<PAGE> 1
Registration Nos. 33-49098
811-06719
As filed with the Securities and Exchange Commission
on February 1, 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. 18 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 19 [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)
[X] 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)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
post-effective amendment No. __ filed on [date].
<PAGE> 2
[BB&T FUNDS LOGO]
STOCK FUNDS
GROWTH AND INCOME STOCK FUND
BALANCED FUND
LARGE COMPANY GROWTH FUND
SMALL COMPANY GROWTH FUND
INTERNATIONAL EQUITY FUND
EQUITY INDEX FUND
BOND FUNDS
TAXABLE BOND FUNDS
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
INTERMEDIATE U.S. GOVERNMENT BOND FUND
INTERMEDIATE CORPORATE BOND FUND
TAX FREE BOND FUNDS
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
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
TRUST SHARES
PROSPECTUS
FEBRUARY 1, 2000
QUESTIONS?
Call 1-800-228-1872
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> 3
BB&T FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
Carefully review this important 3 Overview
section, which summarizes each Fund's 4 STOCK FUNDS
investments, risks, past performance, 5 Growth and Income Stock Fund
and fees. 8 Balanced Fund
12 Large Company Growth Fund
15 Small Company Growth Fund
18 International Equity Fund
21 Equity Index Fund
23 BOND FUNDS
24 Short-Intermediate U.S. Government Income Fund
27 Intermediate U.S. Government Bond Fund
30 Intermediate Corporate Bond Fund
32 North Carolina Intermediate Tax-Free Fund
35 South Carolina Intermediate Tax-Free Fund
38 Virginia Intermediate Tax-Free Fund
40 MONEY MARKET FUNDS
41 Prime Money Market Fund
45 U.S. Treasury Money Market Fund
48 Tax-Free Money Market Fund
50 FUNDS OF FUNDS
51 Capital Manager Conservative Growth Fund
55 Capital Manager Moderate Growth Fund
59 Capital Manager Growth Fund
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
[Logo]
Review this section for information 63 STOCK FUNDS
on investment strategies and their 63 Growth and Income Stock Fund
risks. 63 Balanced Fund
63 Large Company Growth Fund
63 Small Company Growth Fund
63 International Equity Fund
64 Equity Index Fund
64 BOND FUNDS
64 Short-Intermediate U.S. Government Income Fund
64 Intermediate U.S. Government Bond Fund
64 Intermediate Corporate Bond Fund
64 North Carolina Intermediate Tax-Free Fund
65 South Carolina Intermediate Tax-Free Fund
65 Virginia Intermediate Tax-Free Fund
65 MONEY MARKET FUNDS
65 Prime Money Market Fund
66 Tax-Free Money Market Fund
66 FUNDS OF FUNDS
FUND MANAGEMENT
[Logo]
Review this section for details on 73 The Investment Adviser
the people and organizations who 74 The Investment Sub-Advisers
oversee the Funds. 74 Portfolio Managers
74 The Distributor and Administrator
SHAREHOLDER INFORMATION
[Logo]
Review this section for details on 75 Choosing a Share Class
how shares are valued, how to 76 Pricing of Fund Shares
purchase, sell and exchange shares, 77 Purchasing and Adding to Your Shares
related charges and payments of 78 Selling Your Shares
dividends and distributions 80 General Policies on Selling Shares
81 Exchanging Your Shares
82 Dividends, Distributions and Taxes
OTHER INFORMATION ABOUT THE FUNDS
[Logo]
83 Financial Highlights
</TABLE>
2
<PAGE> 4
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
<TABLE>
<S> <C>
THE FUNDS BB&T Funds is a mutual fund family that offers different
classes of shares in separate investment portfolios
("Funds"). The Funds have individual investment goals and
strategies. This prospectus gives you important information
about the Trust Shares of the Stock Funds, the Bond Funds,
the Money Market Funds and the Funds of Funds that you
should know before investing. Each Fund also offers two
additional classes of shares called Class A Shares and Class
B Shares which are offered in a separate prospectus. Please
read this prospectus and keep it for future reference.
Each of the Funds in this prospectus is a mutual fund. A
mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities
like stocks and bonds. Before you look at specific Funds,
you should know a few general basics about investing in
mutual funds.
