<PAGE> 1
Registration Nos. 33-49098
811-06719
As filed with the Securities and Exchange Commission
on November 17, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 21 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 22 [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)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[X] on February 1, 2000 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
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PROSPECTUS
----------
FEBRUARY 1, 2001
STOCK FUNDS
BB&T Large Company Value Fund
BB&T Balanced Fund
BB&T Large Company Growth Fund
BB&T Small Company Growth Fund
BB&T International Equity Fund
BB&T Capital Appreciation Fund
BB&T Mid Cap Value 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
BB&T West 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
BB&T Capital Manager Aggressive Growth Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS
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.
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
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Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's Stock Funds
investments, risks, past 0 Large Company Value Fund
performance, and fees. 0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
0 Capital Appreciation Fund
0 Mid Cap Value 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
0 West 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
0 Capital Manager Aggressive Growth Fund
Review this section for Investment Objectives, Policies and Risks
information on investment
strategies and their risks. Stock Funds
0 Large Company Value Fund
0 Balanced Fund
0 Large Company Growth Fund
0 Small Company Growth Fund
0 International Equity Fund
0 Capital Appreciation Fund
0 Mid Cap Value Fund
</TABLE>
2
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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
0 West 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
0 Capital Manager Aggressive 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 General Policies on Selling Shares
0 Distribution Arrangements/Sales Charges
0 Distribution and Service (12b-1) Fees
0 Exchanging Your Shares
0 Dividends, Distributions and Taxes
0 Financial Highlights
Back Cover
0 Where to learn more about this Fund
</TABLE>
3
<PAGE> 5
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 Class C 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
fourth 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> 6
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> 7
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T LARGE COMPANY VALUE FUND (FORMERLY 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 of large
U.S. companies whose capitalization
is within the range of those
companies in the Russell 1000(R)
Value Index 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> 8
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RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Large Company Value Fund
(formerly Growth and Income Stock Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
Fund) has performed and how its
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes 10.10% -0.54% 31.69% 21.83% 32.83% 12.85% -2.47% %
in the Fund's yearly performance over ------ ----- ------ ------ ------ ------ ------ -----
eight years to demonstrate that the 1993 1994 1995 1996 1997 1998 1999 2000
Fund's value varied at different
times. The table below it compares
the Fund's performance over time to
that of the Russell 1000(R) Value
Index, a widely recognized, unmanaged
index of common stocks that measures
the performance of those Russell
1000(R) companies with lower price-
to-book ratios and lower forecasted
growth values. 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
The returns for Class B Shares and performance information shown above is based on a calendar year.
Class C Shares will differ from the ----------------------------------------------------------------------------
Class A Share returns shown in the Best quarter: %
bar chart because of differences in Worst quarter: %
expenses of each class. The table ----------------------------------------------------------------------------
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) 5 YEARS(2,3) SINCE INCEPTION(2,3)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES (with 5.75% sales charge) 10/9/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LARGE COMPANY VALUE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
Russell 1000(R) Value Index(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 10/9/92
Charge)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LARGE COMPANY VALUE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
Russell 1000(R) Value Index(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
[DATE]
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LARGE COMPANY VALUE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
Russell 1000(R) Value Index(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX(4) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class C Shares were not in existence prior to _________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(4) The Russell 1000(R) Value Index is a widely recognized, unmanaged index of
common stocks that measures the performance of those Russell 1000 companies with
lower price-to-book ratios at lower forecasted growth value. The benchmark index
for Large Company Value Fund has changed from the S&P 500(R) Index in order to
better represent the investment policies for comparison purposes.
7
<PAGE> 9
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RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Large Company Shareholder
Value Fund (formerly Growth and Income Transaction
Stock 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 CLASS B SHARES CLASS C 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 5.75%(2) None None
---------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
---------------------- -------------------- -------------------- --------------------
Other Expenses % % %
---------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses(6) % % %
---------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%; and Class C 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
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:
- $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.
LARGE COMPANY VALUE FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
9
<PAGE> 11
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 total assets in equity
securities and at least 25% of its
total 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
Adviser believes are likely to
demonstrate superior earnings growth
relative to their peers, and which
are selling at attractive
valuations. As a result, the Fund
will invest in a blend of growth
stocks and value stocks. 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 Adviser 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 Adviser examines a
variety of quantitative and
qualitative factors in formulating
individual stock purchase and sale
decisions. The Adviser selects
investments that it believes are
reasonably priced relative to their
growth potential.
In managing the fixed income portion
of the Fund's portfolio, the Adviser
uses a "top down" investment
management approach focusing on a
security's maturity. The Adviser
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
Adviser 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> 12
INVESTMENT STYLE RISK: The
possibility that the types of
securities on which the Fund focuses
will underperform other kinds of
investments or the overall market.
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> 13
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RISK/RETURN SUMMARY AND FUND EXPENSES
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 seven years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's -1.84% 24.67% 11.63% 20.83% 14.39% -1.76% %
performance over time to that of the ------ ------ ------ ------ ------ ------ -----
S&P 500(R) Index, a widely recognized, 1994 1995 1996 1997 1998 1999 2000
unmanaged index of common stocks, and
the Lehman Brothers Intermediate
Government Bond Index, an unmanaged
index representative of the total The bar chart above does not reflect the impact of any applicable sales
return of government bonds with charges or account fees which would reduce returns. Additionally, the
maturities of less than 10 years. Of performance information shown above is based on a calendar year.
course, past performance does not
indicate how the Fund will perform in
the future.
The returns for Class B Shares and ----------------------------------------------------------------------------
Class C Shares will differ from the Best quarter: %
Class A Share returns shown in the Worst quarter: %
bar chart because of differences in ----------------------------------------------------------------------------
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) 5 YEARS(2,3) SINCE INCEPTION(2,3)
------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS A SHARES (with 5.75% sales charge) 7/1/93
------------------------------------------------------------------ ------------------- -------------------- ---------------------
BALANCED FUND % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
S&P 500(R) INDEX % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 7/1/93
------------------------------------------------------------------ ------------------- -------------------- ---------------------
BALANCED FUND % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
S&P 500(R) INDEX % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
[DATE]
------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge)
------------------------------------------------------------------ ------------------- -------------------- ---------------------
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> 14
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
13
<PAGE> 15
RISK/RETURN SUMMARY AND FUND EXPENSES
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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 CLASS C SHARES
Fund assets, and are reflected in the
share price.
Maximum Sales
Charge (load)
on Purchases 5.75%(2) None None
---------------------- -------------------- -------------------- ---------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------- -------------------- ---------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
---------------------- -------------------- -------------------- ---------------------
Other Expenses % % %
---------------------- -------------------- -------------------- ---------------------
Total Fund
Operating Expenses(6) % % %
---------------------- -------------------- -------------------- ---------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ____%;
14
<PAGE> 16
and Class C Shares %. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
15
<PAGE> 17
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:
- $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.
BALANCED FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
16
<PAGE> 18
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
market capitalization exceeds the
mean capitalization of the companies
in the S&P(R) 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.
17
<PAGE> 19
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <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 three years 24.84% 36.85% %
to demonstrate that the Fund's value ------ ------ -----
varied at different times. The table 1998 1999 2000
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 and The bar chart above does not reflect the impact of any applicable sales
Class C Shares will differ from the charges or account fees which would reduce returns. Additionally, the
Class A Share returns shown in the performance information shown above is based on a calendar year.
bar chart because of differences in ----------------------------------------------------------------------------
expenses of each class. The table Best quarter: %
assumes that Class B and Class C Worst quarter: %
shareholders redeem all of their fund ----------------------------------------------------------------------------
shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) SINCE INCEPTION(2)
-------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 5.75% 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 % %
-------------------------------------------------------------- -------------------- ----------------------
[DATE]
-------------------------------------------------------------- -------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ----------------------
LARGE COMPANY GROWTH FUND % %
-------------------------------------------------------------- -------------------- ----------------------
S&P 500(R) INDEX % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class C Shares were not in existence prior to _________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
18
<PAGE> 20
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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) CLASS A SHARES CLASS B SHARES CLASS C 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 5.75%(2) None None
---------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
---------------------- -------------------- -------------------- --------------------
Other Expenses % % %
---------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses(6) % % %
---------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ___%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%;
19
<PAGE> 21
and Class C Shares %. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
20
<PAGE> 22
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:
- $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.
LARGE COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
21
<PAGE> 23
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.
22
<PAGE> 24
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <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 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 six years to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's 45.38% 30.77% 4.69% 3.03% 72.23% %
performance over time to that of the ------ ------ ----- ----- ------ ------
Russell 2000" Index, an unmanaged 1995 1996 1997 1998 1999 2000
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.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
The returns for Class B Shares and
Class C 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 and Class C
shareholders redeem all of their
fund shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) 5 YEARS(2,3) SINCE INCEPTION(2,3)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES (with 5.75% sales charge) 12/7/94
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 20007 INDEX % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales 1/1/96
Charge)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 20007 INDEX % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
[DATE]
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 20007 INDEX % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
23
<PAGE> 25
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
24
<PAGE> 26
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) CLASS A SHARES CLASS B SHARES CLASS C SHARES
expenses are paid out of Fund assets,
and are reflected in the share price.
Maximum Sales
Charge (load)
on Purchases 5.75%(2) None None
---------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from CLASS A SHARES CLASS B SHARES CLASS C SHARES
Fund assets)
---------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
---------------------- -------------------- -------------------- --------------------
Other Expenses % % %
---------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses(6) % % %
---------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemption within one year
of purchase.
(5) 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.
25
<PAGE> 27
(6) During the last fiscal year, distribution and service (12b-1) fees for Class
A Shares were limited to ____%. Total expenses after fee waivers and expense
reimbursements for Class A Shares were ____%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
26
<PAGE> 28
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:
- $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.
SMALL COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
27
<PAGE> 29
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,
emphasis is placed on adding value
through stock selection. Factors
that the Adviser considers will
include cash flow returns on
investment, forecast P/E ratios,
enterprise values and balance sheet
strength. A security's earnings
trend and its price momentum will
also be factors considered in
security selection. The Adviser will
examine each company for financial
soundness before deciding to
purchase its stock. The Adviser will
also consider issues such as
prospectus for relative economic
growth among certain foreign
countries, expected levels of
inflation, government policies
influencing business conditions and
the outlook for currency
relationships.
The Fund generally will sell a stock
when it reaches a target price,
which is when the Adviser believes
it is fully valued or when, in the
Adviser'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 Adviser 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.
FOREIGN INVESTMENT RISK: Investing
in foreign markets involves a
28
<PAGE> 30
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.
29
<PAGE> 31
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <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 three years 11.13% 37.97% %
to demonstrate that the Fund's value ------ ------ -----
varied at different times. The table 1998 1999 2000
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 and
Class C Shares will differ from the The bar chart above does not reflect the impact of any applicable sales
Class A Share returns shown in the charges or account fees which would reduce returns. Additionally, the
bar chart because of differences in performance information shown above is based on a calendar year.
expenses of each class. The table ----------------------------------------------------------------------------
assumes that Class B and Class C Best quarter: %
shareholders redeem all of their fund Worst quarter: %
shares at the end of the period ----------------------------------------------------------------------------
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) SINCE INCEPTION(2)
-------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 5.75% sales charge) 1/2/97
-------------------------------------------------------------- -------------------- ----------------------
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 % %
-------------------------------------------------------------- -------------------- ----------------------
[DATE]
-------------------------------------------------------------- -------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ----------------------
INTERNATIONAL EQUITY FUND % %
-------------------------------------------------------------- -------------------- ----------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
30
<PAGE> 32
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
FEES AND EXPENSES
<S> <C> <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 CLASS C 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 5.75%(2) None None
------------------------ ------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
------------------------ ------------------- -------------------- --------------------
Other Expenses % % %
------------------------ ------------------- -------------------- --------------------
Total Fund
Operating Expenses(6) % % %
------------------------ ------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within the one
year of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%;
31
<PAGE> 33
and Class C Shares, ____%. Any fee waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any time.
32
<PAGE> 34
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:
- $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.
INTERNATIONAL EQUITY FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
33
<PAGE> 35
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE The Fund seeks long-term growth of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily (at least 65% of
its assets) in common stocks of U.S.
companies with medium to large
market capitalizations (in excess of
$2 billion) that have an established
record of growth and continue to
present significant growth
potential. In selecting investments
for the Fund, the Adviser will
consider growth factors such as a
company's new products, changes in
management, and business
restructurings. The Adviser will
also search for companies that have
established records of earnings and
sales growth over a period of at
least three years that it believes
are poised to meet or exceed these
figures going forward. These
companies generally will have lower
amounts of long-term debt
(representing less than 40% of the
company's capitalization); have
attractive price/earnings ratios in
relation to a company's 3 to 5-year
earnings per share growth rate; and
have stock prices which have
outperformed Standard & Poor's 500
Composite Index (S&P 500) over the
previous six months. The Adviser
will attempt to avoid overweighting
the Fund's position on any specific
market sector (such as technology,
consumer staples, etc.) beyond 150%
of the weighting that sector has in
the S&P 500.
The Adviser may sell a stock if a
company fails to meet earnings or
revenue expectations or becomes
overvalued (i.e., high
price/earnings ratio relative to its
earnings growth). The Adviser may
also sell a stock to change the
Fund's weighting in a particular
company or industry sector, or if
better opportunities are available.
Due to its investment strategy, the
Fund may buy and sell securities
frequently. This may result in
higher transaction costs and
additional capital gains tax
liabilities.
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 will
underperform other kinds of
investments or market averages.
34
<PAGE> 36
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.
35
<PAGE> 37
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Capital Appreciation 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.
36
<PAGE> 38
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
As an investor in the Capital Appreciation 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) CLASS A SHARES CLASS B SHARES CLASS C SHARES
Fund operating expenses are paid out
of Fund assets, and are reflected in
the share price. Maximum Sales
Charge (load)
on Purchases 5.75%(2) None None
------------------------ ------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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 % % %
------------------------ ------------------- -------------------- --------------------
Other Expenses(6) % % %
------------------------ ------------------- -------------------- --------------------
Total Fund
Operating Expenses % % %
------------------------ ------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within the one
year of purchase.
(5) 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.
(6) Other expenses are based on estimated amounts for the current fiscal year.
37
<PAGE> 39
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:
- $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.
CAPITAL APPRECIATION FUND 1 3
Year Years
Class A Shares $ $
-------------------------------- ------- ---------
Class B Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
Class C Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
38
<PAGE> 40
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T MID CAP VALUE FUND
INVESTMENT OBJECTIVE The Fund seeks current income, with
a secondary goal of moderate capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily (at least 65% of
its assets) in common stocks of U.S.
companies with large market
capitalizations (in excess of $5
billion) that regularly pay
dividends. The Fund invests in
established companies operating in a
broad range of industries based on
their ability to grow both earnings
and dividends. In selecting
investments for the Fund, the
Adviser attempts to choose stocks of
companies that are positioned to
benefit from competitive advantages
that arise from ownership of
valuable business franchises,
trademarks and brand names, control
of distribution networks,
significant market shares in key
products, or other company specific
attributes. The Adviser also
considers the quality of management
as evidenced by an established track
record of enhancing shareholder
value. The Adviser buys stocks with
a long-term view and attempts to
hold its positions and keep
portfolio turnover low.
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 - mid cap
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.
39
<PAGE> 41
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the Mid
Cap Value 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.
40
<PAGE> 42
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>1
FEES AND EXPENSES
As an investor in the Mid Cap Value 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) CLASS A SHARES CLASS B SHARES CLASS C SHARES
Fund operating expenses are paid out
of Fund assets, and are reflected in
the share price. Maximum Sales
Charge (load)
on Purchases 5.75%(2) None None
---------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%3 1.00%4
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee % % %
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 % % %
---------------------- -------------------- -------------------- --------------------
Other Expenses(6) % % %
---------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses % % %
---------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within the one
year of purchase.
(5) 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.
(6) Other expenses are based on estimated amounts for the current fiscal year.
41
<PAGE> 43
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:
- $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.
MID CAP VALUE FUND 1 3
Year Years
Class A Shares $ $
-------------------------------- ------- ---------
Class B Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
Class C Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
42
<PAGE> 44
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, the
Virginia Intermediate Tax-Free Fund,
and the West 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, Virginia,
or West Virginia income taxes.
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,
Virginia, or West 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
43
<PAGE> 45
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 duration range of the
Fund will be from 1.5 to 3.5.
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. [ADD EXTENSION RISK]
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.
44
<PAGE> 46
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.
45
<PAGE> 47
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <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 eight years to 6.61% -2.19% 12.45% 2.80% 6.11% 6.66% 1.26% %
demonstrate that the Fund's value ----- ----- ------ ----- ----- ----- ----- ------
varied at different times. The table 1993 1994 1995 1996 1997 1998 1999 2000
below it compares the Fund's
performance over time to that of the
Merrill Lynch 1-5 Year U.S.
Government Bond 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 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.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
------------------------------------------------------------------ ------------------- -------------------- ---------------------
CLASS A SHARES (with 3.00% sales charge) 11/30/92
------------------------------------------------------------------ ------------------- -------------------- ---------------------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
MERRILL LYNCH 1-5 YEAR U.S. 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.
46
<PAGE> 48
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
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) 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 3.00%(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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) %
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements are expected to be ___%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
47
<PAGE> 49
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:
- $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.
SHORT-INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT INCOME FUND Year Years Years Years
Class A Shares $ $ $ $
------------------------------- -------- --------- ---------- ---------
48
<PAGE> 50
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 duration range of the
Fund will be from 3.5 to 7.0.
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. [ADDRESS EXTENSION RISK]
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.
49
<PAGE> 51
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.
50
<PAGE> 52
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <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
eight years to demonstrate that the
Fund's value varied at different 9.89% -4.25% 17.81% 1.91% 8.31% 9.31% -2.53% %
times. The table below it compares ----- ------ ------ ----- ----- ----- ------ -----
the Fund's performance over time to 1993 1994 1995 1996 1997 1998 1999 2000
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 returns for Class B Shares and ----------------------------------------------------------------------------
Class C Shares will differ from the Best quarter: %
Class A Share returns shown in the Worst quarter: %
bar chart because of differences in ----------------------------------------------------------------------------
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) 5 YEARS(2,3) SINCE INCEPTION(2,3)
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS A SHARES (with 5.75% sales charge) 10/9/92
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 10/9/92
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) [DATE]
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT 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.
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
51
<PAGE> 53
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
52
<PAGE> 54
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
FEES AND EXPENSES
<S> <C> <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 CLASS C 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 5.75%(2) None None
----------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%(4)
Redemption Fee(5) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6) % % %
----------------------- -------------------- -------------------- --------------------
Other Expenses(6) % % %
----------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses(6) % % %
----------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%;
53
<PAGE> 55
and Class C Shares, ____%. Any fee waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any time.
54
<PAGE> 56
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:
- $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.
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 $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
55
<PAGE> 57
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 total
assets in bonds rated below
investment grade. The duration range
of the Fund will be from 3.0 to 7.0.
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. [ADDRESS EXTENSION RISK]
If the Fund invests in securities
with additional risks, its share
price
56
<PAGE> 58
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.
57
<PAGE> 59
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Intermediate Corporate 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 the
Fund's performance over one year. REVISE
The table below it compares the
Fund's performance over time to that ____%
of the Lehman Brothers All Corporate 2000
Index , an unmanaged index generally
representative of all publicly
issued, fixed rate, non-convertible, The bar chart above does not reflect the impact of any applicable sales
investment grade, domestic corporate charges or account fees which would reduce returns. Additionally, the
debt. Of course, past performance performance information shown above is based on a calendar year.
does not indicate how the Fund will
perform in the future.
The returns for Class B Shares and ----------------------------------------------------------------------------
Class C Shares will differ from the Best quarter: %
Class A Share returns shown in the Worst quarter: %
bar chart because of differences in ----------------------------------------------------------------------------
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) 5 YEARS(2,3) SINCE INCEPTION(2,3)
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS A SHARES (with 5.75% sales charge) 12/2/99
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE CORPORATE BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
LEHMAN BROTHERS ALL CORPORATE BOND INDEX % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 12/2/99
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE CORPORATE BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
LEHMAN BROTHERS ALL CORPORATE BOND INDEX % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
------------------------------------------------------------------ ------------------ -------------------- ----------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) [DATE]
------------------------------------------------------------------ ------------------ -------------------- ----------------------
INTERMEDIATE CORPORATE BOND FUND % % %
------------------------------------------------------------------ ------------------ -------------------- ----------------------
LEHMAN BROTHERS ALL CORPORATE BOND 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.
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to _________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge
58
<PAGE> 60
applicable to Class B Shares, but does not reflect the Class B Shares' Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
59
<PAGE> 61
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEES AND EXPENSES
As an investor in the Intermediate Shareholder
Corporate Bond Fund, you will pay the Transaction
following fees and expenses when you buy Expenses (fees
and hold shares. Shareholder transaction paid by you
fees are paid from your account. Annual directly)(1) CLASS A SHARES CLASS B SHARES CLASS C SHARES
Fund operating expenses are paid out of
Fund assets, and are reflected in the
share price. Maximum Sales
Charge (load)
on Purchases 5.75%(2) None None
------------------ -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge None 5.00%(3) 1.00%(4)
(load) 0% 0% 0%
Redemption Fee(5)
Annual Fund
Operating
Expenses
(fees paid from CLASS A SHARES CLASS B SHARES CLASS C SHARES
Fund assets)
------------------ -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(6) % % %
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(6)
------------------ -------------------- -------------------- --------------------
Other Expenses(6) % % %
------------------ -------------------- -------------------- --------------------
Total Fund
Operating % % %
Expenses(6)
------------------ -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) 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.
(6) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____% and other expenses for each
class are expected to be limited to ____%. Total expenses after fee waivers and
expense reimbursements for each class are
60
<PAGE> 62
expected to be: Class A Shares, ____%; Class B Shares, ____%; and Class C Shares
%. Any fee waiver or expense reimbursement arrangement is voluntary and may be
discontinued at any time.
61
<PAGE> 63
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:
- $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.
INTERMEDIATE CORPORATE BOND 1 3 5 10
FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- ---------
62
<PAGE> 64
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
"investment grade" (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 will
maintain an average duration of 3.5
to 8. The Fund will maintain at
least 80% invested in securities
exempt from North Carolina personal
income tax.
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 political subdivisions 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
63
<PAGE> 65
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.
64
<PAGE> 66
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <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 Year-by-Year Total Returns as of 12/31 for Class A 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
eight years to demonstrate that the
Fund's value varied at different 7.75% -2.93% 10.27% 2.56% 6.36% 5.19% -2.21% %
times. The table below it compares ----- ------ ------ ----- ----- ----- ------ -----
the Fund's performance over time to 1993 1994 1995 1996 1997 1998 1999 2000
that of the Lehman Brothers 7-Year
General Obligations Index, an
unmanaged index generally
representative of the performance of
tax-exempt municipal securities with
an average maturity of seven 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.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES (with 3.00% sales charge) 10/16/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LEHMAN BROTHERS 7-YEAR GENERAL OBLIGATIONS INDEX(2) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS 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 5-Year General Obligations Index is an unmanaged index
representative of the performance of tax-exempt municipal securities with an
average maturity of seven years. The benchmark index for the North Carolina
Intermediate Tax-Free Fund has changed from the Lehman Brothers 5-Year General
Obligations Index to the Lehman Brothers 7-Year General Obligations Index in
order to better represent the investment policies for comparison purposes.
65
<PAGE> 67
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
FEES AND EXPENSES
<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 3.00%(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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) %
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements are expected to be ____%.
66
<PAGE> 68
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:
- $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.
NORTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- -------- ---------- --------- ---------
67
<PAGE> 69
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
"investment grade" (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 will
maintain an average duration of 3.5
to 8. The Fund will maintain at
least 80% invested in securities
exempt from South Carolina personal
income taxes.
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 political subdivisions, 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
68
<PAGE> 70
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.
69
<PAGE> 71
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <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 Year-by-Year Total Returns as of 12/31 for Class A 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 5.29% -2.72% %
three years to demonstrate that the ----- ------ -----
Fund's value varied at different 1998 1999 2000
times. The table below it compares
the Fund's performance over time to
that of the Lehman Brothers 7-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 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.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)1
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 3.00% sales charge) 10/20/97
-------------------------------------------------------------- -------------------- ----------------------
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND % %
-------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 7-YEAR GENERAL OBLIGATIONS INDEX(2) % %
-------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS 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 5-Year General Obligations Index is an unmanaged index
representative of the performance of tax-exempt municipal securities with an
average maturity of seven years. The benchmark index for the South Carolina
Intermediate Tax-Free Fund has changed from the Lehman Brothers 5-Year General
Obligations Index to the Lehman Brothers 7-Year General Obligations Index in
order to better represent the investment policies for comparison purposes.
70
<PAGE> 72
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
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) 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 3.00%(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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) %
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements are expected to be ____%.
71
<PAGE> 73
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:
- $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.
SOUTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ---------- -------- --------- -----------
72
<PAGE> 74
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 "investment grade"
(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 will maintain an average
duration of 3.5 to 8. The Fund will
maintain at least 80% invested in
securities exempt from Virginia
personal income tax.
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 political subdivisions, 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
principal back and are typically
forced to reinvest it in bonds that
pay
73
<PAGE> 75
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.
74
<PAGE> 76
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
The chart and table on this page show PERFORMANCE BAR CHART AND TABLE
how the Virginia Intermediate
Tax-Free Fund has performed and how Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
its performance has varied from year
to year. The bar chart gives some
indication of risk by showing the
Fund's performance over one year. ____%
The table below it compares the 2000
Fund's performance over time to that
of the Lehman Brothers 7-Year General
Obligations Index, an unmanaged index
generally representative of the The bar chart above does not reflect the impact of any applicable sales
performance of tax-exempt municipal charges or account fees which would reduce returns. Additionally, the
securities with an average maturity performance information shown above is based on a calendar year.
of five years. Of course, past
performance does not indicate how the
Fund will perform in the future.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES (with 3.00% sales charge) 5/17/99
-------------------------------------------------------------- -------------------- ----------------------
VIRGINIA INTERMEDIATE TAX-FREE FUND % %
-------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 7-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.
75
<PAGE> 77
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
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) 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 3.00%(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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee(4) %
----------------------------- -------------------------
Other Expenses(4) %
----------------------------- -------------------------
Total Fund
Operating Expenses(4) %
----------------------------- -------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements are expected to be ____%.
76
<PAGE> 78
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:
- $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.
VIRGINIA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Class A Shares $ $ $ $
------------------------------- -------- --------- ---------- ----------
77
<PAGE> 79
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks current income exempt
from federal and West Virginia
income taxes consistent with
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund
invests primarily in municipal
securities of West Virginia and its
political subdivisions that provide
income exempt from both federal
personal income tax and West
Virginia personal income tax. The
Fund invests in West Virginia
municipal securities only if they
are "investment grade" (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 will
maintain an average duration of 3.5
to 8. The Fund will maintain at
least 80% invested in securities
exempt from West Virginia personal
income tax.
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 West Virginia
and its political subdivisions, the
Fund may be more vulnerable to
unfavorable developments in West
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
78
<PAGE> 80
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.
79
<PAGE> 81
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include
a bar chart and a table showing how
the West Virginia Intermediate
Tax-Free 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.
80
<PAGE> 82
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
FEES AND EXPENSES
<S> <C> <C>
As an investor in the West 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 3.00%(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 %
------------------------ -------------------
Distribution and
Service (12b-1) Fee %
------------------------ -------------------
Other Expenses(4) %
------------------------ -------------------
Total Fund
Operating Expenses %
------------------------ -------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) Other expenses are based on estimated amounts for the current fiscal year.
81
<PAGE> 83
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:
- $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.
WEST VIRGINIA INTERMEDIATE 1 3
TAX-FREE FUND Year Years
$ $
Class A Shares
--------------------------------
82
<PAGE> 84
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
83
<PAGE> 85
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.
"High-quality" debt securities are
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 Standard & Poor's
Corporation and "P-1" or "P-2" by
Moody's Investors Service, Inc.); or
(ii) are single rated and have
received one of the two highest
short-term ratings by an NRSRO; or
(iii) if unrated, are determined by
the Sub-Adviser 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:
84
<PAGE> 86
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.
85
<PAGE> 87
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<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 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 three years 4.86% 4.49% %
to demonstrate that the Fund's value ----- ----- ------
varied at different times. The table 1998 1999 2000
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 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.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION(2)
-------------------------------------------------------------- -------------------- ----------------------
CLASS A SHARES 10/1/97
-------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
-------------------------------------------------------------- -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to September 2, 1998. Performance
for periods prior to September 2, 1998 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
As of December 31, 2000, 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.
86
<PAGE> 88
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) 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) % %
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) % %
------------------------ ------------------- --------------------
Other Expenses(4) % %
------------------------ ------------------- --------------------
Total Fund
Operating Expenses(4) % %
------------------------ ------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A are expected to be limited to _____% and other expenses are expected to
be limited to ____% for each class. Total expenses after fee waivers and expense
reimbursements for each class are expected 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.
87
<PAGE> 89
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:
- $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.
PRIME MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
------------------------------- -------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
------------------------------- -------- --------- ---------- ---------
88
<PAGE> 90
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.
89
<PAGE> 91
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <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
eight years to demonstrate that the 2.54% 3.23% 4.94% 4.41% 4.57% 4.59% 4.15% %
Fund's value varied at different ----- ----- ----- ----- ----- ----- ----- -----
times. The table below it shows the 1993 1994 1995 1996 1997 1998 1999 2000
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 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.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS(2) SINCE INCEPTION(2)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS A SHARES 10/5/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
U.S. TREASURY MONEY MARKET FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
U.S. TREASURY MONEY MARKET FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
As of December 31, 2000, 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.
90
<PAGE> 92
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) 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) % %
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) % %
------------------------ ------------------- --------------------
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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____% and other expenses for each
class are expected to be limited to ____%. Total expenses after fee waivers and
expense reimbursements for each class are expected 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.
91
<PAGE> 93
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:
- $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.
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 $ $ $ $
-------------------------------- ------- --------- ---------- ---------
92
<PAGE> 94
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:
93
<PAGE> 95
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.
94
<PAGE> 96
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.
95
<PAGE> 97
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) 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) % %
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) % %
------------------------ ------------------- --------------------
Other Expenses(4) % %
------------------------ ------------------- --------------------
Total Fund
Operating Expenses(4) % %
------------------------ ------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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.
96
<PAGE> 98
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:
- $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.
TAX-FREE MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
------------------------------- -------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
------------------------------- -------- ---------
97
<PAGE> 99
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
98
<PAGE> 100
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 (listed below)
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 total assets in Underlying Funds
which invest primarily in equity
securities including the equity
portion of the Balanced Fund, 45% to
75% of its total 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 total 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
Large Company Value Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Large Company Growth Fund 0%-55%
Capital Appreciation Fund 0%-30%
Mid Cap Value Fund 0%-30%
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:
99
<PAGE> 101
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
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.
100
<PAGE> 102
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
The chart and table on this page PERFORMANCE BAR CHART AND TABLE
shows how the Capital Manager
Conservative Growth Fund has Year-by-Year Total Returns as of 12/31 for Class A Shares(1)
performed 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 6.08% %
demonstrate that the Fund's value ----- -----
varied at different times. The table 1999 2000
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 The bar chart above does not reflect the impact of any applicable
not indicate how the Fund will perform sales charges or account fees which would reduce returns. Additionally, the
in the future. performance information shown above is based on a calendar year.
