE>
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<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------- --------------------------
Prime Money Market Fund .30%
- ---------------------------------------------------------------------------------- --------------------------
U.S. Treasury Money Market Fund .40%
- ---------------------------------------------------------------------------------- --------------------------
Tax-Free Money Market Fund __%
- ---------------------------------------------------------------------------------- --------------------------
Capital Manager Conservative Growth Fund __%
- ---------------------------------------------------------------------------------- --------------------------
Capital Manager Moderate Growth Fund __%
- ---------------------------------------------------------------------------------- --------------------------
Capital Manager Growth Fund __%
- ---------------------------------------------------------------------------------- --------------------------
</TABLE>
THE INVESTMENT SUB-ADVISERS
SMALL COMPANY GROWTH FUND. 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.
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, 1999, BFMI had approximately $__ billion in discretionary assets
under management, including $____ billion in mutual fund portfolios. PNC Bank is
a wholly-owned indirect subsidiary of PNC Bank Corp.
INTERNATIONAL EQUITY FUND. 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.
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. 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.
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PORTFOLIO MANAGERS
The primary portfolio manager for each Fund is as follows:
GROWTH AND INCOME STOCK FUND - Richard B. Jones has been the portfolio manager
for the Growth and Income Stock Fund since February 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.
BALANCED FUND AND THE FUND OF FUNDS - David R. Ellis has been the portfolio
manager for the Balanced Fund and the Fund of Funds since their inception. Since
1986, Mr. Ellis has been a portfolio manager in the BB&T Trust Division. He
holds a B.S. degree in Business Administration from the University of North
Carolina at Chapel Hill.
LARGE COMPANY GROWTH FUND - Daniel J. Rivera has been the portfolio manager for
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.
SMALL COMPANY GROWTH FUND - William J. Wykle, has been the portfolio manager for
the Small Company Growth Fund since its inception. Mr. Wykle has been an
investment manager with BFMI since 1995 and has been a Portfolio Manager of the
BlackRock Funds(SM) Small Cap Growth Equity Portfolio since its inception. From
1986 to 1995, he was an investment manager at PNC Bank and its predecessor,
Provident National Bank.
INTERNATIONAL EQUITY FUND - Gordon Anderson has been the portfolio manager of
the International Equity Fund since its inception. Mr. Anderson has served as
Managing and Investment Director of BlackRock International since 1996. Prior to
joining BlackRock International, Mr. Anderson was the Investment Director of
Dunedin Fund Managers Ltd. Mr. Anderson. has been the Portfolio Manager for the
BlackRock Funds(SM) International Equity Portfolio since 1996.
TAXABLE BOND FUNDS -Keith F. Karlawish has been the portfolio manager for the
Intermediate U.S. Government Bond Fund and Short-Intermediate U.S. Government
Income 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.
TAX-FREE BOND FUNDS - C. Steven Brennaman has been the portfolio manager for the
North Carolina Intermediate Tax-Free Fund since January 1988 and manager of the
South Carolina Intermediate Tax-Free Fund and the Virginia Intermediate Tax-Free
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.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as each Fund's administrator. The administrative services of
the Administrator include providing office
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space, equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
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SHAREHOLDER INFORMATION
- -----------------------
CHOOSING A SHARE CLASS
- ----------------------
Class A Shares and Class B Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have it
invested, and whether you plan to make additional investments. Your financial
representative can help you decide which share class is best for you.
CLASS A SHARES
<TABLE>
<S> <C>
o Stock Funds, Bond Funds and Funds of Funds: Front-end sales charges, as described below.
Money Market Funds: No sales charges
o Distribution and service fees of 0.50% of average daily net assets.
o OFFERED BY:
Growth and Income Stock Fund South Carolina Intermediate Tax-Free Fund
Balanced Fund Virginia Intermediate Tax-Free Fund
Large Company Growth Fund Prime Money Market Fund
Small Company Growth Fund U.S. Treasury Money Market Fund
International Equity Fund Tax-Free Money Market Fund
Short-Intermediate U.S. Government Income Fund Capital Manager Conservative Growth Fund
Intermediate U.S. Government Bond Fund Capital Manager Moderate Growth Fund
Intermediate Corporate Bond Fund Capital Manager Growth Fund
North Carolina Intermediate Tax-Free Fund
</TABLE>
CLASS B SHARES
<TABLE>
<S> <C>
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00% of average daily net assets.
o A deferred sales charge, as described on page X.
o Automatic conversion to Class A shares after eight years, thus reducing future annual expenses.
o Maximum investment for all Class B purchases: $250,000.
o OFFERED BY:
Growth and Income Stock Fund Prime Money Market Fund
Balanced Fund U.S. Treasury Money Market Fund
Large Company Growth Fund Tax-Free Money Market Fund
Small Company Growth Fund Capital Manager Conservative Growth Fund
International Equity Fund Capital Manager Moderate Growth Fund
Intermediate U.S. Government Bond Fund Capital Manager Growth Fund
Intermediate Corporate Bond Fund
</TABLE>
NOTE: 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.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could end
up paying more expenses over the long term than if they had paid a sales charge.
The Funds also offer Trust Shares, which have their own expense structure and
are only available to investors who are not fiduciary clients of Branch Banking
and Trust Company and who are not otherwise eligible for Trust Shares. Call the
Distributor for more information (see back cover of this prospectus).
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SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
Generally, for Funds other than the Money Market Funds, you can find the Fund's
NAV daily in The Wall Street Journal and other newspapers. NAV is calculated
separately for each class of shares.
Money Market Funds
Per share net asset value (NAV) for each Fund is determined and its shares are
priced twice a day. The NAV for the Prime Money Market Fund, the U.S. Treasury
Money Market Fund and the Tax-Free Money Market Fund is determined at 12:00 p.m.
Eastern time and at the close of regular trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received. This is what is known as the offering
price.
Each Fund uses the amortized cost method of valuing its investments, which does
not take into account unrealized gains or losses. For further information
regarding the methods used in valuing the Fund's investments, please see the
SAI.
Other Funds
Per share net asset value (NAV) for each Fund is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund less any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price. For further information regarding
the methods used in valuing the Fund's investments, please see the SAI.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees. For further information regarding the methods used in
valuing the Fund's investments, please see the SAI.
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<PAGE> 275
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Funds through the Distributor or through banks, brokers and
other investment representatives, which may charge additional fees and may
require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT
CLASS A OR
CLASS B
Regular $ 1,000 $ 0
Automatic
Investment Plan $ 25 $ 25
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement. The Distributor may reject a
purchase order if it considers it in the best interest of the Fund and its
shareholders.
Throughout the year 2000, BB&T or BISYS is offering a special investment bonus
of up to $50 in value for individuals who purchase Class A or B shares of a BB&T
Fund (excluding Money Market Funds) through BB&T Investment Services. The
minimum investment required to receive the investment bonus is $5000 and the
minimum holding period is six months. One investment bonus is allowed per
shareholder. For more information regarding the investment bonus, you should
call your BB&T Investment Counselor or the BB&T Funds at 1-800-228-1872
- --------------------------------------------------------------------------------
Avoid 31% Tax Withholding
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------
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SHAREHOLDER INFORMATION
- -----------------------
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "BB&T Funds."
3. Mail to: BB&T Funds
P.O. Box 182533
Columbus, OH 43218-2533
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information on a piece of paper:
- BB&T Funds/Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: BB&T Funds
P.O. Box 182533
Columbus, OH 43218-2533
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
4. Send to: BB&T Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
U. S. Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-228-1872. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-228-1872 to arrange a transfer from your bank account.
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SHAREHOLDER INFORMATION
- -----------------------
PURCHASING AND ADDING TO YOUR SHARES
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously. With
an electronic purchase or sale, the
transaction is made through the
Automated Clearing House (ACH) and
may take up to eight days to clear.
There is generally no fee for ACH
transactions.
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Fax the completed application, along with a request for a confirmation number to
1-800-228-1872. Follow the instructions below after receiving your confirmation
number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Huntington National Bank
Routing Number: ABA #044 000024
A/C 01899607383
BB&T Funds
Include:
Your name and account number
Your confirmation number
After instructing your bank to wire the funds, call 1-800-228-1872 to advise us
of the amount being transferred and the name of your bank
- --------------------------------------------------------------------------------
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days notice.
- --------------------------------------------------------------------------------
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Funds from your bank By selecting the
appropriate box account, through payroll deduction or from your federal in the
Account Application, you employment, Social Security or other regular government
can elect to receive your checks. Automatic investments can be as little as $25,
once distributions in cash (check) or you've invested the $25 minimum required
to open the account. have distributions (capital
To invest regularly from your bank account:
o Complete the Automatic Investment Plan portion on your
Account Application or the supplemental sign-up form
o Make sure you note:
o Your bank name, address and account number
o The amount you wish to invest automatically
(minimum $25)
o How often you want to invest (every month, 4
times a year, twice a year or once a year)
o Attach a voided personal check.
Call 1-800-228-1872 for an enrollment form or consult the SAI for additional
information.
DIRECTED DIVIDEND OPTION
gains and dividends) reinvested in another BB&T Fund without a sales charge. You
must maintain the minimum balance in each Fund into which you plan to reinvest
dividends or the reinvestment will be suspended and your dividends paid to you.
The Fund may modify or terminate this reinvestment option without notice. You
can change or terminate your participation in the reinvestment option at any
time.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A Shares than for Class B Shares, because Class A
Shares have lower distribution expenses. Income dividends for the Money Market
Funds and the Bond Funds are declared daily and paid monthly. Income dividends
for the Growth and Income Stock Fund and the Balanced Fund are declared and paid
monthly. The Large Company Growth, the Small Company Growth, the International
Equity, and the Fund of Funds declare and pay income dividends quarterly.
Capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
- --------------------------------------------------------------------------------
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SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares below."
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
- --------------------------------------------------------------------------------
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B shares, you will be charged a fee for any shares that have
not been held for a sufficient length of time. These fees will be deducted from
the money paid to you. See the section on "Distribution Arrangements/Sales
Charges" below for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or her
for redemption procedures. Your adviser and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.
<TABLE>
<S> <C>
By telephone 1. Call 1-800-228-1872 with instructions as to how you wish to
(unless you have declined receive your funds (mail, wire, electronic transfer). (See
telephone sales privileges) "General Policies on Selling Shares--Verifying Telephone
Redemptions" below)
- -------------------------------------- ---------------------------------------------------------------------
By mail 1. Call 1-800-228-1872 to request redemption forms or write a
letter of instruction indicating:
o your Fund and account number o amount
you wish to redeem o address where your
check should be sent o account owner
signature 2. Mail to: BB&T Funds P.O. Box
182533 Columbus, OH 43218-2533
- -------------------------------------- ---------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General Policies on 2. Send to
Selling Shares--Redemptions in BB&T Funds
Writing Required" below) c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
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SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES - CONTINUED
<TABLE>
<S> <C>
Wire transfer Call 1-800-228-1872 to request a wire transfer.
You must indicate this option on
your application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next business day.
The Fund will charge a $7 wire
transfer fee for each wire
transfer request. Note: Your
financial institution may also
charge a separate fee.
- -------------------------------------- ---------------------------------------------------------------------
Electronic Redemptions Call 1-800-228-1872 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares
the Automated Clearing House will normally be determined on the same day and the proceeds
(ACH) and must be a U.S. bank. credited within 7 days.
Your bank may charge for this
service.
</TABLE>
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
o Complete the supplemental sign-up form which you may obtain by calling
1-800-228-1872.
o Include a voided personal check.
o Your account must have a value of $5,000 or more to start withdrawals.
o If the value of your account falls below $1,000, you may be asked to
add sufficient funds to bring the account back to $1,000, or the Fund
may close your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING - Money Market Funds Only
You may write checks in amounts of $100 or more on your account in the Prime
Money Market Fund, U.S. Treasury Money Market Fund or Tax-Free Money Market
Fund. To obtain checks, complete the signature card section of the account
application or contact the Fund to obtain a signature card. Dividends and
distributions will continue to be paid up to the day the check is presented for
payment. The check writing feature may be modified or terminated upon 30-days'
written notice. You must maintain the minimum required account balance in the
Fund of $1,000 and you may not close your Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing and obtain a signature guarantee if:
o The check is not being mailed to the address on your account; or
o The check is not being made payable to the owner of the account.