The value of your investment in a Fund is based on the
market prices of the securities the Fund holds. These prices
change daily due to economic and other events that affect
securities markets generally, as well as those that affect
particular companies or government units. These price
movements, sometimes called volatility, will vary depending
on the types of securities a Fund owns and the markets where
these securities trade.
LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN A FUND. YOUR INVESTMENT IN A FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH BANKING AND TRUST
COMPANY, BB&T CORPORATION, THEIR AFFILIATES, OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for
reaching that goal. However, it cannot be guaranteed that a
Fund will achieve its goal. Before investing, make sure that
the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way
that the manager believes will help the Fund achieve its
goal. A manager's judgments about the stock markets, economy
and companies, or selecting investments may cause a Fund to
underperform other funds with similar objectives.
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
STOCK FUNDS
<TABLE>
<S> <C>
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
</TABLE>
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks capital growth, current income or both,
primarily through investment in stocks.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
domestically traded U.S. common stocks, as well as American
Depository Receipts ("ADRs").
In managing the Fund, the portfolio manager attempts to
diversify across different economic sectors selecting those
stocks that he believes are undervalued and have a favorable
outlook. In choosing individual stocks the portfolio manager
uses a quantitative process to examine the value, growth and
momentum characteristics of a particular issuer. While some
stocks may be purchased primarily for income, most stocks
will be purchased for capital appreciation. The portfolio
manager will favor stocks of issuers which over a five-year
period have achieved cumulative income in excess of the
cumulative dividends paid to shareholders.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 63-72 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 pages
63-72.
</TABLE>
5
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
The chart and table on this page
show how the 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 seven years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks. Of course, past
performance does not indicate how
the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1993 10.49%
94 -0.29%
95 31.95%
96 22.16%
97 33.15%
98 13.10%
99 -2.22%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 16.92% 12/31/98
Worst
quarter: -10.97% 9/30/99
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS (10/9/92)
<S> <C> <C> <C>
TRUST SHARES
GROWTH AND INCOME STOCK FUND -2.22% 18.87% 15.27%
S&P 500(R) INDEX 21.03% 28.54% 21.53%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
6
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.74%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.35%
Total Fund operating expenses(3) 1.09%
</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 0.60%. Additionally, other
expenses were limited to 0.34%. Total
expenses after fee waivers and expense
reimbursements are expected to be 0.94%. Any
fee waiver or expense reimbursement
arrangement is voluntary and may be
discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
GROWTH AND INCOME 1 3 5 10
STOCK FUND YEAR YEARS YEARS YEARS
TRUST SHARES $111 $347 $601 $1,329
</TABLE>
As an investor in the 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.
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.
7
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 portfolio manager believes are undervalued and have
a favorable outlook. Other equity investments include
convertible securities and ADRs. The Fund's fixed-income
investments consist primarily of "investment-grade" bonds,
notes, debentures (bonds, notes and debentures rated at the
time of purchase in one of the four highest rating
categories by a nationally recognized statistical rating
organizations (an "NRSRO")) or are determined by the
portfolio manager to be of comparable quality and money
market instruments. The average dollar-weighted maturity of
the fixed-income portion of the Fund's portfolio will range
from one to thirty years.
In managing the equity portion of the Fund, the portfolio
manager examines a variety of quantitative and qualitative
factors in formulating individual stock purchase and sale
decisions. The portfolio manager selects investments that he
believes are reasonably priced relative to their growth
potential.
In managing the fixed income portion of the Fund's
portfolio, the portfolio manager uses a "top down"
investment management approach focusing on a security's
maturity. The manager sets, and continually adjusts, a
target for the interest rate sensitivity of the Fund based
upon expectations about interest rates and other economic
factors. The manager then selects individual securities
whose maturities fit this target and which are deemed to be
the best relative values.
The Fund may also invest in certain other equity and debt
securities in addition to those described above. For a more
complete description of the various securities in which the
Fund may invest, please see the Additional Investment
Strategies and Risks on pages 63-72 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 the equity portion of this Fund focuses --
value stocks -- will underperform other kinds of investments
or market averages.
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Generally, an increase in the average
maturity of the fixed income portion of the Fund will make
it more sensitive to interest rate risk.
</TABLE>
8
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
<TABLE>
<S> <C>
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 pages
63-72.