The returns for Class B Shares and ----------------------------------------------------------------------------
Class C Shares will differ from the Best quarter: %
Class A Share returns shown in the Worst quarter: %
bar chart because of differences in ----------------------------------------------------------------------------
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their
fund shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) SINCE INCEPTION(2)
------------------------------------------------------------------------ ----------------- -------------------
CLASS A SHARES (with 5.75% sales charge) 1/29/98
------------------------------------------------------------------------ ----------------- -------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
------------------------------------------------------------------------ ----------------- -------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
------------------------------------------------------------------------ ----------------- -------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
------------------------------------------------------------------------ ----------------- -------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
------------------------------------------------------------------------ ----------------- -------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
------------------------------------------------------------------------ ----------------- -------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) [DATE]
------------------------------------------------------------------------ ----------------- -------------------
CAPITAL MANAGER CONSERVATIVE GROWTH FUND % %
------------------------------------------------------------------------ ----------------- -------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- -------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
101
<PAGE> 103
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to __________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
102
<PAGE> 104
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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) CLASS A SHARES CLASS B SHARES CLASS C 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 5.75%(2) None None
------------------------ ------------------ -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%
Redemption Fee(4) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------ -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) % % %
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) % % %
------------------------ ------------------ -------------------- --------------------
Other Expenses(5) % % %
------------------------ ------------------ -------------------- --------------------
Total Fund
Operating Expenses(5,6) % % %
------------------------ ------------------ -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%; and Class C Shares, ____%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at
any time.
103
<PAGE> 105
(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 average weighted expense ratio for each class of shares is expected
to be as follows: ____% for Class A Shares, ____% for Class B Shares, and ____%
for Class C Shares (before fee waivers and expense reimbursement arrangements;
____% for Class A Shares, ____% for Class B Shares, and ____% for Class C
Shares (after fee waivers and expense reimbursement arrangements).
104
<PAGE> 106
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:
- $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.
CAPITAL MANAGER CONSERVATIVE 1 3 5 10
GROWTH FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
105
<PAGE> 107
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 (listed below)
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 total assets in Underlying Funds
which invest primarily in equity
securities including the equity
portion of the Balanced Fund, 25% to
55% of its total 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 total 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
Large Company Value Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Large Company Growth Fund 0%-75%
Capital Appreciation Fund 0%-50%
Mid Cap Value Fund 0%-50%
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:
106
<PAGE> 108
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
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.
107
<PAGE> 109
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
The chart and table on this page PERFORMANCE BAR CHART AND TABLE
shows how the Capital Manager
Moderate Growth 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 two years to 10.34% %
demonstrate that the Fund's value ------ -----
varied at different times. The table 1999 2000
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.
indicate how the Fund will perform in
the future. ----------------------------------------------------------------------------
The returns for Class B Shares and Best quarter: %
Class C Shares will differ from the Worst quarter: %
Class A Share returns shown in the ----------------------------------------------------------------------------
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their
fund shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) SINCE INCEPTION(2)
------------------------------------------------------------------------- ---------------- ------------------
CLASS A SHARES (with 5.75% sales charge) 1/29/98
------------------------------------------------------------------------- ---------------- ------------------
CAPITAL MANAGER MODERATE GROWTH FUND % %
------------------------------------------------------------------------- ---------------- ------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
------------------------------------------------------------------------- ---------------- ------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
------------------------------------------------------------------------- ---------------- ------------------
CAPITAL MANAGER MODERATE GROWTH FUND % %
------------------------------------------------------------------------- ---------------- ------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
------------------------------------------------------------------------- ---------------- ------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) [DATE]
------------------------------------------------------------------------- ---------------- ------------------
CAPITAL MANAGER MODERATE GROWTH FUND % %
------------------------------------------------------------------------- ---------------- ------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------- ---------------- ------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
108
<PAGE> 110
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to __________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
109
<PAGE> 111
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
FEES AND EXPENSES
<S> <C> <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 CLASS C 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 5.75%2 None None
------------------------ ------------------ -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%3 1.00%
Redemption Fee(4) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------ -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) % % %
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) % % %
------------------------ ------------------ -------------------- --------------------
Other Expenses(5) % % %
------------------------ ------------------ -------------------- --------------------
Total Fund
Operating Expenses(5,6) % % %
------------------------ ------------------ -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%; and Class C Shares, ____%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at
any time.
110
<PAGE> 112
(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 average weighted expense ratio for each class of shares is expected
to be as follows: ____% for Class A Shares, ____% for Class B Shares, and ____%
for Class C Shares (before fee waivers and expense reimbursement arrangements);
____% for Class A Shares, ____% for Class B Shares, and ____% for Class C
Shares (after fee waivers and expenses reimbursement arrangements).
111
<PAGE> 113
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:
- $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.
CAPITAL MANAGER MODERATE 1 3 5 10
GROWTH FUND Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
112
<PAGE> 114
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 (listed below)
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 total assets in Underlying Funds
which invest primarily in equity
securities including the equity
portion of the Balanced Fund, 10% to
40% of its total 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 total 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
Large Company Value Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Capital Appreciation Fund 0%-65%
Mid Cap Value Fund 0%-65%
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:
113
<PAGE> 115
INVESTING IN MUTUAL FUNDS: The
Fund's investments are concentrated
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.
114
<PAGE> 116
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <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 gives some
indication of risk by showing changes
in the Fund's yearly performance over
two years to demonstrate that the 13.77% %
Fund's value varied at different ------ -----
times. The table below it compares 1999 2000
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 bar chart above does not reflect the impact of any applicable sales
years. Of course, past performance charges or account fees which would reduce returns. Additionally, the
does not indicate how the Fund will performance information shown above is based on a calendar year.
perform in the future.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
The returns for Class B Shares and
Class C 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 and Class C
shareholders redeem all of their
fund shares at the end of the period
indicated.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR(2) SINCE INCEPTION(2)
------------------------------------------------------------------------ ----------------- --------------------
CLASS A SHARES (with 5.75% sales charge) 1/29/98
------------------------------------------------------------------------ ----------------- --------------------
CAPITAL MANAGER GROWTH FUND % %
------------------------------------------------------------------------ ----------------- --------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
------------------------------------------------------------------------ ----------------- --------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
------------------------------------------------------------------------ ----------------- --------------------
CAPITAL MANAGER GROWTH FUND % %
------------------------------------------------------------------------ ----------------- --------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
------------------------------------------------------------------------ ----------------- --------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) [DATE]
------------------------------------------------------------------------ ----------------- --------------------
CAPITAL MANAGER GROWTH FUND % %
------------------------------------------------------------------------ ----------------- --------------------
S&P 500(R) INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND INDEX % %
------------------------------------------------------------------------ ----------------- --------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
115
<PAGE> 117
(2) Class C Shares were not in existence prior to __________, 2000. Performance
for periods prior to __________, 2000 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
116
<PAGE> 118
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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) CLASS A SHARES CLASS B SHARES CLASS C 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 5.75%(2) None None
------------------------ ------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%
Redemption Fee(4) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) % % %
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) % % %
------------------------ ------------------- -------------------- --------------------
Other Expenses(5) % % %
------------------------ ------------------- -------------------- --------------------
Total Fund
Operating Expenses(5,6) % % %
------------------------ ------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
F(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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to ____%. Total expenses after fee
waivers and expense reimbursements for each class are expected to be: Class A
Shares, ____%; Class B Shares, ___%; and Class C Shares, ____%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued at
any time.
117
<PAGE> 119
(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 average weighted expense ratio for each class of shares is expected
to be as follows: ____% for Class A Shares, ____% for Class B Shares, and ____%
for Class C Shares (before fee waivers and expense reimbursement arrangements);
____% for Class A Shares, ____% for Class B Shares, and ____% for Class C
Shares (after fee waivers and expense reimbursement arrangements).
118
<PAGE> 120
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:
- $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.
CAPITAL MANAGER GROWTH FUND 1 3 5 10
Year Years Years Years
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class C Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
119
<PAGE> 121
BB&T CAPITAL MANAGER AGGRESSIVE 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 (listed below)
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 up to 100% of
its total assets in Underlying Funds
which invest primarily in equity
securities and up to 10% of its
total assets in Underlying Funds
which invest primarily in fixed
income securities including the
fixed income portion of the Balanced
Fund and 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
Large Company Value Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Capital Appreciation Fund 0%-65%
Mid Cap Value Fund 0%-65%
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
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
120
<PAGE> 122
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.
121
<PAGE> 123
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include
a bar chart and a table showing how
the Capital Manager Aggressive
Growth 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.
122
<PAGE> 124
RISK/RETURN SUMMARY AND FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEES AND EXPENSES
As an investor in the Capital Manager Shareholder
Aggressive 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 CLASS C 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 5.75%(2) None None
----------------------- -------------------- -------------------- --------------------
Maximum Deferred
Sales Charge (load) None 5.00%(3) 1.00%
Redemption Fee(4) 0% 0% 0%
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------------- -------------------- -------------------- --------------------
CONTINGENT DEFERRED SALES CHARGE
Management Fee(5) % % %
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) % % %
----------------------- -------------------- -------------------- --------------------
Other Expenses(5) % % %
----------------------- -------------------- -------------------- --------------------
Total Fund
Operating Expenses(5,6) % % %
----------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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.
(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
expected to be
123
<PAGE> 125
as follows: ____% for Class A Shares, ____% for Class B Shares, and ____% for
Class C Shares (before fee waivers and expense reimbursement arrangements);
____% for Class A Shares, ____% for Class B Shares, and ____% for Class C
Shares (after fee waivers and expense reimbursement arrangements).
124
<PAGE> 126
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:
- $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.
CAPITAL MANAGER AGGRESSIVE 1 3
GROWTH FUND Year Years
Class A Shares $ $
-------------------------------- ------- ---------
Class B Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
Class C Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
LARGE COMPANY VALUE FUND - Under normal market conditions, the Fund will invest
at least 65% of its total assets in companies whose capitalization is within the
range of these companies in The Russell 1000(R) Value Index. These stocks may
include common stock, preferred stock, warrants, or debt instruments that are
convertible to common stock. Equity securities purchased by the Large Company
Value 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 Adviser 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 market
capitalization exceeds the mean capitalization of the companies in the S&P(R)
500 Index.
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.
CAPITAL APPRECIATION FUND -- The Capital Appreciation Fund will, under normal
market conditions, invest at least 65% of its total assets in common stocks,
warrants to purchase common stocks, debt securities convertible to common
stocks, preferred stocks convertible to common stocks and interests in
investment trusts, such as Diamonds and SPDRs (together, "Equity Securities") of
U.S. and foreign issuers. Equity Securities of foreign issuers may include ADRs.
Any assets not invested in Equity Securities may be invested in money market
instruments. The Adviser will generally select for the Fund securities of large-
and medium-sized companies that have exhibited an established record of growth
and that, in the Adviser's opinion, will continue to present significant growth
potential. Such companies generally have market capitalizations in excess of $2
billion, and annual revenues in excess of $500 million. The Adviser may also
seek to increase potential returns by identifying "niche" companies in diverse
industries and by identifying demographic, economic, and political trends that
will provide future investment opportunities. The Adviser may consider factors
such as an issuer's development (or potential for development) of new products,
any new management, or any business restructuring, and may also consider the
potential for increased institutional ownership. The Adviser may, but will not
necessarily, consider dividend income when selecting Equity Securities for the
Fund.
All of the Equity Securities in which the Fund invests (including foreign
securities) are traded in the United States or Canada either on registered
exchanges or actively in the over-the-counter market.
MID CAP VALUE FUND -- The Mid Cap Value Fund will, under normal market
conditions, invest at least 65% of its total assets in dividend-paying common
stocks, preferred stocks, and preferred stocks and debt securities convertible
into common stock of U.S. and foreign issuers. These equity securities may
include American Depositary Receipts ("ADRs") and interests of investment
trusts, such as "Diamonds" and "SPDRs."
Any remaining assets may be invested in the following securities, but only if,
at the time of purchase, the security either has the requisite rating from a
nationally recognized statistical rating organization (an "NRSRO") or is of
comparable quality as determined by the Adviser: (i) U.S. Government securities
(ii) mortgage-backed securities rated in one of the four highest rating
categories, (iii) asset-backed securities rated in one of the four highest
rating categories, (iv) corporate bonds and notes and bank obligations rated in
one of the four highest rating categories, (v) money market instruments, (vi)
warrants and rights to purchase common stocks and (vii) shares of other
investment companies.
The Fund may purchase securities that do not pay current dividends but which
offer prospects for growth of capital and future income. The Fund is not subject
to any maturity restrictions on its investment in non-money market instruments.
The Adviser will generally select for the Portfolio, securities of companies
with market capitalizations in excess of $5 billion that provide a level of
income which is greater than the average income provided by the Russell Mid
Cap(R) Value Index.
All of the equity securities in which the Portfolio invests (including foreign
securities) are traded in the United States or Canada either on registered
exchanges or actively in the over-the-counter market.
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<PAGE> 129
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 foreign 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
total assets will be invested in 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 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 total 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.
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<PAGE> 130
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 Adviser.
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment 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 total holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to over
10% of its total assets.
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment 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 total assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the Fund
will invest at least 80% of its total assets in investment grade obligations
issued by or on behalf of the Commonwealth 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 total assets.
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND -- Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment grade
obligations issued by or on behalf of the State of West 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
West Virginia personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("West Virginia
Tax-Exempt Obligations").
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
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<PAGE> 131
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 - The Fund will not make investments that will result in
the concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry. Bank instruments
include bank accounts, time deposits, certificates of deposit, and banker's
acceptances. As a matter of non-fundamental policy, instruments of foreign banks
will not be considered bank instruments for purposes of the above-described
exclusion from the above industry concentration limit.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
The Prime Money Market Fund may purchase securities subject to credit
enhancement. Credit enhancement consists of an arrangement in which a company
agrees to pay amounts due on a fixed income security if the issuer defaults. In
some cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the Sub-Adviser usually evaluates the credit risk of a
fixed income security based solely upon its credit enhancement.
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:
- 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 total assets, while the Small Company
Growth Fund and the International Equity Fund each will limit its investment in
short-term obligations to 20% of its total 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 only the principal 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 SAI for additional details regarding these and other permissible
investments.
FUND NAME FUND CODE
Large Company Value Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
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Short Intermediate U.S. Government Income Fund 6
Intermediate U.S. Government Bond Fund 7
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 Appreciation Fund 15
Mid Cap Value Fund 16
West Virginia Intermediate Tax-Free Fund 17
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are 1-5, 15-17 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, 15-17 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, 15-17 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, 5-8, 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, 15, 16 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, 15-17 Market
a stated maturity. Credit
Liquidity
Interest Rate
</TABLE>
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<TABLE>
<CAPTION>
<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, 15, 16 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock 1-5, 8, 15-17 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, 15, 16 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
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to 5 Management
purchase or sell a specific amount of a currency at Liquidity
a fixed future date and price set by the parties Credit
involved at the time the contract is negotiated. Market
Political
Leverage
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, 15, 16 Market
as Standard & Poor's Depository Receipts ("SPDRs")
and NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"),
represent ownership
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
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 underlying portfolio, less trust
expenses.
INVESTMENT COMPANY SECURITIES: Shares of investment 1-12, 14-17 Market
companies. Each Fund (except the U.S. Treasury Fund
and the Fund 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 6-8, 12, 15-17 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 9-12, 14-17 Market
or political subdivision to obtain funds for various Credit
public purposes. Municipal securities include Political
industrial development bonds and other private Tax
activity bonds, as well as general obligation bonds, Regulatory
revenue bonds, tax anticipation notes, bond
anticipation notes, revenue anticipation notes,
project notes, other short-term tax-exempt
obligations, municipal leases, obligations of
municipal housing authorities (single family revenue
bonds) and obligations issued on behalf of
" 501(c)(3) organizations.
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,
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
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, 15, 16 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 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
SHORT-TERM OBLIGATIONS: High quality U.S. 1-11 Market
dollar-denominated debt securities that have Credit
remaining 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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
"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.
STAND-BY COMMITMENTS: The Funds may acquire 14, 17 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 12-13, 15-17 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, 14-17 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, 15-17 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, 14-17 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
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
<S> <C> <C>
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 bonds are those
issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt 2, 7-11, 15-17 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.
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<PAGE> 139
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 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> 140
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.
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<PAGE> 141
FUND MANAGEMENT
THE INVESTMENT ADVISER
BB&T Asset Management, LLC ("BB&T Asset Management" or the "Adviser") is the
adviser for the Funds. BB&T Asset Management is a wholly-owned subsidiary of
Branch Banking and Trust Company ("BB&T"). 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, 2000, BB&T Corporation had assets of
approximately $____ billion. Through its subsidiaries, BB&T Corporation operates
over 655 banking offices in Maryland, North Carolina, South Carolina, Virginia,
West 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 Asset Management 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:(1)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------- --------------------------
---------------------------------------------------------------------------------- --------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF
09/30/00(1)
---------------------------------------------------------------------------------- --------------------------
<S> <C>
Large Company Value Fund %
---------------------------------------------------------------------------------- --------------------------
Balanced Fund %
---------------------------------------------------------------------------------- --------------------------
Large Company Growth Fund %
---------------------------------------------------------------------------------- --------------------------
Small Company Growth Fund %
---------------------------------------------------------------------------------- --------------------------
International Equity Fund %
---------------------------------------------------------------------------------- --------------------------
Short-Intermediate U.S. Government Income Fund %
---------------------------------------------------------------------------------- --------------------------
Intermediate U.S. Government Bond Fund %
---------------------------------------------------------------------------------- --------------------------
North Carolina Intermediate Tax-Free Fund %
---------------------------------------------------------------------------------- --------------------------
South Carolina Intermediate Tax-Free Fund %
---------------------------------------------------------------------------------- --------------------------
Virginia Intermediate Tax-Free Fund %
---------------------------------------------------------------------------------- --------------------------
Prime Money Market Fund %
---------------------------------------------------------------------------------- --------------------------
</TABLE>
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<PAGE> 142
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------- --------------------------
<S> <C>
U.S. Treasury Money Market Fund %
---------------------------------------------------------------------------------- --------------------------
Capital Manager Conservative Growth Fund %
---------------------------------------------------------------------------------- --------------------------
Capital Manager Moderate Growth Fund %
---------------------------------------------------------------------------------- --------------------------
Capital Manager Growth Fund %
---------------------------------------------------------------------------------- --------------------------
Capital Appreciation Fund %
---------------------------------------------------------------------------------- --------------------------
Mid Cap Value Fund %
---------------------------------------------------------------------------------- --------------------------
West Virginia Intermediate Tax-Free Fund %
---------------------------------------------------------------------------------- --------------------------
Capital Manager Aggressive Growth Fund %
---------------------------------------------------------------------------------- --------------------------
</TABLE>
(1) BB&T reorganized its investment advisory division as BB&T Asset Management,
a separate, wholly owned subsidiary of BB&T. BB&T Asset Management has replaced
BB&T as the investment adviser to the BB&T Funds. Following the reorganization,
the management and investment advisory personnel of BB&T that provided
investment management services to BB&T Funds will continue to do so as the
personnel of BB&T Asset Management. Additionally, BB&T Asset Management is
wholly owned and otherwise fully controlled by BB&T. As a result, this
transaction is not an "assignment" of the investment advisory contract (and
sub-advisory contracts) for purposes of the Investment Company Act of 1940 and,
therefore, a shareholder vote is not required.
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. PNC
Bank is a wholly-own 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. Federated Investment Management Company ("Federated
IMC") serves as the Sub-Adviser to the Prime Money Market Fund pursuant to a
Sub-Advisory Agreement with
141
<PAGE> 143
BB&T. Under the Sub-Advisory Agreement, Federated IMC manages the Fund, selects
its 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 Prime Money Market Fund's
investment objective, policies and restrictions. Federated IMC's address is:
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
Federated IMC and other subsidiaries of Federated Investors, Inc. advise
approximately 176 mutual funds and separate accounts, which totaled
approximately $______ billion in assets as of December 31, 2000. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers.
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 pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages the Fund, selects its
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 Prime Money Market Fund's
investment objective, policies and restrictions. BIMC's principal business
address is 400 Bellevue Parkway, 4th Floor, Wilmington, Delaware 19809.
BFMI, BlackRock International and BIMC are each wholly owned subsidiaries 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. As of December 31, 2000, BAI and its subsidiaries had approximately $
billion in discretionary assets under management. BAI is an indirect
majority-owned subsidiary of PNC Bank Corp., a diversified financial services
company.
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<PAGE> 144
PORTFOLIO MANAGERS
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.
MID CAP VALUE FUND. Buel S. Sears, CFA serves as a Vice President of BB&T. He
has managed the Mid Cap Value Fund since June, 1997. He has more than 16 years
of investment experience. Prior to joining BB&T in 2000, Mr. Sears served as a
Vice President of One Valley Bank and managed Huntington Banks West Virginia
Trust Investment Group for 12 years. [CONFIRM]
CAPITAL APPRECIATION FUND. David P. Nolan serves as a Vice President of BB&T. He
has managed the Capital Appreciation Fund since December, 1993. He has more than
19 years of investment experience. Prior to joining BB&T in 2000, Mr. Nolan
served as a Vice President of One Valley Bank and as an account executive with
Alex. Brown & Sons incorporated. [CONFIRM]
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND. Jeffrey D. McClung serves as a
_______________________ of BB&T. He has managed the West Virginia Intermediate
Tax-Free Fund since September, 2000. He has more than 7 years of investment
experience. Prior to joining BB&T in 2000, Mr. McClung served as a Portfolio
Manager of One Valley Bank and as an investment officer for Huntington National
Bank.
[CONFIRM]
ALL OTHER BB&T FUNDS. All investment decisions for each of the other BB&T Funds
are made by a team of investment professionals, all of whom take an active part
in the decision making process.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, L.P. (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"), also 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 SAI has more detailed information about the Adviser and other service
providers.
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<PAGE> 145
SHAREHOLDER INFORMATION
CHOOSING A SHARE CLASS
Class A Shares, Class B Shares, and Class C 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.
<TABLE>
<CAPTION>
<S> <C>
CLASS A SHARES
- Stock Funds, Bond Funds and Funds of Funds: Front-end sales charges, as described below.
Money Market Funds: No sales charges
- Distribution and service fees of 0.50% of average daily net assets.
- OFFERED BY:
Large Company Value 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 Capital Appreciation Fund
Mid Cap Value Fund
West Virginia Intermediate Tax-Free Fund
Capital Manager Aggressive Growth 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:
Large Company Value 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 Capital Appreciation Fund
Mid Cap Value Fund
Capital Manager Aggressive Growth Fund
</TABLE>
NOTE: Shareholders investing directly in Class B Shares of the Money Market
Funds, as opposed to Shareholders obtaining Class B Shares of a Money
Market Fund upon an exchange of Class B Shares of any other Funds, will
be requested to participate in the Auto Exchange Program in such a way
that their Class B Shares have been withdrawn from the Money Market
Fund within two years of purchase.
CLASS C 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.
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<PAGE> 146
<TABLE>
<CAPTION>
<S> <C>
- Maximum investment for all Class C purchases: None
- OFFERED BY:
Large Company Value Fund Prime Money Market Fund
Balanced Fund U.S. Treasury Money Market Fund
Large Company Growth Fund Capital Manager Conservative Growth Fund
Small Company Growth Fund Capital Manager Moderate Growth Fund
International Equity Fund Capital Manager Growth Fund
Intermediate U.S. Government Bond Fund Capital Appreciation Fund
Intermediate Corporate Bond Fund Mid Cap Value Fund
Capital Manager Aggressive Growth Fund
</TABLE>
* Class A and B Shares of the Tax-Free Money Market Fund are not currently being
offered.
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 and Class C
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, 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. Call the Distributor
for more information (see back cover of this prospectus).
Generally, expenses applicable to a Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service (12b-1)
fees, are borne solely by that share class.
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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
The per share net asset value ("NAV") of the Prime Money Market and U.S.
Treasury Money Market Funds will be determined at 12:00 p.m. Eastern Time, 3:00
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. The
NAV of the Tax-Free Money Market Fund will be determined on the same schedule
with the exception of the 3:00 p.m. Eastern Time determination, which will not
be performed.
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 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.
A 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 BB&T Funds' Pricing Committee (or BlackRock International in the case of the
International Equity Fund) pursuant to procedures established by BB&T Funds'
Board of Trustees. For further information regarding the methods used in valuing
the Fund's investments, please see the SAI.
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<PAGE> 148
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,
CLASS B, OR
CLASS C $1,000 $ 0
Regular
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.
From time to time, throughout the year 2001, BB&T or BISYS may offer 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 adviser or brokerage account, simply tell
your adviser 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 #044 000 024
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.
--------------------------------------------------------------------------------
149
<PAGE> 151
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
<TABLE>
<CAPTION>
AUTOMATIC INVESTMENT PLAN DIRECTED DIVIDEND OPTION
<S> <C>
You can make automatic investments in the Funds from your By selecting the appropriate box
bank 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
gains and dividends) reinvested
To invest regularly from your bank account: in another BB&T Fund without a
o Complete the Automatic Investment Plan portion on your sales charge. You must maintain
Account Application or the supplemental sign-up form the minimum balance in each Fund
o Make sure you note: into which you plan to reinvest
|X| Your bank name, address and account number dividends or the reinvestment
|X| The amount you wish to invest automatically will be suspended and your
(minimum $25) dividends paid to you. The Fund
|X| How often you want to invest (every month, 4 may modify or terminate this
times a year, twice a year or once a year) reinvestment option without
o Attach a voided personal check. notice. You can change or
terminate your participation in
Call 1-800-228-1872 for an enrollment form or the reinvestment option at any
consult the SAI for additional information. time.
--------------------------------------
</TABLE>
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Class A Shares have higher dividends than Class B Shares and Class C Shares,
because Class A Shares have lower distribution expenses than Class B Shares and
Class C Shares. Income dividends for the Money Market Funds and the Bond Funds
are declared daily and paid monthly. Income dividends for the Large Company
Value Fund, Mid Cap Value Fund, and the Balanced Fund are declared and paid
monthly. The Large Company Growth, Capital Appreciation, 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.
--------------------------------------------------------------------------------
150
<PAGE> 152
SHAREHOLDER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
SELLING YOUR SHARES
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 received by the Fund, As a mutual fund shareholder, you are technically selling shares
its transfer agent, or your when you request a withdrawal in cash. This is also known as
investment representative. redeeming shares or a redemption of shares.
Normally you will receive your -------------------------------------------------------------------------
proceeds within a week after
your request is received. See
section on "General Policies on
Selling Shares below." CONTINGENT DEFERRED SALES CHARGE
When you sell Class B or Class C 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.
1. Call 1-800-228-1872 with instructions as to how you wish to
By telephone receive your funds (mail, wire, electronic transfer). (See
(unless you have declined "General Policies on Selling Shares--Verifying Telephone
telephone sales privileges) 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>
151
<PAGE> 153
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
<TABLE>
<CAPTION>
<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 REDEMPTION 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:
- 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 - Money Market Funds Only
You may write checks in amounts of $100 or more on your account in the Prime
Money Market Fund, the U.S. Treasury Money Market Fund, or the 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.
152
<PAGE> 154
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.
153
<PAGE> 155
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 $49,999 5.75% 6.10%
----------------------------------------- ----------------------- ----------------------
$50,000 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 2.00% 2.04%
----------------------------------------- ----------------------- ----------------------
$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 $49,999 3.00% 3.09%
----------------------------------------- ----------------------- ----------------------
$50,000 to $99,999 2.50% 2.56%
----------------------------------------- ----------------------- ----------------------
$100,000 up to $249,999 2.00% 2.04%
----------------------------------------- ----------------------- ----------------------
$250,000 up to $499,999 1.50% 1.52%
----------------------------------------- ----------------------- ----------------------
$500,000 up to $999,999 1.00% 1.01%
----------------------------------------- ----------------------- ----------------------
$1,000,000 and above(1) 0.00% 0.00%
----------------------------------------- ----------------------- ----------------------
</TABLE>
(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.
FOR THE MONEY MARKET FUNDS
NO SALES CHARGES.
154
<PAGE> 156
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.
CLASS B SHARES
<TABLE>
<CAPTION>
-------------------------------------------------------- ------------------------------------------------------
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 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.
155
<PAGE> 157
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
--------------------------------------------------------------------------------
Class C Shares
--------------------------------------------------------------------------------
Class C 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 C Shares of the Fund before the first anniversary, you will have to
pay a 1% 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. In any sale, certain shares not subject to the CDSC
(i.e., shares purchased with reinvested dividends or distributions) will be
redeemed first, followed by shares subject to the lowest CDSC (typically shares
held for the longest time).
156
<PAGE> 158
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A Shares are available to shareholders with
investments of $100,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.
- 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.
- 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.
- 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:
- Existing Shareholders of a Fund upon the reinvestment of dividend and
capital gain distributions;
- 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.
- 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);
- Investors for whom a BB&T correspondent bank or other financial institution
acts in a fiduciary, advisory, custodial, agency, or similar capacity.
- 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;
- Investors who beneficially hold Trust Shares of any Fund of the BB&T Funds;
- 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;
- 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 or Class C 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.
--------------------------------------------------------------------------------
157
<PAGE> 159
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 the 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 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.
- 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.
- Class C 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 C
Shares to be higher and dividends to be lower than for Class A Shares.
- The higher 12b-1 fee on Class B and Class C Shares, together with the CDSC,
help the Distributor sell Class B and Class C 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.
158
<PAGE> 160
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,
Class B Shares, and Class C Shares may also be exchanged for Trust Shares of the
same Fund if you become eligible to purchase Trust Shares. Neither Class B
Shares nor Class C Shares may be exchanged for Class A Shares. Class C Shares
may not be exchanged for Class B 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:
- 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, the Trust reserves the right to reject any exchange it believes will
increase transaction costs, or otherwise affect other shareholders.
Specifically, exchange activity may be limited to four exchanges from a Fund
during a calendar year.
--------------------------------------------------------------------------------
159
<PAGE> 161
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 Plan:
- 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.
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.
160
<PAGE> 162
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.
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, Virginia Intermediate Tax-Free Fund, and West
Virginia Intermediate Tax-Free Fund, North Carolina, South Carolina, Virginia,
and West 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.
Except with respect to the International Equity Fund, 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.
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 SAI.
161
<PAGE> 163
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 KPMG
LLP. This report, along with the Fund's financial statements, is incorporated by
reference in the SAI, which is available upon request. Financial highlights for
the Tax-Free Money Market Fund, the Capital Appreciation Fund, the Mid Cap Value
Fund, the West Virginia Intermediate Tax-Free Fund, and the Capital Manager
Aggressive Growth Fund are not presented because the Fund had not commenced
operations as of September 30, 2000.
[FINANCIAL HIGHLIGHTS TO BE PROVIDED BY BISYS]
162
<PAGE> 164
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
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.
163
<PAGE> 165
BB&T FUNDS
--------------------------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------------------------
FEBRUARY 1, 2001
STOCK FUNDS
BB&T Large Company Value Fund
BB&T Balanced Fund
BB&T Large Company Growth Fund
BB&T Small Company Growth Fund
BB&T International Equity Fund
BB&T Capital Appreciation Fund
BB&T Mid Cap Value 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
BB&T West 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
BB&T Capital Manager Aggressive Growth Fund
TRUST SHARES
PROSPECTUS
Questions?
Call 1-800-228-1872
or your investment representative.
--------------------------------------------------------------------------------
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.