A signature guarantee can be obtained from a financial institution, such
as a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion
Program). Members are subject to dollar limitations which must be
considered when requesting their guarantee. The Transfer Agent may reject
any signature guarantee if it believes the transaction would otherwise be
improper.
117
<PAGE> 281
SHAREHOLDER INFORMATION
- -----------------------
SELLING YOUR SHARES - CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000, the Fund may ask you to increase your
balance. If it is still below $1,000 after 60 days, the Fund may close your
account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the
appropriate Fund at the current NAV.
118
<PAGE> 282
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CALCULATION OF SALES CHARGES
- --------------------------------------------------------------------------------
Class A Shares
- --------------------------------------------------------------------------------
Class A shares are sold at their public offering price. This price equals NAV
plus the initial sales charge, if applicable. Therefore, part of the money you
invest will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates are as follows:
FOR THE STOCK FUNDS, FUND OF FUNDS, INTERMEDIATE U.S. GOVERNMENT BOND FUND AND
INTERMEDIATE CORPORATE BOND FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- ----------------------------------------- ----------------------- ----------------------
<S> <C> <C>
Up to $99,999 4.50% 4.71%
- ----------------------------------------- ----------------------- ----------------------
$100,000 up to $249,999 3.50% 3.63%
- ----------------------------------------- ----------------------- ----------------------
$250,000 up to $499,999 2.50% 2.56%
- ----------------------------------------- ----------------------- ----------------------
$500,000 up to $999,999 1.50% 1.52%
- ----------------------------------------- ----------------------- ----------------------
$1,000,000 and above(1) 0.00% 0.00%
- ----------------------------------------- ----------------------- ----------------------
</TABLE>
FOR THE TAX-FREE BOND FUNDS AND THE SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME
FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- ----------------------------------------- ----------------------- ----------------------
<S> <C> <C>
Up to $99,999 2.00% 2.04%
- ----------------------------------------- ----------------------- ----------------------
$100,000 up to $249,999 1.50% 1.52%
- ----------------------------------------- ----------------------- ----------------------
$250,000 up to $499,999 1.00% 1.01%
- ----------------------------------------- ----------------------- ----------------------
$500,000 up to $999,999 0.50% 0.50%
- ----------------------------------------- ----------------------- ----------------------
$1,000,000 and above(1) 0.00% 0.00%
- ----------------------------------------- ----------------------- ----------------------
</TABLE>
FOR THE MONEY MARKET FUNDS
NO SALES CHARGES.
- --------
1 There is no initial sales charge on purchases of $1 million or more. However,
a contingent deferred sales charge (CDSC) of up to 1.00% of the purchase price
will be charged to the shareholder if shares are redeemed in the first year
after purchase. This charge will be based on the lower of your cost for the
shares or their NAV at the time of redemption. There will be no CDSC on
reinvested distributions. For sales of over $1 million 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.
119
<PAGE> 283
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Class B shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class B shares of the Fund before the sixth anniversary, you will have to
pay a contingent deferred sales charge at the time of redemption. The CDSC will
be based upon the lower of the NAV at the time of purchase or the NAV at the
time of redemption according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
<TABLE>
<CAPTION>
CLASS B SHARES
- -------------------------------------------------------- ------------------------------------------------------
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT 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%
more than 6 None
- -------------------------------------------------------- ------------------------------------------------------
</TABLE>
If you sell some but not all of your Class shares, certain shares not subject to
the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed
first, followed by shares subject to the lowest CDSC (typically shares held for
the longest time).
CONVERSION FEATURE - CLASS B SHARES
o Class B shares automatically convert to Class A shares of the same Fund
after eight years from the end of the month of purchase.
o After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares which will increase
your investment return compared to the Class B shares.
o You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
o If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B shares.
o The dollar value of Class A shares you receive will equal the dollar value
of the Class B shares converted.
120
<PAGE> 284
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.
o Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
o Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
o Combination Privilege. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members
(spouse and children under 21) to achieve reduced sales charges.
SALES CHARGE WAIVERS
CLASS A SHARES
- --------------
The following qualify for waivers of sales charges:
o Existing Shareholders of a Fund upon the reinvestment of dividend and
capital gain distributions;
o Shares purchased with proceeds from redemptions from another mutual fund
complex within 60 days after redemption, if you paid a front end sales
charge for those shares.
o 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);
o Investors for whom a BB&T correspondent bank or other financial institution
acts in a fiduciary, advisory, custodial, agency, or similar capacity.
o BB&T Fund shares purchased with 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;
o Investors who beneficially hold Trust Shares of any Fund of the BB&T Funds;
o 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 purchase of Shares;
o 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
The Distributor may also waive the sales charge at anytime in its own
discretion. Consult the SAI for more details concerning sales charges waivers.
- --------------------------------------------------------------------------------
REINSTATEMENT PRIVILEGE
If you have sold Class A shares and decide to reinvest in the Fund within a 90
day period, you will not be charged the applicable sales charge on amounts up to
the value of the shares you sold. You must provide a written request for
reinstatement and payment within 90 days of the date your instructions to sell
were processed.
- --------------------------------------------------------------------------------
121
<PAGE> 285
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
CLASS B SHARES
- --------------
The CDSC will be waived under certain circumstances, including the following:
o Minimum required distributions from an IRA or other qualifying retirement
plan to a Shareholder who has attained age 70 1/2.
o Redemptions from accounts following the death or disability of the
shareholder.
o Investors who purchased through a participant directed defined benefit
plan.
o Returns of excess contributions to retirement plans.
o Distributions of less than 12% of the annual account value under an Auto
Withdrawal Plan.
o Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
o Investors who purchased through the Cash Sweep Program at BB&T Treasury
Services Division.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment.
o The 12b-1 and shareholder servicing fees vary by share class as
follows:
o Class A shares pay a 12b-1 fee of up to .50% of the average daily
net assets of a Fund.
o Class B shares pay a 12b-1 fee of up to 1.00% of the average
daily net assets of the applicable Fund. This will cause expenses
for Class B shares to be higher and dividends to be lower than
for Class A shares.
o The higher 12b-1 fee on Class B shares, together with the CDSC, help
the Distributor sell Class B shares without an "up-front" sales
charge. In particular, these fees help to defray the Distributor's
costs of advancing brokerage commissions to investment
representatives.
o The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
Over time shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees are
paid out of the Fund's assets on an on-going basis.
122
<PAGE> 286
SHAREHOLDER INFORMATION
- -----------------------
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of the same class of another
BB&T Fund, usually without paying additional sales charges (see "Notes" below).
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable. Class A Shares
and Class B Shares may also be exchanged for Trust Shares of the same Fund if
you become eligible to purchase Trust Shares. Class B Shares may not be
exchanged for Class A Shares. Please consult the Trust Share prospectus for more
information. No transaction fees are currently charged for exchanges.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to BB&T Funds, P.O. Box
182533, Columbus OH 43218-2533, or by calling 1-800-228-1872. Please provide the
following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Fund from which the exchange is to be made.
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four exchanges from a Fund
during a calendar year.
- --------------------------------------------------------------------------------
123
<PAGE> 287
AUTOMATIC EXCHANGES -
CLASS B SHARES ONLY
You can use the Funds' Automatic Exchange feature to purchase Class B Shares of
the Funds at regular intervals through regular, automatic redemptions from the
your BB&T Fund account. Shareholders investing directly in Class B Shares of the
Money Market Funds, as opposed to Shareholders obtaining Class B Shares of the
Money Market Funds upon exchange of Class B Shares of any of the other Funds
will be requested to participate in the Auto Exchange Plan and to set the time
and amount of their regular, automatic withdrawal in such a way that all of the
Class B Shares have been withdrawn from the U.S. Treasury , Prime, or Tax-Free
Money Market Fund within 2 years of purchase. To participate in the Automatic
Exchange:
o Complete the appropriate section of the Account Application.
o Keep a minimum of $10,000 in your BB&T Funds account and $1,000 in the
Fund whose shares you are buying.
To change the Automatic Exchange instructions or to discontinue the feature, you
must send a written request to BB&T Funds, P.O. Box 182533, Columbus, Ohio
43218-2533.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge to
a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
124
<PAGE> 288
SHAREHOLDER INFORMATION
- -----------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or gains
earned by the Fund before your investment (and thus were included in the price
you paid).
For the Tax-Free Bond Funds and Tax-Free Money Market Fund, the income dividends
that you receive are expected to be exempt from federal income taxes and, in the
case of the North Carolina Intermediate Tax-Free Fund, South Carolina
Intermediate Tax-Free Fund and Virginia Intermediate Tax-Free Fund, North
Carolina, South Carolina and Virginia income taxes, respectively. However, if
you receive social security or railroad retirement benefits, you should consult
your tax adviser to determine what effect, if any, an investment in the Tax-Free
Bond Funds or Tax-Free Money Market Fund may have on the federal taxation of
your benefits. In addition, an investment in the Tax-Free Bond Funds or Tax-Free
Money Market Fund may result in liability for federal alternative minimum tax,
both for individual and corporate shareholders.
A Fund's investments in foreign securities may be subject to foreign withholding
taxes. In that case, a Fund's yield on those securities would be decreased.
Shareholders generally will not be entitled to claim a credit or deduction with
respect to foreign taxes. In addition, a Fund's investments in foreign
securities or foreign currencies may increase or accelerate a Fund's recognition
of ordinary income and may affect the timing or amount of a Fund's
distributions.
Any gain resulting from the sale or exchange of your Fund Shares (even if the
income from which is tax exempt) will generally be subject to tax. You should
consult your tax adviser for more information on your own tax situation,
including possible state and local taxes.
BB&T Funds will send you a statement each year showing the tax status of all
your distributions.
o For each Fund, other than the Tax-Free Bond Funds and Tax-Free Money Market
Fund, the dividends and short-term capital gains that you receive are
considered ordinary income for tax purposes. For the Tax-Free Bond Funds
and Tax-Free Money Market Fund, any short-term capital gains that you
receive are taxable to you as ordinary dividend income for Federal income
tax purposes.
o Any distributions of net long-term capital gains by a Fund are taxable to
you as long-term capital gains for tax purposes, no matter how long you've
owned shares in the Fund.
o Generally, the Funds' advisers do not consider taxes when deciding to buy
or sell securities. Capital gains are realized from time to time as
by-products of ordinary investment activities. Distributions may vary
considerably from year to year.
o If you sell or exchange shares, any gain or loss you have is a taxable
event. This means that you may have a capital gain to report as income, or
a capital loss to report as a deduction, when you complete your federal
income tax return.
o Distributions of dividends or capital gains, and capital gains or losses
from your sale or exchange of Fund shares, may be subject to state and
local income taxes as well.
125
<PAGE> 289
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.)
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
126
<PAGE> 290
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUNDS'
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS OR, IF SHORTER, THE PERIOD OF THE
FUNDS' OPERATIONS. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED [OR LOST] ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT
OF ALL DIVIDENDS AND DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY
_____________________, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS,
ARE INCLUDED IN THE SAI, WHICH IS AVAILABLE UPON REQUEST.
INSERT PAST 5 YEARS'
FINANCIAL HIGHLIGHTS
FROM ANNUAL REPORT.
127
<PAGE> 291
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, PROSPECTUSES OF OTHER MEMBERS OF
THE BB&T FUNDS FAMILY, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS
ABOUT THE FUND BY CONTACTING A BROKER OR BANK THAT SELLS THE FUND. OR CONTACT
THE FUND AT:
BB&T FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-228-1872
E-MAIL: _________
INTERNET: HTTP://www.bbtfunds.com
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
<PAGE> 292
----------------
BB&T FUNDS
Statement of Additional Information
February 1, 2000
----------------
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, 2000, the Prospectus of the BB&T U.S. Treasury Money
Market Fund, the BB&T Prime Money Market Fund, and the BB&T Tax-Free Money
Market Fund which is dated February 1, 2000 and the Prospectus of the BB&T Small
Company Growth Fund (Trust Shares) which is dated February 1, 2000. This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectuses. Copies of the Prospectuses
<PAGE> 293
may be obtained by writing BB&T Funds at 3435 Stelzer Road, Columbus, Ohio
43219, or by telephoning toll free (800) 228-1872.