</TABLE>
9
<PAGE> 11
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
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 six
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the S&P 500(R) Index, a
widely recognized, unmanaged index
of common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1994 -1.61%
95 25.03%
96 11.84%
97 21.18%
98 14.70%
99 -1.52%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 10.95% 12/31/98
Worst
quarter: -6.08% 9/30/99
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 7/1/93
<S> <C> <C> <C>
TRUST SHARES
BALANCED FUND -1.52% 13.86% 10.82%
S&P 500(R) INDEX 21.03% 28.54% 22.46%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX 0.49% 6.93% 5.37%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
10
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.74%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.40%
Total Fund operating expenses(3) 1.14%
</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 0.60%. Total expenses after fee
waivers and expense reimbursements are
expected to be 1.00%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
BALANCED FUND 1 3 5 10
YEAR YEARS YEARS YEARS
TRUST SHARES $116 $362 $628 $1,386
</TABLE>
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.
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.
11
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity and
equity-related securities of large capitalization growth
companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common
stocks of large capitalization companies that the portfolio
manager believes have attractive potential for growth. Large
capitalization companies are those companies whose weighted
average capitalization is in excess of the market median
capitalization of the S&P 500(R) Index.
In managing the Fund's portfolio, the manager uses a variety
of economic projections, quantitative techniques, and
earnings projections in formulating individual stock
purchase and sale decisions. In choosing individual stocks,
the portfolio manager uses a quantitative process to
identify companies with a history of above average growth or
companies that are expected to enter periods of above
average growth. Some of the criteria that the manager uses
to select these companies are return on equity, price and
earnings momentum, earnings surprise, the company's
management and the company's position within its industry.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 63-72 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 pages
63-72.
</TABLE>
12
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks. Of course, past
performance does not indicate how
the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1998 25.18%
99 37.02%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 29.82% 12/31/99
Worst
quarter: -12.52% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR (10/3/97)
<S> <C> <C>
TRUST SHARES
LARGE COMPANY GROWTH FUND 37.02% 25.44%
S&P 500(R) INDEX 21.03% 23.27%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
13
<PAGE> 15
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.74%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.48%
Total Fund operating expenses(3) 1.22%
</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 0.60%. Total expenses after fee
waivers and expense reimbursements are
expected to be 1.08%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
LARGE COMPANY 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
TRUST SHARES $124 $387 $670 $1,477
</TABLE>
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.
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.
14
<PAGE> 16
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 pages 63-72 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 pages
63-72.
</TABLE>
15
<PAGE> 17
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
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
five years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Russell 2000(R)
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)
<TABLE>
<S> <C>
1995 45.99%
96 31.19%
97 4.96%
98 3.29%
99 72.65%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 47.97% 12/31/99
Worst
quarter: -20.24% 3/31/97
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 12/7/94
<S> <C> <C> <C>
TRUST SHARES
SMALL COMPANY GROWTH FUND 72.65% 29.09% 30.13%
RUSSELL 2000(R)INDEX 21.26% 16.69% 15.78%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
16
<PAGE> 18
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee 1.00%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.55%
Total Fund operating expenses(3) 1.55%
</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 were limited to 0.54%. Total
expenses after fee waivers and expense
reimbursements were 1.54%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SMALL COMPANY GROWTH FUND 1 3 5 10
YEAR YEARS YEARS YEARS
TRUST SHARES $158 $490 $845 $1,845
</TABLE>
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.
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.
17
<PAGE> 19
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation through
investment primarily in equity securities of foreign
issuers.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
non-dollar denominated stocks of foreign issuers located in
countries included in the Morgan Stanley Capital
International Europe, Australasia and the Far East ("EAFE")
Index. The Fund may also invest its assets in countries with
emerging economies or securities markets. The Fund primarily
buys common stock but also can invest in preferred stock and
securities convertible into common and preferred stock.
In managing the Fund's portfolio, the portfolio manager uses
a "value" style to select stocks which he believes are worth
more than is indicated by the current market price. The
manager screens for "value" stocks by using proprietary
computer models to find stocks that meet the value stock
criteria. A security's earnings trend and its price momentum
will also be factors considered in security selection. The
manager will also consider factors such as prospects for
relative economic growth among certain foreign countries,
expected levels of inflation, government policies
influencing business conditions and the outlook for currency
relationships. The manager and his team also examine each
company for financial soundness before deciding to purchase
its stock.