<PAGE> 166
TABLE OF CONTENTS
Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's Stock Funds
investments, risks, past - Large Company Value Fund
performance, and fees. - Balanced Fund
- Large Company Growth Fund
- Small Company Growth Fund
- International Equity Fund
- Capital Appreciation Fund
- Mid Cap Value Fund
Bond Funds
- Short-Intermediate U.S. Government Income
Fund
- Intermediate U.S. Government Bond Fund
- Intermediate Corporate Bond Fund
- North Carolina Intermediate Tax-Free Fund
- South Carolina Intermediate Tax-Free Fund
- Virginia Intermediate Tax-Free Fund
- West Virginia Intermediate Tax-Free Fund
Money Market Funds
- Prime Money Market Fund
- U.S. Treasury Money Market Fund
- Tax-Free Money Market Fund
Funds of Funds
- Capital Manager Conservative Growth Fund
- Capital Manager Moderate Growth Fund
- Capital Manager Growth Fund
- Capital Manager Aggressive Growth Fund
Review this section for Investment Objectives, Policies and Risks
information on investment
strategies and their risks. Stock Funds
- Large Company Value Fund
- Balanced Fund
- Large Company Growth Fund
- Small Company Growth Fund
- International Equity Fund
- Capital Appreciation Fund
- Mid Cap Value Fund
Bond Funds
2
<PAGE> 167
- Short-Intermediate U.S. Government Income
Fund
- Intermediate U.S. Government Bond Fund
- Intermediate Corporate Bond Fund
- North Carolina Intermediate Tax-Free Fund
- South Carolina Intermediate Tax-Free Fund
- Virginia Intermediate Tax-Free Fund
- West Virginia Intermediate Tax-Free Fund
Money Market Funds
- Prime Money Market Fund
- U.S. Treasury Money Market Fund
- Tax-Free Money Market Fund
Funds of Funds
- Capital Manager Conservative Growth Fund
- Capital Manager Moderate Growth Fund
- Capital Manager Growth Fund
- Capital Manager Aggressive Growth 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
- Dividends, Distributions and Taxes
Other Information About the Funds
- Financial Highlights
3
<PAGE> 168
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 three additional
classes of shares called Class A Shares, Class B Shares, and
Class C 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> 169
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> 170
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T LARGE COMPANY VALUE FUND (FORMERLY 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 of large
U.S. companies whose capitalization is within the
range of those companies in the Russell 1000(R) Value
Index, 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> 171
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Large Company Value Fund
(formerly Growth and Income Stock
Fund) has performed 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
eight 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 1000(R) Value
Index, a widely recognized, unmanaged
index of common stocks that measures
the performance of those Russell 1000
companies with lower price-to-book
ratios and lower forecasted growth
values. Of course, past performance
does not indicate how the
Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
10.49% -0.29% 31.95% 22.16% 33.15% 13.10% -2.22% ____%
------ ------ ------ ------ ------ ------ ------ -----
1993 1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
TRUST SHARES 10/9/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LARGE COMPANY VALUE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
Russell 1000(R) Value Index(2) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
S&P 500(R) INDEX(2) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) The Russell 1000(R) Value Index is a widely recognized, unmanaged index of
common stocks that measures the performance of those Russell 1000 companies with
lower price-to-book ratios and lower forcasted growth values. The benchmark
index for the Large Company Value Fund has changed from the S&P 500(R) Index in
order to better represent the investment policies for comparison purposes.
7
<PAGE> 172
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Large Company
Value Fund (formerly Growth and Income
Stock Fund), you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, other expenses are expected to be limited
to ____%. Total expenses after fee waivers and expense reimbursements are
expected to be ____%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
8
<PAGE> 173
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:
- $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.
LARGE COMPANY VALUE FUND 1 3 5 10
Year Years Years Years
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
9
<PAGE> 174
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 total
assets in equity securities and at least 25% of its
total 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 Adviser believes are likely to
demonstrate superior earnings growth relative to
their peers, and which are selling at attractive
valuations. As a result, the Fund will invest in a
blend of growth stocks and value stocks. 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
Adviser 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
Adviser examines a variety of quantitative and
qualitative factors in formulating individual stock
purchase and sale decisions. The Adviser selects
investments that it believes are reasonably priced
relative to their growth potential.
In managing the fixed income portion of the Fund's
portfolio, the Adviser uses a "top down" investment
management approach focusing on a security's
maturity. The Adviser 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 Adviser 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> 175
INVESTMENT STYLE RISK: The possibility that the types
of securities on which the equity portion of this
Fund focuses will underperform other kinds of
investments or the overall market.
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> 176
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Balanced Fund has performed
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
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 future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
-1.61% 25.03% 11.84% 21.18% 14.70% -1.52% ___%
------ ------ ------ ------ ------ ------ ------
1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
------------------------------------------------------------------ ------------------- -------------------- ---------------------
TRUST SHARES 7/1/93
------------------------------------------------------------------ ------------------- -------------------- ---------------------
<S> <C> <C> <C>
BALANCED FUND % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
S&P 500(R) INDEX % % %
------------------------------------------------------------------ ------------------- -------------------- ---------------------
LEHMAN BROTHERS % % %
INTERMEDIATE GOVERNMENT BOND INDEX
------------------------------------------------------------------ ------------------- -------------------- ---------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
12
<PAGE> 177
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the Balanced Fund,
you will pay the following fees and
expenses when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
13
<PAGE> 178
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:
- $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.
BALANCED FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
14
<PAGE> 179
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 market capitalization
exceeds the mean capitalization of the companies in
the S&P(R) 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> 180
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Large Company Growth Fund has
performed 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 three 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares (1)
25.18% 37.02% ___%
------ ------ ------
1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES 10/3/97
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
LARGE COMPANY GROWTH FUND % %
-------------------------------------------------------------- -------------------- ----------------------
S&P 500(R)INDEX % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
--------------------------------------------------------------------------------
(1) Both charts assume reinvestment of dividends and distributions.
16
<PAGE> 181
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Large Company
Growth Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
17
<PAGE> 182
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:
- $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.
LARGE COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
18
<PAGE> 183
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> 184
20
<PAGE> 185
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page
shows how the Small Company Growth
Fund has performed 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
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 Russell 2000(R) 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
45.99% 31.19% 4.96% 3.29% 72.65% ____%
------ ------ ----- ----- ------ -----
1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
TRUST SHARES 12/7/94
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SMALL COMPANY GROWTH FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 2000" INDEX % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
21
<PAGE> 186
Risk/Return Summary and Fund Expenses
FEES AND EXPENSES
-----------------
As an investor in the Small Company
Growth Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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(3) %
------------------------------ ------------------------
Distribution and
Service (12b-1) Fee %
------------------------------ ------------------------
Other Expenses(3) %
------------------------------ ------------------------
Total Fund
Operating Expenses(3) %
------------------------------ ------------------------
(1) Participating banks or other financial institutions may charge their
customers aFccount fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) A wire transfer Ffee 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
22
<PAGE> 187
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:
- $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.
SMALL COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
23
<PAGE> 188
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, emphasis is placed
on adding value through stock selection. Factors that
the Adviser considers will include cash flow returns
on investment, forecast P/E ratios, enterprise values
and balance sheet strength. A security's earnings
trend and its price momentum will also be factors
considered in security selection. The Adviser will
examine each company for financial soundness before
deciding to purchase its stock. The Adviser will also
consider issues such as prospectus for relative
economic growth among certain foreign countries,
expected levels of inflation, government policies
influencing business conditions and the outlook for
currency relationships.
The Fund generally will sell a stock when it reaches
a target price, which is when the Adviser believes it
is fully valued or when, in the Adviser'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 Adviser
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.
FOREIGN INVESTMENT RISK: Investing in foreign markets
involves a greater risk than investing in the United
States. Foreign securities
24
<PAGE> 189
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> 190
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the International Equity Fund has
performed 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 three 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
11.36% 38.33% ___%
------ ------ ----
1998 1999 2000
The performance information shown
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES 1/2/97
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND % %
-------------------------------------------------------------- -------------------- ----------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
26
<PAGE> 191
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the International
Equity Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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 %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses %
----------------------------- -------------------------
Total Fund
Operating Expenses %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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.
27
<PAGE> 192
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:
- $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.
INTERNATIONAL EQUITY FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
28
<PAGE> 193
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT
STRATEGIES To pursue this goal, the Fund invests primarily (at
least 65% of its assets) in common stocks of U.S.
companies with medium to large market capitalizations
(in excess of $2 billion) that have an established
record of growth and continue to present significant
growth potential. In selecting investments for the
Fund, the Adviser will consider growth factors such
as a company's new products, changes in management,
and business restructurings. The Adviser will also
search for companies that have established records of
earnings and sales growth over a period of at least
three years that it believes are poised to meet or
exceed these figures going forward. These companies
generally will have lower amounts of long-term debt
(representing less than 40% of the company's
capitalization); have attractive price/earnings
ratios in relation to a company's 3 to 5-year
earnings per share growth rate; and have stock prices
which have outperformed Standard & Poor's 500
Composite Index (S&P 500) over the previous six
months. The Adviser will attempt to avoid
overweighting the Fund's position on any specific
market sector (such as technology, consumer staples,
etc.) beyond 150% of the weighting that sector has in
the S&P 500.
The Adviser may sell a stock if a company fails to
meet earnings or revenue expectations or becomes
overvalued (i.e., high price/earnings ratio relative
to its earnings growth). The Adviser may also sell a
stock to change the Fund's weighting in a particular
company or industry sector, or if better
opportunities are available. Due to its investment
strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction
costs and additional capital gains tax liabilities.
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 will
underperform other kinds of investments or market
averages.
29
<PAGE> 194
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.
30
<PAGE> 195
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Capital Appreciation 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.
31
<PAGE> 196
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Capital Appreciation
Fund, you will pay the following fees
and expenses when you buy and hold
shares. Shareholder transaction fees
are paid from your account. Annual
Fund operating expenses are paid out
of Fund assets, and are reflected in
the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
------------------------ -------------------
Distribution and
Service (12b-1) Fee %
------------------------ -------------------
Other Expenses(3) %
------------------------ -------------------
Total Fund
Operating Expenses(3) %
------------------------ -------------------
(1) Participating banks or other financial institutions may charge their
customers 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.
(3) Other expenses are based on estimated amounts for the current fiscal year.
32
<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:
- $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.
CAPITAL APPRECIATION FUND 1 3
Year Years
Trust Shares $ $
--------------------------------
33
<PAGE> 198
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T MID CAP VALUE FUND
INVESTMENT OBJECTIVE The Fund seeks current income, with a secondary goal
of moderate capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES To pursue this goal, the Fund invests primarily (at
least 65% of its assets) in common stocks of U.S.
companies with large market capitalizations (in
excess of $5 billion) that regularly pay dividends.
The Fund invests in established companies operating
in a broad range of industries based on their ability
to grow both earnings and dividends. In selecting
investments for the Fund, the Adviser attempts to
choose stocks of companies that are positioned to
benefit from competitive advantages that arise from
ownership of valuable business franchises, trademarks
and brand names, control of distribution networks,
significant market shares in key products, or other
company specific attributes. The Adviser also
considers the quality of management as evidenced by
an established track record of enhancing shareholder
value. The Adviser buys stocks with a long-term view
and attempts to hold its positions and keep portfolio
turnover low.
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 - mid cap
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.
34
<PAGE> 199
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the Mid
Cap Value 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.
35
<PAGE> 200
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the Mid Cap Value
Fund, you will pay the following fees
and expenses when you buy and hold
shares. Shareholder transaction fees
are paid from your account. Annual
Fund operating expenses are paid out
of Fund assets, and are reflected in
the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
---------------------- --------------------
Distribution and
Service (12b-1) Fee %
---------------------- --------------------
Other Expenses(3) %
---------------------- --------------------
Total Fund
Operating Expenses(3) %
---------------------- --------------------
(1) Participating banks or other financial institutions may charge their
customers 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.
36
<PAGE> 201
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:
- $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.
MID CAP VALUE FUND 1 3
Year Years
Trust Shares $ $
--------------------------------
37
<PAGE> 202
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, the
Virginia Intermediate Tax-Free Fund, and the West
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, Virginia, or West 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, Virginia, or West 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
38
<PAGE> 203
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 duration of
the Fund will be from 1.5 to 3.5.
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 F 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.
If the Fund invests in securities with additional
risks, its share price
39
<PAGE> 204
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.
40
<PAGE> 205
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Short-Intermediate U.S.
Government Income Fund has performed
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 eight 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 Bond 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 how the Fund will perform in
the future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
6.85% -1.98% 12.59% 3.05% 6.37% 7.03% 1.42% ___%
----- ------ ------ ----- ----- ----- ----- ----
1993 1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
-------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------- ------------------- ---------------------- ----------------------
TRUST SHARES 11/30/92
--------------------------------------------------------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND % % %
--------------------------------------------------------------- ------------------- ---------------------- ----------------------
MERRILL LYNCH 1-5 YEAR U.S. GOVERNMENT BOND 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.
41
<PAGE> 206
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the
Short-Intermediate U.S. Government
Income Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
42
<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:
- $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.
SHORT-INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT INCOME FUND Year Years Years Years
Trust Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
43
<PAGE> 208
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 duration
range of the Fund will be from 3.5 to 7.0.
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.
44
<PAGE> 209
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.
45
<PAGE> 210
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Intermediate U.S. Government
Bond Fund has performed 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
eight 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 Bond 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
10.17% -4.00% 18.06% 1.70% 8.59% 9.58% -2.28% ___%
------ ------ ------ ----- ----- ----- ------ ----
1993 1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
-------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
------------------------------------------------------------------ ------------------- ------------------- ----------------------
TRUST SHARES 10/9/92
------------------------------------------------------------------ ------------------- ------------------- ----------------------
<S> <C> <C> <C>
INTERMEDIATE U.S. GOVERNMENT BOND FUND % % %
------------------------------------------------------------------ ------------------- ------------------- ----------------------
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT BOND 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.
46
<PAGE> 211
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the Intermediate
U.S. Government Bond Fund, you will
pay the following fees and expenses
when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
47
<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:
- $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.
INTERMEDIATE U.S. GOVERNMENT 1 3 5 10
BOND FUND Year Years Years Years
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
48
<PAGE> 213
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 total assets in bonds rated below
investment grade. The duration range of the Fund will
be from 3.0 to 7.0.
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 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.
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.
If the Fund invests in securities with additional
risks, its share price
49
<PAGE> 214
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.
50
<PAGE> 215
RISK/RETURN SUMMARY AND FUND EXPENSES
This chart and table on this page
show how the Intermediate Corporate
Bond Fund has performed over one
year. The table below it compares
the Fund's performance to that of the
Lehman Brothers Government/Corporate
Index and all Corporate Bond Index,
[NEED DESCRIPTION]
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
___%
2000
<TABLE>
<CAPTION>
The performance information shown above is based on a calendar year.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
------------------------------------------------------------------ ------------------- ----------------------
TRUST SHARES 12/2/99
------------------------------------------------------------------ ------------------- ----------------------
<S> <C> <C>
INTERMEDIATE CORPORATE FUND % %
------------------------------------------------------------------ ------------------- ----------------------
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX % %
------------------------------------------------------------------ ------------------- ----------------------
LEHMAN BROTHERS ALL CORPORATE BOND 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.
51
<PAGE> 216
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the Intermediate
Corporate Bond Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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, management fees paid by the Fund are expected to be
limited to ____%. Additionally, other expenses are expected to be limited to
____%. Accordingly, total expenses after fee waivers and expense reimbursements
are expected to be ____%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
52
<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:
- $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.
INTERMEDIATE CORPORATE BOND 1 3
FUND Year Years
Trust Shares $ $
-------------------------------- ------- --------- ---------- ---------
53
<PAGE> 218
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 "investment grade" (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 will maintain an
average duration of 3.5 to 8. The Fund will maintain
at least 80% invested in securities exempt from North
Carolina personal income taxes.
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
political subdivisions, 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 before
their stated maturity date. As a result, investors
receive their
54
<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.
55
<PAGE> 220
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the North Carolina Intermediate
Tax-Free Fund has performed 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
eight 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 7-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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
7.81% -2.79% 10.54% 2.71% 6.52% 5.25% -2.06% ___%
----- ------ ------ ----- ----- ----- ------ ----
1993 1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
TRUST SHARES 10/16/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LEHMAN BROTHERS 7-YEAR GENERAL OBLIGATIONS INDEX(2) % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS 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 5-Year General Obligations Index is an unmanaged index
representative of the performance of tax-exempt municipal securities with an
average maturity of seven years. The benchmark index for the North Carolina
Intermediate Tax-Free Fund has changed from the Lehman Brothers 5-Year General
Obligations Index to the Lehman Brothers 7-Year General Obligations Index in
order to better represent the investment policies for comparison purposes.
56
<PAGE> 221
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the North Carolina
Intermediate Tax-Free Fund, you will
pay the following fees and expenses
when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
57
<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:
- $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.
NORTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Trust Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
58
<PAGE> 223
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 "investment grade" (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 will maintain an
average duration of 3.5 to 8. The Fund will maintain
at least 80% invested in securities exempt from South
Carolina personal income taxes.
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
pages 63-72 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
political subdivisions, 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 before
their stated maturity date. As a result, investors
receive their
59
<PAGE> 224
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 pages
63-72.
60
<PAGE> 225
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the South Carolina Intermediate
Tax-Free Fund has performed 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
three 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 7-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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
5.46% -2.62% ___%
----- ------ ----
1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES 10/20/97
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND % %
-------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 7-YEAR GENERAL OBLIGATIONS INDEX % %
-------------------------------------------------------------- -------------------- ----------------------
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.
(2) The Lehman Brothers 5-Year General Obligations Index is an unmanaged index
representative of the performance of tax-exempt municipal securities with an
average maturity of seven years. The benchmark index for the South Carolina
Intermediate Tax-Free Fund has changed from the Lehman Brothers 5-Year General
Obligations Index to the Lehman Brothers 7-Year General Obligations Index in
order to better represent the investment policies for comparison purposes.
61
<PAGE> 226
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the South Carolina
Intermediate Tax-Free Fund, you will
pay the following fees and expenses
when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
62
<PAGE> 227
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:
- $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.
SOUTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND Year Years Years Years
Trust Shares
$ $ $ $
------------------------------- -------- --------- ---------- ----------
63
<PAGE> 228
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
"investment grade" (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 will maintain an
average duration of 3.5 to 8. The Fund will maintain
at least 80% invested in securities exempt from
Virginia personal income taxes.
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
pages 63-72 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 political
subdivisions, 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 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
64
<PAGE> 229
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 pages
63-72.
65
<PAGE> 230
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the
Virginia Intermediate Tax-Free Fund has performed over one
year. The bar chart gives some indication
of risk by showing the Fund's performance over one year.
The table below it compares the Fund's performance over time to that of the
Lehman Brothers 7-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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
___%
----
2000
The performance information shown above is based on a calendar year.
-------------------------------------------------------------
Best quarter: %
Worst quarter: %
-------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES 5/17/99
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
VIRGINIA INTERMEDIATE TAX-FREE FUND % %
-------------------------------------------------------------- -------------------- ----------------------
LEHMAN BROTHERS 7-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.
66
<PAGE> 231
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Virginia
Intermediate Tax-Free Fund, you will
pay the following fees and expenses
when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
67
<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:
- $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.
VIRGINIA INTERMEDIATE 1 3
TAX-FREE FUND Year Years
Trust Shares $ $
------------------------------- -------- --------- ---------- ----------
68
<PAGE> 233
RISK/RETURN SUMMARY AND FUND EXPENSES
--------------------------------------------------------------------------------
BB&T WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and
West Virginia income taxes consistent with
preservation of capital.
PRINCIPAL INVESTMENT
STRATEGIES To pursue this goal, the Fund invests primarily in
municipal securities of West Virginia and its
political subdivisions that provide income exempt
from both federal personal income tax and West
Virginia personal income tax. The Fund invests in
West Virginia municipal securities only if they are
"investment grade" (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 will maintain an
average duration of 3.5 to 8. The Fund will maintain
at least 80% invested in securities exempt from West
Virginia personal income tax.
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 West Virginia and its
political subdivisions, the Fund may be more
vulnerable to unfavorable developments in West
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 principal back and are typically forced
to reinvest it in bonds that
69
<PAGE> 234
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.
70
<PAGE> 235
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally
include a bar chart and a table
showing how the West Virginia
Intermediate Tax-Free 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.
71
<PAGE> 236
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
-----------------
As an investor in the West Virginia
Intermediate Tax-Free Fund, you will
pay the following fees and expenses
when you buy and hold shares.
Shareholder transaction fees are paid
from your account. Annual Fund
operating expenses are paid out of
Fund assets, and are reflected in the
share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
------------------------ -------------------
Distribution and
Service (12b-1) Fee %
------------------------ -------------------
Other Expenses(3) %
------------------------ -------------------
Total Fund
Operating Expenses(3) %
------------------------ -------------------
(1) Participating banks or other financial institutions may charge their
customers 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.
72
<PAGE> 237
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:
- $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.
WEST VIRGINIA INTERMEDIATE 1 3
TAX-FREE FUND Year Years
$ $
Trust Shares
--------------------------------
73
<PAGE> 238
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
74
<PAGE> 239
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.
"High-quality" debt securities are 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 Standard & Poor's Corporation and "P-1" or
"P-2" by Moody's Investors Service, Inc.); or (ii)
are single rated and have received one of the two
highest short-term ratings by an NRSRO; or (iii) if
unrated, are determined by the Sub-Adviser 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 pages 63-72 or
consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the
following principal risk:
75
<PAGE> 240
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 this risk, please see the
Additional Investment Strategies and Risks on pages
63-72.
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.
76
<PAGE> 241
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the Prime Money Market Fund has
performed 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 three 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
5.14% 4.75% ___%
----- ----- ----
1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR SINCE INCEPTION
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES 10/1/97
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 2000, the Fund's 7-day yield for Trust Shares was ____%.
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.
77
<PAGE> 242
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Prime Money
Market Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, other expenses are expected to be limited
to ____%. Total expenses after fee waivers and expense reimbursements are
expected to be ____%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
78
<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:
- $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.
PRIME MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
------------------------------- -------- --------- ---------- ---------
79
<PAGE> 244
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 risk:
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 this risk, 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.
80
<PAGE> 245
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show
how the U.S. Treasury Money Market
Fund has performed 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
eight 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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
2.71% 3.49% 5.20% 4.65% 4.79% 4.85% 4.41% ___%
----- ----- ----- ----- ----- ----- ----- ----
1993 1994 1995 1996 1997 1998 1999 2000
The performance information shown above is based on a calendar year.
----------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
TRUST SHARES 10/5/92
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
U.S. TREASURY MONEY MARKET FUND % % %
-------------------------------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 2000, the Fund's 7-day yield for Trust Shares and was ___%.
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.
81
<PAGE> 246
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the U.S. Treasury
Money Market Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
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 current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, other expenses are expected to be limited
to ____%. Total expenses after fee waivers and expense reimbursements are
expected to be ____%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
82
<PAGE> 247
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:
- $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.
U.S. TREASURY MONEY MARKET FUND 1 3 5 10
Year Years Years Years
Trust Shares
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
83
<PAGE> 248
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 pages 63-72 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the
following principal risks:
84
<PAGE> 249
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
pages 63-72.
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.
85
<PAGE> 250
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.
86
<PAGE> 251
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Tax-Free Money
Market Fund, you will pay the
following fees and expenses when you
buy and hold shares. Shareholder
transaction fees are paid from your
account. Annual Fund operating
expenses are paid out of Fund assets,
and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
----------------------------- -------------------------
Distribution and
Service (12b-1) Fee %
----------------------------- -------------------------
Other Expenses(3) %
----------------------------- -------------------------
Total Fund
Operating Expenses(3) %
----------------------------- -------------------------
(1) Participating banks or other financial institutions may charge their
customers 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.
87
<PAGE> 252
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:
- $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.
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND 1 3
Year Years
<S> <C> <C>
Trust Shares $ $
------------------------------- -------- ---------
</TABLE>
88
<PAGE> 253
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
89
<PAGE> 254
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 (listed
below) 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 total
assets in Underlying Funds which invest
primarily in equity securities including the
equity portion of the Balanced Fund, 45% to
75% of its total 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 total 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
Large Company Value Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Large Company Growth Fund 0%-55%
Capital Appreciation Fund 0%-30%
Mid Cap Value Fund 0%-30%
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 pages 63-72 or consult the SAI.
PRINCIPAL INVESTMENT
RISKS Your investment in the Fund may be subject
to the following principal risks:
90
<PAGE> 255
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated 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.
91
<PAGE> 256
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page shows how the Capital Manager Conservative
Growth Fund has performed 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 three 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 future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
[GRAPH TO COME]
11.07% 6.28% ___%
------ ----- ----
1998 1999 2000
The performance information shown above is based on a calendar year.
-------------------------------------------------------------------------------
Best quarter: %
Worst quarter: %
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
---------------------------------------------------------------------------------------
TRUST SHARES 10/2/97
---------------------------------------------------------------------------------------
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.
92
<PAGE> 257
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Capital Manager Conservative Growth Fund, you will pay the
following fees and expenses when you buy and hold shares. Shareholder
transaction fees are paid from your account. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
-------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee %
-------------------------------------------------------------------------------
Other Expenses(3) %
-------------------------------------------------------------------------------
Total Fund
Operating Expenses(3),(4) %
-------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. 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 average weighted expense ratio is expected to be ____% before fee
waivers and expense reimbursement arrangements and ____% after fee waivers and
expense reimbursement arrangements.
93
<PAGE> 258
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:
- $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.
<TABLE>
<CAPTION>
CAPITAL MANAGER CONSERVATIVE 1 3 5 10
GROWTH FUND Year Years Years Years
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
</TABLE>
94
<PAGE> 259
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 (listed
below) 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 total
assets in Underlying Funds which invest
primarily in equity securities including the
equity portion of the Balanced Fund, 25% to
55% of its total 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 total 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
Large Company Value Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Large Company Growth Fund 0%-75%
Capital Appreciation Fund 0%-50%
Mid Cap Value Fund 0%-50%
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 pages 63-72 or consult the SAI.
PRINCIPAL
INVESTMENT RISKS Your investment in the Fund may be subject
to the following principal risks:
95
<PAGE> 260
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated 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.
96
<PAGE> 261
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page shows how the Capital Manager Moderate Growth
Fund has performed and how its 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 three 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 future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
[GRAPH TO COME]
12.48% 10.61% ____%
------ ------ -----
1998 1999 2000
The performance information shown above is based on a calendar year.
-----------------------------------------------------------------------------
Best quarter: %
-----------------------------------------------------------------------------
Worst quarter: %
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
------------------- --------------------
<S> <C> <C>
TRUST SHARES 10/2/97
----------------------------------------------------------------------------------------------------------
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.
97
<PAGE> 262
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Capital Manager Moderate Growth Fund, you will pay the
following fees and expenses when you buy and hold shares. Shareholder
transaction fees are paid from your account. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
-------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee %
-------------------------------------------------------------------------------
Other Expenses(3) %
-------------------------------------------------------------------------------
Total Fund
Operating Expenses(3),(4) %
-------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. 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 average weighted expense ratio is expected to be ____% before fee
waivers and expense reimbursement arrangements and ____% after fee waivers and
expense reimbursement arrangements.
98
<PAGE> 263
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:
- $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.
CAPITAL MANAGER MODERATE 1 3 5 10
GROWTH FUND Year Years Years Years
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
99
<PAGE> 264
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 (listed
below) 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 total
assets in Underlying Funds which invest
primarily in equity securities including the
equity portion of the Balanced Fund, 10% to
40% of its total 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 total 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
Large Company Value Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Capital Appreciation Fund 0%-65%
Mid Cap Value Fund 0%-65%
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:
100
<PAGE> 265
INVESTING IN MUTUAL FUNDS: The Fund's
investments are concentrated 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.
101
<PAGE> 266
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page shows how the Capital Manager Growth Fund has
performed 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 three 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 future.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
[GRAPH TO COME]
13.43% 14.14% ___%
------ ------ ----
1998 1999 2000
The performance information shown above is based on a calendar year.
------------------------------------------------------------------------------
Best quarter: %
------------------------------------------------------------------------------
Worst quarter: %
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
------------------- --------------------
<S> <C> <C>
TRUST SHARES 10/2/97
----------------------------------------------------------------------------------------------------------
CAPITAL MANAGER GROWTH FUND % %
----------------------------------------------------------------------------------------------------------
S&P 500(R) INDEX % %
----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND % %
----------------------------------------------------------------------------------------------------------
</TABLE>
------------
(1) Both charts assume reinvestment of dividends and distributions.
102
<PAGE> 267
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Capital Manager Growth Fund, you will pay the following
fees and expenses when you buy and hold shares. Shareholder transaction fees are
paid from your account. Annual Fund operating expenses are paid out of Fund
assets, and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
-------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee %
-------------------------------------------------------------------------------
Other Expenses(3) %
-------------------------------------------------------------------------------
Total Fund
Operating Expenses(3),(4) %
-------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 current fiscal year, management fees paid by the Fund are expected
to be limited to ___%. Total expenses after fee waivers and expense
reimbursements are expected to be ____%. 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 average weighted expense ratio is expected to be ____% before fees
waivers and expense reimbursement arrangements and ____% after fee waivers and
expense reimbursement arrangements.
103
<PAGE> 268
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:
- $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.
CAPITAL MANAGER GROWTH FUND 1 3 5 10
Year Years Years Years
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
104
<PAGE> 269
BB&T CAPITAL MANAGER AGGRESSIVE 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 (listed
below) 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 up to 100% of its total
assets in Underlying Funds which invest
primarily in equity securities and up to 10%
of its total assets in Underlying Funds
which invest primarily in fixed income
securities including the fixed income
portion of the Balanced Fund and 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> <C>
Stock Funds
Large Company Value Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Capital Appreciation Fund 0%-65%
Mid Cap Value Fund 0%-65%
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 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
105
<PAGE> 270
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.
106
<PAGE> 271
RISK/RETURN SUMMARY AND FUND EXPENSES
This section would normally include a bar chart and a table showing how the
Capital Manager Aggressive Growth 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.
107
<PAGE> 272
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Capital Manager Aggressive Growth Fund, you will pay the
following fees and expenses when you buy and hold shares. Shareholder
transaction fees are paid from your account. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) TRUST SHARES
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) %
-------------------------------------------------------------------------------
Distribution and
Service (12b-1) Fee %
-------------------------------------------------------------------------------
Other Expenses(3) %
-------------------------------------------------------------------------------
Total Fund
Operating Expenses(3),(4) %
-------------------------------------------------------------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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.
(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 average weighted expense ratio is expected to be ____% before fees
waivers and expense reimbursement arrangements and ____% after fee waivers and
expense reimbursement arrangements.
108
<PAGE> 273
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:
- $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.
CAPITAL MANAGER AGGRESSIVE 1 3
GROWTH FUND Year Years
Trust Shares $ $
-------------------------------------------------
109
<PAGE> 274
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
-----------
LARGE COMPANY VALUE FUND - Under normal market conditions, the Fund will invest
at least 65% of its total assets in companies whose capitalization is within the
range of those companies in the Russell 1000(R) Value Index. These stocks, which
may include common stock, preferred stock, warrants, or debt instruments that
are convertible to common stock. Equity securities purchased by the Large
Company Value 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 Adviser 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 market
capitalization exceeds the mean capitalization of the companies in the S&P(R)
500 Index.
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.
110
<PAGE> 275
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.