-2-
<PAGE> 294
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BB&T FUNDS......................................................................................................B-1
INVESTMENT OBJECTIVES AND POLICIES..............................................................................B-2
Additional Information on Portfolio Instruments........................................................B-2
Investment Restrictions...............................................................................B-27
Portfolio Turnover....................................................................................B-33
VALUATION......................................................................................................B-34
Valuation of the Money Market Funds...................................................................B-35
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-35
Valuation of the International Equity Fund............................................................B-36
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................B-37
Purchase of Class A and Class B Shares................................................................B-37
Matters Affecting Redemption..........................................................................B-44
ADDITIONAL TAX INFORMATION.....................................................................................B-46
Additional Tax Information Concerning the International Equity Fund...................................B-50
Additional Tax Information Concerning the North Carolina, South Carolina
and Virginia Funds...........................................................................B-50
Special Considerations Regarding Investment in South Carolina Tax-Exempt Obligations..................B-58
MANAGEMENT OF BB&T FUNDS.......................................................................................B-66
Officers..............................................................................................B-68
Investment Adviser....................................................................................B-69
Sub-Advisers..........................................................................................B-70
Portfolio Transactions................................................................................B-73
Glass-Steagall Act....................................................................................B-76
Manager and Administrator.............................................................................B-77
Distributor...........................................................................................B-79
Custodian.............................................................................................B-82
Independent Auditors..................................................................................B-83
Legal Counsel.........................................................................................B-83
PERFORMANCE INFORMATION........................................................................................B-83
Yields of the Money Market Funds......................................................................B-83
</TABLE>
<PAGE> 295
<TABLE>
<CAPTION>
<S> <C>
Yields of the Other Funds of the BB&T Funds...........................................................B-84
Calculation of Total Return...........................................................................B-86
Performance Comparisons...............................................................................B-88
ADDITIONAL INFORMATION.........................................................................................B-98
Organization and Description of Shares................................................................B-98
Shareholder and Trustee Liability.....................................................................B-99
Miscellaneous........................................................................................B-100
FINANCIAL STATEMENTS..........................................................................................B-115
Audited Financial Statements as of September 30, 1999...............................................B-115
APPENDIX......................................................................................................B-116
</TABLE>
-ii-
<PAGE> 296
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"):
Money Market 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")
Bond Funds
Taxable Bond 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 Intermediate Corporate Bond Fund (the "Intermediate Corporate Bond
Fund")
Tax-Free Bond Funds
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")
Stock Funds
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")
Funds of Funds
The BB&T Capital Manager Conservative Growth Fund (the "Conservative Growth
Fund")
The BB&T Capital Manager Moderate Growth Fund (the "Moderate Growth Fund")
The BB&T Capital Manager Growth Fund (the "Growth Fund")
The Funds of Funds 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 of the Short-Intermediate
Fund, the North Carolina Fund, the South Carolina Fund, and the Virginia Fund
were not yet being offered. Class A, B and Trust Shares of the Equity Index
Fund, Tax-Free Money Market Fund, and Intermediate Corporate Bond Fund were also
not yet being offered. Much of the information contained in this Statement of
Additional Information
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expands on subjects discussed in the Prospectuses. Capitalized terms not defined
herein are defined in the Prospectuses. No investment in Shares of a Fund should
be made without first reading the applicable Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the information pertaining to
portfolio instruments of each Fund as set forth in the Prospectuses.
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("NRSROs") that may be
used by Branch Banking and Trust Company ("BB&T" or the "Adviser"), BlackRock
Financial Management, Inc. ("BFMI"), BlackRock International, Ltd. ("BlackRock
International") and BlackRock Institutional Management Corporation ("BIMC")
(BFMI, BlackRock International and BIMC, each a "Sub-Adviser") with regard to
portfolio investments for the Funds and provides a description of relevant
ratings assigned by each such NRSRO. A rating by an NRSRO may be used only where
the NRSRO is neither controlling, controlled by, nor under common control with
the issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds,
except the U.S. Treasury Fund, may invest in bankers' acceptances, certificates
of deposit, and demand and time deposits. 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.
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.
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Commercial paper purchasable by each Fund, except for the U.S. Treasury
Fund, includes "Section 4(2) paper," a term that includes debt obligations
issued in reliance on the "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) paper is
restricted as to disposition under the Federal securities laws, and is
frequently sold (and resold) to institutional investors such as the Fund through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. Certain transactions in Section 4(2)
paper may qualify for the registration exemption provided in Rule 144A under the
Securities Act of 1933 (the "1933 Act").
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.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which each Fund, except for the U.S. Treasury Fund, 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 or, if
longer, the period of time remaining until the next adjustment of the interest
rate.
FOREIGN INVESTMENT. The Prime Money Market Fund, the Intermediate
Corporate Bond Fund, the Stock Funds 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,
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denominated in U.S. dollars and held in the United States, Eurodollar Time
Deposits ("ETD's") which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank, and Canadian Time Deposits ("CTD's")
which are U.S. dollar denominated certificates of deposit issued by Canadian
offices of major Canadian Banks, Canadian Commercial Paper, which is commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and European commercial paper, which is U.S. dollar denominated
commercial paper of an issuer located in Europe. The Funds may invest in foreign
commercial paper, including Canadian and European commercial paper as described
above. The Intermediate Corporate Bond Fund may also invest in debt obligations
of foreign issuers denominated in foreign currencies.
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.
Investments in securities issued by foreign branches of U.S. banks,
foreign banks, or other foreign issuers, including American Depositary 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.
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 Depositary Receipts, are
receipts issued in Europe, typically by foreign banks and trust companies, that
evidence ownership of either foreign or domestic underlying securities. GDRs are
depository receipts structured like global debt issues to facilitate trading on
an international basis. Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuers may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer.
Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.
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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.
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 less liquid 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 expense ratio of the International Equity Fund is expected to be
higher than that of other 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.
FOREIGN CURRENCY TRANSACTIONS. The International Equity Fund may use
forward foreign currency exchange contracts ("forward 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 foreign currency exchange contracts do
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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 Euro) relative to
the U.S. dollar in connection with specific portfolio transactions or with
respect to portfolio positions. The Fund may enter into forward foreign currency
exchange contracts when deemed advisable by its Sub-Adviser under two
circumstances. First, when entering into a contract for the purchase or sale of
a security, the Fund may enter into a forward foreign currency exchange contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the U.S.
dollar or other foreign currency.
Second, when the Fund's Sub-Adviser anticipates that a particular
foreign currency may decline relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. With respect to any forward foreign currency exchange 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
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interest). In addition, securities subject to repurchase agreements will be held
in a segregated account.
If the seller were to default on its repurchase obligation or become
insolvent, a Fund holding such obligation would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities held by the Fund were delayed pending court action.
Additionally, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Fund is treated as an
unsecured creditor and required to return the underlying security to the
seller's estate. Securities subject to repurchase agreements will be held by the
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. 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 liquid 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. 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 SECURITIES. 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 securities and in other
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. These securities will constitute the primary investment of
the Short-Intermediate Fund and the Intermediate U.S. Government Bond Fund. Such
securities 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 securities; 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.
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
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United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks, or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities. Although under normal market conditions,
the Prime Money Market Fund does not expect to do so, except in connection with
repurchase agreements, it may invest in such mortgage-backed pass-through
securities.
The Short-Intermediate, 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 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).
SUPRANATIONAL ORGANIZATIONAL OBLIGATIONS. The Large Company Growth
Fund, the Small Company Growth Fund, the Equity Index Fund, the International
Equity Fund and the
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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
and the Stock Funds may invest in "investment grade securities," which are
securities rated in the four highest rating categories of an NRSRO. It should be
noted that debt obligations rated in the lowest of the top four ratings (i.e.,
"Baa" by Moody's 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. The Growth and Income Fund, Balanced Fund, Large Company Growth Fund
and Small Company Growth Fund may each invest up to 35% of their total assets in
such securities.
NON-INVESTMENT GRADE SECURITIES. The Intermediate Corporate Bond Fund
may invest in debt securities rated below investment grade, also known 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.
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 non-investment grade
securities to 15% of its total assets. Subject to SEC restrictions, the
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Intermediate Corporate Bond Fund may invest in such securities by investing in
investment companies that primarily invest in non-investment grade securities.
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-backed securities ("SMBSs"). 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. SMBSs 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.
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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 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.
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
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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.
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. 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. 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 NRSROs represent their opinions as to the quality of
Municipal
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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.
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."
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.
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
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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.
TAXABLE OBLIGATIONS. Under normal market conditions, the Tax-Free Money
Market Fund may invest up to 20% of its net 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
net 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.
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.
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TAX-EXEMPT OBLIGATIONS. Under normal market conditions, the North
Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax and
North Carolina personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). Under normal market conditions, the South Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of South Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and South
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("South Carolina
Tax-Exempt Obligations"). 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,
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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, 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 nor South Carolina issuers have authority to issue moral
obligation securities. Moral obligation securities are issued by state and local
governments in Virginia. 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.
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. 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 while in Virginia, such obligations are not included in the calculation of
applicable debt limits, provided such obligations are properly structured), 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-
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appropriation" clauses which provide that the lessee has no obligation to make
lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. Under guidelines established
by the Board of Trustees, the following factors will be considered when
determining the liquidity of a lease obligation: (1) the frequency of trades and
quotes for the obligation; (2) the number of dealers willing to purchase or sell
the obligation and the number of potential buyers; (3) the willingness of
dealers to undertake to make a market in the obligation; and (4) the nature of
the marketplace trades.
VARIABLE AND FLOATING RATE NOTES. The Tax-Free Bond Funds may acquire
variable and floating rate tax-exempt notes, subject to each Fund's investment
objective, policies, and restrictions. 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. 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
Tax-Free Bond Funds, (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 Tax-Free Bond Funds (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 or the
Tax-Free Bond Funds, 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. 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 each Tax-Free Bond Fund's net assets (10% for
the Prime Money Market Fund and the Tax-Free Money Market Fund) 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.
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For purposes of the Tax-Free Bond Funds, 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.
WHEN-ISSUED SECURITIES. 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. 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.
CALLS. The Stock Funds 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 liquid portfolio securities equal to the contract value.
A call option is also covered if the Fund holds a call on the same security or
index as the call written where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or liquid portfolio securities 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
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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. 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.
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
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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.
PUTS. The Tax-Free Bond Funds 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. 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. 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.
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Puts may be acquired by the Tax-Free Bond Funds, 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 Tax-Free Bond Funds, 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 Tax-Free Bond Funds, 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.
PUT AND CALL OPTIONS. 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.
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 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.
STAND-BY COMMITMENTS. The Tax-Free Bond Funds 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 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.
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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
stand-by 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 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
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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). 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. 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.
RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. The Stock Funds 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.
INDEX-BASED INVESTMENTS. 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 Index-Based Investments, such as Standard & Poor's
Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ 100s")
and Dow Jones DIAMONDS ("Diamonds"), which are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the American Stock
Exchange.
A UIT will generally issue Index-Based Investments in aggregations of
50,000 known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a
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portfolio of securities substantially similar to the component securities
("Index Securities") of the applicable index (the "Index"), (b) a cash payment
equal to a pro rata portion of the dividends accrued on the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the Index and the net asset value of a Portfolio
Deposit.
Index-Based Investments are not individually redeemable, except upon
termination of the UIT. To redeem, the portfolio must accumulate enough
Index-Based Investments to reconstitute a Creation Unit (large aggregations of a
particular Index-Based Investment). The liquidity of small holdings of
Index-Based Investments, therefore, will depend upon the existence of a
secondary market. Upon redemption of a Creation Unit, the portfolio will receive
Index Securities and cash identical to the Portfolio Deposit required of an
investor wishing to purchase a Creation Unit that day.
The price of Index-Based Investments is derived and based upon the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of Index-Based Investments is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based Investments
purchased or sold by the Portfolio could result in losses on Index-Based
Investments. Under the 1940 Act, a fund must limit investments in Index-Based
Investments to 5% of the fund's total assets and 3% of the outstanding voting
securities of the Index-Based Investments issuer. Moreover, a Fund's investments
in Index-Based Investments, when aggregated with all other investments in
investment companies, may not exceed 10% of the Fund's total assets.