The Fund generally will sell a stock when it reaches a
target price, which is when the manager believes it is fully
valued or when, in the manager's opinion, conditions change
such that the risk of continuing to hold the stock is
unacceptable when compared to the growth potential.
In an attempt to reduce portfolio risk, the manager will
diversify investments across countries, industry groups and
companies with investment at all times in at least three
foreign countries.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 63-72 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 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 pages
63-72.
</TABLE>
18
<PAGE> 20
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Morgan Stanley Capital
International Europe, Australasia
and Far East ("EAFE") Index, a
widely recognized, unmanaged index
generally representative of the
performance of stock markets in
those regions. Of course, past
performance does not indicate how
the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1998 11.36%
99 38.33%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 24.79% 12/31/99
Worst
quarter: -15.89% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 1/2/97
<S> <C> <C>
TRUST SHARES
INTERNATIONAL EQUITY FUND 38.33% 18.16%
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX 26.96% 15.74%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
19
<PAGE> 21
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee 1.00%
Distribution and service (12b-1)
fee 0.00%
Other expenses 0.56%
Total Fund operating expenses 1.56%
</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.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND 1 3 5 10
YEAR YEARS YEARS YEARS
TRUST SHARES $159 $493 $850 $1,856
</TABLE>
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.
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.
20
<PAGE> 22
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INDEX FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide investment results that correspond
to the total return of the broad range of common stocks
represented in the S&P 500(R) Index.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests mainly in equity
securities, primarily common stocks, of companies that
compose the S&P 500(R). The S&P 500(R) Index is made up of
500 common stocks, most of which trade on the New York Stock
Exchange ("NYSE"). The S&P 500(R) is a widely recognized,
unmanaged index of common stock prices that generally
represents the performance of publicly traded common stocks
in the United States.
The Fund seeks to achieve a 95% or better correlation
between the performance of the Fund and that of the S&P
500(R) Index without taking into account the Fund's
expenses. The portfolio manager monitors correlation between
the performance of the Fund and that of the S&P 500(R) Index
on a monthly basis. The Fund may not always hold all of the
same securities as the S&P 500(R). In managing the Fund's
portfolio, the manager may choose, if circumstances warrant,
to exclude an index stock from the Fund and substitute a
similar stock if doing so will help the Fund achieve its
objective.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 63-72 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INDEX INVESTING: The Fund attempts to track the performance
of the S&P 500(R) Index. Therefore, securities may be
purchased, retained and sold by the Fund at times when an
actively managed fund would not do so. If the value of
securities that are heavily weighted in the index changes,
you can expect a greater risk of loss than would be the case
if the Fund were not fully invested in such securities.
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- stocks in the S&P
500(R) -- will underperform other kinds of investments or
market averages.
If the Fund invests in securities with additional risks, its
share price volatility accordingly could be greater and its
performance lower. For more information about these risks,
please see the Additional Investment Strategies and Risks on
pages 63-72.
</TABLE>
21
<PAGE> 23
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INDEX FUND
This section would normally include a bar chart and a table showing how the
Equity Index Fund has performed and how its performance has varied from year
to year. Because the Fund had not commenced operations prior to the date of
this Prospectus, the bar chart and table are not shown.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.25%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.36%
Total Fund operating expenses(3) 0.61%
</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. For the
current fiscal year, we expect management
fees paid by the Fund to be limited to 0.10%.
Additionally, we expect other expenses to be
limited to 0.31%. Accordingly, we expect
total expenses after fee waivers and expense
reimbursements to be 0.41%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
EQUITY INDEX FUND 1 3
YEAR YEARS
TRUST SHARES $ 62 $195
</TABLE>
As an investor in the Equity
Index 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.
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.