CAPITAL APPRECIATION FUND -- The Capital Appreciation Fund will, under normal
market conditions, invest at least 65% of its total assets in common stocks,
warrants to purchase common stocks, debt securities convertible to common
stocks, preferred stocks convertible to common stocks and interests in
investment trusts, such as Diamonds and SPDRs (together, "Equity Securities") of
U.S. and foreign issuers. Equity Securities of foreign issuers may include ADRs.
Any assets not invested in Equity Securities may be invested in money market
instruments. The Adviser will generally select for the Fund securities of large-
and medium-sized companies that have exhibited an established record of growth
and that, in the Adviser's opinion, will continue to present significant growth
potential. Such companies generally have market capitalizations in excess of $2
billion, and annual revenues in excess of $500 million. The Adviser may also
seek to increase potential returns by identifying "niche" companies in diverse
industries and by identifying demographic, economic, and political trends that
will provide future investment opportunities. The Adviser may consider factors
such as an issuer's development (or potential for development) of new products,
any new management, or any business restructuring, and may also consider the
potential for increased institutional ownership. The Adviser may, but will not
necessarily, consider dividend income when selecting Equity Securities for the
Fund.
All of the Equity Securities in which the Fund invests (including foreign
securities) are traded in the United States or Canada either on registered
exchanges or actively in the over-the-counter market.
MID CAP VALUE FUND -- The Mid Cap Value Fund will, under normal market
conditions, invest at least 65% of its total assets in dividend-paying common
stocks, preferred stocks, and preferred stocks and debt securities convertible
into common stock of U.S. and foreign issuers. These equity securities may
include American Depositary Receipts ("ADRs") and interests of investment
trusts, such as "Diamonds" and "SPDRs."
Any remaining assets may be invested in the following securities, but only if,
at the time of purchase, the security either has the requisite rating from a
nationally recognized statistical rating organization (an "NRSRO") or is of
comparable quality as determined by the Adviser: (i) U.S. Government securities
(ii) mortgage-backed securities rated in one of the four highest rating
categories, (iii) asset-backed securities rated in one of the four highest
rating categories, (iv) corporate bonds and notes and bank obligations rated in
one of the four highest rating categories, (v) money market instruments, (vi)
warrants and rights to purchase common stocks and (vii) shares of other
investment companies.
The Fund may purchase securities that do not pay current dividends but which
offer prospects for growth of capital and future income. The Fund is not subject
to any maturity restrictions on its investment in non-money market instruments.
The Adviser will generally select for the Portfolio, securities of companies
with market capitalizations in excess of $5 billion that provide a level of
income which is greater than the average income provided by the Russell Mid
Cap(R) Value Index.
All of the equity securities in which the Portfolio invests (including foreign
securities) are traded in the United States or Canada either on registered
exchanges or actively in the over-the-counter market.
111
<PAGE> 276
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 foreign 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
total assets will be invested in 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 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.
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 Adviser.
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment grade
obligations issued by or on behalf of the State of North
112
<PAGE> 277
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 total holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to over
10% of its total assets.
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment 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 total assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND - Under normal market conditions, the Fund
will invest at least 80% of its total assets in investment grade obligations
issued by or on behalf of the Commonwealth 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 total assets.
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND -- Under normal market conditions, the
Fund will invest at least 80% of its total assets in investment grade
obligations issued by or on behalf of the State of West 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
West Virginia personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("West Virginia
Tax-Exempt Obligations").
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.
113
<PAGE> 278
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 -- The Fund will not make investments that will result
in the concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry. Bank instruments
include bank accounts, time deposits, certificates of deposit, and banker's
acceptances. As a matter of non-fundamental policy, instruments of foreign banks
will not be considered bank instruments for purposes of the above-described
exclusion from the above industry concentration limit.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
The Prime Money Market Fund may purchase securities subject to credit
enhancement. Credit enhancement consists of an arrangement in which a company
agrees to pay amounts due on a fixed income security if the issuer defaults. In
some cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the Sub-Adviser usually evaluates the credit risk of a
fixed income security based solely upon its credit enhancement.
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.
114
<PAGE> 279
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 total assets, while the Small Company
Growth Fund and the International Equity Fund each will limit its investment in
short-term obligations to 20% of its total 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 only the principal 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 SAI for additional details regarding these and other permissible
investments.
FUND NAME FUND CODE
Large Company Value Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
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Short Intermediate U.S. Government Income Fund 6
Intermediate U.S. Government Bond Fund 7
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 Appreciation Fund 15
Mid Cap Value Fund 16
West Virginia Intermediate Tax-Free Fund 17
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are 1-5, 15-17 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, 15-17 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, 12, 15-17 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, 5-8, 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 Income
amount of the loan at maturity.
CALL AND PUT OPTIONS: A call option gives the buyer 1-5, 15, 16 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, 15-17 Market
a stated maturity. Credit
Liquidity
</TABLE>
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<TABLE>
<S> <C> <C>
Interest Rate
Income
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
Income
COMMON STOCK: Shares of ownership of a company. 1-5, 15, 16 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock 1-5, 8, 15-17 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
Income
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
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to 5 Management
purchase or sell a specific amount of a currency at Market
a fixed future date and price set by the parties Credit
involved at the time the contract is negotiated. Liquidity
Leverage
Foreign Investment
Political
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/ 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."
</TABLE>
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<TABLE>
<S> <C> <C>
INDEX-BASED SECURITIES: Index-based securities such 1-5, 15, 16 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 underlying
portfolio, less trust expenses.
INVESTMENT COMPANY SECURITIES: Shares of investment 1-12, 14-17 Market
companies. A Fund (except the U.S. Treasury Fund
and 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 6-8, 12, 15-17 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 9-12, 14-17 Market
or political subdivision to obtain funds for various Credit
public purposes. Municipal securities include Political
industrial development bonds and other private Tax
activity bonds, as well as general obligation bonds, Regulatory
revenue bonds, tax anticipation notes, bond
anticipation notes, revenue anticipation notes,
project notes, other short-term tax-exempt
obligations, municipal leases, obligations of
municipal housing authorities (single family revenue
bonds), and obligations issued on behalf of
" 501(c)(3) organizations.
</TABLE>
There are two general types of municipal bonds:
General-obligations bonds, which are
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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.
<TABLE>
<S> <C> <C>
PREFERRED STOCKS: Preferred Stocks are equity 1-5, 15, 16 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, 6-8, 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 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
SHORT-TERM OBLIGATIONS: High quality U.S. 1-11 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
</TABLE>
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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.
<TABLE>
<S> <C> <C>
STAND-BY COMMITMENTS: The Fund may acquire 14, 17 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 12-13, 15-17 Liquidity
bank in exchange for the deposit of funds. Credit
Market
Income
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. 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 9-12, 14-17 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, 15-17 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 2, 3, 9-12, 14-17 Market
</TABLE>
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<TABLE>
<S> <C> <C>
COMMITMENTS: Purchase or contract to purchase Leverage
securities at a fixed price for delivery at a Liquidity
future date. Under normal market conditions, Credit
when-issued purchases and 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 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, 7-11, 15-17 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
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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 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
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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 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.
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FUND MANAGEMENT
THE INVESTMENT ADVISER
BB&T Asset Management, LLC ("BB&T Asset Management" or the "Adviser") is the
adviser for the Funds. BB&T Asset Management is a wholly-owned subsidiary of
Branch Banking and Trust Company ("BB&T"). 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, 2000, BB&T Corporation had assets of
approximately $____ billion. Through its subsidiaries, BB&T Corporation operates
over 655 banking offices in Maryland, North Carolina, South Carolina, Virginia,
West 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 Asset Management 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
09/30/00(1)
-------------------------------------------------------------------------------------------------------------
<S> <C>
Large Company Value Fund %
-------------------------------------------------------------------------------------------------------------
Balanced Fund %
-------------------------------------------------------------------------------------------------------------
Large Company Growth Fund %
-------------------------------------------------------------------------------------------------------------
Small Company Growth Fund %
-------------------------------------------------------------------------------------------------------------
International Equity Fund %
-------------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government Income Fund %
-------------------------------------------------------------------------------------------------------------
Intermediate U.S. Government Bond Fund %
-------------------------------------------------------------------------------------------------------------
North Carolina Intermediate Tax-Free Fund %
-------------------------------------------------------------------------------------------------------------
South Carolina Intermediate Tax-Free Fund %
-------------------------------------------------------------------------------------------------------------
Virginia Intermediate Tax-Free Fund %
-------------------------------------------------------------------------------------------------------------
Prime Money Market Fund %
-------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C>
U.S. Treasury Money Market Fund %
-------------------------------------------------------------------------------------------------------------
Capital Manager Conservative Growth Fund %
-------------------------------------------------------------------------------------------------------------
Capital Manager Moderate Growth Fund %
-------------------------------------------------------------------------------------------------------------
Capital Manager Growth Fund %
-------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund %
-------------------------------------------------------------------------------------------------------------
Mid Cap Value Fund %
-------------------------------------------------------------------------------------------------------------
West Virginia Intermediate Tax-Free Fund %
-------------------------------------------------------------------------------------------------------------
Capital Manager Aggressive Growth Fund %
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) BB&T reorganized its investment advisory division as BB&T Asset Management,
a separate, wholly owned subsidiary of BB&T. BB&T Asset Management has replaced
BB&T as the investment adviser to the BB&T Funds. Following the reorganization,
the management and investment advisory personnel of BB&T that provided
investment management services to BB&T Funds will continue to do so as the
personnel of BB&T Asset Management. Additionally, BB&T Asset Management is
wholly owned and otherwise fully controlled by BB&T. As a result, this
transaction is not an "assignment" of the investment advisory contract (and
sub-advisory contracts) for purposes of the Investment Company Act of 1940 and,
therefore, a shareholder vote is not required.
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. 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. Federated Investment Management Company ("Federated
IMC") serves as the Sub-Adviser to the Prime Money Market Fund pursuant to a
Sub-Advisory Agreement with
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BB&T. Under the Sub-Advisory Agreement, Federated IMC manages the Fund, selects
its 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 Prime Money Market Fund's
investment objective, policies and restrictions. Federated IMC's address is:
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
Federated IMC and other subsidiaries of Federated Investors, Inc. advise
approximately 176 mutual funds and separate accounts, which totaled
approximately $___ billion in assets as of December 31, 2000. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers.
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 pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages the Fund, selects its
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 Prime Money Market Fund's
investment objective, policies and restrictions. BIMC's principal business
address is 400 Bellevue Parkway, 4th Floor, Wilmington, Delaware 19809.
BFMI, Black Rock International and BIMC are each wholly owned subsidiaries 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. As of December 31, 2000, BAI and its subsidiaries had approximately
$_____ billion in discretionary assets under management. BAI is an indirect
majority-owned subsidiary of PNC Bank Corp., a diversified financial services
company.
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PORTFOLIO MANAGERS
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 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.
MID CAP VALUE FUND. Buel S. Sears, CFA serves as a Vice President of BB&T. He
has managed the Mid Cap Value Fund since June, 1997. He has more than 16 years
of investment experience. Prior to joining BB&T in 2000, Mr. Sears served as a
Vice President of One Valley Bank and managed Huntington Banks West Virginia
Trust Investment Group for 12 years. [CONFIRM]
---------
CAPITAL APPRECIATION FUND. David P. Nolan serves as a Vice President of BB&T. He
has managed the Capital Appreciation Fund since December, 1993. He has more than
19 years of investment experience. Prior to joining BB&T in 2000, Mr. Nolan
served as a Vice President of One Valley Bank and as an account executive with
Alex. Brown & Sons incorporated. [CONFIRM]
---------
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND. Jeffrey D. McClung serves as a
___________________ of BB&T. He has managed the West Virginia Intermediate
Tax-Free Fund since September, 2000. He has more than 7 years of investment
experience. Prior to joining BB&T in 2000, Mr. McClung served as a Portfolio
Manager of One Valley Bank and as an investment officer for Huntington National
Bank.
[CONFIRM]
---------
ALL OTHER BB&T FUNDS. All investment decisions for each of the other BB&T Funds
are made by a team of investment professionals, all of whom take an active part
in the decision making process.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, L.P. (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"), also 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 SAI has more detailed information about the Investment Adviser and other
service providers.
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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 the Trust Shares, see the fund-by-fund information
earlier in this prospectus.
The Funds also offer Class A Shares, Class B Shares, and Class C Shares, each of
which has its own expense structure. Class A Shares, Class B Shares, and Class C
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).
Generally, expenses applicable to the Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service (12b-1
) fees, are borne solely by that share class.
128
<PAGE> 293
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
How NAV is Calculated Money Market Funds
The NAV is calculated by The per share net asset value ("NAV") of the
adding the total value of the Prime Money Market Fund and the U.S.
Fund's investments and other Treasury Money Market Fund will be
assets, subtracting its determined at 12:00 p.m. Eastern Time, 3:00
liabilities and then dividing p.m. Eastern Time, and at the close of
that figure by the number of regular trading on the New York Stock
outstanding shares of the Fund: Exchange, normally at 4:00 p.m. Eastern
Time, on days the Exchange is open. The NAV
of the Tax-Free Money Market Fund will be
determined on the same schedule with the
exception of the 3:00 p.m. Eastern Time
determination, which will not be performed.
Your order for purchase, sale or exchange of
shares is priced at the next NAV calculated
NAV = after your order is received. This is what
is known as the offering price.
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares Each Fund uses the amortized cost method of
Outstanding 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.
Generally, for Funds other than Other Funds
the Money Market Funds, you can
find the Fund's NAV daily in The Per share NAV for each Fund is determined
Wall Street Journal and other and its shares are priced at the close of
newspapers. NAV is calculated regular trading on the New York Stock
separately for each class of Exchange, normally at 4:00 p.m. Eastern time
shares. 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.
A 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 BB&T Funds'
Pricing Committee (or BlackRock
International in the case of the
International Equity Fund) pursuant to
procedures established by BB&T Funds' Board
of Trustees. For further information
regarding the methods used in valuing the
Fund's investments, please see the SAI.
129
<PAGE> 294
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Trust DIVIDENDS AND DISTRIBUTIONS
Shares of the Funds through
procedures established by the All dividends and distributions will be
Distributor in connection with automatically reinvested unless you request
the requirements of fiduciary, otherwise. There are no sales charges for
advisory, agency, custodial and reinvested distributions. Income dividends
other similar accounts maintained for the Money Market Funds and the Bond
by or on behalf of customers of Funds are declared daily and paid monthly.
Branch Banking and Trust Company Income dividends for the Large Company Value
or one of its affiliates or other Fund, the Mid Cap Value Fund, and the
financial service providers Balanced Fund are declared and paid monthly.
approved by the Distributor. The Large Company Growth Fund, the Capital
Appreciation Fund, the Small Company Growth
Fund, the International Equity 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.
-------------------------------------------
These parties are responsible Avoid 31% Tax Withholding
for transmitting orders by close
of business. Consult your Each Fund is required to withhold 31% of
investment representative or taxable dividends, capital gains
institution for specific distributions and redemptions paid to
information. 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.
--------------------------------------------
130
<PAGE> 295
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
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 received by the Fund, As a mutual fund shareholder, you are
its transfer agent, or your technically selling shares when you request
investment representative. a withdrawal in cash. This is also known as
Normally you will receive your redeeming shares or a redemption of shares.
proceeds within a week after -------------------------------------------
your request is received. See
section on "General Policies INSTRUCTIONS FOR SELLING SHARES
on Selling Shares below." If selling your shares through a financial
institution or your 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
(unless you have declined to how you wish to receive your funds (mail,
telephone sales privileges) 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, Ohio 43218-2533
-------------------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General Policies on 2. Send to:
Selling Shares--Redemptions BB&T Funds
in Writing Required" below) c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer
Road Columbus, OH 43219.
131
<PAGE> 296
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
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
the Automated Clearing House of your shares will normally be determined
(ACH) and must be a U.S. bank. on the same day and the proceeds credited
within 7 days.
Your bank may charge for this
service.
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 ensure 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.
132
<PAGE> 297
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.
133
<PAGE> 298
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
INSTRUCTIONS FOR EXCHANGING SHARES
You can exchange your shares Exchanges may be made by sending a written
in one Fund for shares of the request to BB&T Funds, P.O. Box 182533,
same class of another BB&T Fund, Columbus OH 43218-2533, or by calling
usually without paying additional 1-800-228-1872. Please provide the following
sales charges (see "Notes" below). information:
You must meet the minimum - Your name and telephone number
investment requirements for the - The exact name on your account and
Fund into which you are account number
exchanging. Exchanges from one - Taxpayer identification number (usually
Fund to another are taxable. your Social Security number)
Trust Shares may also be exchanged - Dollar value or number of shares to be
for Class A Shares of the same exchanged
Fund if you cease to be eligible - The name of the Fund from which the
to purchase Trust Shares. Trust exchange is to be made.
Shares of each Fund may not be - The name of the Fund into which the
exchanged for Class B Shares or exchange is being made.
Class C Shares. No transaction
fees are currently charged for See "Selling your Shares" for important
exchanges. However, the exchange information about telephone transactions.
of Trust Shares for Class A Shares
will require payment of the sales To prevent disruption in the management of
charge unless the sales charge is the Funds, due to market timing strategies,
waived. Please consult the the Trust reserves the right to reject any
Class A, Class B, and Class C exchange it believes will increase
Shares prospectus for more transaction costs, or otherwise affect
information. shareholders. Specifically, 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.
134
<PAGE> 299
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.
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, Virginia Intermediate Tax-Free Fund, and West
Virginia Intermediate Tax-Free Fund, North Carolina, South Carolina, Virginia,
and West 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.
Except with respect to the International Equity Fund, 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.
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.)
135
<PAGE> 300
MORE INFORMATION ABOUT TAXES IS IN OUR SAI.
136
<PAGE> 301
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 KPMG
LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN
THE SAI, WHICH IS AVAILABLE UPON REQUEST. FINANCIAL HIGHLIGHTS FOR THE TAX-FREE
MONEY MARKET FUND, THE CAPITAL APPRECIATION FUND, THE MID CAP VALUE FUND, THE
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND, AND THE CAPITAL MANAGER AGGRESSIVE
GROWTH FUND ARE NOT PRESENTED BECAUSE THE FUND HAD NOT COMMENCED OPERATIONS AS
OF SEPTEMBER 30, 2000.
[FINANCIAL HIGHLIGHTS TO BE PROVIDED BY BISYS]
137
<PAGE> 302
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
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.
138
<PAGE> 303
BB&T FUNDS
-------------------------------------------------------------------------------
PROSPECTUS
----------
FEBRUARY 1, 2001
BB&T SMALL COMPANY GROWTH FUND
TRUST SHARES
---------------------
THE SECURITIES AND EXCHANGE QUESTIONS?
COMMISSION HAS NOT APPROVED THE CALL 1-800-228-1872
SHARES DESCRIBED IN THIS PROSPECTUS OR YOUR INVESTMENT
OR DETERMINED WHETHER THIS PROSPECTUS REPRESENTATIVE.
IS ACCURATE OR COMPLETE. ANYONE WHO --------------------
TELLS YOU OTHERWISE IS COMMITTING A
CRIME.
-------------------------------------------------------------------------------
1
<PAGE> 304
TABLE OF CONTENTS
Risk/Return Summary and Fund Expenses
Carefully review this - Overview
important section, which - Small Company Growth Fund
summarizes each Fund's
investments, risks, past
performance, and fees.
Additional Investment Strategies and Risks
Review this section for - Investment Practices
information on investment - Investment Risks
strategies and their risks.
Fund Management
Review this section for - The Investment Adviser
details on the people and - The Investment Sub-Adviser
organizations who oversee the - Portfolio Managers
Funds. - The Distributor and Administrator
Shareholder Information
Review this section for - Choosing a Share Class
details on how shares are - Pricing of Fund Shares
valued, how to purchase, sell - Purchasing and Adding to Your Shares
and exchange shares, related - Selling Your Shares
charges and payments of - General Policies on Selling Shares
dividends and distributions. - Exchanging Your Shares
- Dividends, Distributions and Taxes
Other Information About The Fund
- Financial Highlights
2
<PAGE> 305
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 BB&T Small Company Growth Fund that
you should know before investing. The Fund
also offers three additional classes of
shares called Class A Shares, Class B Shares,
and Class C Shares which are offered in a
separate prospectus. Other BB&T Funds are
offered in separate prospectuses. Please read
this prospectus and keep it for future
reference.
The BB&T Small Company Growth Fund 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 the
Fund, you should know a few general basics
about investing in mutual funds.
The value of your investment in a mutual fund
is based on the market prices of the
securities the mutual 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 mutual fund owns and the
markets where these securities trade.
LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY
ON YOUR INVESTMENT IN THE FUND. YOUR
INVESTMENT IN THE BB&T SMALL COMPANY GROWTH
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 BB&T 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 the 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 mutual funds with similar objectives.
3
<PAGE> 306
DESCRIPTION OF THE FUNDS - OBJECTIVES, RISK/RETURN AND EXPENSES
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
The Fund seeks long-term capital
appreciation and invests primarily
in equity and equity-related
securities, principally common
stocks.
Who May Want to Invest Consider investing in this Fund 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
This Fund 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
4
<PAGE> 307
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 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.
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.
5
<PAGE> 308
RISK/RETURN SUMMARY AND FUND EXPENSES
The table on this page shows how the Small Company Growth Fund has performed
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 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 Russell
2000(R) 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. above is
based on a calendar year.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
<TABLE>
<CAPTION>
45.99% 31.19% 4.96% 3.29% 72.65% %
------ ------ ----- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
1996 1996 1997 1998 1999 2000
</TABLE>
The performance information shown
----------------------------------------------------------------------------
Best quarter: %
----------------------------------------------------------------------------
Worst quarter: %
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
TRUST SHARES 12/7/94
--------------------------------------- -------------------- ---------------------- ----------------------
SMALL COMPANY GROWTH FUND % % %
--------------------------------------- -------------------- ---------------------- ----------------------
RUSSELL 2000(R) INDEX % % %
--------------------------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
6
<PAGE> 309
Risk/Return Summary and Fund Expenses
FEES AND EXPENSES
As an investor in the Small Company Growth Fund, you will pay the following fees
and expenses when you buy and hold shares. Shareholder transaction fees are paid
from your account. Annual Fund operating expenses are paid out of Fund assets,
and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Expenses (fees
paid by you
directly) (1) TRUST SHARES
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 %
------------------------------ ------------------------
Distribution and
Service (12b-1) Fee %
------------------------------ ------------------------
Other Expenses (3) %
------------------------------ ------------------------
Total Fund
Operating Expenses (3) %
------------------------------ ------------------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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 are expected to be limited to
____%. Total expenses after fee waivers and expense reimbursements are expected
to be limited to ____%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
7
<PAGE> 310
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:
- $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.
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND 1 3 5 10
Year Years Years Years
Trust Shares
<S> <C> <S> <C> <C>
$ $ $ $
-------------------------------- ------- --------- ---------- ---------
</TABLE>
8
<PAGE> 311
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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.
The 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.
TEMPORARY DEFENSIVE MEASURES
If deemed appropriate under the circumstances, the Fund may increase its
holdings in short-term obligations to up to 100% of its total assets. Under
normal market conditions, the Fund will limit its investment in short-term
obligations to 20% of its total assets.
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes only the PRINCIPAL securities and techniques the Fund uses, 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 SAI for additional details regarding these and other permissible
investments.
INSTRUMENT RISK TYPE
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are Market
foreign shares of a company held by a U.S. bank Political
that issues a receipt evidencing ownership. Foreign Investment
CALL AND PUT OPTIONS: A call option gives the buyer 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 Leverage
security at a specified price. The Funds will sell
only covered call and secured put options.
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock Market
that convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived 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 Leverage
securities. Interest Rate
Income
9
<PAGE> 312
FOREIGN SECURITIES: Stocks issued by foreign 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 Management
for the future sale and purchase of a specified Market
amount of a specified security, class of Credit
securities, or an index at a specified time in the Liquidity
future and at a specified price. Leverage
INDEX-BASED SECURITIES: Index-based securities Market
such 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 underlying portfolio, less trust
expenses.
INVESTMENT COMPANY SECURITIES: Shares of investment Market
companies. Each Fund, other than the U.S. Treasury
Fund, 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.
PREFERRED STOCKS: Preferred Stocks are equity 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 Market
and the simultaneous commitment to Leverage
10
<PAGE> 313
return the security to the seller at an agreed
upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a Market
security and the simultaneous commitment to buy the Leverage
security 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% Market
of the Fund's total assets. In return the Fund Leverage
will receive cash, other securities, and/or letters Liquidity
of credit. Credit
SHORT-TERM OBLIGATIONS: High quality U.S. Market
dollar-denominated debt securities that have Credit
remaining 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.
U.S. GOVERNMENT AGENCY SECURITIES: Securities Interest Rate
issued by agencies and instrumentalities of the Credit
U.S. government. These include Ginnie Mae, Fannie
Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, Interest Rate
separately traded registered interest and principal
securities, and coupons under bank entry
safekeeping.
WARRANTS: Securities, typically issued with Market
preferred stock or bonds, that give the holder the Credit
right to buy a proportionate amount of common stock
at a specified price.
11
<PAGE> 314
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 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
12
<PAGE> 315
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.
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.
13
<PAGE> 316
FUND MANAGEMENT
THE INVESTMENT ADVISER
BB&T Asset Management, LLC ("BB&T Asset Management" or the "Adviser") is the
adviser for the Funds. BB&T Asset Management is a wholly-owned subsidiary of
Branch Banking and Trust Company ("BB&T"). 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, 2000, BB&T Corporation had assets of
approximately $____ billion. Through its subsidiaries, BB&T Corporation operates
over 655 banking offices in Maryland, North Carolina, South Carolina, Virginia,
West 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 Asset Management 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
09/30/00(1)
--------------------------------------- --------------------------
<S> <C>
Small Company Growth Fund %
--------------------------------------- --------------------------
</TABLE>
(1) BB&T reorganized its investment advisory division as BB&T Asset Management,
a separate, wholly owned subsidiary of BB&T. BB&T Asset Management has replaced
BB&T as the investment adviser to the BB&T Funds. Following the reorganization,
the management and investment advisory personnel of BB&T that provided
investment management services to BB&T Funds will continue to do so as the
personnel of BB&T Asset Management. Additionally, BB&T Asset Management is
wholly owned and otherwise fully controlled by BB&T. As a result, this
transaction is not an "assignment" of the investment advisory contract (and
sub-advisory contracts) for purposes of the Investment Company Act of 1940 and,
therefore, a shareholder vote is not required.
THE INVESTMENT SUB-ADVISER
BlackRock Financial Management, Inc. ("BFMI") (formerly PNC Equity Advisors
Company) serves as the Sub-Adviser to the Small Company Growth Fund pursuant to
a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, BFMI
manages the Fund, selects investments and places all orders for purchases and
sales of the Fund's securities, subject to the general supervision of the BB&T
Funds' Board of Trustees and BB&T and in accordance with the Small Company
Growth Fund's investment objective, policies and restrictions.
14
<PAGE> 317
BFMI 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. As of December 31, 2000, BAI and
its subsidiaries had approximately $______ billion in discretionary assets under
management. BAI is an indirect majority-owned subsidiary of PNC Bank Corp., a
diversified financial services company.
BFMI is also 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.
PORTFOLIO MANAGERS
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 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.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, L.P. (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"), also 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 SAI has more detailed information about the Adviser and other service
providers.
15
<PAGE> 318
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 the Trust Shares, see the fund information earlier
in this prospectus.
The Funds also offer Class A Shares, Class B Shares, and Class C Shares, each of
which has its own expense structure. Class A Shares, Class B Shares, and Class C
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).
Generally, expenses applicable to the Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service (12b-1
) fees, are borne solely by that share class.
16
<PAGE> 319
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, 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.
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.
A 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 BB&T Funds' Pricing Committee pursuant to procedures established by BB&T
Funds' Board of Trustees. For further information regarding the methods used in
valuing the Fund's investments, please see the SAI.
17
<PAGE> 320
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Trust Shares of the Fund 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. The
Small Company Growth Fund declares and pays 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.
18
<PAGE> 321
SHAREHOLDER INFORMATIONSHAREHOLDER 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.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through a financial institution or your 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.
<TABLE>
<S> <C>
By telephone 1. Call 1-800-228-1872 with instructions as to how you wish to
receive your funds (mail, wire, electronic transfer). (See
(unless you have declined "General Policies on Selling Shares--Verifying Telephone
telephone sales privileges) 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>
19
<PAGE> 322
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>
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.
20
<PAGE> 323
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.
21
<PAGE> 324
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. 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 of each Fund may not be
exchanged for Class B Shares or Class C 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. Please consult the Class A, Class B, and Class C Shares prospectus for
more information.
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, the Trust reserves the right to reject any exchange it believes will
increase transaction costs, or otherwise affect other shareholders.
Specifically, 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.
22
<PAGE> 325
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.
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).
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.
- The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.
- Any distributions of net long-term capital gains by the 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 Fund's adviser does 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.
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 SAI.
23
<PAGE> 326
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS OR, IF SHORTER, THE PERIOD OF THE
FUND'S 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 KPMG
LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN
THE SAI, WHICH IS AVAILABLE UPON REQUEST.
24
<PAGE> 327
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
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.
25
<PAGE> 328
BB&T FUNDS
PROSPECTUS
FEBRUARY 1, 2001
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. ANYONE REPRESENTATIVE
WHO TELLS YOU OTHERWISE IS COMMITTING A
CRIME.
<PAGE> 329
TABLE OF CONTENTS
Carefully review this Risk/Return Summary and Fund Expenses
important section, which
summarizes each Fund's - Overview
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 Additional Investment Strategies and Risks
information on investment
strategies and their risks. - Money Market Fund
- Investment Practices
Review this section for Fund Management
details on the people and
organizations who oversee the - The Investment Adviser
Funds. - The Investment Sub-Adviser
- The Distributor and Administrator
Review this section for Shareholder Information
details on how shares are
valued, how to purchase, sell - Choosing a Share Class
and exchange shares, related - Pricing of Fund Shares
charges and payments of - Purchasing and Adding to Your Shares
dividends and distributions. - Selling Your Shares
- Exchanging Your Shares
- General Policies on Selling Shares
- Distribution Arrangements/Sales Charges
- Distribution and Service (12b-1) Fees
- Exchanging Your Shares
- Dividends, Distributions and Taxes
Other Information About the Funds
Financial Highlights
2
<PAGE> 330
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> 331
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> 332
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.
"High-quality" debt securities are
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 Standard & Poor's
Corporation and "P-1" or "P-2" by
Moody's Investors Service, Inc.); or
(ii) are single rated and have
received one of the two highest
short-term ratings by an NRSRO; or
(iii) if unrated, are determined by
the Sub-Adviser 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 Statement of
Additional Information ("SAI").
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be
subject to the following principal
risks:
5
<PAGE> 333
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> 334
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the Prime Money Market Fund has
performed 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 three 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 returns for Class A Shares and Class B Shares will differ from the Trust
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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares(1)
<TABLE>
<S> <C> <C>
5.14% 4.75% %
----- ----- ----------
1998 1999 2000
</TABLE>
The performance information shown above is based on a calendar year.