INVESTMENT COMPANIES. For liquidity purposes, each Fund, except the
U.S. Treasury Fund and the Fund of Funds, may invest up to 5% of the value of
its total assets in the securities of any one money market mutual fund and up to
10% of its total assets in more than one money market mutual fund. Pursuant to
exemptive relief granted by the SEC for each Fund, except the Prime Money Market
Fund, the U.S. Treasury Fund, and the Tax-Free Money Market Fund, investments in
money market funds may include Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, and the Tax-Free Money Market Fund. In order to avoid the
imposition of additional fees as a result of investments in Shares of the Prime
Money Market Fund, the U.S. Treasury Fund, or the Tax-Free Money Market Fund,
BB&T and BISYS Fund Services (the "Administrator") 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, the U.S. Treasury Fund,
or the Tax-Free Money Market 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.
In addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds."
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Country funds have portfolios consisting exclusively of securities of issuers
located in one country.
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.
CONVERTIBLE SECURITIES. The Intermediate Corporate Bond Fund and the
Stock Funds 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.
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
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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.
SECURITIES LENDING. In order to generate additional income, each Fund,
except the Tax-Free Bond Funds, 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 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.
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 this Statement of Additional Information).
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 Bond 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
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of assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
2. Purchase any securities that would cause 25% or more of the value of
such Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
and repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
Each of the Funds of Funds may not:
1. Purchase any securities that would cause 25% or more of the value of
such Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities or securities issued by
"regulated investment companies" as defined in the Internal Revenue Code of
1986, as amended (the "Code"); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
2. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or
"regulated investment companies" as defined in the Code, if, immediately after
such purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, or the Fund would hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding voting securities
of the issuer, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may not:
1. Purchase any securities that would cause 25% or more of the value of
such Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, 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
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by obligations of the U.S. Government or its agencies or instrumentalities; (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas, electric,
and telephone will each be considered a separate industry.
2. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations. There is no limit to
the percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The International Equity Fund may not:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Fund's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Fund, except that up to 25% of the value of the
Fund's total assets may (taken at current value) be invested without regard to
these limitations. For purposes of this limitation, a security is considered to
be issued by the entity (or entities) whose assets and revenues back the
security. A guarantee of a security shall not be deemed to be a security issued
by the guarantors when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's
total assets.
2. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued (as defined in Investment Limitation No. 1 above) or
guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivision, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.
3. 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.
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4. 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.
5. 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.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related options or the
Fund's sale of securities short against the box, and (b) the Fund may obtain
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
7. 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.
Each of the Funds may not:
1. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% (one-third with respect to the Prime Money Market
Fund and the International Equity Fund) of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of (one-third
of the value of the Fund's total assets at the time of such borrowing with
respect to the Prime Money Market Fund and the International Equity Fund) the
lesser of the dollar amounts borrowed or 10% of the value of a Fund's total
assets at the time of its borrowing. Each of the Funds (except the U.S. Treasury
Fund) will not purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are outstanding. The
U.S. Treasury Fund will not purchase securities while borrowings are
outstanding.
2. Make loans, except that each of the Funds may purchase or hold debt
securities and lend portfolio securities in accordance with its investment
objective and policies and may enter into repurchase agreements.
The North Carolina Fund, 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
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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.
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 acquiring Fund, or
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(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 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.
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2. Underwrite securities except to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as such
statutes, rules or regulations may be amended from time to time.
3. Purchase or sell commodities, commodities contracts, futures
contracts, or real estate except to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statutes,
rules or regulations may be amended from time to time.
Although the foregoing investment limitations would permit the Prime
Money Market Fund to invest in options, futures contracts and options on futures
contracts, the Fund does not currently intend to trade in such instruments or
engage in such transactions during the next twelve months (except to the extent
a portfolio security may be subject to a "demand feature" or "put" as permitted
under SEC regulations for money market funds). Prior to making any such
investments, the Prime Money Market Fund would notify its shareholders and add
appropriate descriptions concerning the instruments and transactions to its
Prospectus.
The following investment restrictions are considered non-fundamental
and therefore may be changed by a vote of a majority of the Trustees of the 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.
1. 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 instruments which are not readily marketable.
2. None of the Funds (except the Prime Money Market Fund) may
invest in any issuer for purposes of exercising control or
management.
3. 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, 1999, and September 30, 1998,
the portfolio turnover rates for each of the Funds with a full year of
operations in the subject fiscal years (other than the Money Market Funds) were
as follows:
Fund 1999 1998
Short-Intermediate Fund % 53.74%
Intermediate U.S. Government Bond Fund % 60.98%
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Intermediate Corporate Bond Fund % N/A
North Carolina Fund % 32.63%
South Carolina Fund % N/A
Virginia Fund % N/A
Growth and Income Fund % 13.17%
Balanced Fund - common stock % 11.88%
- fixed income % 61.41%
Large Company Growth Fund % N/A
Small Company Growth Fund % 157.44%
International Equity Fund % N/A
Equity Index Fund % N/A
Capital Manager Conservative Growth Fund % N/A
Capital Manager Moderate Growth Fund % N/A
Capital Manager Growth Fund % N/A
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."
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 each of the
Money Market Fund was zero percent for the fiscal years ended September 30, 1999
and September 30, 1998, 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
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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 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
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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.
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
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method does not represent fair value. All other assets and securities held by
the Fund (including restricted securities) are valued at fair value as
determined in good faith by the Board of Trustees or by someone under its
direction. Any assets which are denominated in a foreign currency are translated
into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
As discussed above, the International Equity Fund may use a pricing
service or market/dealer experienced in such matters to value the Fund's
securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares 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. 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. 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
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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").
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.
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.
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.
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.
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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.
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.
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, the Virginia Fund, and the Tax-Free Money Market Fund would not be
appropriate for any IRA. Shareholders are advised to consult a tax adviser on
BB&T Funds IRA contribution and withdrawal requirements and restrictions.
Sales Charges
- -------------
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. However,
the Distributor, in its sole discretion, may pay certain dealers all or part of
the portion of the sales charge it receives. A broker or dealer who receives a
reallowance in excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the 1933 Act. From time to time dealers who
receive dealer discounts and broker commissions from the Distributor
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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. Neither
BISYS nor dealers are permitted to delay the placement of orders to benefit
themselves by a price change.
The sales charges set forth in the table above are applicable to
purchases made at one time by any purchaser (a "Purchaser"), which includes: (i)
an individual, his or her spouse and children under the age of 21; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
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.
Sales Charge Reductions and Waivers
- -----------------------------------
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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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 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
above) 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.
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Accumulation privileges may be amended or terminated without notice at any time
by the Distributor.
Proceeds from the Contingent Deferred Sales Charge and the distribution
and Shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.30% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission at its sole
discretion.
CLASS B SHARES. 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 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."
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.
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Exchange Privilege
- ------------------
CLASS A. 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.
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 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.
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.
ADDITIONAL INFORMATION. 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.
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.
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Matters Affecting Redemption
- ----------------------------
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 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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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.
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.
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 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.
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ADDITIONAL TAX INFORMATION
Each Fund will be treated as a separate entity for federal income tax
purposes. 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.
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.
In order to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, a Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale of stock,
securities, and foreign currencies, or other income (including but not limited
to gains from options, futures, or forward contracts) derived with respect to
its business of investing in such stock, securities, or currencies; (b) each
year distribute at least 90% of its dividend, interest (including tax-exempt
interest), and certain other income and the excess, if any, of its net
short-term capital gains over its net long-term capital losses; and (c)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of its assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited in respect of any one issuer to a value not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the U.S. Government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses.
A non-deductible excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they have a non-calendar taxable year) an amount equal to 98% of their "ordinary
income" (as defined) for the calendar year plus 98% of their capital gain net
income for the 1-year period ending on October 31 of such calendar year plus any
undistributed amounts from prior years. For the foregoing purposes, a Fund is
treated as having distributed any amount on which it is subject to income tax
for any 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
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<PAGE> 342
distributions will be the same whether a Shareholder reinvests them in
additional shares or elects to receive them in cash. A Fund of Funds will not be
able to offset gains realized by one Fund in which such Fund of Funds invests
against losses realized by another Fund in which such Fund of Funds invests. The
use of a fund-of-funds structure could therefore affect the amount, timing and
character of distributions to shareholders.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular Shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of a Fund (whether by redemption, sale
or exchange), a Shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the Shareholder's
hands, and will be long-term or short-term generally depending upon the
Shareholder's holding period for the shares. Depending on the percentage
ownership by a Fund of Funds in an underlying Fund both before and after a
redemption, a redemption of Fund shares by the Fund of Funds may cause the Fund
of Funds to be treated as not receiving capital gain income on the amount by
which the distribution exceeds the tax basis of the Fund of Funds in the shares
of the underlying Fund, but instead to be treated as receiving a dividend
taxable as ordinary income on the full amount of the distribution. This could
cause Shareholders of a Fund of Funds to recognize higher amounts of ordinary
income than if the Shareholders had held the shares of the underlying Funds
directly.
Each 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."
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.
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.
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Dividends will generally be taxable to a Shareholder as ordinary income
to the extent of the Shareholder's ratable share of the earnings and profits of
a Fund as determined for tax purposes. Certain dividends paid by the Growth and
Income, Balanced, Large Company Growth, Small Company Growth, and International
Equity Funds, and so-designated by the Funds, may qualify for the dividends
received deduction for corporate shareholders. A corporate shareholder will only
be eligible to claim such a dividends received deduction with respect to a
dividend from one of these Funds if the shareholder held its shares on the
ex-dividend date and for at least 45 more days during the 90-day period
surrounding the ex-dividend date. Because all of the net investment income of
the remaining Funds is expected to be interest income, it is anticipated that no
distributions from such Funds will qualify for the dividends received deduction.
Distributions designated by a Fund as deriving from net gains on securities held
for more than one year will be taxable to Shareholders as such, regardless of
how long the Shareholder has held Shares in the Fund. Shareholders who are not
subject to tax on their income generally will not have to pay federal income tax
on amounts distributed to them.
Distributions are taxable to a Shareholder of a Fund even if they are
paid from income or gains earned by the Fund prior to the Shareholder's
investment (and thus were included in the price paid by the Shareholder).
Dividends that are derived from interest on a Fund's investments in
U.S. Government Securities and that are received by a Shareholder who is a North
Carolina, 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.
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
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<PAGE> 344
such investments to market annually or to treat the passive foreign investment
company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent of more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain income
received from related persons.
Although each Fund expects to qualify as a "regulated investment
company" (a "RIC") and to be relieved of all or substantially all Federal income
taxes, depending upon the extent of their activities in states and localities in
which their offices are maintained, in which their agents or independent
contractors are located, or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or localities.
If for any taxable year a Fund does not qualify for the special Federal tax
treatment afforded a RIC, all of its taxable income will be subject to Federal
income tax at regular corporate rates at the Fund level (without any deduction
for distributions to its Shareholders). In addition, distributions to
Shareholders will be taxed as ordinary income even if the distributions are
attributable to capital gains or exempt interest earned by the Fund.
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 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.
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Additional Tax Information Concerning 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.
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.
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 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.
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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 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 from the North Carolina Fund 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 from the South Carolina Fund 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. However, distributions from the South
Carolina Fund may be subject to certain estate transfer and bank transfer taxes
by South Carolina.
Distributions from the Virginia Fund 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
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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 Statement of Additional
Information.
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 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
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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.
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-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
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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 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.
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SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS
The concentration of investments in North Carolina Tax-Exempt
Obligations by the North Carolina Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
North Carolina and its political subdivisions, agencies, instrumentalities, and
authorities could adversely affect the value of the North Carolina Fund and its
portfolio securities. This section briefly describes current economic trends in
North Carolina. The information set forth below is derived from official
statements prepared in connection with the issuance of North Carolina Tax-Exempt
Obligations and other sources that are generally available to investors. The
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 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
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year 1998 ended with a positive General Fund Balance which was expected to
exceed one billion dollars. On October 28, 1998, the North Carolina General
Assembly adopted the biennium budget for 1998 to 2000. The $12.6 billion budget
for fiscal year 1999 included over $100 million in new spending for the state's
universities and community colleges, over $90 million in new spending for health
and human services, including $42.5 million for expansion of North Carolina's
Smart Start program for preschool children, and almost $30 million in new
spending on law enforcement. The legislature also approved teacher pay raises
averaging 6.5 percent.
The General Assembly also took action to reduce some taxes, including
elimination of the sales tax on food (estimated cost $185.5 million 1999-2000)
and the inheritance tax (estimated cost $52.5 million 1999-2000).