22
<PAGE> 24
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
BOND FUNDS
<TABLE>
<S> <C>
TAXABLE BOND FUNDS The Short-Intermediate U.S. Government Income Fund, the
Intermediate U.S. Government Bond Fund and the Intermediate
Corporate Bond Fund seek current income consistent with the
preservation of capital and invest primarily in fixed income
securities, such as U.S. government securities, or
corporate, bank and commercial obligations.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- looking to add a monthly income component to your
portfolio
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing emergency reserves
- uncomfortable with an investment that will fluctuate in
value
TAX-FREE BOND FUNDS The North Carolina Intermediate Tax-Free Fund, the South
Carolina Intermediate Tax-Free Fund and the Virginia
Intermediate Tax-Free Fund seek tax-exempt income and invest
primarily in municipal securities which are exempt from
federal and North Carolina, South Carolina or Virginia
income taxes, respectively.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- looking to add a monthly income component to your
portfolio
- seeking monthly federal and North Carolina, South Carolina
or Virginia tax-exempt dividends
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing through a tax-exempt retirement plan
- uncomfortable with an investment that will fluctuate in
value
- investing emergency reserves
</TABLE>
23
<PAGE> 25
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The dollar-weighted average portfolio
maturity of the Fund will be from two to five years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on allocation among
sectors, interest rate risk, credit risk, and individual
securities selection. The manager sets and continually
adjusts, a target for the interest rate sensitivity of the
Fund's holdings based upon expectations about interest rates
and other economic factors. The manager then selects
individual securities consistent with the target by looking
for the best relative values within particular sectors.
The Fund may also invest in certain other debt securities.
For a more complete description of the various securities in
which the Fund may invest, please see the Additional
Investment Strategies and Risks on 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.
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.
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.
</TABLE>
24
<PAGE> 26
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
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
seven years to demonstrate that
the Fund's value varied at
different times. The table below
it compares the Fund's performance
over time to that of the Merrill
Lynch 1-5 Year U.S. Government
Index, an unmanaged index
representative of the total return
of government bonds with
maturities between 1 and 5 years.
Of course, past performance does
not indicate 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)
<TABLE>
<S> <C>
1993 6.85%
94 -1.98%
95 12.59%
96 3.05%
97 6.37%
98 7.03%
99 1.42%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 4.21% 6/30/95
Worst
quarter: -1.82% 3/31/94
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 11/30/92
<S> <C> <C> <C>
TRUST SHARES
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND 1.42% 6.02% 5.07%
MERRILL LYNCH 1-5 YEAR U.S. GOVERNMENT INDEX(2) 2.11% 6.78% 5.80%
MERRILL LYNCH 1-3 YEAR U.S. GOVERNMENT INDEX(2) 3.12% 6.52% 5.56%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Merrill Lynch 1-3 Year U.S. Government Index is an unmanaged index
representative of the total return of government bonds with maturities between 1
and 3 years. The benchmark index for the Short-Intermediate U.S. Government
Income Fund has changed from the Merrill Lynch 1-3 Year U.S. Government Index to
the Merrill Lynch 1-5 Year U.S. Government Index in order to better represent
the investment policies for comparison purposes.
25
<PAGE> 27
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.32%
Total Fund operating expenses(3) 0.92%
</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, management
fees paid by the Fund were limited to 0.50%.
Additionally, other expenses were limited to
0.27%. Total expenses after fee waivers and
expense reimbursements were 0.77%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SHORT-INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT INCOME FUND YEAR YEARS YEARS YEARS
TRUST SHARES $ 94 $293 $509 $1,131
</TABLE>
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.
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.
26
<PAGE> 28
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The dollar-weighted average portfolio
maturity of the Fund will be from five to ten years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on allocation among
sectors, interest rate risk, credit risk, and individual
securities selection. The manager sets and continually
adjusts, a target for the interest rate sensitivity of the
Fund's holdings based upon expectations about interest rates
and other economic factors. The manager then selects
individual securities consistent with the target by looking
for the best relative values within particular sectors.
The Fund may also invest in certain other debt securities in
addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on 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.
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.
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.