---------------------------------------------------------------
Best quarter: %
---------------------------------------------------------------
Worst quarter: %
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION (2)
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
CLASS A SHARES 10/1/97
-------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge)
-------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
TRUST SHARES
-------------------------------------------------------------- -------------------- ----------------------
PRIME MONEY MARKET FUND % %
-------------------------------------------------------------- -------------------- ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to September 2, 1998. Performance
for periods prior to September 2, 1998, is based on Class A Share performance
and has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares, but does not reflect the Class B Shares' Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
As of December 31, 2000, 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> 335
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Prime Money Market Fund, you will pay the following fees
and expenses when you buy and hold shares. Shareholder transaction fees are paid
from your account. Annual Fund operating expenses are paid out of Fund assets,
and are reflected in the share price.
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
Maximum Sales
Charge (load)
on Purchases None None None
--------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Maximum Deferred
Sales Charge (load) None 5.00% (2) None
Redemption Fee (3) 0% 0% 0%
</TABLE>
CONTINGENT DEFERRED SALES CHARGE
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.
<TABLE>
<CAPTION>
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES TRUST SHARES
--------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Management Fee (4) % % %
--------------------- ---------------- ---------------- --------------
Distribution and
Service (12b-1) Fee (4)% % %
--------------------- ---------------- ---------------- --------------
Other Expenses (4) % % %
--------------------- ---------------- ---------------- --------------
Total Fund
Operating Expenses (4) % % %
--------------------- ---------------- ---------------- --------------
</TABLE>
(1) Participating banks or other financial institutions may charge their
customers 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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A are expected to be limited to ____% and other expenses are expected to
be limited to be ____% for each class. Total expenses after fee waivers and
expense reimbursements for each class are expected 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.
8
<PAGE> 336
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:
- $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.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND 1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares $ $ $ $
------------------------------- -------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
------------------------------- -------- --------- ---------- ---------
Trust Shares $ $ $ $
------------------------------- -------- --------- ---------- ---------
</TABLE>
9
<PAGE> 337
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
risk:
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 this
risk, 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> 338
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the U.S. Treasury Money Market Fund
has performed 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 eight 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 returns for Class A Shares and Class B Shares will differ from the Trust
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.
PERFORMANCE BAR CHART AND TABLE
Year-by-Year Total Returns as of 12/31 for Trust Shares (1)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
2.71% 3.49% 5.20% 4.65% 4.79% 4.85% 4.41% %
----- ----- ----- ----- ----- ----- ------ -----
1993 1994 1995 1996 1997 1998 1999 2000
</TABLE>
The performance information shown above is based on a calendar year.
---------------------------------------------------------------------------
Best quarter: %
---------------------------------------------------------------------------
Worst quarter: %
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2000)(1)
<TABLE>
<CAPTION>
----------------------------------------------------------- ---------------- ------------------ ----------------------
1 YEAR 5 YEARS (2) SINCE INCEPTION (2)
----------------------------------------------------------- ---------------- ------------------ ----------------------
<S> <C> <C> <C>
CLASS A SHARES 10/5/92
U.S. TREASURY MONEY MARKET FUND % % %
----------------------------------------------------------- ---------------- ------------------ ----------------------
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge)
----------------------------------------------------------- ---------------- ------------------ ----------------------
U.S. TREASURY MONEY MARKET FUND % % %
----------------------------------------------------------- ---------------- ------------------ ----------------------
TRUST SHARES
----------------------------------------------------------- ---------------- ------------------ ----------------------
U.S. TREASURY MONEY MARKET FUND % % %
----------------------------------------------------------- ---------------- ------------------ ----------------------
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
As of December 31, 2000, 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> 339
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the U.S. Treasury Money Market Fund, you will pay the
following fees and expenses when you buy and hold shares. Shareholder
transaction fees are paid from your account. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
Maximum Sales
Charge (load)
on Purchases None None None
--------------------- --------------- ---------------- --------------
<S> <C> <C> <C>
Maximum Deferred
Sales Charge (load) None 5.00%2 None
Redemption Fee (3) 0% 0% 0%
</TABLE>
CONTINGENT DEFERRED SALES
CHARGE
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.
Annual Fund
Operating
Expenses
(fees paid from
Fund assets) CLASS A SHARES CLASS B SHARES TRUST SHARES
--------------------- --------------- ---------------- --------------
Management Fee (4) % % %
--------------------- --------------- ---------------- --------------
Distribution and
Service (12b-1) Fee (4) % % %
--------------------- --------------- ---------------- --------------
Other Expenses (4) % % %
--------------------- --------------- ---------------- --------------
Total Fund
Operating Expenses (4) % % %
--------------------- --------------- ---------------- --------------
(1) Participating banks or other financial institutions may charge their
customers 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) For the current fiscal year, management fees paid by the Fund are expected
to be limited to ____%. Additionally, distribution and service (12b-1) fees for
Class A Shares are expected to be limited to % and other expenses for each class
are expected to be limited to ____%. Total expenses after fee waivers and
expense reimbursements for each class are expected 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.
12
<PAGE> 340
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:
- $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.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND 1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Class B Shares
Assuming Redemption $ $ $ $
Assuming No Redemption $ $ $ $
-------------------------------- ------- --------- ---------- ---------
Trust Shares $ $ $ $
-------------------------------- ------- --------- ---------- ---------
</TABLE>
13
<PAGE> 341
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> 342
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> 343
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Tax-Free Money Market Fund, you will pay the following
fees and expenses when you buy and hold shares. Shareholder transaction fees are
paid from your account. Annual Fund operating expenses are paid out of Fund
assets, and are reflected in the share price.
Shareholder
Transaction
Expenses (fees
paid by you
directly)(1) CLASS A SHARES CLASS B SHARES TRUST SHARES
Maximum Sales
Charge (load)
on Purchases None None None
------------------- ---------------- -------------- ---------------
Maximum Deferred
Sales Charge None 5.00% (2) None
(load)
0% 0% 0%
Redemption Fee (3)
CONTINGENT DEFERRED SALES CHARGE
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.
Annual Fund
Operating
Expenses
(fees paid from CLASS A SHARES CLASS B SHARES TRUST SHARES
Fund assets)
------------------- ---------------- -------------- ---------------
Management Fee(4) % % %
------------------- ---------------- -------------- ---------------
Distribution and
Service (12b-1) % % %
Fee(4)
------------------- ---------------- -------------- ---------------
Other Expenses(4) % % %
------------------- ---------------- -------------- ---------------
Total Fund
Operating % % %
Expenses(4)
------------------- ---------------- -------------- ---------------
(1) Participating banks or other financial institutions may charge their
customers 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> 344
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:
- $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.
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND 1 3
Year Years
<S> <C> <C>
Class A Shares $ $
-------------------------------- ------- ---------
Class B Shares
Assuming Redemption $ $
Assuming No Redemption $ $
-------------------------------- ------- ---------
Trust Shares $ $
-------------------------------- ------- ---------
</TABLE>
17
<PAGE> 345
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND - The Fund will not make investments that will result in
the concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry. Bank instruments
include bank accounts, time deposits, certificates of deposit, and banker's
acceptances. As a matter of non-fundamental policy, instruments of foreign banks
will not be considered bank instruments for purposes of the above-described
exclusion from the above industry concentration limit.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
The Prime Money Market Fund may purchase securities subject to credit
enhancement. Credit enhancement consists of an arrangement in which a company
agrees to pay amounts due on a fixed income security if the issuer defaults. In
some cases, the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the Sub-Adviser usually evaluates the credit risk of a
fixed income security based solely upon its credit enhancement.
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);
18
<PAGE> 346
- 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.
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 only the PRINCIPAL 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 SAI for additional details regarding these and other permissible
investments.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
--------- ---------
<S> <C> <C>
Prime Money Market Fund 1
U.S. Treasury Money Market Fund 2
Tax-Free Money Market Fund 3
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
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> 347
<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. Each Fund, other than the U.S. Treasury
Fund 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 1,3 Market
or political subdivision to obtain funds for various Credit
public purposes. Municipal securities include Political
industrial development bonds and other private Tax
activity bonds, as well as general obligation bonds, Regulatory
revenue bonds, tax anticipation notes, bond
anticipation notes, revenue anticipation notes,
project notes, other short-term tax-exempt
obligations, municipal leases, obligations of
municipal housing
</TABLE>
20
<PAGE> 348
<TABLE>
<S> <C> <C>
authorities (single family revenue
bonds), and obligations issued on behalf of
sec. 501(c)(3) organizations.
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.
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 1-2 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, 1, 2 Interest Rate
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
</TABLE>
21
<PAGE> 349
<TABLE>
<S> <C> <C>
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: 1, 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.
22
<PAGE> 350
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.
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> 351
FUND MANAGEMENT
THE INVESTMENT ADVISER
BB&T Asset Management, LLC ("BB&T Asset Management" or the "Adviser") is the
adviser for the Funds. BB&T Asset Management is a wholly-owned subsidiary of
Branch Banking and Trust Company ("BB&T"). 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, 2000, BB&T Corporation had assets of
approximately $____ billion. Through its subsidiaries, BB&T Corporation operates
over 655 banking offices in Maryland, North Carolina, South Carolina, Virginia,
West 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 Asset Management 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:
-------------------------------------- --------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF
09/30/00(1)
-------------------------------------- --------------------------
Prime Money Market Fund %
-------------------------------------- --------------------------
U.S. Treasury Money Market Fund %
-------------------------------------- --------------------------
(1) BB&T reorganized its investment advisory division as BB&T Asset Management,
a separate, wholly owned subsidiary of BB&T. BB&T Asset Management has replaced
BB&T as the investment adviser to the BB&T Funds. Following the reorganization,
the management and investment advisory personnel of BB&T that provided
investment management services to BB&T Funds will continue to do so as the
personnel of BB&T Asset Management. Additionally, BB&T Asset Management is
wholly owned and otherwise fully controlled by BB&T. As a result, this
transaction is not an "assignment" of the investment advisory contract (and
sub-advisory contracts) for purposes of the Investment Company Act of 1940 and,
therefore, a shareholder vote is not required.
THE INVESTMENT SUB-ADVISERS
PRIME MONEY MARKET FUND. Federated Investment Management Company ("Federated
IMC") serves as the Sub-Adviser to the Prime Money Market Fund pursuant to a
Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, Federated
IMC manages the Fund, selects its 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 Prime
Money Market Fund's
24
<PAGE> 352
investment objective, policies and restrictions. Federated IMC's address is:
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
Federated IMC and other subsidiaries of Federated Investors, Inc. advise
approximately 176 mutual funds and separate accounts, which totaled
approximately $______ billion in assets as of December 31, 2000. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers.
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 pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages the Fund, selects its
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 Prime Money Market Fund's
investment objective, policies and restrictions. BIMC's principal business
address is 400 Bellevue Parkway, 4th Floor, Wilmington, Delaware 19809.
BFMI, BlackRock International and BIMC are each wholly owned subsidiaries 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. As of December 31, 2000, BAI and its subsidiaries had approximately $____
billion in discretionary assets under management. BAI is an indirect
majority-owned subsidiary of PNC Bank Corp., a diversified financial services
company.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, L.P. (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"), also 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 SAI has more detailed information about the Adviser and other service
providers.
25
<PAGE> 353
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.
Generally, expenses applicable to a Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service (12b-1)
fees, are borne solely by that share class.
26
<PAGE> 354
* Class A Shares, Class B Shares, and Trust Shares of the Tax-Free Money Market
Fund are not currently being offered.
27
<PAGE> 355
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
The per share net asset value ("NAV") of the Prime Money Market and U.S.
Treasury Money Market Funds will be determined at 12:00 p.m. Eastern Time, 3:00
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. The
NAV of the Tax-Free Money Market Fund will be determined on the same schedule
with the exception of the 3:00 p.m. Eastern Time determination, which will not
be performed.
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> 356
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Shares of the Funds through the Distributor or through banks,
brokers and other investment representatives or institutions, 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 or institution, that party is responsible for
transmitting orders by close of business and may have an earlier cut-off time
for purchase and sale requests. Trust Shares may be 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.
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.
-------------------------------------------------------------------------------
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> 357
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT - CLASS A AND CLASS B SHARES
ONLY
BY REGULAR MAIL
If purchasing through your financial adviser or brokerage account, simply tell
your adviser 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> 358
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:
Huntington National Bank
Routing Number: ABA #044 000 024
A/C 01899607383
BB&T Funds
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> 359
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
AUTOMATIC INVESTMENT PLAN - CLASS A AND
CLASS B SHARES ONLY
You can make automatic investments in the Funds from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $25, once
you've invested the $25 minimum required to open the account.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application or the supplemental sign-up form
- Make sure you note:
[X] Your bank name, address and account number
[X] The amount you wish to invest automatically (minimum $25)
[X] How often you want to invest (every month, 4 times a year, twice
a year or once a year)
- Attach a voided personal check.
Call 1-800-228-1872 for an enrollment form or consult the SAI for additional
information.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital 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 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> 360
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 or Class C 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
receive your funds (mail, wire, electronic transfer). (See
(unless you have declined "General Policies on Selling Shares--Verifying Telephone
telephone sales privileges) 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> 361
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 REDEMPTION PLAN - CLASS A AND CLASS 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 CLASS 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> 362
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> 363
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
<TABLE>
<CAPTION>
--------------------------------------- -----------------------------------
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 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> 364
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:
[X] Class A Shares pay a 12b-1 fee of up to .50% of the average
daily net assets of a Fund.
[X] 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> 365
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, the Trust reserves the right to reject any exchange it believes will
increase transaction costs , or otherwise affect other shareholders.
Specifically, exchange activity may be limited to four exchanges from a Fund
during a calendar year.
38
<PAGE> 366
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> 367
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.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains, if any,
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 SAI.
40
<PAGE> 368
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 KPMG
LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN
THE SAI, WHICH IS AVAILABLE UPON REQUEST. FINANCIAL HIGHLIGHTS FOR THE TAX-FREE
MONEY MARKET FUND ARE NOT PRESENTED BECAUSE IT HAD NOT COMMENCED OPERATIONS AS
OF SEPTEMBER 30, 2000.
41
<PAGE> 369
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
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> 370
BB&T FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2001
----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Class A Shares, Class B Shares, and Class C 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 West Virginia Intermediate Tax-Free Fund,
the BB&T Intermediate Corporate Bond Fund, the BB&T Large Company Value Fund
(formerly 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 Capital Appreciation Fund, the BB&T Mid Cap
Value Fund, the BB&T Capital Manager Conservative Growth Fund, the BB&T Capital
Manager Moderate Growth Fund, the BB&T Capital Manager Growth Fund, and the BB&T
Capital Manager Aggressive Growth Fund which are dated February 1, 2001, 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,
2001 and the Prospectus of the BB&T Small Company Growth Fund (Trust Shares)
which is dated February 1, 2001. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. Copies of the
Prospectuses may be obtained by writing BB&T Funds at 3435 Stelzer Road,
Columbus, Ohio 43219, or by telephoning toll free (800) 228-1872.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
BB&T............................................................................................ 1
INVESTMENT OBJECTIVES AND POLICIES..............................................................
Additional Information on Portfolio Instruments............................................
Investment Restrictions....................................................................
Portfolio Turnover.........................................................................
VALUATION.......................................................................................
Valuation of the Money Market Funds........................................................
Valuation of the Bond Funds, the Stock Funds (excluding the International Equity
Fund), and the Funds of Funds...........................................................
Valuation of the International Equity Fund.................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchase of Class A, Class B, and Class C Shares...........................................
Matters Affecting Redemption...............................................................
ADDITIONAL TAX INFORMATION......................................................................
Additional Tax Information Concerning the International Equity Fund.........................
Additional Tax Information Concerning the North Carolina, South Carolina,
Virginia, and West Virginia Funds........................................................
Special Considerations Regarding Investment in South Carolina
Tax-Exempt Obligations...................................................................
MANAGEMENT OF BB&T FUNDS.........................................................................
Officers....................................................................................
Investment Adviser..........................................................................
Sub-Advisers................................................................................
Portfolio Transactions......................................................................
Glass-Steagall Act..........................................................................
Manager and Administrator...................................................................
Distributor.................................................................................
Custodian...................................................................................
Independent Auditors........................................................................
Legal Counsel...............................................................................
PERFORMANCE INFORMATION
Yields of the Money Market Funds............................................................
Yields of the Other Funds of the BB&T Funds.................................................
Calculation of Total Return.................................................................
Performance Comparisons.....................................................................
ADDITIONAL INFORMATION...........................................................................
Organization and Description of Shares......................................................
Shareholder and Trustee Liability...........................................................
Miscellaneous................................................................................
FINANCIAL STATEMENTS.............................................................................
Audited Financial Statements as of September 30, 2000.......................................
APPENDIX.........................................................................................
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STATEMENT OF ADDITIONAL INFORMATION
BB&T FUNDS
BB&T Funds is an open-end management investment company. The BB&T Funds
consist of twenty-two series of units of beneficial interest ("Shares") offered
to the public, each representing interests in one of twenty-two 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 Fund (the "Virginia Fund")
The BB&T West Virginia Intermediate Tax-Free Fund (the "West Virginia Fund")
STOCK FUNDS
The BB&T Large Company Value Fund (the "Large Company Value Fund")
The BB&T Balanced Fund (the "Balanced Fund")
The BB&T Large Company Growth Fund (the "Large Company Growth Fund")
The BB&T Small Company Growth Fund (the "Small Company Growth Fund")
The BB&T International Equity Fund (the "International Equity Fund")
The BB&T Capital Appreciation Fund (the "Capital Appreciation Fund")
The BB&T Mid Cap Value Fund (the "Mid Cap Value 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 BB&T Capital Manager Aggressive Growth Fund (the "Aggressive 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 four classes of Shares:
Class A Shares, Class B Shares, Class C Shares, and Trust Shares. As of the date
of this Statement of Additional Information, Class B Shares of
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the Short-Intermediate Fund, the North Carolina Fund, the South Carolina Fund,
the Virginia Fund, and the West Virginia Fund were not yet being offered. Class
A, B, C, and Trust Shares of the Tax-Free Money Market Fund were also not yet
being offered. Class A and Class B Shares of the Equity Index Fund are being
offered in a separate prospectus and statement of additional information. Class
C Shares and Trust Shares are not currently offered. Much of the information
contained in this Statement of Additional Information expands on subjects
discussed in the Prospectuses. Capitalized terms not defined herein are defined
in the Prospectuses. No investment in Shares of a Fund should be made without
first reading the applicable Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
-----------------------------------------------
The following policies supplement the information pertaining to
portfolio instruments of each Fund as set forth in the Prospectuses.
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("NRSROs") that may be
used by Branch Banking and Trust Company ("BB&T" or the "Adviser"), BlackRock
Financial Management, Inc. ("BFMI"), BlackRock International, Ltd. ("BlackRock
International"), BlackRock Institutional Management Corporation ("BIMC"), and
Federated Investment Management Company ("FIMC") (BFMI, BlackRock International,
BIMC, and FIMC, 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.
CREDIT ENHANCEMENT. The Prime Money Market Fund may purchase securities
subject to credit enhancements. Credit enhancement consists of an arrangement in
which a company agrees to pay amounts due on a fixed income security if the
issuer defaults, In some cases the company providing credit enhancement makes
all payments directly to the security holders and receives reimbursement from
the issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Sub-Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
ZERO COUPON SECURITIES. The Prime Money Market Fund may purchase zero
coupon securities. Zero coupon securities do not pay interest or principal until
final maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. Investors must wait until maturity to receive interest and principal,
which increases the interest rate and credit risks of a zero coupon security.
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INSURANCE CONTRACTS. The Prime Money Market Fund may purchase insurance
contracts. Insurance contracts include guaranteed investment contracts, funding
agreements and annuities. The Prime Money Market Fund treats these contracts as
fixed income securities.
The Capital Appreciation Fund, the Mid Cap Value Fund, the West
Virginia Fund, and 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.
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.
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").
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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, 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.
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.
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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.
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 Stock Funds, 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,
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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 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
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involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines in the value of a particular foreign currency,
they also limit potential gains which might result from increases in the value
of such currency. The Fund will also incur costs in connection with forward
foreign currency exchange contracts and conversions of foreign currencies and
U.S. dollars.
A separate account of a Fund consisting of liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the second circumstance, as set forth above, will
be established with the Fund's custodian. For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will be equal the amount of such commitments by
the Fund.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Deposit Insurance
Corporation with capital, surplus, and undivided profits of not less than
$100,000,000 (as of the date of their most recently published financial
statements) and from registered broker-dealers which BB&T or the Sub-Adviser
deems creditworthy under guidelines approved by the Board of Trustees, subject
to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest) and BB&T or the Sub-Adviser will
monitor the collateral's value to ensure that it equals or exceeds the
repurchase price (including accrued interest). In addition, securities subject
to repurchase agreements will be held in a segregated account.
If the seller were to default on its repurchase obligation or become
insolvent, a Fund holding such obligation would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities held by the Fund were delayed pending court action.
Additionally, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Fund is treated as an
unsecured creditor and required to return the underlying security to the
seller's estate. Securities subject to repurchase agreements will be held by the
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
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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 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
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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, the Small Company Growth, the Capital Appreciation, and the Mid
Cap Value 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 International Equity Fund, the Capital
Appreciation, the Mid Cap Value and the Prime Money Market Fund may purchase
debt securities of supranational organizations such as the European Coal and
Steel Community, the European Economic Community and the World Bank, which are
chartered to promote economic development.
INVESTMENT GRADE DEBT OBLIGATIONS. The Intermediate Corporate Bond Fund
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 Large Company Value Fund, Balanced Fund, Large Company Growth
Fund, Small Company Growth , Capital Appreciation, and Mid Cap Value 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
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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
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 Large Company Value Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, the Capital Appreciation, and the Mid Cap Value
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
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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.
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
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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 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-
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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 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
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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 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
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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.
TAX-EXEMPT OBLIGATIONS. Under normal market conditions, the North
Carolina Fund will invest at least 80% of its total assets in investment 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 80% of its total assets in investment 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
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individuals ("South Carolina Tax-Exempt Obligations"). Under normal market
conditions, the Virginia Fund will invest at least 80% of its total assets in
investment grade obligations issued by or on behalf of the Commonwealth 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"). Under normal market conditions,
the West Virginia Fund will invest at least 80% of its total assets in
investment grade obligations issued by or on behalf of the State of West
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 West Virginia personal income tax and not treated as a
preference item for purposes of the federal alternative minimum tax for
individuals ("West Virginia Tax-Exempt Obligations"). In addition to North
Carolina Tax-Exempt Obligations, South Carolina Tax-Exempt Obligations, Virginia
Tax-Exempt Obligations, and West Virginia Tax-Exempt Obligations, the North
Carolina Fund, the South Carolina Fund, the Virginia Fund, and the West Virginia
Fund may invest in tax-exempt obligations issued by or on behalf of states other
than North Carolina, South Carolina, Virginia, and West 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, Virginia Tax-Exempt Obligations, and West Virginia Tax-Exempt
Obligations are hereinafter collectively referred to as "Tax-Exempt
Obligations."
Tax-Exempt Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Tax-Exempt Obligations if the interest paid thereon
is both exempt from federal income tax and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Tax-Exempt Obligations may also include General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
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As described in the Prospectus, the two principal classifications of
Tax-Exempt Obligations consist of "general obligation" and "revenue" issues.
General obligation bonds are typically backed by the full faith and credit of
the issuer, whereas revenue bonds are payable from a specific project or other
limited source of revenue. The North Carolina Fund, the South Carolina Fund, the
Virginia Fund, and the West 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, the Virginia Fund, and the West 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, the
Virginia Fund's, or the West 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, the Virginia Fund, or the West 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, certain
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
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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-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 FIMC with respect to the Prime Money Market Fund and
BIMC with respect to 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 FIMC with respect to the Prime Money Market Fund and
BIMC with respect to 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
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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.
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 International Equity Fund, the
Capital Appreciation Fund, the Mid Cap Value 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 total 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
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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 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
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price volatility of the underlying security, and the length of the option
period. Once the decision to write a call option has been made, BB&T or the
Sub-Adviser, in determining whether a particular call option should be written
on a particular security, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by a Fund for writing covered call options will be
recorded as a liability in a Fund's statement of assets and liabilities. This
liability will be readjusted daily to the option's current market value, which
will be the latest sale price at the time at which the net asset value per share
of a Fund is computed (close of the New York Stock Exchange), or, in the absence
of such sale, the latest asked price (or, with respect to the International
Equity Fund, the mean between the last bid and asked prices). The liability will
be extinguished upon expiration of the option, the purchase of an identical
option in the closing transaction, or delivery of the underlying security upon
the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, a Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
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
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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.
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
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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.
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
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options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange ("Exchange") may be absent
for reasons which include the following: there may be insufficient trading
interest in certain options, restrictions may be imposed by an Exchange on
opening transactions or closing transactions or both; trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; unusual or unforeseen circumstances
may interrupt normal operations on an Exchange; the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by the Options
Clearing Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms. In addition, the success of a
hedging strategy based on options transactions may depend on the ability of the
Fund's Adviser or Sub-Adviser to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund of the 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.
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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 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
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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, Capital
Appreciation Fund, and Mid Cap Value 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 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. Each Fund, except the U.S. Treasury Fund and the
Fund of Funds, may, to the extent permitted by the 1940 Act, invest in the
securities of unaffiliated
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money market mutual funds. 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, each Fund may invest in 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." 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
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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 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 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).
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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 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.
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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 LARGE COMPANY VALUE FUND, THE BALANCED FUND, THE LARGE COMPANY
GROWTH FUND, THE SMALL COMPANY GROWTH FUND, THE CAPITAL APPRECIATION FUND, AND
THE MID CAP VALUE FUND MAY NOT:
1. Purchase any securities that would cause 25% or more of the value of
such Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
and repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
2. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations. There is no limit to
the percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
THE INTERNATIONAL EQUITY FUND MAY NOT:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Fund's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Fund, except that up to 25% of the value of the
Fund's total assets may (taken at current value) be invested without regard to
these limitations. For purposes of this limitation, a security is considered to
be issued by the entity (or entities) whose assets and revenues back the
security. A guarantee of a security shall not be deemed to be a security issued
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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.
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
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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, THE VIRGINIA FUND,
AND THE WEST VIRGINIA FUND MAY NOT:
1. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Funds may acquire puts with respect to Tax-Exempt
Obligations in their portfolios and sell those puts in conjunction with a sale
of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities, and (b) this limitation shall
not apply to Tax-Exempt Obligations or governmental guarantees of Tax-Exempt
Obligations. For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, such nongovernmental user.
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 Capital
Appreciation, the Mid Cap Value, 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 LARGE COMPANY VALUE FUND, the North
Carolina Fund, the South Carolina Fund, the Virginia Fund, the West Virginia
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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 Capital Appreciation, the Mid
Cap Value, 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 Large Company Value
Fund, the North Carolina Fund, the South Carolina Fund, the Virginia Fund, the
West 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 Capital Appreciation, and the Mid Cap Value, 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, the Virginia Fund, and the West 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 (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 Capital
Appreciation, the Mid Cap Value, 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 Capital Appreciation, the Mid Cap Value, 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 West
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.
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THE PRIME MONEY MARKET FUND MAY NOT:
1. Make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute and industry. Bank instruments include bank accounts, time
deposits, certificates of deposit, an banker's acceptances. As a matter of
non-fundamental policy, (i) instruments of foreign banks will not be considered
bank instruments for purposes of the above-described exclusion from the above
industry concentration limit; (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, for purposes of diversification, when the value of all securities
issued and guaranteed by the guarantor, and owned by the Fund, does not exceed
10% of the value of the Fund's total assets.
2. Underwrite securities except to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as such
statutes, rules or regulations may be amended from time to time.
3. Purchase or sell commodities, commodities contracts, futures
contracts, or real estate except to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statutes,
rules or regulations may be amended from time to time.
Although the foregoing investment limitations would permit the Prime
Money Market Fund to invest in options, futures contracts and options on futures
contracts, the Fund does not currently intend to trade in such instruments or
engage in such transactions during the next twelve months (except to the extent
a portfolio security may be subject to a "demand feature" or "put" as permitted
under SEC regulations for money market funds). Prior to making any such
investments, the Prime Money Market Fund would notify its shareholders and add
appropriate descriptions concerning the instruments and transactions to its
Prospectus.
The following investment restrictions are considered non-fundamental
and therefore may be changed by a vote of a majority of the Trustees of the 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.
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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, 2000, and September 30, 1999,
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 2000 1999
---- ---- ----
Short-Intermediate Fund % 99.99%
Intermediate U.S. Government Bond Fund % 73.46%
Intermediate Corporate Bond Fund % N/A
North Carolina Fund % 39.70%
South Carolina Fund % 71.96%
Virginia Fund % 27.05%
Large Company Value Fund % 13.52%
Balanced Fund - common stock % 23.35%
- fixed income % 51.20%
Large Company Growth Fund % 67.59%
Small Company Growth Fund % 184.39%
International Equity Fund % 82.00%
Capital Manager Conservative Growth Fund % 16.45%
Capital Manager Moderate Growth Fund % 17.33%
Capital Manager Growth Fund % 17.93%
Capital Appreciation Fund % %
Mid Cap Value Fund % %
West Virginia Fund % %
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
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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, 2000
and September 30, 1999, 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 the Prime Money
Market Fund and the U.S. Treasury Fund is determined and their Shares are priced
as of 12:00 p.m., 3:00 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"). The net asset value of the Tax-Free Money Market Fund is
determined on the same schedule with the exception of the 3:00 p.m. Eastern time
determination which will not be performed. As used herein a "Business Day"
constitutes any day on which the New York Stock Exchange (the "NYSE") is open
for trading and any other day (other than a day on which no Shares are tendered
for redemption and no orders to purchase Shares are received) during which there
is sufficient trading in a Fund's portfolio securities that a Fund's net asset
value per Share might be materially affected. Currently, the NYSE is closed on
the customary national business holidays of New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE MONEY MARKET FUNDS
The U.S. Treasury Fund, the Prime Money Market Fund and the Tax-Free
Money Market Fund have elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the U.S. Treasury Fund, the Prime Money Market Fund and the Tax-Free Money
Market Fund would receive if it sold the instrument. The value of securities in
the U.S. Treasury Fund, the Prime Money Market Fund and the Tax-Free Money
Market Fund can be expected to vary inversely with changes in prevailing
interest rates.
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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 BOND FUNDS, THE STOCK FUNDS (EXCLUDING THE INTERNATIONAL EQUITY
FUND), AND THE FUNDS OF FUNDS
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair market value in BB&T Funds' Pricing Committee's best
judgment under procedures established by, and under the supervision of the BB&T
Funds' Board of Trustees. The Pricing Committee, as designated by the Board of
Trustees, consists of the following individuals or their designees: (i) the
chief investment officer of BB&T: (ii) the chief compliance officer of BISYS
Fund Services, Inc.; and (iii) the treasurer of BB&T Funds. Pricing
determinations require an affirmative vote of a majority of the Pricing
Committee. 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
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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 the Pricing
Committee 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 the Fund's
Sub-Adviser, BlackRock International Ltd., under the direction of or in
accordance with a method specified by the Board of Trustees as reflecting fair
value. The amortized cost method of valuation will be used with respect to debt
obligations with sixty days or less remaining to maturity unless the Adviser
and/or Sub-Adviser under the supervision of the Board of Trustees determines
such method does not represent fair value. All other assets and securities held
by the Fund (including restricted securities) are valued at fair value as
determined in good faith by BlackRock International, in accordance with
procedures established by the Board of Trustees.
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.