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject to
change which may be material and affect the budget. The Congress of the United
States is considering a number of matters affecting the Federal government's
relationship with state governments that, if enacted into law, could affect
fiscal and economic policies of the states, including North Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina Employment
Security Commission (the "Commission"), in July 1998, North Carolina ranked
tenth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in September 1998 to be 3.5% of the labor force, as
compared with an unemployment rate of 4.5% nationwide.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
1. Swanson v. State of North Carolina -- State Tax Refunds - Federal
Retirees. In DAVIS v. MICHIGAN (1989), the United States Supreme Court ruled
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
North Carolina law contained similar exemptions in favor of state 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
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collected from the federal retirees were thus not improperly collected. In 1993,
the United States Supreme Court vacated that decision and remanded the case back
to the North Carolina Supreme Court. The North Carolina Supreme Court then ruled
in favor of the State on the grounds that the federal retirees had failed to
comply with state procedures for challenging unconstitutional taxes. The United
States District Court ruled in favor of the defendants in the companion federal
case, and a petition for reconsideration was denied. Plaintiffs appealed to the
United States Court of Appeals, which concurred with the lower court's ruling.
The United States Supreme Court rejected an appeal, ruling that the lawsuit was
a state matter, leaving the North Carolina Supreme Court's ruling in force.
Despite these victories in court, the General Assembly in its 1996 Special
Session adopted legislation allowing for a refund of taxes for federal retirees.
Effective for tax years beginning on or after January 1, 1996, federal retirees
are entitled to a North Carolina income tax credit for taxes paid on their
pension benefits during tax years 1985 through 1988. In the alternative, a
partial refund may be claimed in lieu of a credit for eligible taxpayers.
2. Patton v. State of North Carolina and Bailey v. State of North
Carolina -- State Tax Refunds Federal and State Retirees.
An additional lawsuit was filed in 1995 in State court by Federal
pensioners to recover State income taxes paid on Federal retirement benefits
(Patton). This case grew out of a claim by Federal pensioners in the original
Federal court case in Swanson. In the new lawsuit, the plaintiffs allege that
when the State granted an increase in retirement benefits to State retirees in
the same legislation that equalized tax treatment between state and Federal
retirees, the increased benefits to State retirees constituted an indirect
violation of Davis. The lawsuit seeks a refund of taxes paid by Federal retirees
on Federal retirement benefits received in the years 1989 through 1993 and
refunds or monetary relief sufficient to equalize the alleged on-going
discriminatory treatment for those years. State and local governmental retirees
filed a class action suit in 1990 Bailey as a result of the repeal of the income
tax exemptions for state and local government retirement benefits. The original
suit was dismissed after the North Carolina Supreme Court ruled in 1991 that the
plaintiffs had failed to comply with state law requirements for challenging
unconstitutional taxes and the United States Supreme Court denied review. In
1992, many of the same plaintiffs filed a new lawsuit alleging essentially the
same claims, including breach of contract, unconstitutional impairment of
contract rights by 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
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that such payments will completely extinguish all of the state's liability to
the retirees arising from the taxation of state, local and federal retirement
income and benefits from 1989 through 1997.
The tentative court settlement was made subject to the appropriation of
funds by the General Assembly, and to court approval following notice to the
class members. The $400,000,000 appropriation was made by action of the Assembly
in September, 1998, and on October 7, 1998, the court entered an order approving
the settlement. In order to achieve final consummation of the settlement, the
General Assembly must appropriate the $399,000,000 amount for the 1999-2000
fiscal year at its 1999 session, which begins in January, 1999.
In its 1996 Short Session, the North Carolina General Assembly approved
additional North Carolina general obligation bonds in the amount of $950 million
for highways and $1.8 billion for schools. These bonds were approved by the
voters of the State in November, 1996. In March 1997, and again in March, 1998,
North Carolina issued $450 million of the authorized school bonds (Public School
Building Bonds). In November 1997, North Carolina issued $250 million of the
authorized highway bonds (Highway Bonds). The offering of the remaining $2.05
billion of these authorized bonds is anticipated to occur over the next two-five
years.
On November 3, 1998, North Carolina voters approved the issuance of
$800,000,000 in clean water bonds and $200,000,000 natural gas facilities bonds.
The clean water bonds will provide grants and loans for needed water and sewer
improvement projects for the state's municipalities, and fund programs to reduce
pollution in the state's waterways. The natural gas bond issue will provide
grants, loans and other financing for local distribution companies or state or
local government agencies to build natural gas facilities, in part to help
attract industry to the state's rural regions.
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
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prevent a deficit. In the November 1984 general election the electorate approved
a constitutional amendment providing that annual increases in State
appropriations may not exceed the average growth rate of the economy of the
State and that the annual increases in the number of State employees may not
exceed the average growth of the population of the State. Such limits on growth
are subject to suspension by a super-majority of the General Assembly. The State
Constitution also establishes a General Reserve Fund to be maintained in an
amount equal to 3% (4% prior to 1988) of General Fund revenue for the latest
fiscal year.
In the November 1988 general election the electorate approved a
constitutional amendment creating a Capital Reserve Fund equal to 2% of General
Fund revenue. Before March 1 of each year, the Capital Reserve Fund must be used
to offset mid-year budget reductions before mandating cuts in operating
appropriations, and after March 1, the Capital Reserve Fund may be appropriated
by a special vote in separate legislation by the General Assembly to finance in
cash previously authorized capital improvement bond projects, retire bond
principal or interest on bonds previously issued, and for capital improvements
or other nonrecurring purposes which must be ranked in order of priority of
expenditure. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item which has been reduced due to
application of the monies to year-end deficit, must go back to the General Fund.
Despite the efforts of the State Budget and Control Board, deficits
were experienced in the fiscal years ending June 30, 1981, 1982, 1985 and 1986.
All such deficits have been funded out of the General Reserve Fund. For the
fiscal years ending June 30, 1983 and 1984, 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 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
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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 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
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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.
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.
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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 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.
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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.
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
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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 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
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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 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.
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.
MANAGEMENT OF BB&T FUNDS
Trustees
- --------
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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 the
Name and Address With the BB&T Funds Past 5 Years
- ---------------- ------------------- -------------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, OH 43219
Age: 54
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 prior to August 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
Raymond K. McCulloch Trustee From August 1998 to present,
434 Fayetteville Street Mall Executive Vice President, Branch
29th Floor Banking and Trust Company; employee
Raleigh, NC 27601 of Branch Banking and Trust Company
Age: 43 since 1989.
</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
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receives any compensation from the BB&T Funds for acting as a Trustee. Walter B.
Grimm is an employee of BISYS Fund Services.
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 Funds During the Past 5 Years
- ---------------- --------------------- -----------------------
<S> <C> <C>
Walter B. Grimm Chairman of the Board From June 1992 to present, employee of
Age: 54 and President BISYS Fund Services.
Preston Loftin Secretary From April 1995 to present, employee of
Age: 53 BISYS Fund Services; from May 1992 to April
1995, employee of Concord Financial.
Gary Tenkman Treasurer From April 1998 to present, Director,
Age: 29 Financial Services, BISYS Fund Services;
from 1990 to March 1998, Audit Manager,
Ernst & Young LLP.
Bob Tuch Assistant Secretary From June 1991 to present, employee of
Age: 48 BISYS Fund Services.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee, BISYS
Age: 32 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE (1)
----------------------
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 $ None None $
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustee
Thomas W. Lambeth $ None None $
Trustee
Robert W. Stewart $ None None $
Trustee
Raymond K. McCulloch $ $ None None
Trustee
</TABLE>
(1) Figures are for the Funds' fiscal year ended September 30, 1999. 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.
Under the 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.
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.
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<PAGE> 365
Unless sooner terminated, the Advisory Agreement will continue in
effect until September 30, 2000 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 years ended September 30, 1999, September 30, 1998, and
September 30, 1997, the Adviser received the following investment advisory fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
September 30, 1999 September 30, 1998 September 30, 1997
-----------------------------------------------------------------------------------
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund $2,095,241 $1,005,608 $2,147,800 $698,408
Balanced Fund 694,357 333,244 707,060 229,694
Large Company Growth Fund 258,070 123,874 N/A N/A
Small Company Growth Fund 890,569 N/A 551,965 N/A
International Equity Fund 710,172 326,911 6,794
Equity Index Fund N/A N/A N/A N/A
Short-Intermediate Fund 770,752 154,167 562,927 94,368
Intermediate U.S. Government Bond Fund 907,396 181,482 812,351 135,725
Intermediate Corporate Bond Fund N/A N/A N/A N/A
North Carolina Fund 416,698 83,340 363,548 61,045
South Carolina Fund 64,984 43,717 N/A N/A
Virginia Fund N/A N/A N/A N/A
Prime Money Market Fund 132,875 73,260 N/A N/A
U.S. Treasury Money Market Fund 883,574 271,649 940,705 N/A
Tax-Free Money Market Fund N/A N/A N/A N/A
Capital Manager Conservative Growth Fund 11,280 45,273 N/A N/A
Capital Manager Moderate Growth Fund 11,256 45,181 N/A N/A
Capital Manager Growth Fund 11,209 44,992 N/A N/A
</TABLE>
Sub-Advisers
- ------------
SMALL COMPANY GROWTH FUND. 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.
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
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<PAGE> 366
following annual rates (as a percentage of the Small Company Growth Fund's
average daily net assets), which vary according to the level of Fund assets:
Fund Assets Annual Fee
----------- ----------
Up to $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
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 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 years ended September 30, 1999 and September 30, 1998,
BB&T paid BFMI $_______ and $426,658, respectively, 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.
INTERNATIONAL EQUITY FUND. Investment sub-advisory and management
services are provided to the International Equity Fund by BlackRock
International, Ltd. ("BlackRock International") (formerly CastleInternational
Asset Management Limited), an indirect majority-owned subsidiary of PNC Bank
Corp., pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as
of January 2, 1997 between BB&T and BlackRock International.
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
B-71
<PAGE> 367
International Equity Fund's average daily net assets), which vary according to
the level of Fund assets:
Fund Assets Annual Fee
----------- ----------
Up to $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
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 . For the fiscal years ended September 30, 1999 and 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.
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. Investment
sub-advisory and management services are provided to the Prime Money Market Fund
and Tax-Free 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.
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.
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
B-72
<PAGE> 368
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
fiscal year ended September 30, 1999 and for the period from the commencement of
operations, October 1, 1997, to September 30, 1998, BB&T paid BIMC $_______ and
$46,694, respectively, for sub-advisory services to the Prime Money Market Fund.
For the period from the commencement of operations, May 17, 1999, to September
30, 1999, BB&T paid BIMC $______ for sub-advisory services to the Tax-Free Money
Market Fund.
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.
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.
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<PAGE> 369
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
September 30, 1999
------------------------------------
September 30, 1998
- ---------------------------
Aggregate Directed Aggregate
Brokerage Aggregate Brokerage Brokerage Aggregate
Commission Transactions Commission Commission Transactions
---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund $152,631 $118,652,289
Balanced Fund 49,964 38,484,168
Large Company Growth Fund 125,276 97,877,295
Small Company Growth Fund 91,551
International Equity Fund 240,357 12,332,336
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
September 30, 1997
------------------------------------
Directed Aggregate Directed
Brokerage Brokerage Aggregate Brokerage
Commission Commission Transactions Commission
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Growth and Income Fund $152,631 $151,013 $106,698,201 $142,060
Balanced Fund 49,964 42,859 29,962,265 41,873
Large Company Growth Fund 125,276 N/A N/A N/A
Small Company Growth Fund 40,983
International Equity Fund 36,268 N/A N/A N/A
</TABLE>
B-74
<PAGE> 370
Allocation of transactions, including their frequency, to various
dealers is determined by BB&T and each Sub-Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The major consideration in
allocating brokerage business is the assurance that the best execution is being
received on all transactions effected for all accounts. Brokerage will at times
be allocated to firms that supply research, statistical data and other services
when the terms of the transaction and the capabilities of different
broker/dealers are consistent with the guidelines set forth in Section 28(e) of
the Securities Exchange Act of 1934. Information so received is in addition to
and not in lieu of services required to be performed by BB&T and each
Sub-Adviser and does not reduce the advisory fees payable to BB&T or each
Sub-Adviser. Such information may be useful to BB&T or each Sub-Adviser in
serving both the 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.
B-75
<PAGE> 371
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE v. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM v.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a bank complied with
the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a bank performing investment
advisory services for an investment company would not violate the Glass-Steagall
Act.