</TABLE>
27
<PAGE> 29
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
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 seven
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Merrill Lynch 5-10
Year U.S. Government Index, an
unmanaged index generally
representative of the total return
of government bonds with
maturities between 5 and 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1993 10.17%
94 -4.00%
95 18.06%
96 1.70%
97 8.59%
98 9.58%
99 -2.28%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 6.47% 6/30/95
Worst
quarter: -3.18% 3/31/94
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10/9/92
<S> <C> <C> <C>
TRUST SHARES
INTERMEDIATE U.S. GOVERNMENT BOND FUND -2.28% 6.90% 5.56%
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX(2) -3.39% 7.81% 6.31%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(2) 0.49% 6.93% 5.57%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Lehman Brothers Intermediate Government Bonds Index is an unmanaged
index representative of the performance of U.S. Government bonds with maturities
of less than 10 years. The benchmark index for the Intermediate U.S. Government
Bond Fund has changed from the Lehman Brothers Intermediate Government Bond
Index to the Merrill Lynch 5-10 Year U.S. Government Index in order to better
represent the investment policies for comparison purposes.
28
<PAGE> 30
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.33%
Total Fund operating expenses(3) 0.93%
</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, management
fees paid by the Fund were limited to 0.50%.
Total expenses after fee waivers and expense
reimbursements were 0.83%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT YEAR YEARS YEARS YEARS
BOND FUND
TRUST SHARES $95 $296 $515 $1,143
</TABLE>
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.
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.
29
<PAGE> 31
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE CORPORATE BOND
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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
dollar-weighted average maturity of the Fund is expected to
be from three to ten years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on interest rate
risk, allocation among sectors, credit risk, and individual
securities selection. The manager sets and continually
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 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.
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 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.
</TABLE>
30
<PAGE> 32
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE CORPORATE BOND
FUND
This section would normally include a bar chart and a table showing how the
Intermediate Corporate Bond Fund has performed and how its performance has
varied from year to year. Because the Fund had not commenced operations prior
to the date of this prospectus, the bar chart and table are not shown.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.56%
Total Fund operating expenses(3) 1.16%
</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. For the
current fiscal year, we expect management
fees paid by the Fund to be limited to 0.50%.
Additionally, we expect other expenses to be
limited to 0.51%. Accordingly, we expect
total expenses after fee waivers and expense
reimbursements to be 1.01%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE CORPORATE 1 3
BOND FUND YEAR YEARS
TRUST SHARES $118 $368
</TABLE>
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.
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.
31
<PAGE> 33
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of current interest
income that is exempt from both federal income tax and North
Carolina personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of North Carolina and its political
subdivisions, that provide income exempt from both Federal
personal income tax and North Carolina personal income tax.
The Fund invests in North Carolina municipal securities only
if they are "high grade" (rated at the time of purchase in
one of the three highest rating categories by an NRSRO, or
are determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on 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 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 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.
</TABLE>
32
<PAGE> 34
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
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
seven years to demonstrate that
the Fund's value varied at
different times. The table below
it compares the Fund's performance
over time to that of the Lehman
Brothers 5-Year General
Obligations Index, an unmanaged
index generally representative of
the performance of tax-exempt
municipal securities with an
average maturity of five years. Of
course, past performance does not
indicate how the Fund will perform
in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1993 7.81%
94 -2.79%
95 10.54%
96 2.71%
97 6.52%
98 5.25%
99 -2.06%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 3.86% 3/31/95
Worst
quarter: -3.58% 3/31/94
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10/16/92
<S> <C> <C> <C>
TRUST SHARES
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND -2.06% 4.51% 3.77%
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX 1.51% 5.87% 5.38%
</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.
33
<PAGE> 35
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.38%
Total Fund operating expenses(3) 0.98%
</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, management
fees paid by the Fund were limited to 0.50%.
Additionally, other expenses were limited to
0.30%. Total expenses after fee waivers and
expense reimbursements were 0.80%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
NORTH CAROLINA 1 3 5 10
INTERMEDIATE TAX-FREE YEAR YEARS YEARS YEARS
FUND
TRUST SHARES $100 $312 $542 $1,201
</TABLE>
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.
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.
34
<PAGE> 36
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 To pursue this goal, the Fund invests primarily in municipal
INVESTMENT STRATEGIES securities of the State of South Carolina and its political
subdivisions, that provide income exempt from both Federal
personal income tax and South Carolina personal income tax.
The Fund invests in South Carolina municipal securities only
if they are "high grade" (rated at the time of purchase in
one of the three highest rating categories by an NRSRO, or
are determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on pages
63-72 or consult the SAI.
PRINCIPAL Your investment in the Fund may be subject to the following
INVESTMENT RISKS 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 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.