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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 L.P. ("BISYS"). In addition to
purchasing Shares directly from BISYS, Class A, Class B, Class C, 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, CLASS B, AND CLASS C SHARES
As stated in the Class A, Class B, and Class C Prospectus, the public
offering price of Class A Shares of the Large Company Value Fund, the North
Carolina Fund, the South Carolina Fund, the Virginia Fund, the West 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 Capital Appreciation Fund, and
the Mid Cap Value 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, Class B,
and Class C 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 and Class C 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, Class
B, and Class C Prospectus, the Class B Shares and Class C Shares are subject to
a Contingent Deferred Sales Charge if they are redeemed prior to the sixth and
first anniversary of purchase, respectively. Investors purchasing Shares of the
U.S. Treasury Fund, Prime Money Market Fund, and the Tax-Free Money Market Fund
are generally required to purchase Class A or Trust Shares, since such Shares
are not subject to any initial sales charge or contingent deferred sales charge.
Shareholders investing directly in Class B Shares of the U.S. Treasury Money
Market Fund, Prime Money Market Fund, or the Tax-Free Money Market Fund, as
opposed to Shareholders obtaining Class B Shares of the U.S. Treasury Money
Market Fund, Prime Money Market Fund, or the Tax-Free Money Market Fund upon an
exchange of Class B Shares of any of the other Funds, will be requested to
participate in the Auto Exchange and to set the time and amount of their
regular, automatic withdrawals in such a way that all of their Class B Shares
have been withdrawn from the U.S. Treasury Money Market Fund, Prime Money Market
Fund, or the Tax-Free Money Market Fund within two years of purchase. Such
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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.
Every Shareholder will be mailed a confirmation of each new transaction
in the Shareholder's account. In the case of Class A, Class B, and Class C
Shares held of record by a Participating Organization but beneficially owned by
a Customer, confirmations of purchases, exchanges and redemptions of Class A,
Class B, and Class C Shares by a Participating Organization will be sent to the
Customer by the Participating Organization. Certificates representing Shares
will not be issued.
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AUTO INVEST PLAN. BB&T Funds Auto Invest Plan enables Shareholders to
make regular purchases of Class A, Class B, and Class C 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, Class B, or Class C 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, Class B, or Class C 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, the West 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, Class B, and Class C 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
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
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cash compensation payable by the Distributor is 5.75% 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, then of any Class C Shares, and then of any Class B Shares
in the Shareholder's Fund account, (unless the Shareholder elects to redeem in a
different order) 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, Class B, and Class C 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.
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
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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.
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
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distribution-related and Shareholder services to the Fund in connection with the
sale of the Class B and Class C Shares, such as the payment of compensation to
dealers and agents selling Class B and Class C Shares. A dealer commission of
4.30% of the original purchase price of the Class B Shares of the Fund [AND OF %
OF THE ORIGINAL PURCHASE PRICE OF THE CLASS C SHARES OF THE FUND -CONFIRM] 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 AND CLASS C 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 1/2; (iii)
provided that the Shareholder withdraws no more than 12% of the account value
annually using the Auto Withdrawal Plan Feature; (iv) for Investors who
purchased Class B or Class C Shares of the Prime Money Market Fund, Class B or
Class C Shares of the U.S. Treasury Fund, or Class B or Class C 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 or Class C 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 or Class C
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.
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
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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. Only
residents of West Virginia may exchange their Class A Shares of the other Funds
for Class A Shares of the West 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.
CLASS C. Class C Shares of each Fund may be exchanged for Class C
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 C Shares.
For purposes of computing the Contingent Deferred Sales Charge that may
be payable upon a disposition of the newly acquired Class C Shares, the holding
period for outstanding Class C Shares of the Fund from which the exchange was
made is "tacked" to the holding period of the newly acquired Class C Shares. For
purposes of calculating the holding period applicable to the newly acquired
Class C Shares, the newly acquired Class C Shares shall be deemed to have been
issued on the date of receipt of the Shareholder's order to purchase the
outstanding Class C 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
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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, Class B, or Class C 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.
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
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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.
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, Class B Shares, and
Class C Shares of a Fund. With Shareholder authorization, the BB&T Funds'
transfer agent will automatically redeem Class A Shares, Class B Shares, and
Class C 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
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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.
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
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their capital gain net income for the 1-year period ending on October 31 of such
calendar year plus any undistributed amounts from prior years. For the foregoing
purposes, a Fund is treated as having distributed any amount on which it is
subject to income tax for any taxable year ending in such calendar year. If
distributions during a calendar year by a Fund were less than the required
amount, the Fund would be subject to a non-deductible excise tax equal to 4% of
the deficiency.
Distributions from a Fund (other than exempt-interest dividends, as
discussed below) will be taxable to Shareholders as ordinary income to the
extent derived from the Fund's investment income and net short-term capital
gains. Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains (generally subject to a 20%
tax rate), regardless of how long a Shareholder has held a Fund's shares and are
not eligible for the dividends received deduction. Any distributions that are
not from a Fund's investment company taxable income or net capital gains may be
characterized as a return of capital to Shareholders or, in some cases, as
capital gain. The tax treatment of dividends and distributions will be the same
whether a Shareholder reinvests them in additional shares or elects to receive
them in cash. A Fund of Funds will not be able to offset gains realized by one
Fund in which such Fund of Funds invests against losses realized by another Fund
in which such Fund of Funds invests. The use of a fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular Shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of a Fund (whether by redemption, sale
or exchange), a Shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the Shareholder's
hands, and will be long-term or short-term generally depending upon the
Shareholder's holding period for the shares. Depending on the 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
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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.
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 Stock
Funds, and so-designated by such 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, Virginia, or West 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, Virginia, and West 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.
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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. A Fund's investments in certain debt obligations may
cause the Fund to recognize taxable income in excess of the cash generated by
such obligations. Thus, the Fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
Investment by the Fund in "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax or other charge on the proceeds
from the sale of its investment in such a company; however, this tax can be
avoided by making an election to mark such investments to market annually or to
treat the passive foreign investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent of more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain income
received from related persons.
Although each Fund expects to qualify as a "regulated investment
company" (a "RIC") and to be relieved of all or substantially all federal income
taxes, depending upon the extent of their activities in states and localities in
which their offices are maintained, in which their agents or independent
contractors are located, or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or localities.
If for any taxable year a Fund does not qualify for the special federal tax
treatment afforded a RIC, all of its taxable income will be subject to federal
income tax at regular corporate rates at the Fund level (without any deduction
for distributions to its Shareholders). In addition, distributions to
Shareholders will be taxed as ordinary income even if the distributions are
attributable to capital gains or exempt interest earned by the Fund.
Furthermore, in order to requalify for taxation as a RIC, the Fund may be
required to recognize gains, pay substantial taxes and interest, and make
certain distributions.
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Prior proposed legislation that was ultimately not enacted would have
reinstated a deductible tax (the "Environmental Tax"), imposed through tax years
beginning before January 1, 1996, at a rate of 0.12% on a corporation's
alternative minimum taxable income (computed without regard to the alternative
minimum tax net operating loss deduction) in excess of $2 million. If the
Environmental Tax is reinstated, exempt-interest dividends paid by the Fund that
are included in a corporate Shareholder's alternative minimum taxable income may
subject such shareholder to the Environmental Tax. It is not possible for the
Fund to predict whether similar legislation might be proposed and enacted in the
future. Corporate Shareholders should consult with their own tax advisors
regarding the likelihood of such legislation and its effect on them.
Under federal tax law in effect at the date of this Prospectus, a
Shareholder's interest deduction generally will not be disallowed if the average
adjusted basis of the shareholder's tax-exempt obligations does not exceed two
percent of the average adjusted basis of the Shareholder's trade or business
assets (in the case of most corporations and some individuals) and portfolio
investments (in the case of individuals). Prior proposed legislation that was
ultimately not enacted would have further limited or repealed this two-percent
de minimis exception, which could reduce the total after-tax yield to investors
to whom the de minimis exception would otherwise apply. It is not possible for
the Fund to predict whether similar legislation might be proposed and enacted in
the future. Shareholders should consult with their own tax advisors regarding
the likelihood of such legislation and its effect on them.
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 U.S.
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 RIC for tax purposes.
ADDITIONAL TAX INFORMATION CONCERNING THE NORTH CAROLINA, SOUTH CAROLINA,
VIRGINIA, AND WEST VIRGINIA FUNDS
As indicated in the Prospectuses, the North Carolina Fund, the South
Carolina Fund, the Virginia Fund, and the West Virginia Fund are designed to
provide North Carolina, South Carolina, Virginia, and West 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, the Virginia Fund, and the West 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, the Virginia
Fund, and the West 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, Virginia, or West 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,
Virginia, and West 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) 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 from the West Virginia Fund will not be subject to West
Virginia income tax if the West Virginia Fund pays distributions to Shareholders
that it derived from interest on debt obligations of West Virginia or its
political subdivisions or debt obligations of the United States and some of its
authorities, commissions, or instrumentalities.
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, the Virginia Fund, or
the West Virginia Fund,
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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, the Virginia Fund, or the West Virginia
Fund invests in securities the interest on which is subject to federal
alternative minimum tax, Shareholders, depending on their tax status, may be
subject to alternative minimum tax on that part of the Fund's distributions
derived from those securities. Interest income on all Tax-Exempt Obligations is
included in "adjusted current earnings" for purposes of computing the federal
alternative minimum tax applicable to corporate Shareholders of the North
Carolina Fund, the South Carolina Fund, the Virginia Fund, and the West 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, West 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, Virginia, or West
Virginia, some portion of such dividend actually may have been subject to North
Carolina, South Carolina, Virginia, or West Virginia income tax. Although the
Treasury Department is authorized to issue regulations reducing such period to
as short as 31 days for RICs 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, the Virginia Fund,
and the West 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, the Virginia
Fund, and the West 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,
the Virginia Fund, or the West 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, the Virginia Fund, or the West 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
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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,
the Virginia Fund, or the West Virginia Fund is not deductible for federal,
North Carolina, South Carolina, Virginia, or West Virginia income tax purposes.
The portion of interest that is not deductible is equal to the total interest
multiplied by the percentage of the Fund's total distributions (not including
distributions from net long-term capital gains) paid to the Shareholder that are
exempt-interest dividends. It is anticipated that none of the distributions from
the North Carolina Fund, the South Carolina Fund the Virginia Fund, or the West
Virginia Fund will be eligible for the dividends received deduction for
corporations.
In addition, the North Carolina Fund, the South Carolina Fund, the
Virginia Fund, and the West 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, the Virginia Fund, and the West 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, the Virginia Fund, and the West 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, the Virginia Fund, and the West 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, the Virginia
Fund, and the West 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,
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the South Carolina Fund, the Virginia Fund, and the West 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, the Virginia Fund, or the West 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, the
Virginia Fund, and the West 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, Virginia, and West Virginia
Tax-Exempt Obligations and to interest on direct obligations of the United
States (including territories thereof), are not subject to North Carolina, South
Carolina, Virginia, or West Virginia (respectively) individual or corporate
income tax. However, distributions from the South Carolina Fund may be subject
to certain estate transfer and bank transfer taxes by South Carolina.
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. Shareholders in West Virginia cannot reduce their West Virginia AGI
for any portion of interest or dividends received from the Fund derived from
income on obligations of any state, or political subdivision thereof, other than
West Virginia, regardless of any Federal law exemption, such as that accorded
"exempt-interest dividends;" and they must increase their West Virginia AGI by
the amount of such interest or dividend income. Also, a shareholder must
increase his West Virginia AGI by interest on indebtedness incurred (directly or
indirectly) to purchase or hold shares of the Fund to the extent such interest
was deductible in determining Federal AGI. The sale, exchange, or redemption of
Fund shares is subject to the West Virginia income tax to the extent the gain or
loss therefrom affects the determination of the shareholder's Federal AGI.
While the North Carolina Fund, the South Carolina Fund, the Virginia
Fund, and the West 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, the Virginia Fund, and the West 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, the Virginia
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Fund, and the West 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, the Virginia Fund, and the
West Virginia Fund could acquire under the 1940 Act. Therefore, although the
North Carolina Fund, the South Carolina Fund, the Virginia Fund, and the West
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, the Virginia Fund, and the West Virginia Fund. If the North Carolina Fund,
the South Carolina Fund, the Virginia Fund, or the West 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, the Virginia Fund, and the West 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, the
Virginia Fund, and the West 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, the Virginia Fund, and the West Virginia Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS
The concentration of investments in North Carolina Tax-Exempt
Obligations by the North Carolina Fund raises special investment considerations.
In particular, changes in the economic condition and governmental policies of
North Carolina and its political subdivisions, agencies, instrumentalities, and
authorities could adversely affect the value of the North Carolina Fund and its
portfolio securities. This section briefly describes current economic trends in
North Carolina. The information set forth below is derived from official
statements prepared in connection with the issuance of North Carolina Tax-Exempt
Obligations and other sources that are generally available to investors. The
BB&T Funds has not independently verified this information.
The State of North Carolina (the "State") has three major operating
funds: the General Fund, the Highway Fund and the Highway Trust Fund. North
Carolina derives most of its revenue from taxes, including individual income
tax, corporation income tax, sales and use taxes, corporation franchise tax,
alcoholic beverage tax, insurance tax and tobacco products tax. State sales
taxes on food, as well as the inheritance and soft drink taxes, have been
eliminated, while a
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streamlined sales tax collection system has been adopted to improve collection
efforts, particularly as to out-of-state catalog and internet sales. The State
receives other non-tax revenues which are also deposited in the General Fund.
The most important are federal funds collected by State agencies, university
fees and tuitions, interest earned by the State 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 1998-1999 ended with a positive General Fund balance of
$1,437.9 million. Along with additional reserves, $522.5 million was reserved in
the Savings Reserve Account, $288.0 million was reserved in the Retirees' Health
Premiums Reserve, $164.7 million was reserved in the Repairs and Renovations
Reserve Account, and $31.1 million was reserved in the Clean Water Management
Trust Fund. After additional reserves, the unreserved General Fund balance at
the end of fiscal year 1998-1999 was $296.7 million.
Fiscal year 1999-2000 ended with a positive General Fund balance of
$447.5 million. Along with additional reserves, $37.5 million was reserved in
the Savings Reserve Account, $117.7 million was reserved in the Retirees' Health
Premiums Reserve, $7.1 million was reserved in the Repairs and Renovations
Reserve Account, and $1.1 million was reserved the Clean Water Management Trust
Fund. Additionally, $240.0 million was reserved in the Intangibles Tax Refunds
Reserve. After additional reserves, there was no balance remaining in the
unreserved General Fund at the end of fiscal year 1999-2000. The ending General
Fund balance does not include $541.9 million of unexpended funds designated to
relief of Hurricane Floyd victims, which funds are to be expended during
subsequent fiscal years.
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. For example, based on a modified
accrual basis, the General Fund balance as of June 30, 1999 was $1,144.1
million.
On June 30, 1999, the General Assembly adopted a $13.5 billion budget
for fiscal year 1999-2000, an increase of 4.6% from the previous year, with no
new taxes or tax relief. Primarily focusing on education, the General Assembly
authorized 7.5% raises for teachers in the public schools and salary and tuition
increases at community colleges and universities. Additionally, the General
Assembly allocated $30 million to the Clean Water Management Trust Fund to
provide grants and loans to local governments to clean up and protect rivers and
streams and to preserve open spaces. The General Assembly also took action to
reduce some taxes, including elimination of the sales tax on food (estimated
cost of $185.5 million in fiscal year 1999-2000) and the inheritance tax
(estimated cost of $52.5 million in fiscal year 1999-2000).
Extraordinary events occurred during fiscal year 1999-2000 that caused
significant stress on the budget for the fiscal year. In the fall of 1999, the
State was the victim of two major hurricanes, Dennis and Floyd, in a period of a
few weeks. In response to the devastation caused by these storms, a special
session of the General Assembly was convened in December 1999 to
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create relief programs to address the damages, culminating in the enactment of
legislation appropriating $836.6 million for disaster relief programs. The
General Assembly funded the $836.6 million for Hurricane Floyd relief programs
from $228.7 million of reallocated appropriations from department operating
budgets and $607.9 million from unspent capital improvement appropriations and
reserves, including $286 million from the Budget Stabilization Reserve, and the
unappropriated fund balance. In addition, during 1998 and 1999, the State
settled two major lawsuits involving taxes held to be illegally collected. The
total amount paid for these settlements was $1,239 million, $400 million of
which was paid in fiscal year 1998-1999 and another $599 million of which was
paid in fiscal year 1999-2000. Additionally, actual revenues received during
fiscal year 1999-2000 were below budget due in part to the hurricanes and a
major winter storm in early 2000 that paralyzed much of the State for over a
week.
On account of the stress caused by these events on the budget for
fiscal year 1999-2000, certain adjustments were made to assure that the budget
for the fiscal year would remain balanced and to assure that the budget for
fiscal year 2000-2001 would be balanced. In addition, approximately $98.7
million of tax refunds not paid before June 30, 2000 resulted in overstated
revenues for fiscal year 1999-2000 by that amount. Due to the presence of these
revenues, additional adjustments to balance the budget for fiscal year 1999-2000
were not required. The payment of these refunds after June 30, 2000 will result
in a decrease in revenues for fiscal year 2000-2001 by a like amount. In the
past, payments for teacher salaries for services rendered in a fiscal year have
been funded as an expenditure in that fiscal year's budget, even though payments
would be made after June 30. The State deferred funding of $271 million required
for the payment of teacher salaries to be paid after fiscal year 1999-2000 to
fund a reserve to pay the final $240 million settlement payment on one of the
lawsuits referred to above. This final payment settling these cases was made by
the State on July 10, 2000. In the budget for fiscal year 2000-2001, the State
reduced by $252 million the budgeted contributions to the State plans for
employee's retirement ($191.3 million), retiree health benefits ($50 million),
and death benefits ($10.9 million). This reduction was provided from the
realization of a portion of the gains from the investment of amounts previously
contributed to the plans and excess available reserves set aside for this
purpose.
On June 30, 2000, the General Assembly adopted a $14.1 billion budget
for fiscal year 2000-2001, an increase of 4.1% from the previous year, with no
new taxes or tax relief, although a streamlined sales tax collection system was
implemented to improve collections, particularly as to out-of-state catalog and
internet sales. Continuing to focus on education, the General Assembly approved
a $3.1 billion bond referendum for construction and renovation at the State's 16
university campuses and 59 community colleges. North Carolina's citizens
approved the $3.1 billion bond package - the largest in State history - on
November 7, 2000. The bonds will be issued over five years and paid back over 20
years. The General Assembly also authorized 6.5% raises for teachers in the
public schools, bringing the State's teachers' salaries up to the national
average. State employees received 4.2% raises and $500 bonuses to be disbursed
in October 2000. The General Assembly placed $170 million over the next two
years in reserve to help cover expected cost increases in the state employee's
health insurance plan, and an additional $120 million was set aside to replenish
the depleted State Emergency Reserves. The General Assembly also placed in
reserve $100 million for the Repairs and Renovations Reserve Account,
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$14.9 million in the Reserve for Capital Improvements, $120 million in the
Savings Reserve Account, and $30 million in the Clean Water Management Trust
Fund.
Under the State's constitutional and statutory scheme, the Governor is
required to prepare and propose a biennial budget to the General Assembly. The
General Assembly is responsible for considering the budget proposed by the
Governor and enacting the final budget. In enacting the final budget, the
General Assembly may modify the budget proposed by the Governor as it deems
necessary. The Governor is responsible for administering the budget enacted by
the General Assembly.
The State 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 the state governments that, if enacted into law, could affect
fiscal and economic policies of the states, including North Carolina.
In 1998, the State approved a settlement agreement with the major
tobacco companies for reimbursement of its smoking-related medical expenses paid
through Medicaid and other health care programs. North Carolina could receive
approximately $4.6 billion over the next 25 years pursuant to this settlement
agreement. In order to help communities in North Carolina injured by the decline
of tobacco, the General Assembly has established a foundation which will receive
50% of these settlement payments. A trust fund for tobacco farmers and quota
holders and another trust fund for health programs will each receive one-quarter
of the remaining settlement payments. North Carolina has also entered into a
separate $1.9 billion settlement with the major tobacco companies on behalf of
tobacco farmers and quota holders. Payments into the National Tobacco Growers
Settlement Trust are expected to average $155 million per year over a 12-year
period which began in 1999.
The economic profile of the State consists of a combination of
industry, agriculture, and tourism. Non-agricultural wage and salary employment
accounted for approximately 3,866,100 jobs in 1999. The largest segment of jobs
was approximately 802,700 in manufacturing. Based on July 1999 data from the
United States Bureau of Labor Statistics, the State ranked tenth among the
states in non-agricultural employment and eighth among the states in
manufacturing employment. During the period from 1990 to 1999, per capita income
in the State grew from $16,674 to $26,220, an increase of 57.3%. The North
Carolina Employment Security Commission has estimated the seasonally adjusted
unemployment rate in July 2000 to be 3.2% of the labor force, as compared with
an unemployment rate of 4.0% nationwide. The labor force has grown from
2,855,300 in 1980 to 3,874,500 in 1999, an increase of 36%. The labor force has
undergone significant changes during this period, as the State has moved from an
agricultural economy to a service and goods-producing economy.
No litigation of any kind is now pending (either in State or federal
courts) or, to the knowledge of the Department of State Treasurer, threatened to
restrain or enjoin the issuance or
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delivery of any North Carolina Tax-Exempt Obligations or in any manner
questioning the proceedings or authority under which any North Carolina
Tax-Exempt Obligations are issued or affecting the validity of any North
Carolina Tax-Exempt Obligations. The following are cases pending in which the
State faces the risk of either a loss of revenue or an unanticipated
expenditure. In the opinion of the Department of State Treasurer, none of these
cases would materially adversely affect the State's ability to meet its
financial obligations.
1. LEANDRO, ET AL. V. STATE OF NORTH CAROLINA AND STATE BOARD OF
EDUCATION - SCHOOL FUNDING. In 1994, students and boards of education in five
counties in the State filed suit in superior court requesting a declaration that
the public education system of North Carolina, including its system of funding,
violates the State constitution by failing to provide adequate or substantially
equal educational opportunities, by denying due process of law, and by violating
various statutes relating to public education. Five other school boards and
students therein intervened, alleging claims for relief on the basis of the high
proportion of at-risk and high-cost students in their counties' systems. The
suit is similar to a number of suits in other states, some of which resulted in
holdings that the respective systems of public education funding were
unconstitutional under the applicable state law. The State filed a motion to
dismiss, which was denied. On appeal the North Carolina Supreme Court upheld the
present funding system against the claim that it unlawfully discriminated
against low wealth counties but remanded the case for trial on the claim for
relief based on the Court's conclusion that the constitution guarantees every
child the opportunity to obtain a sound basic education. The trial on the claim
of one plaintiff's county is on-going. The North Carolina Attorney General's
Office believes that sound legal arguments support the State's position on the
outstanding claims.
2. N.C. SCHOOL BOARDS ASSOCIATION, ET AL. V. HARLAN E. BOYLES, STATE
TREASURER, ET AL. - USE OF ADMINISTRATION PAYMENTS. On December 14, 1998,
plaintiffs, including the county school boards of Wake, Durham, Johnston,
Buncombe, Edgecombe, and Lenoir Counties, filed suit in superior court
requesting a declaration that certain payments to State administrative agencies
must be distributed to the public schools on the theory that such amounts are
fines which under the North Carolina Constitution must be paid to the schools.
For the last fiscal year for which information was available to them, plaintiffs
allege liability of approximately $84 million. Until this matter is resolved,
any refunds and interest will continue to accrue. The North Carolina Attorney
General's Office believes that sound legal arguments support the State's
position on the outstanding claims.
3. FAULKENBURY V. TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM,
PEELE V. TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM, AND WOODARD V. LOCAL
GOVERNMENTAL EMPLOYEES' RETIREMENT SYSTEM - DISABILITY RETIREMENT BENEFITS.
Plaintiffs are disability retirees who brought class actions in state court
challenging changes in the formula for payment of disability retirement benefits
and claiming impairment of contract rights, breach of fiduciary duty, violation
of other federal constitutional rights, and violation of state constitutional
and statutory rights. The superior court ruled in favor of plaintiffs. The order
was affirmed by the North Carolina Supreme Court in 1997. The case went back to
the superior court for calculations of benefits and payment of retroactive
benefits, along with determination of various remedial issues. As a result of
the remedial proceedings, there have been two appeals to the
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appellate courts concerning calculation of the retroactive benefits, one of
which has not been finally resolved. Plaintiffs previously submitted
documentation to the court asserting that the cost in damages and higher
prospective benefit payments to plaintiffs and class members would amount to
$407 million. Calculations and payments so far indicate that retroactive
benefits will be significantly less than estimated, depending in part on the
pending appeal. Payments have been made by the State of approximately $84
million. The remaining liability for retroactive benefits is estimated by the
State not to exceed $30 million. All retroactive payments and future benefit
payments are payable from the funds of the retirement systems.
4. SOUTHEAST COMPACT COMMISSION - DISPOSAL OF LOW-LEVEL RADIOACTIVE
WASTE. North Carolina and seven other southeastern states created the Southeast
Interstate Low-Level Radioactive Waste Management Compact to plan and develop a
site for the disposal of low-level radioactive waste generated in the member
states. North Carolina was assigned responsibility for development of the first
disposal site, with costs to be distributed equitably among the Compact members.
In 1997, the Compact Commission discontinued funding of the development of the
North Carolina site, alleging that the State was not actively pursuing the
permitting and development of the proposed site. North Carolina withdrew from
the Compact in 1999. On July 10, 2000, the Compact filed a Motion For Leave to
File Bill of Complaint and Bill of Complaint in the United States Supreme Court.
The Motion seeks the Court's original jurisdiction to enforce sanctions imposed
against North Carolina for the recovery of $89.9 million plus interest and
attorneys' fees. The North Carolina Attorney General's office believes that
sound legal arguments support the State's position on this matter.
The State is also involved in numerous claims and legal proceedings,
many of which normally occur in governmental operations. A review of the status
of outstanding lawsuits involving the State did not disclose any proceedings
that are expected by the North Carolina Attorney General to materially adversely
affect the State's ability to meet its financial obligations.
In its 1996 Short Session, the North Carolina General Assembly approved
State 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, the State issued $450 million of the authorized
school bonds. In November 1997, the State issued $250 million of the authorized
highway bonds. In April 1998, the State issued an additional $450 million of the
authorized school bonds. In April 1999, the State again issued an additional
$450 million of the authorized school bonds. The offering of the remaining $1.15
billion of these authorized bonds is anticipated to occur over the next two to
four years.
On November 3, 1998, North Carolina voters approved the issuance of
$800 million in clean water bonds and $200 million in 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. In September 1999, the State
issued a total of $197.4 million of authorized
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clean water bonds and natural gas facilities bonds, $177.4 million of which were
a combination of clean water bonds and natural gas facilities bonds and $20
million of which were solely natural gas facilities bonds. In October 1999, the
State issued an additional $2.6 million of authorized clean water bonds. An
offering of $224 million of authorized clean water and natural gas facilities
bonds is anticipated for the Autumn of 2000.
A bond referendum was held on November 7, 2000 to approve the issuance
of $3.1 billion of general obligation bonds to finance improvements to the
facilities of the 16 public universities and 59 community colleges in the State.
The bond referendum was overwhelmingly approved by 73% of North Carolina voters,
which was well above the simple majority approval required.
Hurricane Floyd struck North Carolina on September 16, 1999, causing
significant flood and wind damage and some loss of life. The effects of the
storm and its aftermath have been, and continue to be, felt in the eastern part
of the State. Federal and State disaster recovery and relief efforts are ongoing
to assist victims of the storm. The final estimate of property damage caused by
the storm and its aftermath has not yet been determined but is expected to
exceed the $6 billion of damages caused by Hurricane Fran in 1996.
In the opinion of the Offices of the Governor and the State Treasurer,
notwithstanding the devastation caused by Hurricane Floyd, the storm and its
consequences should not have a material adverse impact upon the ability of the
State to meet its financial obligations, including timely payment of principal
and interest on all North Carolina Tax-Exempt Obligations.
Currently, Moody's, Standard & Poor's and Fitch rate North Carolina
general obligation bonds Aaa, AAA, and AAA, respectively. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues will not be adversely affected by
changes in economic or political conditions. See the Appendix to this Statement
of Additional Information ("SAI").
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
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a deficit appears likely, effect such reductions in appropriations as may be
necessary to prevent a deficit. In the November 1984 general election the
electorate approved a constitutional amendment providing that annual increases
in State appropriations may not exceed the average growth rate of the economy of
the State and that the annual increases in the number of State employees may not
exceed the average growth of the population of the State. Such limits on growth
are subject to suspension by a super-majority of the General Assembly. The State
Constitution also establishes a General Reserve Fund to be maintained in an
amount equal to 3% (4% prior to 1988) of General Fund revenue for the latest
fiscal year.
In the November 1988 general election the electorate approved a
constitutional amendment creating a Capital Reserve Fund equal to 2% of General
Fund revenue. Before March 1 of each year, the Capital Reserve Fund must be used
to offset mid-year budget reductions before mandating cuts in operating
appropriations. 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.
As noted above, the Constitution requires a procedure for the
monitoring of revenues and expenditures with a view to a reduction of
appropriations as may be necessary to prevent a deficit. For the purpose of
providing projections and forecasts of revenues and expenditures and advising
the Budget and Control Board on economic trends, the General Assembly
established the Board of Economic Advisors. In particular with respect to the
Constitutional requirement of monitoring revenues, statutory provisions require
that the Board of Economic Advisors provide to the Budget and Control Board
quarterly estimates of State revenues. If at the end of the first or second
quarter of any fiscal year, quarterly revenue collections are 4% or more below
the amount projected for such quarter by the Board of Economic Advisors, the
State Board is required, within fifteen days of such determination, to take
action to avoid a Fiscal Year End deficit.
In 1993 the General Assembly provided that, beginning with
appropriations for Fiscal Year 1994-95, appropriations in the annual General
Appropriations Act may not exceed the base revenue estimate. The base revenue
estimate is defined as the lesser of: (i) the total of recurring general fund
revenues collected in the latest completed Fiscal Year before the General
Assembly first considers the annual general appropriations bill plus an increase
of seventy-five percent of the difference between the general fund revenue
estimate of the Board of Economic Advisors for the upcoming Fiscal Year and the
actual revenue collections from the latest completed Fiscal Year; or (ii) the
Board of Economic Advisors' general fund revenue estimate for the upcoming
Fiscal Year.
For many years, each annual Appropriations Act has also contained a
provision requiring the Budget and Control Board to monitor the collection of
revenues and the expenditure of funds.
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The Appropriations Act for Fiscal Year 1994-95, Act 497 of 1994, Part I, section
17G.36, provides that if, because of an inaccurate estimate of revenues, a
deficit appears likely, the State Board shall effect such reductions of
appropriations as may be necessary to prevent a deficit.
Actions taken by the Budget and Control Board in the Fiscal Year ended
June 30, 1992, reflect the required process of monitoring revenues and making
adjustments to avoid a deficit. The Fiscal Year 1991-92 budget adopted in June
1991 was based on estimated revenues of $3.588 billion. On July 25, 1991, the
Board of Economic Advisors advised the Budget and Control Board that it
projected revenues to be $148.3 million less than estimated in the 1991-92
Appropriations Act. In response, on July 30, 1991, the State Board eliminated
the Capital Reserve Fund appropriation of $65.8 million, 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
Advisors advised the Budget and Control Board that it had again revised its
estimate of revenues downward by an additional $55 million. In response to this
revised estimate, on February 11, 1992 the Budget and Control Board permanently
reduced the $67.3 million in appropriations which were set aside on July 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.