BB&T and PNC Bank Corp. subsidiaries, BFMI, BIMC and BlackRock
International believe that they possess the legal authority to perform the
services for each Fund contemplated by the Advisory Agreement and Sub-Advisory
Agreements and described in the Prospectuses and this Statement of Additional
Information and has so represented in the Advisory Agreement and Sub-Advisory
Agreements. Future changes in either federal or state statutes and regulations
relating to the permissible activities of banks or bank holding companies and
the subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent or restrict BB&T or PNC Bank Corp.'s subsidiaries
from continuing to perform such services for the 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.
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<PAGE> 372
Manager and Administrator
- -------------------------
BISYS Fund Services, Inc. serves as Administrator (the "Administrator")
to each Fund pursuant to the Management and Administration Agreement dated as of
October 1, 1992, as amended (the "Administration Agreement"). The Administrator
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 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.
B-77
<PAGE> 373
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
September 30, 1999 September 30, 1998 September 30, 1997
--------------------------- --------------------------- ----------------------
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
-------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund 838,105 N/A 599,761 N/A
Balanced Fund 277,746 N/A 190,947 N/A
Large Company Growth Fund 103,228 N/A N/A N/A
Small Company Growth Fund 178,115 N/A 110,393 N/A
International Equity Fund 142,036 N/A 64,023 N/A
Equity Index Fund N/A N/A N/A N/A
Short-Intermediate Fund 266,751 N/A 187,425 N/A
Intermediate U.S. Government Bond Fund 362,963 N/A 270,652 N/A
Intermediate Corporate Bond Fund N/A N/A N/A N/A
North Carolina Fund 121,009 41,670 121,183 N/A
South Carolina Fund 19,413 16,821 N/A N/A
Virginia Fund N/A N/A N/A N/A
Prime Money Market Fund 55,572 47,495 N/A N/A
U.S. Treasury Money Market Fund 441,787 N/A 470,355 N/A
Tax-Free Money Market Fund N/A N/A N/A N/A
Capital Manager Conservative Growth Fund 11,280 31 N/A N/A
Capital Manager Moderate Growth Fund 11,256 31 N/A N/A
Capital Manager Growth Fund 11,209 31 N/A N/A
</TABLE>
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.
B-78
<PAGE> 374
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 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"). Under 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 Virginia
Fund, and the Funds of Funds, 0.15% of the average daily net assets of the Class
A Shares of each Fund).
For the fiscal year ended September 30, 1999, the Distributor received
the following fees with respect to the Class A and Class B Shares from the
following Funds:
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares
- ---- --------------------- -------------------
Additional Additional
Amount Amount Amount Amount
Paid Waived Paid Waived
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Growth and Income Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund
Equity Index Fund
Short-Intermediate Fund
Intermediate U.S. Government Bond Fund
Intermediate Corporate Bond Fund
North Carolina Fund
</TABLE>
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<PAGE> 375
South Carolina Fund
Virginia Fund
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund
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.
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.
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
B-80
<PAGE> 376
assistance or shareholder services under the Distribution Plan will be made
pursuant to an agreement (a "Servicing Agreement") between the Distributor and
such bank, other financial institution or intermediary, broker-dealer, or
affiliate or subsidiary of the Distributor (hereinafter referred to individually
as "Participating Organizations"). A Servicing Agreement will relate to the
provision of distribution assistance in connection with the distribution of a
Fund's Class A and Class B Shares to the Participating Organization's customers
on whose behalf the investment in such Shares is made and/or to the provision of
shareholder services to the Participating Organization's customers owning a
Fund's Class A and Class B Shares. Under the Distribution Plan, a Participating
Organization may include Southern National Corporation or a subsidiary bank or
nonbank affiliates, or the subsidiaries or affiliates of those banks. A
Servicing Agreement entered into with a bank (or any of its subsidiaries or
affiliates) will contain a representation that the bank (or subsidiary or
affiliate) believes that it possesses the legal authority to perform the
services contemplated by the Servicing Agreement without violation of applicable
banking laws (including the Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the
amount of the fee is more or less than the actual expenses incurred in a
particular year by the Distributor in connection with distribution assistance or
shareholder services rendered by the Distributor itself or incurred by the
Distributor pursuant to the Servicing Agreements entered into under the
Distribution Plan. If the amount of the distribution fee is greater than the
Distributor's actual expenses incurred in a particular year (and the Distributor
does not waive that portion of the distribution fee), the Distributor will
realize a profit in that year from the distribution fee. If the amount of the
distribution fee is less than the Distributor's actual expenses incurred in a
particular year, the Distributor will realize a loss in that year under the
Distribution Plan and will not recover from a Fund the excess of expenses for
the year over the distribution fee, unless actual expenses incurred in a later
year in which the Distribution Plan remains in effect were less than the
distribution fee paid in that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the 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
B-81
<PAGE> 377
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.
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, 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
Distribution Plan which relate only to the Class A and Class B Shares.
Securities Lending Agent
- ------------------------
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
- ---------
Firstar Bank, N.A. serves as the Custodian to the BB&T Funds. Bank of
New York serves as the International Equity Fund's Custodian.
B-82
<PAGE> 378
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
- --------------------------------
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 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
B-83
<PAGE> 379
competing financial institutions for that base period only and calculated by the
methods described above.
The yield and effective yield for the seven-day period ending
September 30, 1999, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------- ----------------------
Class A Class B Trust Class A Class B Trust
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund % % % % % %
U.S. Treasury Money Market Fund % % % % % %
</TABLE>
Yields of the Other Funds of the BB&T Funds
- -------------------------------------------
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 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
a-b
30-Day Yield = 2[( --- +1)6th power-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.
B-84
<PAGE> 380
The yield and effective yield for the 30-day period ending September
30, 1999, for the non-Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------- ----------------------
Class A Class B Trust Class A Class B Trust
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Short-Intermediate Fund % % % % % %
Intermediate U.S. Government Bond Fund % % % % % %
North Carolina Fund % % % % % %
South Carolina Fund % % % % % %
Virginia Fund % % % % % %
Balanced Fund % % % % % %
</TABLE>
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.
The tax-equivalent yield and tax-equivalent effective yield for the
North Carolina, South Carolina and Virginia Funds for the 30-day period ended
September 30, 1999 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Yield
----------------------- -----------------------
Class A Trust Class A Trust
------- ----- ------- -----
<S> <C> <C> <C> <C>
North Carolina Fund % % % %
South Carolina Fund % % % %
Virginia Fund % % % %
</TABLE>
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.
B-85
<PAGE> 381
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. 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.
The average total return for the Class A Shares of each Fund, computed as of
September 30, 1999, is shown in the table below:
Average Annual Total Return - Class A Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ------------ ------------ ----------- -------------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund % % % % % % % %
Balanced Fund % % % % % % % %
Large Company Growth Fund % % % % % % % %
Small Company Growth Fund % % % % % % % %
International Equity Fund % % % % % % % %
Short-Intermediate Fund % % % % % % % %
Intermediate U.S. Government
Bond Fund % % % % % % % %
North Carolina Fund % % % % % % % %
South Carolina Fund % % % % % % % %
Virginia Fund % % % % % % % %
Prime Money Market Fund % % % % % % % %
U.S. Treasury Money Market Fund % % % % % % % %
Capital Manager Conservative
</TABLE>
B-86
<PAGE> 382
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund % % % % % % % %
Capital Manager Moderate
Growth Fund % % % % % % % %
Capital Manager Growth Fund % % % % % % % %
</TABLE>
* Reflects maximum sales charge (4.50% for the Stock Funds, Funds of Funds,
Intermediate U.S. Government Bond Fund and Intermediate Corporate Bond Fund and
2.00% for the North Carolina, South Carolina, Virginia and Short-Intermediate
Funds).
The average total return for the Class B Shares of each Fund, computed
as of September 30, 1999, is shown in the table below:
Average Annual Total Return - Class B Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ------------ ------------ ----------- -------------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund % % % % % % % %
Balanced Fund % % % % % % % %
Large Company Growth Fund % % % % % % % % %
Small Company Growth Fund % % % % % % % % %
International Equity Fund % % % % % % % % %
Intermediate U.S. Government Bond Fund % % % % % % % %
Prime Money Market Fund % % % % % % % % %
U.S. Treasury Money Market Fund % % % % % % % %
</TABLE>
* Reflects maximum CDSC of 5.00%.
The average total return for the Trust Shares of each Fund, computed as
of September 30, 1999, is shown in the table below:
Average Annual Total Return - Trust Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Growth and Income Fund % % % %
Balanced Fund % % % %
Large Company Growth Fund % % % %
Small Company Growth Fund % % % %
International Equity Fund % % % %
Equity Index Fund % % % %
Short-Intermediate Fund % % % %
Intermediate U.S. Government
Bond Fund % % % %
Intermediate Corporate
Bond Fund % % % %
</TABLE>
B-87
<PAGE> 383
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
North Carolina Fund % % % %
South Carolina Fund % % % %
Virginia Fund % % % %
Prime Money Market Fund % % % %
U.S. Treasury Money Market Fund % % % %
Tax-Free Money Market Fund % % % %
Capital Manager Conservative
Growth Fund % % % %
Capital Manager Moderate
Growth Fund % % % %
Capital Manager Growth Fund % % % %
</TABLE>
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 , aggregate total return
yield, effective yield and/or tax-equivalent 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.
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.
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
B-88
<PAGE> 384
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.
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.
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.
B-89
<PAGE> 385
The Morgan Stanley Capital International Europe, Australasia 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 an NRSRO.
The Variable NAV Funds may also calculate a distribution rate.
Distribution rates will be computed by dividing the distribution per Share of a
class made by a Fund over a twelve-month period by the maximum offering price
per Share. The distribution rate includes both income and capital gain dividends
and does not reflect unrealized gains or losses. The calculation of income in
the distribution rate includes both income and capital gain dividends and does
not reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by BB&T or
its affiliated or correspondent banks for cash management services will reduce a
Fund's effective yield to Customers.
In addition, with respect to the North Carolina Fund, the 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
B-90
<PAGE> 386
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.
B-91
<PAGE> 387
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND [UPDATE FOR 1999]
<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% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$12,751 TO
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$25,351 TO
$60,000 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$60,001 TO
$61,400 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28% 9.03% 9.79% 10.54%
FROM
$60,401 TO
$128,100 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$128,101 TO
$278,450 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$278,450 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-92
<PAGE> 388
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND [UPDATE FOR 1999]
<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% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$21,251 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$42,351 TO
$100,000 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$100,001 TO
$102,300 28.00% 7.75% 33.58% 4.52% 5.27% 6.02% 6.78% 7.53% 8.28% 9.03% 9.79% 10.54%
FROM
$102,301 TO
$155,950 31.00% 7.75% 36.35% 4.71% 5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
FROM
$155,951 TO
$278,450 36.00% 7.75% 40.96% 5.08% 5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$278,450 39.60% 7.75% 44.28% 5.38% 6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
B-93
<PAGE> 389
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND [UPDATE FOR 1999]
<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% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,310 15.00% 2.50% 17.13% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
FROM
$6,931 TO
$9,240 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$9,241 TO
$11,550 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$11,551 TO
$25,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$25,351 TO
$61,400 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$61,401 TO
$128,100 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$128,101 TO
$278,450 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.56% 8.40% 9.24% 10.08% 10.92% 11.76%
OVER
$278,450 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
</TABLE>
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<PAGE> 390
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND [UPDATE FOR 1999]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARRIED
FILING JOINTLY COMBINED
SAMPLE SOUTH FEDERAL AND
TAXABLE FEDERAL CAROLINA S.C. TAX-EXEMPT YIELDS
INCOME MARGINAL MARGINAL MARGINAL ---------------------------------------------------------------------------------
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,310 15.00% 2.50% 17.13% 3.62% 4.22% 4.83% 5.43% 6.03% 6.64% 7.24% 7.84% 8.45%
FROM
$2,311 TO
$4,620 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$4,621 TO
$6,930 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
FROM
$6,931 TO
$9,240 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$9,241 TO
$11,550 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$11,551 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$42,351 TO
$102,300 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$102,301 TO
$155,950 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
FROM
$155,951 TO
$278,450 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.50% 8.40% 9.24% 10.08% 10.92% 11.76%
OVER
$278,450 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
</TABLE>
B-95
<PAGE> 391
APPROXIMATE YIELD TABLE: VIRGINIA FUND [UPDATE FOR 1999]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE 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% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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% 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$17,000 TO
$25,350 15.00% 5.75% 19.89% 3.74% 4.37% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
FROM
$25,351 TO
$61,400 28.00% 5.75% 32.14% 4.42% 5.16% 5.89% 6.63% 7.37% 8.10% 8.84% 9.58% 10.32%
FROM
$61,401 TO
$128,001 31.00% 5.75% 34.97% 4.61% 5.38% 6.15% 6.92% 7.69% 8.46% 9.23% 10.00% 10.76%
FROM
$128,101 TO
$278,450 36.00% 5.75% 39.68% 4.97% 5.80% 6.63% 7.46% 8.29% 9.12% 9.95% 10.78% 11.60%
OVER
278,450 39.60% 5.75% 43.07% 5.27% 6.15% 7.03% 7.90% 8.78% 9.66% 10.54% 11.42% 12.30%
</TABLE>
B-96
<PAGE> 392
APPROXIMATE YIELD TABLE: VIRGINIA FUND [UPDATE FOR 1999]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARRIED
FILING JOINTLY COMBINED
SAMPLE 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% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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% 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$17,000 TO
$42,350 15.00% 5.75% 19.89% 3.74% 4.37% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
FROM
$42,351 TO
$102,300 28.00% 5.75% 32.14% 4.42% 5.16% 5.89% 6.63% 7.37% 8.10% 8.84% 9.58% 10.32%
FROM
$102,301 TO
$155,950 31.00% 5.75% 34.97% 4.61% 5.38% 6.15% 6.92% 7.69% 8.46% 9.23% 10.00% 10.76%
FROM
$155,951 TO
$278,450 36.00% 5.75% 39.68% 4.97% 5.80% 6.63% 7.46% 8.29% 9.12% 9.95% 10.78% 11.60%
OVER
$278,450 39.60% 5.75% 43.07% 5.27% 6.15% 7.03% 7.90% 8.78% 9.66% 10.54% 11.42% 12.30%
</TABLE>
B-97
<PAGE> 393
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-98
<PAGE> 394
the relative asset values of the respective Funds, of any general assets not
belonging to any particular Fund which are available for distribution.