</TABLE>
35
<PAGE> 37
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
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 two
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Lehman Brothers
5-Year General Obligations Index,
an unmanaged index generally
representative of the performance
of tax-exempt municipal securities
with an average maturity of five
years. Of course, past performance
does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1998 5.46%
99 -2.62%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 3.16% 9/30/98
Worst
quarter: -2.40% 6/30/99
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 10/20/97
<S> <C> <C>
TRUST SHARES
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND -2.62% 2.52%
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX 1.51% 4.02%
</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.
36
<PAGE> 38
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.81%
Total Fund operating expenses(3) 1.41%
</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, management
fees paid by the Fund were limited to 0.30%.
Additionally, other expenses were limited to
0.52%. Total expenses after fee waivers and
expense reimbursements were 0.82%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SOUTH CAROLINA 1 3 5 10
INTERMEDIATE TAX-FREE YEAR YEARS YEARS YEARS
FUND
TRUST SHARES $144 $446 $771 $1,691
</TABLE>
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.
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.
37
<PAGE> 39
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of current interest
income that is exempt from both federal income tax and
Virginia personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the Commonwealth of Virginia and its political
subdivisions, that provide income exempt from both Federal
personal income tax and Virginia personal income tax. The
Fund invests in Virginia municipal securities only if they
are "high grade" (rated at the time of purchase in one of
the three highest rating categories by an NRSRO, or are
determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on 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 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.
</TABLE>
38
<PAGE> 40
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
This section would normally include a bar chart and a table showing
how the Virginia Intermediate Tax-Free Fund has performed and how its
performance has varied from year to year. Because the Fund has not
been in operation for a full calendar year, the bar chart and table
are not shown.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.60%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.39%
Total Fund operating expenses(3) 0.99%
</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 period beginning May 17, 1999 and
ending September 30, 1999, management fees
paid by the Fund were limited to 0.50%.
Additionally, other expenses were limited to
0.38%. Total expenses after fee waivers and
expense reimbursements were 0.88%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
VIRGINIA INTERMEDIATE 1 3
TAX-FREE FUND YEAR YEARS
TRUST SHARES $101 $315
</TABLE>
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.
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.
39
<PAGE> 41
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
MONEY MARKET FUNDS
<TABLE>
<S> <C>
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
</TABLE>
40
<PAGE> 42
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S.
dollar-denominated, "high-quality" short-term debt
securities, including the following:
- Obligations issued or supported by the credit of U.S. or
foreign banks or savings institutions with total assets in
excess of $1 billion (including obligations of foreign
branches of such banks);
- "High quality" commercial paper and other obligations
issued or guaranteed by U.S. and foreign corporations and
other issuers;
- Asset-backed securities;
- Securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or
instrumentalities and related custodial receipts;
- Securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or instrumentalities;
- Guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
- Securities issued or guaranteed by state or local
government bodies; and
- Repurchase agreements relating to the above instruments.
Additionally, the Fund concentrates its investments in
obligations issued by the financial services industry.
"High-quality" debt securities are those obligations which,
at the time of purchase, (i) possess the highest short-term
rating from at least two NRSROs (for example, commercial
paper rated "A-1" by Standard & Poor's Corporation and "P-1"
by Moody's Investors Service, Inc.); or (ii) are single
rated and have received the highest short-term rating by an
NRSRO; or (iii) if unrated, are determined by the portfolio
manager to be of comparable quality.
When selecting securities for the Fund's portfolio, the
manager first considers safety of principal and the quality
of an investment. The manager then focuses on generating a
high-level of income. The manager generally evaluates
investments based on interest rate sensitivity selecting
those securities whose maturities fit the Fund's interest
rate sensitivity target and which the manager believes to be
the best relative values.
The Fund will maintain an average weighted portfolio
maturity of 90 days or less and will limit the maturity of
each security in its portfolio to 397 days or less.
For a more complete description of the securities in which
the Fund may invest, please see the Additional Investment
Strategies and Risks on pages 63-72 or consult the SAI.
</TABLE>
41
<PAGE> 43
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
<TABLE>
<S> <C>
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 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 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.
</TABLE>
42
<PAGE> 44
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1998 5.14%
99 4.75%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.29% 9/30/98
Worst
quarter: 1.11% 6/30/99
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 10/1/97
<S> <C> <C>
TRUST SHARES
PRIME MONEY MARKET FUND 4.75% 4.98%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Trust Shares was 5.02%.