For the Fiscal Year ended June 30, 1993, the Board of Economic Advisors
on August 19, 1992, advised the Budget and Control Board that it projected
revenues to be $195 million less than estimated in the 1992-93 Appropriations
Act. On August 22, 1992, the Budget and Control Board responded by sequestering
the Capital Reserve Fund of $86.1 million, reducing certain agency
appropriations by $88.1 million based on each agency's Fiscal Year 1992-93
appropriation growth and requiring certain agencies to set aside an additional
$88.1 million, also based on each agency's Fiscal Year 1992-93 appropriation
growth. The method of reducing agency appropriations based on growth was
challenged and the State Supreme Court deemed that such method was illegal. In
response, the Budget and Control Board, on September 15, 1992, reduced agency
appropriations on an across-the-board method by 4%. On November 10, 1992, the
Budget and Control Board permanently reduced the $88.1 million in appropriations
which were set aside on September 15, 1992. This action, along with improved
actual revenue collections, created a budgetary surplus of $100,993,615.
For the Fiscal Year ended June 30, 1994, the State had a budgetary
surplus of $273.48 million. The General Assembly designated the application of
most of this surplus, including a transfer to the Capital Reserve Fund in the
amount of $66.83 million.
For the Fiscal Year ended June 30, 1995, the State had a budgetary
surplus of $393 million. The General Assembly designated the application of all
of this surplus, including a transfer to the Capital Reserve Fund in the amount
of $73.4 million.
For the Fiscal Year ended June 30, 1996, the State had a budgetary
surplus of $316.7 million. The General Assembly designated the application of
all of this surplus, including a transfer to the Capital Reserve Fund in the
amount of $80.5 million.
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For the Fiscal Year ended June 30, 1997, the State had a budgetary
surplus of $297.8 million. The General Assembly designated the application of
all of this surplus, including a transfer to the Capital Reserve Fund in the
amount of $83.6 million.
For the Fiscal Year ended June 30, 1998, the State had a budgetary
surplus of $254 million. The General Assembly designated the application of all
of this surplus, including a transfer to the Capital Reserve Fund in the amount
of $86.9 million.
For the Fiscal Year ended June 30, 1999, the State had a budgetary
surplus of $410 million. The General Assembly designated the application of $322
million of this surplus, including a transfer to the Capital Reserve Fund in the
amount of $92 million.
For the Fiscal Year ended June 30, 2000, the State had a budgetary
surplus of $206million. The General Assembly designated the application of $322
million of this surplus, including a transfer to the Capital Reserve Fund in the
amount of $92 million.
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 as recently as the fiscal year
ending June 30, 1993, resulting in mid-year cutbacks in funding of state
agencies in those years. Such difficulties have not to date impacted on the
State's ability to pay its indebtedness but did result in Standard & Poor's
Rating Service lowering its rating on South Carolina general obligation bonds
from AAA to AA+ on January 29, 1993. The State regained its AAA rating from
Standard & Poor's Rating Service on July 9, 1996; South Carolina's general
obligation bonds are currently rated Aaa by Moody's Investor Services, Inc., as
they have been continuously for several decades. 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.
In 1999, one-fifth of all jobs in the State were in manufacturing,
compared to 14% nationally. Although the textile industry is still the major
industrial employer in the State, since 1950 the State's economy has undergone a
gradual transition to greater diversification in the manufacturing sector. In
addition, the economic base of the State has diversified as the trade and
service sectors developed. Tourism now represents a $14 billion industry in the
State based upon 1998-1999 numbers.
Personal income in South Carolina grew six and one-tenths percent
(6.1%) during 1998 compared to income growth of five and eight-tenths percent
(5.8%) nationwide and five and six-tenths percent (5.6%) in the Southeast. Over
the last five (5) years (1994-1999) personal income in South Carolina rose at a
compounded annual rate of five and nine-tenths percent (5.9%), outpacing the
five and eight-tenths percent (5.8%) annual income growth in the Southeast
region and the five and eight-tenths percent (5.8%) growth in the United States
in the same period.
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In 1999, employment in the State increased two and seven-tenths percent
(2.7%) while the rate of employment growth in the United States was two and
three-tenths percent (2.3%). The unemployment rate for South Carolina in 1999
was four and five-tenths percent (4.5%), seven-tenths of one percent lower than
the four and two-tenths percent (4.2%) nationwide.
General Fund Revenues increased at a rate of one and seven-tenths
percent (1.7%) during Fiscal Year ended June 30, 2000 over the previous fiscal
year. The state finished Fiscal Year ended June 30, 2000 with a revenue excess
of $67 million above the Fiscal Year ended June 30, 2000 Appropriation Act.
SPECIAL FACTORS AFFECTING THE SOUTH CAROLINA TAX-EXEMPT FUND
The State of South Carolina has the power to issue general obligation
bonds based on the full faith and credit of the State. 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.
Political subdivisions are also empowered to issue general obligation
bonds, which are backed only by the full faith and credit of that political
subdivision, and not by the resources of the State of South Carolina or any
other political subdivision. Political subdivisions are empowered to levy ad
valorem property taxes on certain real property and 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,
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 bonds for certain capital projects.
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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.
Most recently, Moody's has rated the long-term general obligation bonds
of South Carolina 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. See the Appendix to this SAI.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA TAX-EXEMPT OBLIGATIONS
The Virginia Intermediate Tax-Free Fund will invest primarily in
Virginia Intermediate Tax-Free Fund 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 Fund. The
credits represented by such issues may be affected by a wide variety of local
factors or structuring concerns, and no disclosure is made here relating to such
matters.
The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. Per capita income in Virginia has been
consistently above national levels during that time. The services sector in
Virginia generates the largest number of jobs, followed by wholesale and retail
trade, manufacturing and state and local government. Because of Northern
Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has
the nation's largest concentration of military installations, the Federal
government has a greater economic impact on Virginia relative to its size than
any states other than Alaska and Hawaii.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation. This
is generally attributed to the balance among the various sectors represented in
the economy. Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by
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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. 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, and such debt shall mature within
twelve months from the date such debt is incurred.
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
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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 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 bonds, Virginia Public School
Authority bonds, and Virginia Resources Authority bonds are secured in part by a
moral obligation pledge of Virginia. Should the need arise, Virginia may
consider
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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.
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. See the Appendix to this SAI.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN WEST VIRGINIA AND/OR SPECIAL
FACTORS AFFECTING THE WEST VIRGINIA FUND
Being invested primarily in West Virginia Municipal Securities, the
West Virginia Municipal Bond Fund is subject to the risks of West Virginia's
economy and of the financial condition of its state and local governments and
their agencies.
West Virginia's economy is relatively stable. However, it is rooted in
old economy industries which are undergoing significant consolidation and
change. Coal mining, chemicals, and manufacturing make up an important part of
that economy. The coal industry, however, is under increased scrutiny which may
affect the economic feasibility of conducting mining operations in the future.
State and local governments continue to make concentrated efforts to encourage
diversification of the State's economy with some success. However, while
unemployment in the State is low compared to past years, it continues to exceed
the national average.
In recent years, the State and local governments have had adequate
financial resources. But, with little or no population growth, unemployment
statewide remaining above the national average, the continuing decline in school
enrollment, and an aging population, governments and school boards continue to
struggle to produce sufficient revenues to fund operations to support public
education.
DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund, the South Carolina Fund, the Virginia Fund,
and the West 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
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South Carolina Fund, the Virginia Fund, and the West Virginia Fund must
nevertheless diversify its portfolio such that, with respect to 50% of its total
assets, not more than 25% of its total 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,
Virginia Tax-Exempt Obligations, and West Virginia Tax-Exempt Obligations, the
North Carolina Fund, the South Carolina Fund, the Virginia Fund, and the West
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, the Virginia
Fund, and the West 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, the Virginia, and the West Virginia Funds' Shares.
MANAGEMENT OF BB&T FUNDS
TRUSTEES
--------
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 seven Trustees, three 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: 55
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall
P.O. Box 109
Raleigh, NC 27602
Age: 71
</TABLE>
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING THE
NAME AND ADDRESS WITH THE BB&T FUNDS PAST 5 YEARS
---------------- ------------------- ------------
<S> <C> <C>
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds
Winston-Salem, NC 27106 Foundation
Age: 66
*W. Ray Long Trustee Retired; Executive Vice President,
605 Blenheim Drive Branch Banking and Trust Company
Raleigh, NC 27612 prior to August 1998.
Age: 66
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of Engineered
Greenville, SC 29615 Custom Plastics Corporation from
Age: 68 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: 44 since 1989.
Drew T. Kagan Trustee From March 1996 to present,
Investment Affiliate, Inc. President, Investment Affiliate,
118 East Washington St. Inc.; March 1992 to March 1996,
Lewisburg, WV 24901 President, Provident Securities &
Age: 52 Investment Co.
</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, L.P., BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company 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):
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<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: 55 and President BISYS Fund Services.
Mark S. Redman Secretary and Vice President From February 1989 to present, employee of
Age: 54 BISYS Fund Services.
E.G. Purcell, III Senior Vice President From ___ to present, Senior Vice
Age: President, BB&T Funds. [REVISE]
Gary R. Tenkman Treasurer From April 1998 to present, Director,
Age: 30 Financial Services, BISYS Fund Services;
from 1990 to March 1998, Audit Manager,
Ernst & Young LLP.
Robert L. Tuch Assistant Secretary From June 1991 to present, employee of
Age: 49 BISYS Fund Services
Alaina V. Metz Assistant Secretary From June 1995 to present, employee, BISYS
Age: 33 Fund Services.
</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,
L.P. 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 $
Trustee
William E. Graham $ None None $
Trustee
Thomas W. Lambeth $ None None $
Trustee
Robert W. Stewart $ None None $
Trustee
Raymond K. McCulloch None None None None
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Trustee
Drew T. Kagan $ None None $
Trustee
</TABLE>
(1) Figures are for the Funds' fiscal year ended September 30, 2000. The
BB&T Funds includes twenty-two separate series.
INVESTMENT ADVISER
Investment advisory and management services are provided to each Fund
of the BB&T Funds by BB&T Asset Management, LLC ("BB&T Asset Management")
pursuant to an Investment Advisory Agreement ("Advisory Agreement") dated as of
November 9, 2000.
Under the Advisory Agreement between the BB&T Funds and BB&T Asset
Management, the fee payable to BB&T Asset Management 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 , Virginia, and West
Virginia Funds' average daily net assets; and seventy-four one-hundredths of one
percent (0.74%) of the Large Company Growth Fund's, the Large Company Value
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; BISYS __ one-hundredths of one percent (__ %) of the Capital
Appreciation Fund's average daily net assets; BISYS __ one-hundredths of one
percent (__ %) of the Mid Cap Value Fund's 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 Asset Management. A fee agreed to in
writing from time to time by the BB&T Funds and BB&T Asset Management 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 Asset Management 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 Asset Management
in the performance of its duties, or from reckless disregard by BB&T Asset
Management of its duties and obligations thereunder.
Unless sooner terminated, the Advisory Agreement will continue in
effect until September 30, 2001 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
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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 Asset Management. 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, 2000, September 30, 1999, and
September 30, 1998, the Adviser received the following investment advisory fees:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ---------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Large Company Value Fund $ $ $2,419,047 $1,162,144 $2,095,241 $1,005,608
Balanced Fund 819,527 393,747 694,357 333,244
Large Company Growth Fund 445,918 215,095 258,070 123,874
Small Company Growth Fund 1,086,782 1,227 890,569 N/A
International Equity Fund 910,101 770 710,172 N/A
Short-Intermediate Fund 825,817 165,331 770,752 154,167
Intermediate U.S. Government Bond Fund 986,335 197,730 907,396 181,482
Intermediate Corporate Bond Fund N/A N/A N/A N/A
North Carolina Fund 419,339 83,853 416,698 83,340
South Carolina Fund 55,211 55,186 64,984 43,717
Virginia Fund 151,197 30,239 N/A N/A
Prime Money Market Fund 121,002 120,995 132,875 73,260
U.S. Treasury Money Market Fund 956,300 318,377 883,574 271,649
Tax-Free Money Market Fund N/A N/A N/A N/A
Capital Manager Conservative Growth Fund 15,625 65,521 11,280 45,273
Capital Manager Moderate Growth Fund 13,070 52,251 11,256 45,181
Capital Manager Growth Fund 12,274 49,100 11,209 44,992
Capital Appreciation Fund
Mid Cap Value Fund
West Virginia Intermediate Tax-Free Fund
Capital Manager Aggressive Growth Fund
</TABLE>
BB&T reorganized its investment advisory division as BB&T Asset
Management, a separate, wholly owned subsidiary of BB&T. BB&T Asset Management
has replaced BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
provided investment management services to BB&T Funds will continue to do so as
the personnel of BB&T Asset Management. Additionally, BB&T Asset Management is
wholly owned and otherwise fully controlled by BB&T. As a result, this
transaction is not an "assignment" of the investment advisory contract (and
sub-advisory contracts) for purposes of the Investment Company Act of 1940 and,
therefore, a shareholder vote is not required.
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.
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For its services and expenses incurred under the Sub-Advisory
Agreement, BFMI is entitled to a fee, payable by BB&T. The fee is computed daily
and paid monthly at the following annual rates (as a percentage of the Small
Company Growth Fund's average daily net assets), which vary according to the
level of Fund assets:
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, 2001 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, 2000, September 30, 1999, and
September 30, 1998, BB&T paid BFMI $______, $507,543 and $426,658, respectively,
for sub-advisory services to the Small Company Growth Fund.
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 International Equity Fund's average daily net assets), which
vary according to the level of Fund assets:
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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 September 30, 2001 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, 2000, September 30, 1999
and September 30, 1998, BB&T paid BlackRock International $__, $434,369,
$344,577 and $163,456, respectively, for sub-advisory services to the
International Equity Fund.
PRIME MONEY MARKET FUND. Investment sub-advisory and management
services are provided to the Prime Money Market Fund by Federated Investment
Management Company ("FIMC"), a wholly-owned subsidiary of FII Holdings, Inc.,
pursuant to a Sub-Advisory Agreement ("Sub-Advisory Agreement") dated as of July
10, 2000, between BB&T and FIMC.
For its services and expenses incurred under the Sub-Advisory
Agreement, FIMC is entitled to a fee, payable by BB&T. The fee is computed and
paid monthly at the annual rate of ten one-hundredths of one percent (0.10%),
applicable to the first $500 million, and eight one-hundredths of one percent
(0.08%), applicable to over $500 million, of the Prime Money Market Fund's
average daily net assets or such lower fee as may be agreed upon in writing by
BB&T and FIMC.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 2001 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 FIMC or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
TAX-FREE MONEY MARKET FUND. Investment sub-advisory and management
services are provided to the Tax-Free Money Market Fund by BlackRock
Institutional Management Corporation ("BIMC") (formerly PNC Institutional
Management Corporation), an indirect
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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 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, 2001 and thereafter will continue from year to year
if such continuance is approved at least annually by the BB&T Funds' Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty, by the
Trustees, by vote of the holders of a majority of the outstanding Shares of the
Fund, or on 60 days' written notice by BIMC or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the BB&T Funds
may include descriptions of each Sub-Adviser including, but not limited to, (i)
descriptions of the Sub-Adviser's operations; (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
Sub-Adviser's operations.
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PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, BB&T and each Sub-Adviser
determines, subject to the general supervision of the Board of Trustees of the
BB&T Funds and in accordance with each Fund's investment objective and
restrictions, which securities are to be purchased and sold by a Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Large Company
Value Fund, the North Carolina Fund, the South Carolina Fund, the Virginia Fund,
the West 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 Capital Appreciation Fund, the
Mid Cap Value 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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During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------
Aggregate Directed Aggregate Directed Aggregate Directed
Brokerage Aggregate Brokerage Brokerage Aggregate Brokerage Brokerage Aggregate Brokerage
Commission Transactions Commission Commission Transactions Commission Commission Transactions Commission
---------- ------------ ---------- ---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company Value Fund $ $ $ $185,817 $144,863,804 $180,313 $152,631 $118,652,289 $152,631
Balanced Fund 60,840 46,118,765 60,840 49,964 38,484,168 49,964
Large Company Growth Fund 112,387 90,944,488 110,187 125,276 97,877,295 125,276
Small Company Growth Fund 131,611 108,278,763 N/A 91,551 44,458,188 N/A
International Equity Fund 393,986 126,109,605 41,497 240,357 12,332,336 36,268
Capital Appreciation Fund
Mid Cap Value Fund
</TABLE>
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<PAGE> 454
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.
GLASS-STEAGALL ACT [TO BE REVISED]
------------------- -------------
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
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<PAGE> 455
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> 456
MANAGER AND ADMINISTRATOR
BISYS Fund Services, LP serves as Administrator (the "Administrator")
to each Fund pursuant to the Management and Administration Agreement dated as of
June 1, 2000. 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, BFMI, BlackRock
International, BIMC, and FIMC under the Sub-Advisory Agreements, and BB&T,
Investor's Bank & Trust, Bank of New York, and State Street Bank and Trust
Company 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, BFMI, BlackRock International, BIMC, and FIMC under the
Sub-Advisory Agreements, BB&T, Investor's Bank & Trust, Bank of New York, and
State Street Bank and Trust Company 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). 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%) (five one-hundredths of one percent
(0.05%) for the Funds of Funds) 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. [CONFIRM]
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following fees:
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<PAGE> 457
FISCAL YEAR ENDED
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ -----------------
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Large Company Value Fund $ $ $967,629 $260 $838,105 N/A
Balanced Fund 327,815 98 277,746 N/A
Large Company Growth Fund 178,369 283 103,228 N/A
Small Company Growth Fund 217,358 244 178,115 N/A
International Equity Fund 182,022 0 142,036 N/A
Short-Intermediate Fund 247,747 82,636 266,751 $41,555
Intermediate U.S. Government Bond Fund 394,538 147 362,963 N/A
Intermediate Corporate Bond Fund N/A N/A N/A N/A
North Carolina Fund 125,802 41,928 125,009 41,670
South Carolina Fund 9,202 27,597 19,413 16,821
Virginia Fund 45,353 15,126 N/A N/A
Prime Money Market Fund 37,186 83,812 55,572 47,495
U.S. Treasury Money Market Fund 495,144 142,194 441,787 135,824
Tax-Free Money Market Fund N/A N/A N/A N/A
Capital Manager Conservative Growth Fund 15,625 4 11,280 31
Capital Manager Moderate Growth Fund 13,070 0 11,256 31
Capital Manager Growth Fund 12,274 0 11,209 31
Capital Appreciation Fund
Mid Cap Value Fund
West Virginia Fund
Capital Manger Aggressive Growth Fund
</TABLE>
The Administration Agreement shall, unless sooner terminated as
provided in the Administration Agreement (described below), will continue until
May 31, 2005. Thereafter, the Administration Agreement shall be renewed
automatically for successive one year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least 60 days prior to
the expiration of the then-current term. The Administration Agreement is
terminable with respect to a particular Fund only upon mutual agreement of the
parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60 days
notice by the BB&T Funds' Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the BB&T Funds in connection with the matters
to which the Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or from the reckless disregard by the Administrator of its obligations
and duties thereunder.
DISTRIBUTOR
BISYS Fund Services LP serves as distributor to each Fund of the BB&T
Funds pursuant to a Distribution Agreement dated October 1, 1993, (the
"Distribution Agreement"). The Distribution Agreement provides that, unless
sooner terminated it will continue in effect for continuous one-year periods if
such continuance is approved at least annually (i) by the BB&T Funds' Board of
Trustees or by the vote of a majority of the outstanding Shares of the 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
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<PAGE> 458
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, one percent (1.00%) of the average daily net assets
of Class B Shares of each Fund, and one percent (1.00%) of the average daily net
assets of Class C 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, the West 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, 2000, 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 CLASS C SHARES
---- -------------- -------------- --------------
Additional Additional Additional
Amount Amount Amount Amount Amount Amount
Paid Waived Paid Waived Paid Waived
--------- ---------- --------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Large Company Value Fund $ $ $ $ $ $
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund
Short-Intermediate Fund
Intermediate U.S. Government Bond Fund
Intermediate Corporate Bond Fund
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
Capital Manager Moderate
Capital Manager Growth
Capital Appreciation Fund
Mid Cap Value Fund
West Virginia Fund
Capital Manager Aggressive
</TABLE>
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
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<PAGE> 459
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,
Class B, and Class C 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,
Class B, or Class C 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, Class B, and Class C 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, Class B, and Class C Shares or to
provide shareholder services to the holders of such Shares. The Distributor may
also use the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks), broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with distribution assistance or (ii) to pay banks, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of shareholder services. All
payments by the Distributor for distribution assistance or shareholder services
under the Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of a Fund's Class A, Class B, and Class C
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,
Class B, and Class C 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
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<PAGE> 460
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 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, Class C 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, Class B, and Class C 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, Class B,
and Class C Shares.
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<PAGE> 461
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
State Street Bank and Trust Company serves as the Custodian to the
Prime Money Market Fund. Bank of New York serves as the Custodian to the
International Equity Fund. BB&T serves as the Custodian to the other BB&T Funds.
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 Omnibus 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. [CONFIRM]
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
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<PAGE> 462
value of a hypothetical account will include the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but will not include realized
gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield") which assumes that net income is reinvested in Fund shares at the same
rate as net income is earned for the base period.
The yield and effective yield of each Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of each Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for
that base period only and calculated by the methods described above.
The yield and effective yield for the seven-day period ending September
30, 2000, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
------------------------- -------------------------
Class A Class B Class C Trust Class A Class B Class C Trust
------- ------- ------ ----- ------- ------- ------- -----
<S> <C> <C> <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 Large Company Value Fund, North Carolina Fund, South
Carolina Fund, Virginia Fund, West 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, Capital Appreciation Fund, Mid Cap Value Fund, and
the Funds of Funds will be computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by the maximum
offering price per share (reduced by any undeclared earned income expected to be
paid shortly as a dividend) on the last trading day of that period, according to
the following formula:
a-b
30-Day Yield = 2[( ----- +1) to the power of 6-1]
cd
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of
each of the Funds will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses of the BB&T Funds
allocated to each Fund. These factors and possible differences in the methods
used in calculating yield should be considered
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<PAGE> 463
when comparing a Fund's yield to yields published for other investment companies
and other investment vehicles. Yield should also be considered relative to
changes in the value of the Fund's shares and to the relative risks associated
with the investment objectives and policies of each Fund.
The yield and effective yield for the 30-day period ending September
30, 2000, for the non-Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
------------------------- ------------------------
Class A Class B Class C Trust Class A Class B Class C Trust
------- ------- ------- ----- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate Corporate Bond Fund % % % % % % % %
Short-Intermediate Fund % % % % % % % %
Intermediate U.S. Government Bond Fund % % % % % % % %
North Carolina Fund % % % % % % % %
South Carolina Fund % % % % % % % %
Virginia Fund % % % % % % % %
Balanced Fund % % % % % % % %
West Virginia Fund % % % % % % % %
</TABLE>
The North Carolina Fund, the South Carolina Fund, the Virginia Fund,
and the West 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, Virginia, and West
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, the Virginia Fund, and the
West Virginia Fund is computed by dividing that portion of the effective yield
of the North Carolina, South Carolina, Virginia, and West 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, Virginia, and West Virginia Funds for the 30-day
period ended September 30, 2000 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent
Tax-Equivalent Effective
YIELD YIELD
-------------- --------------
CLASS A CLASS C TRUST CLASS A CLASS C TRUST
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
North Carolina Fund % % % % % %
South Carolina Fund % % % % % %
Virginia Fund % % % % % %
West Virginia Fund % % % % % %
</TABLE>
Investors in the Large Company Value Fund, the North Carolina Fund, the
South Carolina Fund, the Virginia Fund, the West 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 Capital
Appreciation Fund, the
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<PAGE> 464
Mid Cap Value Fund, and the Funds of Funds, are specifically advised that share
prices, expressed as the net asset values per share, will vary just as yields
will vary.
CALCULATION OF TOTAL RETURN
Total Return is a measure of the change in value of an investment in a
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year. 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.
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<PAGE> 465
The average total return for the Class A Shares of each Fund, computed as of
September 30, 2000, is shown in the table below:
Average Annual Total Returns - 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> <C>
Large Company Value Fund 10/9/92 % % % % % % % %
Balanced Fund 7/1/92 % % % % % % % %
Large Company Growth Fund 10/3/97 % % % % % % % %
Small Company Growth Fund 12/9/94 % % % % % % % %
International Equity Fund 1/2/97 % % % % % % % %
Intermediate Corporate Bond
Fund 12/1/99 % % % % % % % %
Short-Intermediate Fund 11/30/92 % % % % % % % %
Intermediate U.S. Government
Bond Fund 10/9/92 % % % % % % % %
North Carolina Fund 10/16/92 % % % % % % % %
South Carolina Fund 10/20/97 % % % % % % % %
Virginia Fund 5/17/99 % % % % % % % %
Prime Money Market Fund 10/1/97 % % % % % % % %
U.S. Treasury Money Market
Fund 10/8/92 % % % % % % % %
Capital Manager Conservative
Growth Fund 1/29/98 % % % % % % % %
Capital Manager Moderate
Growth Fund 1/29/98 % % % % % % % %
Capital Manager Growth Fund 1/29/98 % % % % % % % %
Capital Appreciation Fund % % % % % % % %
Mid Cap Value Fund % % % % % % % %
West Virginia Fund % % % % % % % %
Capital Manager Aggressive
Growth Fund % % % % % % % %
</TABLE>
* Reflects maximum sales charge (5.75% for the Stock Funds, Funds of Funds,
Intermediate U.S. Government Bond Fund and Intermediate Corporate Bond Fund and
3.00% for the North Carolina, South Carolina, Virginia, West Virginia, and
Short-Intermediate Funds).
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<PAGE> 466
The average total return for the Class B Shares of each Fund, computed
as of September 30, 2000, is shown in the table below:
Average Annual Total Returns - 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> <C>
Large Company Value Fund+ 10/9/92 % % % % % % % %
Balanced Fund+ 7/1/93 % % % % % % % %
Large Company Growth Fund 10/3/97 % % % % % % % %
Small Company Growth Fund+ 12/7/94 % % % % % % % %
International Equity Fund 1/2/97 % % % % % % % %
Intermediate Corporate Bond
Fund 12/1/99 % % % % % % % %
Intermediate U.S. Government
Bond Fund+ 10/9/92 % % % % % % % %
Prime Money Market Fund+ 10/1/97 % % % % % % % %
U.S. Treasury Money Market
Fund+ 10/5/92 % % % % % % % %
Capital Manager Conservative
Fund 1/29/99 % % % % % % % %
Capital Manager Moderate Fund 1/29/99 % % % % % % % %
Capital Manager Growth Fund 10/2/97 % % % % % % % %
Capital Appreciation Fund
Mid Cap Value Fund
West Virginia Fund
Capital Manager
Aggressive Growth Fund
</TABLE>
* Reflects maximum CDSC of 5.00%.
+ Class B Shares were not in existence prior to January 1, 1996 (September 2,
1998 in the case of the Prime Money Market Fund). Performance for periods
prior to January 1, 1996 (September 2, 1998 in the case of the Prime Money
Market Fund) is based on Class A Share performance and has been adjusted
for the maximum contingent deferred sales charge applicable to Class B
Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would have been lower.
The average total return for the Trust Shares of each Fund, computed as
of September 30, 2000, is shown in the table below:
Average Annual Total Returns - 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>
Large Company Value Fund 10/9/92 % % % %
Balanced Fund 7/1/93 % % % %
Large Company Growth Fund 10/3/97 % % % %
</TABLE>
-95-
<PAGE> 467
<TABLE>
<S> <C> <C> <C> <C> <C>
Small Company Growth Fund 12/7/94 % % % %
International Equity Fund 1/2/97 % % % %
Intermediate Corporate Bond Fund 12/1/99 % % % %
Short-Intermediate Fund 11/30/92 % % % %
Intermediate U.S. Government
Bond Fund 10/9/92 % % % %
North Carolina Fund 10/16/92 % % % %
South Carolina Fund 10/20/97 % % % %
Virginia Fund 5/17/99 % % % %
Prime Money Market Fund 10/1/97 % % % %
U.S. Treasury Money Market
Fund 10/5/92 % % % %
Capital Manager Conservative
Growth Fund 10/2/97 % % % %
Capital Manager Moderate
Growth Fund 10/2/97 % % % %
Capital Manager Growth Fund 10/27/97 % % % %
Mid Cap Value Fund % % % %
West Virginia Fund % % % %
Capital Manager
Aggressive 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, and the Intermediate
Corporate Bond 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, Inc. 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 and Class C Shares,
the yield and total return for Class A Shares will be higher than that of the
Class B Shares and Class C 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, Class B, and Class C 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
-96-
<PAGE> 468
general economic or financial principals (such as the effects of inflation, the
power of compounding and the benefits of dollar-cost averaging); (2) discussions
of general economic trends; (3) presentations of statistical data to supplement
such discussions; (4) descriptions of past or anticipated portfolio holdings for
one or more of the Funds within the BB&T Funds, (5) descriptions of investment
strategies for one or more of such Funds; (6) descriptions or comparisons of
various savings and investment products (including, but not limited to, insured
bank products, annuities, qualified retirement plans and individual stocks and
bonds), which may or may not include the Funds; (7) comparisons of investment
products (including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in one or more of the Funds. The Funds may also
include in these communications calculations, such as hypothetical compounding
examples, that describe hypothetical investment results, such performance
examples will be based on an express set of assumptions and are not indicative
of performance of any of the Funds.
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.
-97-
<PAGE> 469
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, the Virginia Fund, and the West Virginia Fund, the benefits of
tax-free investments may be communicated in advertisements or communications to
shareholders. For example, the table below presents the approximate yield that a
taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 3.00% to
5.50%. The yields below are for illustration purposes only and are not intended
to represent current or future yields for the North Carolina Fund, the South
Carolina Fund, the
-98-
<PAGE> 470
Virginia Fund, and the West 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.