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.
As used in this 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.
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.
B-99
<PAGE> 395
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.
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.
B-100
<PAGE> 396
As of November 8, 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
------------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
National Financial Services Corp. 71.56%
For the Exclusive Benefit of
Our Customers
P.O. Box 3752 Church Street Station
New York, NY 10008-3752
Sanwa Bank California 7.19%
Wilshire Associates Incorporated
444 Market Street, Floor 23
San Francisco, CA 94111
U.S. Treasury Money Market Fund - Class B Shares
------------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
BISYS Fund Services 58.89%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Road
Columbus, OH 43219
Rankin Brothers Company 7.59%
P.O. Box 876
Fayetteville, NC 28302
U.S. Treasury Money Market Fund - Trust Shares
----------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Benefit Service Corporation 6.64%
BB&T Savings & Thrift Plans
1375 Peachtree Street, Suite 300
Atlanta, GA 30309-0000
B-101
<PAGE> 397
Wilbranch 71.97%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 17.22%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Prime Money Market Fund - Class A Shares
----------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
John P. Parker 6.25%
1220 Graydon Ave.
Norfolk, VA 23507
R. Donahue Peebles 15.64%
100 S.E. 2nd Street Apt. 4650
Miami, FL 33131
Prime Money Market Fund - Class B Shares
----------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
BISYS Fund Services 85.77%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Rd.
Columbus, OH 43219
Wilbranch Co. 100.00%
P.O. Box 2887
Wilson, NC 27894-1847
B-102
<PAGE> 398
Short-Intermediate U.S. Government Income Fund - Class A Shares
---------------------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Henry Fibers, Inc. 17.85%
P.O. Box 1675
Gastonia, NC 28053
Name and Address Percent Owned of Record
- ---------------- -----------------------
Powell Goldstein Frazer & Murphy 18.26%
Harry Huge Shareholders Agent
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
Short-Intermediate U.S. Government Income Fund - Trust Shares
-------------------------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch Co. 60.86%
P.O. Box 2887
Wilson, NC 27894-2887
Hometown Bank Co. 15.68%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 11.18%
P.O. Box 2887
Wilson, NC 27894-2887
BB&T Capital Mgr. 5.27%
Conservative Growth
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
B-103
<PAGE> 399
Intermediate U.S. Government Bond Fund - Class A Shares
-------------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Raymond H. Parks 5.89%
Merril Parks
4818 Vickery Chapel Rd
Greensboro, NC 27407
Intermediate U.S. Government Bond Fund - Trust Shares
-----------------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch 67.78%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 5.20%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 7.15%
P.O. Box 2887
Wilson, NC 27894-2887
North Carolina Intermediate Tax-Free Fund - Class A Shares
----------------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Helen H. Hendricks 5.44%
277 Beechwood Dr.
Mocksville, NC 27028
RL Honbarrier Co. 15.30%
1507 Crestlin Road
High Point, NC 27260
Marshall Lyle Gurley, Sr. 7.48%
P.O. Box 30878
Raleigh, NC 27622
B-104
<PAGE> 400
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch 98.47%
P.O. Box 2887
Wilson, NC 27894-1847
South Carolina Intermediate Tax-Free - Class A Shares
-----------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Cheryl K. Boone 12.57%
Wilt C. Boone
1901 Martin Rd.
Chapin, SC 29036
Cheryl K. Boone 14.23%
George D. Boone
1901 Martin Rd.
Chapin, SC 29036
George S. Morgan 11.80%
4477 Mandi Drive
Little River, SC 29566
Nancy Jenkins Stewart 8.42%
Nancy Jenkins Stewart Trust
201 Huntington Road
Greenville, SC 29615
Charles R. Nolan 8.41%
Nelda W. Nolan
1644 Farmsteam Road
Rook Hill, SC 29732
Knowltone Bouknight 5.29%
Thelamae Bouknight
1835 1/2 Sunset Boulevard
W. Columbia, SC 29169
Betty R. Roof 5.33%
Terry C. Roof
1566 Pisgah Church Road
Lexington, SC 29072
B-105
<PAGE> 401
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch Co. 5.60%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 94.40%
P.O. Box 2887
Wilson, NC 27894-2887
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Gail F. Pruden 66.16%
309 Western Avenue
Suffolk, VA 23434
Ann P. Watson 32.52%
7511 Glebe Road
Richmond, VA 23229
Name and Address Percent Owned of Record
- ---------------- -----------------------
Hometown Bank Co. 100.00%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
Balanced Fund - Class A Shares
------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Louisburg College Inc. 5.45%
501 N Main Street
Louisburg, NC 27549-2335
B-106
<PAGE> 402
Balanced Fund - Trust Shares
----------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Benefit Service Corporation 7.85%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
BB&T Capital Manager 5.78%
Conservative Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
Wilbranch 40.06%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 32.07%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Growth and Income Stock Fund - Trust Shares
-------------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Benefit Service Corporation 10.77%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
Wilbranch 56.61%
P.O. Box 2887
Wilson, NC 27894-1847
B-107
<PAGE> 403
Hometown Bank Co. 9.06%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
Branch Banking & Trust Co. 7.81%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 7.46%
P.O. Box 2887
Wilson, NC 27894-2887
International Equity Fund - Class A Shares
------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Jerald T. Howell 5.89%
628 Walnut Creek Drive
Goldsboro, NC 27530
Name and Address Percent Owned of Record
- ---------------- -----------------------
Poindexter Lumber Company 5.88%
P.O. Box 769
Clemmons, NC 27012-0769
Wilbranch Co. 79.33%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 6.90%
P.O. Box 2887
Wilson, NC 27894-2887
B-108
<PAGE> 404
Large Company Growth Fund - Trust Shares
----------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch Co. 57.56%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 6.30%
P.O. Box 2887
Wilson, NC 27894-2887
Hometown Bank Co. 26.42%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
Small Company Growth Fund - Trust Shares
----------------------------------------
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch 16.06%
P.O. Box 2887
Wilson, NC 27894-1847
Benefit Service Corporation 11.31%
BB&T Savings & Thrift Plans
1375 Peachtree Street, Suite 300
Atlanta, GA 30309-0000
Branch Banking & Trust Co. 10.20%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 5.64%
P.O. Box 2887
Wilson, NC 27894-2887
Branch Banking & Trust Co. 13.78%
State of North Carolina 401(k)
P.O. Box 29541
Raleigh, NC 27626-0541
B-109
<PAGE> 405
Capital Manager Conservative Growth Fund - Class A Shares
---------------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Carol C. Watts 5.35%
IRA
401 McAuthor St.
Tabor City, NC 28463
Lorraine K. Cauthen 11.84%
108 Strawberry Lane
Clemson, SC 29631
Cheryl B. Cobb 12.82%
Linda Z. Greer
214 Park Road
Lexington, SC 29072
Melton Ellerby 5.19%
Route 1 Box 34
Wadesboro, NC 28170
Walter Cooper 46.01%
2232 Windburn Street
Conway, SC 29527
Willetta Huffman 8.68%
1112 Woodland Street
Whiteville, NC 28472
Capital Manager Conservative Growth Fund - B Shares
---------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Betty F. Fincher 54.55%
55 Chambler Road
Walterboro, SC 29488
Sandra A. Headley 22.68%
3050 Cottageville
Walterboro, SC 29488
B-110
<PAGE> 406
Margo A. Stevenson 6.30%
764 Zion Church Road
Bladenboro, NC 28320
Dale Gierszewski 11.88%
102 Crowaton
Castle Hayne, NC 28429
Wilbranch 70.07%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 28.76%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Capital Manager Moderate Growth Fund - Class A Shares
-----------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
William H. Peeler 33.25%
Betty P. Peeler
3802 Old Sptg Hwy
Moore, SC 29369
Leslie L. Keeter 16.97%
1704 Hodges Ferry Rd.
Portsmouth, VA 23701
David A. Jarvis 6.77%
P.O. Box 2292
Walterboro, SC 29488
B. Lloyd Brown 6.69%
2000 Damon Drive
Florence, SC 29505
B-111
<PAGE> 407
Capital Manager Moderate Growth Fund - Class B Shares
-----------------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Belinda Jo Gray 18.91%
217 Porter Road
Portsmouth, VA 23707
Doris H. Howell 17.71%
191 Old Spartanburg Highway
Pacolet, SC 29372
Willie A. Smith 23.24%
403 Sierra Road
Spartanburg, SC 29301
Dennis B. Raney 17.64%
Melissa D. Raney
RR 3 Box 9
Old Fort, NC 28762
Francisco U. Lopez 6.40%
129 Hearth Stone Lane
Boiling Springs, SC 29316
Robert P. Baker 9.40%
5392 Highway 701 N.
Elizabethtown, NC 28337
Name and Address Percent Owned of Record
- ---------------- -----------------------
Wilbranch 85.50%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 13.00%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
B-112
<PAGE> 408
Capital Manager Growth Fund - Class A Shares
--------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Elham B. Makam 9.42%
and Adly A. Girgis
JTWROS
110 Sedgefield Dr.
Clemson, SC 29631
Susan M. Bowman 15.98%
301 Compton Rd.
Raleigh, NC 27609
Gordon Chee Ming Wong 5.90%
214 E. Wyche Street
Whiteville, NC 28472
Sharlene McRae 8.65%
4492 Daniel McLeod Road
Red Springs, NC 28377
James B. Cranford 6.96%
Chadwick Kyle Cranford
Memorial Scholarship Fund
9413 Cove Drive
Myrtle Beach, SC 29572
Ronald D. Hodge 5.29%
RR 4 Box 75H
Rutherfordton, NC 28139
Capital Manager Growth Fund - Class B Shares
--------------------------------------------
Name and Address Percent Owned Beneficially
- ---------------- --------------------------
Betty Butler 5.48%
415 E. 1st Avenue
Chadbourn, NC 28431
Lamar J. Schlegel 31.29%
11 Algonquin Street
Portsmouth, VA 23707
B-113
<PAGE> 409
James G. Ferneyhough 14.40%
1285 Cedar Gate Road
Monroe, VA 24574
Helen A. Ferneyhough 8.67%
1285 Cedar Gate Road
Monroe, VA 24574
Wilbranch 98.41%
P.O. Box 2887
Wilson, NC 27894-1847
As of November 8, 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-114
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FINANCIAL STATEMENTS
Audited Financial Statements as of September 30, 1999 are incorporated by
reference to the Annual Report to Shareholders, dated as of September 30, 1999,
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.
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APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Funds with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch IBCA, and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by the Funds and the description of each NRSRO's ratings is as of
the date of this Statement of Additional Information, and may subsequently
change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
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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.
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.
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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.
-Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
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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.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
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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.
Short-Term Debt Ratings
- -----------------------
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Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that
while the obligation is more susceptible to adverse
developments (both internal and external) than those
with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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Registration Statement
of
BB&T FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23. Financial Statements and Exhibits
---------------------------------
(a) Amended and Restated Agreement and Declaration of Trust
dated August 18, 1992 is incorporated by reference to
Exhibit 1(c) to Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A
(filed March 24, 1993).
(b) 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).
(c) (1) 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).
(2) 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).
(d) (1) 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).
(2) Revised Schedule A to the Investment Advisory
Agreement between the Registrant and Branch
Banking and Trust Company is incorporated by
reference to Exhibit 5(b) to Post-Effective
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<PAGE> 418
Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(3) Sub-Advisory Agreement between Branch Banking
and Trust Company and CastleInternational Asset
Management Limited is incorporated by reference
to Exhibit 5(f) to Post-Effective Amendment No.
11 to the Registration Statement of the
Registrant on Form N-1A (filed February 14,
1997).
(4) 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).
(5) 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).
(e) (1) 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).
(2) Revised Schedules A-D to the Distribution
Agreement between the Registrant and BISYS Fund
Services LP are incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 16
to the Registration Statement of the Registrant
on Form N-1A (filed March 3, 1999).
(g) (1) 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).
(2) Amended Appendix B to the Custody Agreement
between the Registrant and Firststar Bank, N.A.
(formerly Star Bank, N.A.) is incorporated by
reference to Exhibit 8(b) to Post-Effective
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Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(3) 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).
(4) 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).
(h) (1) 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).
(2) 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).
(3) 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).
(4) 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).
(5) Revised Schedule A to the Management and
Administration Agreement between the Registrant
and BISYS Fund Services Limited Partnership
(formerly The Winsbury Company Limited
Partnership) is incorporated by reference to
Exhibit 9(e) to Post-
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Effective Amendment No. 16 to the Registration
Statement of the Registrant on Form N-1A (filed
March 3, 1999).
(6) Amended Schedule A to the Transfer Agency
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(f) to Post-Effective
Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(7) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(g) to Post-Effective
Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(i) Opinion of Ropes & Gray is filed herewith.
(j) (1) Consent of Ropes & Gray is filed herewith.
(k) None.
(l) 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).
(m) (1) 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).
(2) Revised Schedule A to the Amended and Restated
Distribution and Shareholder Services Plan as
re-executed February 7, 1997 between the
Registrant and BISYS Fund Services Limited
Partnership is incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 16
to the Registration Statement of the Registrant
on Form N-1A (filed March 3, 1999).
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(3) Servicing Agreement with respect to Shareholder
Services between Branch Banking and Trust
Company and BISYS Fund Services Limited
Partnership (formerly The Winsbury Company
Limited Partnership) is incorporated by
reference to Exhibit 15(b) to Post-Effective
Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (filed March 24,
1993).
(4) Revised Schedule A to the Servicing Agreement
with Branch Banking and Trust Company and BISYS
Fund Services Limited Partnership (formerly The
Winsbury Company Limited Partnership) is
incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 16 to the
Registration Statement of the Registrant on Form
N-1A (filed March 3, 1999).
(n) Multiple Class Plan for BB&T Mutual Funds Group
adopted by the Board of Trustees on September
21, 1995 is incorporated by reference to Exhibit
18 to Post-Effective Amendment No. 7 to the
Registration Statement of the Registrant on Form
N-1A (filed October 18, 1995).
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. 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
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<PAGE> 422
been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any
matter as to which such Covered Person shall have been finally
adjudicated in any such action, suit or other proceeding to be
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to
time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the Trust
if it is ultimately determined that indemnification of such
expenses is not authorized under this Article, provided, however,
that either (a) such Covered Person shall have provided appropriate
security for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or (c) either
a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
Compromise Payment
------------------
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person either (a) did not
act in good faith in the reasonable belief that his action was in
the best interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his 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
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<PAGE> 423
the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such
Person against any liability to the Trust to which he would
otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. Any approval pursuant to this Section
shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this Section
as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer,
or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Indemnification for the Group's principal underwriter is provided
for in the Distribution Agreement incorporated herein by reference
as Exhibit 6(a).
In addition, the Trust maintains a directors and officer liability
insurance policy with a maximum coverage of $3,000,000.
Item 26. Business and Other Connections of Investment Adviser and Investment
-------------------------------------------------------------------
Sub-Advisers. [UPDATE]
------------
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
September 30, 1999, BB&T Corporation had assets of approximately
$____ billion. Through its subsidiaries, BB&T Corporation operates
over ___ banking offices in Maryland, North Carolina, South
Carolina,
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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
$____ billion.
Set forth below is information as to any other business, vocation
or employment of a substantial nature (other than service in
wholly-owned subsidiaries or the parent corporation of BB&T) in
which each director or senior officer of the Registrant's
investment adviser is, or at any time during the past two fiscal
years has been, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
- ----------------------------- ---------------------------
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson, Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
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Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
Director Greenville, S.C.
Dr. Lloyd Vincent Hackley President
Director NC System of Community Colleges
Raleigh, N.C.
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, V.A.
James A. Hardison
Director
Dr. Richard Janeway Executive Vice President for Health
Director Affairs Bowman Gray
School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate
Director Diagnostics
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.
C-9
<PAGE> 426
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
Director Center
Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
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 26 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
C-10
<PAGE> 427
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 26
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 26 of officers and directors of
BIMC, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by BIMC pursuant to the Investment Advisers Act of 1940 (SEC
File No. 801-13304).
Item 27. Principal Underwriter.
----------------------
(a) BISYS Fund Services LP (formerly known as The Winsbury Company)
acts as distributor and administrator for the Registrant. BISYS
Fund Services LP also distributes the securities of Alpine Equity
Trust, American Performance Funds, AmSouth Mutual Funds, BB&T
Funds, The Coventry Group, ESC Strategic Funds, Inc., The Eureka
Funds, Fifth Third Funds, Governor Funds, Hirtle Callaghan Trust,
HSBC Funds Trust and HSBC Mutual Funds Trust, INTRUST Funds Trust,
The Infinity Mutual Funds, Inc., Magna Funds, Mercantile Mutual
Funds, Inc., Metamarkets.com, Meyers Investment Trust, MMA Praxis
Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds, Parkstone
Group of Funds, Republic Advisor Funds Trust, Republic Funds Trust,
Sefton Funds Trust, SSgA International Liquidity Fund, Summit
Investment Trust, USAllianz Funds, USAllianz Funds Variable
Insurance Products Trust, Variable Insurance Funds, The Victory
Portfolios, The Victory Variable Insurance 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.
C-11
<PAGE> 428
(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
- ------------------ ---------------- --------------
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
OTHER BISYS DISTRIBUTORS:
- -------------------------
In addition to the following officers of the BISYS related distributors listed
below, each distributor has additional officers listed to the right (business
address for each person and distributor unless noted otherwise is 3435 Stelzer
Road, Columbus, OH 43219 and unless noted otherwise each person holds no
position with the Fund):
Lynn Mangum Director
Dennis Sheehan Director
Kevin Dell Vice President/Secretary
William Tomko Sr. Vice President
Michael Burns Vice President
Steve Ludwig Compliance Officer
Robert Tuch Assistant Secretary
<TABLE>
<CAPTION>
<S> <C>
*Barr Rosenberg Funds Distributor, Inc. Irimga McKay - President
Barr Rosenberg Funds Greg Maddox - Vice President(1)
BNY Hamilton Distributors, Inc. William J. Tomko - President(2)
BNY Hamilton Funds, Inc. Richard Baxt - Sr. Vice President(3)
*Centura Funds Distributor, Inc. Walter B. Grimm - President
Centura Funds William J. Tomko - Sr. Vice President
CFD Fund Distributors, Inc. Richard Baxt - President
Chase Funds
</TABLE>
C-12
<PAGE> 429
<TABLE>
<CAPTION>
<S> <C>
Concord Financial Group, Inc. Walter B. Grimm - President
ProFunds-
*Evergreen Distributor, Inc. D'Ray Moore - President
Evergreen Funds
*Performance Funds Distributor, Inc. Walter B. Grimm - President(4)
Performance Funds William J. Tomko - Sr. Vice President
The One Group Services Company Mark Redman - President(5)
The One Group of Funds William J. Tomko - Sr. Vice President(2)
Vista Funds Distributors, Inc. Richard Baxt - President
Chase Vista Funds Lee Schultheis - Sr. Vice President
William J. Tomko - Sr. Vice President
Kent Funds Distributors
Mentor Distributors, LLC D'Ray Moore, President
*IBJ Funds Distributor, Inc. Walter B. Grimm, Sr. Vice President
</TABLE>
*address is 90 Park Avenue, New York, NY
(1) Serves as Assistant to Treasurer to Centura Funds
(2) Serves as President to BNY Hamilton Funds and Treasurer to One Group of
Funds
(3) Serves as Vice President to BNY Hamilton Funds
(4) Serves as President to Performance Funds
(5) Serves as President to One Group of Funds
NON BISYS DISTRIBUTORS
- ----------------------
(see Part C for directors and officers of distributors)
Glickenhaus & Company
The Empire Building Tax-Free Bond Fund
Integrity Investments
Valiant Funds
Shay Financial Services, Inc.
MSB Fund, Inc.
Asset Management Fund, Inc.
Institutional Investors Capital Appreciation Fund, Inc.
C-13
<PAGE> 430
Item 28. 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 Funds
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Trust Investments
(Investment Adviser)
(3) BlackRock Financial Management, Inc.
1600 Market Street, 27th Floor
Philadelphia, PA 19103
(Investment Sub-Adviser to the Small Company
Growth Fund)
(4) BlackRock International, Ltd.
(Investment Sub-Adviser to the International
Equity Fund)
7 Castle Street
Edinburgh, Scotland EH23AH
(5) BlackRock Institutional Management Corporation
(Investment Sub-Adviser to the Prime Money Market
Fund)
400 Bellevue Parkway, 4th Floor
Wilmington, DE 19809
(6) BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
C-14
<PAGE> 431
(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 29. Management Services
-------------------
None.
Item 30. 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-15
<PAGE> 432
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the
BB&T Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by officers of the registrant as officers and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property of the Registrant.
C-16
<PAGE> 433
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 17 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 23rd day of November, 1999.
BB&T FUNDS
Registrant
/s/ Walter B. Grimm
---------------------------------
Walter B. Grimm
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 17 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Walter B. Grimm Chairman November 23, 1999
- ---------------------
*Walter B. Grimm
/s/ William E. Graham Trustee November 23, 1999
- ---------------------
*William E. Graham
/s/ Thomas W. Lambeth Trustee November 23, 1999
- ---------------------
*Thomas W. Lambeth
/s/ Gary R. Tenkman Treasurer November 23, 1999
- ---------------------
*Gary R. Tenkman
/s/ W. Ray Long Trustee November 23, 1999
- ---------------------
*W. Ray Long
/s/ Robert W. Stewart Trustee November 23, 1999
- ---------------------
*Robert W. Stewart
*By:/s/Alan G. Priest
-----------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
C-17
<PAGE> 434
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> 435
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> 436
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> 437
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> 438
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> 439
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> 440
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
(i) Opinion of Ropes & Gray
(j)(1) Consent of Ropes & Gray
<PAGE> 1
EXHIBIT (i)
Opinion of Ropes & Gray
<PAGE> 2
ROPES & GRAY
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005-3333
WRITER'S DIRECT DIAL NUMBER: (202) 626-3967
November 22, 1999
BB&T Funds
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 Funds ("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 Funds
November 22, 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
<PAGE> 1
EXHIBIT j(1)
------------
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. 17 to the Registration Statement of the BB&T Funds on Form N-1A
under the Securities Act of 1933, as amended.
/s/ROPES & GRAY
ROPES & GRAY
Washington, D.C.
November 22, 1999