-99-
<PAGE> 471
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
[REVISE]
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C. TAX-EXEMPT YIELDS
INCOME MARGINAL MARGINAL MARGINAL ------------------------------------------------------------------------------
(1999) 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
$62,950 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
$62,951 TO
$130,250 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
$130,251 TO
$283,150 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
$283,150 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>
-100-
<PAGE> 472
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
[REVISE]
MARRIED
FILING JOINTLY
SAMPLE COMBINED
TAXABLE NORTH FEDERAL AND
INCOME FEDERAL CAROLINA N.C. TAX-EXEMPT YIELDS
(1999) MARGINAL MARGINAL MARGINAL -------------------------------------------------------------------------------
------ 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
$104,500 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
$104,501 TO
$158,550 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
$158,551 TO
$283,150 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
$283,150 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>
-101-
<PAGE> 473
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
------------------------------------------------------------------------------------------------------------------------------------
[REVISE]
SINGLE RETURN
SAMPLE COMBINED
TAXABLE SOUTH FEDERAL AND
INCOME FEDERAL CAROLINA S.C. TAX-EXEMPT YIELDS
(1999) MARGINAL MARGINAL MARGINAL ---------------------------------------------------------------------------------
------ 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
$2,340 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
$2,341 TO
$4,680 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
(less $11)
FROM
$4,681 TO
$7,020 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
(less $58)
FROM
$7,021 TO
$9,360 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
(less $128)
FROM
$9,361 TO
$11,700 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
(less $222)
FROM
$11,701 TO
$25,750 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
(less $339)
FROM
$25,751 TO
$62,950 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
(less $339)
FROM
$62,951 TO
$130,250 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
(less $339)
FROM
$130,251 TO
$283,150 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.56% 8.40% 9.24% 10.08% 10.92% 11.76%
(less $339)
OVER
$283,150 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
(less $339)
</TABLE>
-102-
<PAGE> 474
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
------------------------------------------------------------------------------------------------------------------------------------
[REVISE]
MARRIED FILING
JOINTLY COMBINED
TAXABLE SOUTH FEDERAL AND
INCOME FEDERAL CAROLINA S.C. TAX-EXEMPT YIELDS
(1999) MARGINAL MARGINAL MARGINAL ----------------------------------------------------------------------------------
------ 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
$2,340 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
$2,341 TO
$4,680 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
(less $11)
FROM
$4,681 TO
$7,020 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
(less $58)
FROM
$7,021 TO
$9,360 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
(less $128)
FROM
$9,361 TO
$11,700 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
(less $222)
FROM
$11,701 TO
$43,050 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
(less $339)
FROM
$43,051 TO
$104,050 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
(less $339)
FROM
$104,051 TO
$158,550 31.00% 7.00% 35.83% 4.68% 5.45% 6.23% 7.01% 7.79% 8.57% 9.35% 10.13% 10.91%
(less $339)
FROM
$158,551 TO
$283,150 36.00% 7.00% 40.48% 5.04% 5.88% 6.72% 7.50% 8.40% 9.24% 10.08% 10.92% 11.76%
(less $339)
OVER
$283,150 39.60% 7.00% 43.83% 5.34% 6.23% 7.12% 8.01% 8.90% 9.79% 10.68% 11.57% 12.46%
(less $339)
</TABLE>
-103-
<PAGE> 475
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: VIRGINIA FUND
[REVISE]
------------------------------------------------------------------------------------------------------------------------------------
SINGLE COMBINED
TAXABLE FEDERAL AND
INCOME FEDERAL VIRGINIA VIRGINIA TAX-EXEMPT YIELDS
(1999) MARGINAL MARGINAL MARGINAL --------------------------------------------------------------------------------------
------ 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
$25,750 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
$25,751 TO
$62,950 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
$62,951 TO
$130,250 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
$130,251 TO
$283,150 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
283,150 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>
-104-
<PAGE> 476
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: VIRGINIA FUND
[REVISE]
------------------------------------------------------------------------------------------------------------------------------------
MARRIED FILING
JOINTLY COMBINED
TAXABLE FEDERAL AND
INCOME FEDERAL VIRGINIA VIRGINIA TAX-EXEMPT YIELDS
(1999) MARGINAL MARGINAL MARGINAL ---------------------------------------------------------------------------------------
------ 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
$43,050 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
$43,051 TO
$104,050 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
$104,051 TO
$158,550 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
$158,551 TO
$283,150 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
$283,150 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>
-105-
<PAGE> 477
The "combined Federal and N.C., S.C., VA, or West VA Marginal Tax Rate"
represents the combined federal and North Carolina, South Carolina, Virginia,
and West 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, Virginia, and West 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 twenty-two 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 Large
Company Value Fund, the North Carolina Fund, the South Carolina Fund, the
Virginia Fund, the West 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 Capital Appreciation Fund, the Mid Cap Value
Fund, the Capital Manager Conservative Growth Fund, the Capital Manager Moderate
Growth Fund, the Capital Manager Growth Fund, and the Capital Manager Aggressive
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 the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
-106-
<PAGE> 478
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.
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.
-107-
<PAGE> 479
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 except the
Virginia Fund and the Intermediate Corporate Bond Fund are amortized over a
period of two years from the commencement of the public offering of Shares of
the Fund. On June 30, 1998, the Funds adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." Under the provisions of SOP
98-5, costs associated with organizing a fund which commences operating
subsequent to June 30, 1998, must be expensed as incurred and may not be
amortized over future periods. Accordingly, costs incurred in connection with
the organization of the Virginia Fund and Intermediate Corporate Bond Fund were
paid during the fiscal year ended September 30, 1999 and the past fiscal year,
respectively. In the event any of the initial Shares of the BB&T Funds are
redeemed during the amortization period by any holder thereof, the redemption
proceeds will be reduced by a pro rata portion of any unamortized organization
expenses in the same proportion as the number of initial Shares being redeemed
bears to the total number of initial Shares outstanding at the time of
redemption. Investors purchasing Shares of the BB&T Funds subsequent to the date
of the Prospectus and this Statement of Additional Information bear such
expenses only as they are amortized against a Fund's investment income.
The BB&T Funds is registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision by the Securities and Exchange Commission of the management
or policies of the BB&T Funds.
As of October 23, 2000 the following persons owned of record or
beneficially 5% or more of the Class A, Class B, or Trust Shares of the listed
Funds:
-108-
<PAGE> 480
US TREASURY MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C>
NAME AND ADDRESS PERCENT OF RECORD OWNED
Scott & Stringfellow Omnibus Fund 92.7514%
US Treasury MM - A
909 E. Main Street
Richmond, VA 23219
US TREASURY MONEY MARKET FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OF RECORD OWNED
BISYS Fund Services 90.1841%
BB&T Sweep Customers
3435 Selzer Road
Columbus, OH 43219
US TREASURY MONEY MARKET FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OF RECORD OWNED
Wilbranch 74.1963%
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 23.6921%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601
SHORT-INTERMEDIATE U.S. GOVERNMENT FUND- A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Henry Fibers Inc. 26.0861%
P.O. Box 1675
Gastonia, NC 28053
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND- TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 62.2257%
</TABLE>
-109-
<PAGE> 481
<TABLE>
<S> <C>
P.O. Box 2887
Wilson, NC 27894
Hometown Bank Co. 13.9426%
CO BB T
P.O. Box 2887
Wilson, NC 27894
CAP & Co. 11.1205%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-110-
<PAGE> 482
<TABLE>
INTERMEDIATE U.S. GOVERNMENT BOND FUND - A SHARES
<S> <C>
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
William R. Glover 6.3780%
Glover Family Trust
207 Rob Roy Road
Southern Pines, NC 28387
INTERMEDIATE U.S. GOVERNMENT BOND FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 59.0019%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 7.0817%
P.O. Box 2887
Wilson, NC 27894
Hometown Bank Co. 6.7272%
CO BB T
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 13.3936%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601
CAP & Co. 7.4190%
P.O. Box 2887
Wilson, NC 27894
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
R.L. Honbarrier Co. 18.5912%
1507 Crestlin Road
High Point, NC 27260
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
</TABLE>
-111-
<PAGE> 483
<TABLE>
<CAPTION>
<S> <C>
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 97.9948%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-112-
<PAGE> 484
<TABLE>
<CAPTION>
BALANCED FUND - CLASS A SHARES
<S> <C>
NAME AND ADDRESS PERCENT OWNED OF RECORD
Louisburg College, Inc. 6.6996%
501 N. Main Street
Louisburg, NC 27549
BALANCED FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 10.5213%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 28.4250%
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 41.5051%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601
BB&T Capital Manager Conservative Growth 6.4192%
434 Fayetteville Street Mall, 5th Floor
Raleigh, NC 27601
PRIME MONEY MARKET - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Scott & Stringfellow Omnibus Fund 98.1414%
U.S. Treasury MM - A
909 E. Main Street
Richmond, VA 23219
PRIME MONEY MARKET - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Bisys Fund Services 97.8677%
BB&T Sweep Customers
3435 Selzer Road
</TABLE>
-113-
<PAGE> 485
<TABLE>
<S> <C>
Columbus, OH 43219
PRIME MONEY MARKET - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 99.8143%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-114-
<PAGE> 486
<TABLE>
<CAPTION>
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - CLASS A SHARES
<S> <C>
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Cheryl K. Boone 12.0798%
Wilt C. Boone
1901 Martin Road
Chapin, SC 29036
Cheryl K. Boone 13.6744%
George O. Boone
1901 Martin Road
Chapin, SC 29036
George S. Morgan 17.5277%
Joyce Morgan Dekesis
4477 Mandi Drive
Little River, SC 29566
Nancy Jenkins Stewart 8.0901%
Nancy Jenkins Stewart Trust
201 Huntington Road
Greenville, SC 29615
Charles R. Nolan 8.0799%
Nelda W. Nolan
1644 Farmsteam Road
Rook Hill, SC 29732
Betty R. Roof 5.1236%
Terry C. Roof
1566 Pisgah Church Road
Lexington, SC 29072
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Cap Co. 98.1278%
P.O. Box 2887
Wilson, NC 27894
VIRGINIA INTERMEDIATE TAX-FREE FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
</TABLE>
-115-
<PAGE> 487
<TABLE>
<S> <C>
Ann P. Watson 12.2461%
7511 Glebe Road
Richmond, VA 23229
</TABLE>
-116-
<PAGE> 488
<TABLE>
<S> <C>
David V. Cederquist 26.3756%
Bettie M. Cederquist
1231 Manchester Avenue
Norfolle, VA 23508
Richard H. Perry 31.2737%
Patricia J. Perry Jtten
1211 Moyer Road
Newport News, VA 23608
Granville N. Patterson 19.4391%
Myrtle M. Patterson
286 Ridge Street
Madison Heights, VA 24572
June M. Adams 10.1504%
3809 Acosta Road
Fairfax, VA 22031
VIRGINIA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Hometown Bank Co. 99.6602%
C O BB T
P.O. Box 2887
Wilson, NC 27894
INTERMEDIATE CORPORATE BOND FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Cecil Wayne Jessup 55.7228%
429 Jar Gap Lane
Ararat, VA 24053
George W. Ashley 25.3757%
594 Jordan Cook Road
Boone, NC 28607
</TABLE>
-117-
<PAGE> 489
<TABLE>
<S> <C>
Betty H. Wood 17.5545%
2542 Glade Valley Road
Sparta, NC 28675
INTERMEDIATE CORPORATE BOND FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Roy S. McBee 10.6061%
4202 Willingham Dr.
Columbia, SC 29206
Irene A. Holmes 20.3608%
Irene A. Holmes Trust
2591 Highway 9E
Little River, SC 29566
BB T Clearing S S IRA Cust 6.0485%
FBO Dennis K. Eggleston
44 Woodlawn Avenue
Martinsville, VA 24112
BB T Clearing S S IRA Cust 8.5244%
FBO Veneita E. Brewer
134 Dusty Road
Goldsteon, NC 27252
John H. Engstrom 5.0875%
252 Pioneer Trail
Collinsville, VA 24078
Hope R. Via 5.4632%
1258 Hardin Reynolds Road
Critz, VA 24082
William H. Wells 9.2680%
5413 Glenview Drive
Hickory, NC 28602
Jerry W. Roquenore 12.6793%
169 Lakeshore Drive South
Ivey, GA 31031
David S. Dutton 7.5659%
140 Pine Lake Road, Apt. 8
</TABLE>
-118-
<PAGE> 490
<TABLE>
<S> <C>
Danville, VA 24541
James A. Cetto 6.4430%
154 Brookgate Drive
Myrtle Beach, SC 29579
INTERMEDIATE CORPORATE BOND FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 38.2751%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 34.8638%
P.O. Box 2887
Wilson, NC 27894
Cap Co. 5.2255%
P.O. Box 2887
Wilson, NC 27894
HomeTown Bank Co. 6.2348%
C O BB T
P.O. Box 2887
Wilson, NC 27894
LARGE COMPANY VALUE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 37.8064%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 14.0729%
P.O. Box 2887
Wilson, NC 27894
Hometown Bank Co. 9.7605%
CO BB T
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-119-
<PAGE> 491
<TABLE>
<S> <C>
Branch Banking & Trust Co. 22.4973%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601
CAP & Co. 7.2324%
P.O. Box 2887
Wilson, NC 27894
SMALL COMPANY GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 25.6338%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 9.7330%
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 23.0948%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601
Branch Banking & Trust 28.3755%
State of North Carolina 401K
P.O. Box 29541
Raleigh, NC 27626
INTERNATIONAL EQUITY FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 53.6909%
P.O. Box 2887
Wilson, NC 27894
Cap Co. 7.7247%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-120-
<PAGE> 492
<TABLE>
<S> <C>
Hometown Bank Co. 5.0151%
P.O. Box 2887
Wilson, NC 27894
Wilbranch Co. 19.6627%
P.O. Box 2887
Wilson, NC 27894
LARGE COMPANY GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 55.9126%
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 7.6019%
Daily Recordkeeping Plans
434 Fayetteville St., 4th Floor
Raleigh, NC 27601
Cap Co. 5.9357%
P.O. Box 2887
Wilson, NC 27894
Hometown Bank Co. 21.2044%
C O BBT
P.O. Box 2887
Wilson, NC 27894
CAPITAL MANAGER CONSERVATIVE GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Lorraine K. Cauthen 18.4928%
108 Strawberry Lane
Clemson, SC 29631
Cheryl B. Cobb 20.6870%
Linda Z. Greer
214 Park Road
Lexington, SC 29072
Melton Ellerby 11.6074%
Route 1 Box 34
</TABLE>
-121-
<PAGE> 493
<TABLE>
<S> <C>
Wadesboro, NC 28170
William M. Benton 5.8490%
P.O. Box 1824
Pinebluff, NC 28373
Wiletta Huffman 14.7342%
1112 Woodland Street
Whiteville, NC 28472
Horace J. Traylor 7.5885%
Tod Betty Lou Blankenship
500 Pacific Avenue, Apt. 403
Virginia Beach, V A 23451
Deborah L. Rock 14.3429%
10 Biltmore Plaza
Asheville, NC 28803
CAPITAL MANAGER CONSERVATIVE GROWTH FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Betty F. Fincher 47.8485%
55 Chamblee Road
Walterboro, SC 29488
Sandra A. Headley 20.3234%
3050 Cottageville
Walterboro, SC 29488
Margo A. Stevenson 5.6480%
705 Brissom Avenue
Elizabethtown, NC 28337
Dale Gierszewski 10.6408%
102 Crowaton
Castle Hayne, NC 28429
Joyce R. Walker 6.3379%
7560 Pheasant Road
Vale, NC 28168
CAPITAL MANAGER CONSERVATIVE GROWTH FUND - TRUST SHARES
</TABLE>
-122-
<PAGE> 494
<TABLE>
<CAPTION>
<S> <C>
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 74.9278%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
-123-
<PAGE> 495
<TABLE>
<S> <C>
Branch Banking & Trust Co. 23.8661%
Daily Recordkeeping Plans
434 Fayetteville St., 4th Floor
Raleigh, NC 27601
CAPITAL MANAGER MODERATE GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
William H. Peeler 22.5418%
Betty P. Peeler
3802 Old Sptg. Hwy.
Moore, SC 29369
David A. Jarvis 6.5257%
P.O. Box 2292
Walterboro, SC 29488
Leslie L. Keeter 16.3483%
1704 Hodges Ferry Road
Portsmouth, VA 23701
</TABLE>
-124-
<PAGE> 496
<TABLE>
<S> <C>
BB T Clearing S S IRA Cust 9.1585%
FBO Glendale Jolly
1250 Mollie Ironhill Road
Clarendon, NC 28432
CAPITAL MANAGER MODERATE GROWTH FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Belinda Jo Gray 8.1694%
217 Porter Road
Portsmouth, VA 23707
Doris H. Howell 7.3145%
191 Old Spartanburg Highway
Pacolet, SC 29372
Willie A. Smith 9.5980%
403 Sierra Road
Spartanburg, SC 29301
Frankie H. Bowman 10.5777%
1846 33rd St. Drive SW
Hickory, NC 28602
Lucille M. Moore 5.3427%
100 Covington Drive
Spindale, NC 28160
Catherine E. Rogers 5.3024%
202 Edgewood Avenue, Apt. #4
Clemson, SC 29631
</TABLE>
-125-
<PAGE> 497
<TABLE>
<S> <C>
John L. Malone, III 8.7603%
Courtney M. Malone
PO Box 2001
Bluffton, SC 29910
Lillie M. Spencer 5.3305%
100 S Main Avenue
Catawba, NC 28609
CAPITAL MANAGER MODERATE GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Wilbranch Co. 86.8644%
P.O. Box 2887
Wilson, NC 27894
Branch Banking & Trust Co. 11.2151%
Daily Recordkeeping Plans
434 Fayetteville St., 4th Floor
Raleigh, NC 27601
CAPITAL MANAGER GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Elham B. Makram 10.8645%
Adly A. Girgis
110 Sedgefield Drive
Clemson, SC 29631
Susan M. Bowan 12.7029%
301 Compton Road
Raleigh, NC 27609
CAPITAL MANAGER GROWTH FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
James G. Henson 9.8031%
128 Robbins Drive
Forest City, NC 28043
Michael Petteway 8.3499%
492 Fuller Mill Road
Thomasville, NC 27360
</TABLE>
-126-
<PAGE> 498
<TABLE>
<S> <C>
BBT Clearing S S IRA Cust 9.8974%
FBO Nester Stanaland Humphries
Ocean Harbour Estates
Calabash, NC 28467
CAPITAL MANAGER GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 98.8550%
P.O. Box 2887
Wilson, NC 27894
</TABLE>
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<PAGE> 499
As of October 23, 2000, 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.
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<PAGE> 500
FINANCIAL STATEMENTS
Audited Financial Statements as of September 30, 2000 are incorporated by
reference to the Annual Report to Shareholders, dated as of September 30, 2000,
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.
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"), Fitch IBCA, Duff & Phelps ("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 the Aaa securities.
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<PAGE> 501
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.
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 over 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
Standard & Poor's. 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
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<PAGE> 502
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 Fitch IBCA:
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
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 structure with moderate
reliance on debt and ample asset protection.
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<PAGE> 503
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
S & P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. 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.
Fitch IBCA's description of its three highest short-term debt ratings:
F1 Highest credit quality. Indicates the Best capacity for timely payment
of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
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<PAGE> 504
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
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 superior credit quality.
Excellent protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2 This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.
Short-Term Debt Ratings
Thomson BankWatch, Inc. ("TBW") ratings are based upon a
qualitative and quantitative analysis of all segments of the
organization including, where applicable, holding company and operating
subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch
does not suggest specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which
the rating has been assigned.
The TBW Short-Term Rating 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.
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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, the
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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<PAGE> 506
Registration Statement
of
BB&T FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23. 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) Form of Investment Advisory Agreement between the
Registrant and BB&T Asset Management, LLC is filed
herewith.
(2) 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).
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<PAGE> 507
(3) 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).
(4) 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).
(5) Sub-Advisory Agreement between Branch Banking
and Trust Company and Federated Investment
Management Group is incorporated by reference to
Exhibit 23(d)(6) to Post-Effective Amendment No. 20
to the Registration Statement of the Registrant on Form
N-1A (filed October 31, 2000).
(e) (1) Distribution Agreement between the Registrant and
BISYS Fund Services LP is filed herewith.
(f) (1) Form of Custody Agreement between the Registrant and
Branch Banking and Trust Company is filed herewith.
(2) 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).
(3) 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).
(4) Custody Agreement between the Registrant and State Street
Bank and Trust Company is incorporated by reference to
Exhibit 23(g)(5) to Post-Effective Amendment No. 20 to
the Registration Statement of the Registrant on Form N-1A
(filed October 31, 2000).
(5) Form of Custody Agreement between the Registrant and
Investor's Bank & Trust Company filed herewith.
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<PAGE> 508
(g) (1) Administration Agreement between the Registrant and
BISYS Fund Services LP (formerly The Winsbury Company
Limited Partnership) is incorporated by reference to
Exhibit 23(h)(l) to Post-Effective Amendment No. 20 to
the Registration Statement of the Registrant on Form N-1A
(filed October 31, 2000).
(2) Schedule A
(3) Transfer Agency Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly The Winsbury
Company Limited Partnership) is incorporated by
reference to Exhibit 23(h)(2) to Post-Effective
Amendment No.20 to the Registration Statement of the
Registrant on Form N-1A (filed October 31, 2000).
(4) Fund Accounting Agreement between the Registrant and
BISYS Fund Services Ohio, Inc. (formerly The Winsbury
Company Limited Partnership) is incorporated by
reference to Exhibit 23(h)(3) to Post-Effective
Amendment No. 20 to the Registration Statement of the
Registrant on Form N-1A (filed October 31, 2000).
(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).
(h) Opinion of Ropes & Gray is filed herewith.
(i) (1) Consent of Ropes & Gray is filed herewith.
(j) None.
(k) 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).
(l) (1) Form of Amended and Restated Distribution and
Shareholder Services Plan as Amended November 9, 2000
between the Registrant and BISYS Fund Services Limited
Partnership is filed herewith.
(2) Servicing Agreement with respect to Shareholder Services
between Branch Banking and Trust Company and BISYS Fund
Services
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<PAGE> 509
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).
(3) Form of revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund Services
Limited Partnership (formerly The Winsbury Company Limited
Partnership) is field herewith.
(m) Form of Multiple Class Plan for BB&T Mutual Funds Group
adopted by the Board of Trustees on September 21, 1995 as
amended November 9, 2000 is filed herewith.
(n) (1) Code of Ethics for BB&T Funds dated November 8, 1994 and
amended February 11, 2000 filed herewith.
(2) Code of Ethics for BB&T Asset Management, LLC, is filed
herewith.
(3) Code of Ethics for BISYS is filed herewith.
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 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
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<PAGE> 510
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
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
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<PAGE> 511
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.
BB&T Asset Management, LLC is the investment adviser to each fund.
BB&T Asset Management, LLC is a wholly-owned subsidiay of BB&T. BB&T
is the oldest bank in North Carolina and is the principal bank
affiliate of BB&T Corporation, a bank and savings and loan holding
company. As of December 31, 2000, BB&T Corporation had assets of
approximately $43.5 billion. Through its subsidiaries, BB&T
Corporation operates over 655 banking offices in Maryland, North
Carolina, South Carolina, Virginia, West Virginia and Washington,
D.C., providing a broad range of financial service 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
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<PAGE> 512
investment funds for its fiduciary accounts for more than 17 years and
currently manages assets of more than $4.4 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.
<TABLE>
<CAPTION>
Name and Position With Branch Other business, profession,
Banking and Trust Company vocation, or employment
----------------------------- ---------------------------
<S> <C>
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson, Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director
Lexington, S.C.Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
</TABLE>
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<PAGE> 513
<TABLE>
<S> <C>
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
Director Health Affairs
Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate Diagnostics
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc.,
McCauley Moving & Storage of
Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
Charles E. Nichols Attorney at Law, North Carolina Trust Center
Director Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
</TABLE>
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<PAGE> 514
<TABLE>
<S> <C>
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
</TABLE>
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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 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 Tax-Free
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 Independence Funds Trust, American Performance Funds, AmSouth
Funds, BB&T Funds, The Coventry Group, The Eureka Funds, Fifth Third
Funds, Governor Funds, Hirtle Callaghan Trust, HSBC Funds Trust and
HSBC Mutual 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, Old Westbury Funds,
Inc., Pacific Capital Funds, Republic Advisor Funds Trust, Republic
Funds Trust, Summit Investment Trust, USAllianz Variable Insurance
Products Trust, Variable Insurance Funds, The Victory Portfolios, The
Victory Variable Insurance Funds, Vintage Mutual Funds, Inc., and
WHATIFI Funds, each of which is a management investment company. The
parent of BISYS Fund Services, Inc. (the sole general partner of BISYS
Fund Services) is The BISYS Group, Inc.
(b) Partners of BISYS Fund Services, LP ("BISYS") as of the date of
this Part C are as follows:
<PAGE> 516
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 BISYS, each distributor has additional
officers and/or alternative positions held by BISYS 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):
Dennis Sheehan Executive Officer
William J. Tomko Supervising Principal
Gregory A. Trichtinger Vice President
Robert L. Tuch Assistant Secretary
Andrew Corbin Vice President
Olu T. Lawal Fin-Op
<TABLE>
<S> <C>
*Barr Rosenberg Funds Distributor, Inc. Irimga McKay - President
Barr Rosenberg Funds Lynn Mangum -Chairman
Dennis Sheehan - EVP/Director
William J. Tomko - Senior Vice President
Kevin Dell - Vice President/Secretary
Greg Maddox - Supervising Principal/VP
BNY Hamilton Distributors, Inc. William J. Tomko - Senior Vice President
BNY Hamilton Funds, Inc. Richard Baxt - President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
*Centura Funds Distributor, Inc. Walter B. Grimm - President
Centura Funds William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
</TABLE>
<PAGE> 517
<TABLE>
<S> <C>
CFD Fund Distributors, Inc. Richard Baxt - President
Chase Funds William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
Concord Financial Group, Inc. Walter B. Grimm - President
ProFunds- William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
Irimga McKay - Supervising Principal
*Evergreen Distributor, Inc. D'Ray Moore - President
Evergreen Funds William J. Tomko - Senior Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
*Performance Funds Distributor, Inc. Walter B. Grimm - President
Performance Funds William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
The One Group Services Company Mark Redman - President
The One Group of Funds William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
Vista Funds Distributors, Inc. Richard Baxt - President
Chase Vista Funds Mathew H. Lobas - Supervisory Principal
William J. Tomko - Sr. Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
Kent Funds Distributors R. Jeffrey Young - Supervisory Principal
William J. Tomko - Senior Vice President
Lynn Mangum - Chairman
Kevin Dell - Vice President/Secretary
</TABLE>
<PAGE> 518
<TABLE>
<S> <C>
Mentor Distributors, LLC D'Ray Moore, President
William J. Tomko - Senior Vice Presient
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
*IBJ Funds Distributor, Inc. Walter B. Grimm, Senior Vice President
William J. Tomko - Senior Vice President
Lynn Mangum - Chairman
Dennis Sheehan - EVP/Director
Kevin Dell - Vice President/Secretary
J. David Huber - President
Georgette Prengel - Supervisory Principal
</TABLE>
*address is 90 Park Avenue, New York, NY
NON BISYS DISTRIBUTORS (see Part C for directors and officers of distributors)
Glickenhaus & Company
The Empire Builder 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.
Nationwide Advisory Services, Inc.
Nationwide Mutual Funds
Nationwide Separate Account Trust
Nationwide Asset Allocation Trust
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:
<PAGE> 519
(1) BB&T Funds
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) BB&T Asset Management, LLC
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 Tax-Free
Money Market Fund)
400 Bellevue Parkway, 4th Floor
Wilmington, DE 19809
(6) Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Sub-Advisor to the Prime Money Market Fund)
(7) BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
(8) Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601
(Custodian)
(9) BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
<PAGE> 520
(Transfer and Shareholder Servicing Agent,
Provider of Fund Accounting Services)
<PAGE> 521
(10) Bank of New York
90 Washington Street, 22nd Floor
New York, NY 10286
(Custodian to the International Equity Fund)
(11) State Street Bank and Trust Company
2 Avenue de LaFayette
LCC-5th Floor
Boston, Massachusetts 02111
(Custodian to the Prime Money Market Fund)
(12) Investor's Bank & Trust
[NEED ADDRESS]
(132) 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.
<PAGE> 522
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.
<PAGE> 523
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. 21 to the Registrant's Registration Statement on
Form N-1A pursuant to Rule 485(a) under the Securities Act of 1933 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Washington, District of Columbia on this 17th day of November, 2000.
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. 21 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Walter B. Grimm Chairman November 17, 2000
---------------------------------
*Walter B. Grimm
/s/ William E. Graham Trustee November 17, 2000
--------------------------------
*William E. Graham
/s/ Thomas W. Lambeth Trustee November 17, 2000
--------------------------------
*Thomas W. Lambeth
/s/ Gary R. Tenkman Treasurer November 17, 2000
--------------------------------
*Gary R. Tenkman
/s/ W. Ray Long Trustee November 17, 2000
--------------------------------
*W. Ray Long
/s/ Robert W. Stewart Trustee November 17, 2000
-------------------------------
*Robert W. Stewart
/s/ Raymond K. McCulloch Trustee November 17, 2000
-------------------------------
*Raymond K. McCulloch
*By: /s/ Alan G. Priest
---------------------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
</TABLE>
<PAGE> 524
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment pursuant to Rule 485(a) under the Securities Act of 1933 to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of Little
Rock, State of Arkansas on the 17th day of November, 2000.
MASTER INVESTMENT PORTFOLIO S&P 500 INDEX MASTER PORTFOLIO
By: /S/ RICHARD H. BLANK, JR.
--------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/S/ RICHARD H. BLANK, JR. Secretary and Treasurer November 17, 2000
---------------------------------- (Principal Financial Officer)
Richard H. Blank, Jr.
/S/ JACK S. EUPHRAT Trustee November 17, 2000
----------------------------------
Jack S. Euphrat*
/S/ R. GREG FELTUS Chairman, President November 17, 2000
---------------------------------- (Principal Executive Officer)
R. Greg Feltus* and Trustee
/S/ W. RODNEY HUGHES Trustee November 17, 2000
----------------------------------
W. Rodney Hughes*
/S/ LEO SOONG Trustee November 17, 2000
----------------------------------
Leo Soong*
</TABLE>
* Richard H. Blank, Jr. signs this document pursuant to powers of attorney as
filed herewith.
*By: /S/ RICHARD H. BLANK, JR.
-------------------------
Richard H. Blank, Jr.
Attorney-in-Fact
<PAGE> 525
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> 526
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 Funds
(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> 527
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> 528
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> 529
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> 530
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> 531
POWER OF ATTORNEY
-----------------
Raymond McCulloch, 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 Funds
(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: May 24, 1999 /s/ Raymond K. McCulloch
------------------------
Raymond K. McCulloch
<PAGE> 532
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Barclays Global Investors Funds, Inc. and
Master Investment Portfolio and any investment company whose fund(s) invest in a
Master Portfolio of Master Investment Portfolio (each, a "Company"), and any or
all amendments (including post-effective amendments) thereto and to file the
same, with any and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
commissions or authorities, and (ii) to execute any and all federal or state
regulatory filings, including all applications with regulatory authorities,
state charter or organizational documents and any amendments or supplements
thereto, to be executed by, on behalf of, or for the benefit of, a Company. The
undersigned hereby grants to each Attorney-in-Fact full power and authority to
do and perform each and every act and thing contemplated above, as fully and to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said Attorney-in-Fact may lawfully do or cause to be done
by virtue hereof.
Dated: February 17, 2000 /s/ LEO SOONG
-------------
Leo Soong
<PAGE> 533
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION PAGE
(d) (1) Form of Investment Advisory Agreement between BB&T Funds and
BB&T Asset Management, LLC dated November 9, 2000.
(e)(1) Form of Distribution Agreement between BB&T Funds and BISYS
Fund Services LP as amended November 9, 2000.
(f)(1) Form of Custody Agreement between BB&T Funds and Branch
Banking and Trust Company dated November 9, 2000.
(f)(5) Form of Custody Agreement between BB&T Funds and
Investor's Bank & Trust Company dated September 11, 2000.
(h) Opinion of Ropes & Gray
(i)(1) Consent of Ropes & Gray
(l)(1) Form of Amended and Restated Distribution and Shareholder
Services Plan between BB&T Funds and BISYS Fund Services
Limited Partnership as Amended November 9, 2000.
(l)(3) Form of Revised Schedule A to the Servicing Agreement with
Branch Banking and Trust Company and BISYS Fund Services
Limited Partnership dated November 9, 2000.
(m) Form of Multiple Class plan for BB&T Mutual Funds Group as
amended November 9, 2000.
(n) (1) Code of Ethics for BB&T Funds as amended February 11, 2000.
(2) Code of Ethics for BB&T Asset Management, LLC
(3) Code of Ethics for BISYS