Without fee waivers and expense reimbursements, the Fund's yield would have been
4.77% 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.
43
<PAGE> 45
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.40%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.48%
Total Fund operating expenses(3) 0.88%
</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 0.30%. Additionally, other
expenses are expected to be limited to 0.45%.
Total expenses after fee waivers and expense
reimbursements are expected to be 0.75%. Any
fee waiver or expense reimbursement
arrangement is voluntary and may be
discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
PRIME MONEY 1 3 5 10
MARKET FUND YEAR YEARS YEARS YEARS
TRUST SHARES $90 $281 $488 $1,084
</TABLE>
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.
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.
44
<PAGE> 46
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 pages 63-72 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 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.
</TABLE>
45
<PAGE> 47
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
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 seven years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR TRUST SHARES(1)
<TABLE>
<S> <C>
1993 2.71%
94 3.49%
95 5.20%
96 4.65%
97 4.79%
98 4.85%
99 4.41%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.32% 6/30/95
Worst
quarter: 0.62% 3/31/94
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10/5/92
<S> <C> <C> <C>
TRUST SHARES
U.S. TREASURY MONEY MARKET FUND 4.41% 4.78% 4.25%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
As of December 31, 1999, the Fund's 7-day yield for Trust Shares and was 4.47%.
Without fee waivers and expense reimbursements, the Fund's yield would have been
4.37% 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.
46
<PAGE> 48
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.40%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.45%
Total Fund operating expenses(3) 0.85%
</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 0.30%. Additionally, other
expenses are expected to be limited to 0.45%.
Total expenses after fee waivers and expense
reimbursements are expected to be 0.75%. Any
fee waiver or expense reimbursement
arrangement is voluntary and may be
discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
U.S. TREASURY MONEY 1 3 5 10
MARKET FUND YEAR YEARS YEARS YEARS
TRUST SHARES $87 $271 $471 $1,049
</TABLE>
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.
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.
47
<PAGE> 49
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 To pursue this goal, the Fund invests in a broad range of
INVESTMENT STRATEGIES 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 Your investment in the Fund may be subject to the following
INVESTMENT RISKS 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 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.
</TABLE>
48
<PAGE> 50
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
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.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.40%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.45%
Total Fund operating expenses(3) 0.85%
</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. For the
current fiscal year, we expect management
fees paid by the Fund to be limited to 0.30%.
Additionally, we expect other expenses to be
limited to 0.45%. Accordingly, we expect
total expenses after fee waivers and expense
reimbursements to be 0.75%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
TAX-FREE MONEY 1 3
MARKET FUND YEAR YEARS
TRUST SHARES $87 $271
</TABLE>
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
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.
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
49
<PAGE> 51
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
FUNDS OF FUNDS
<TABLE>
<S> <C>
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
</TABLE>
50
<PAGE> 52
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Large Company Growth Fund 0%-55%
Equity Index Fund 0%-55%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-75%
Intermediate U.S. Government Bond Fund 0%-75%
Intermediate Corporate Bond Fund 0%-75%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-20%
Prime Money Market Fund 0%-20%
</TABLE>
<TABLE>
<S> <C>
The Underlying Funds are described 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:
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.
</TABLE>
51
<PAGE> 53
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
<TABLE>
<S> <C>
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 pages
63-72.
</TABLE>
52
<PAGE> 54
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
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 two
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the S&P 500(R) Index, a
widely recognized, unmanaged index
of common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 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)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1998 11.07%
99 6.28%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 7.76% 12/31/98
Worst
quarter: -2.22% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR (10/2/97)
<S> <C> <C>
TRUST SHARES
CAPITAL MANAGER CONSERVATIVE GROWTH FUND 6.28% 8.07%
S&P 500(R) INDEX 21.03% 23.27%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 4.93%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
53
<PAGE> 55
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.25%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.33%
Total Fund operating expenses(3,4) 0.58%
</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, management
fees paid by the Fund were limited to 0.05%.
Total expenses after fee waivers and expense
reimbursements were 0.38%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
(4) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio is
1.63% before fee waivers and expense
reimbursement arrangements and 1.31% after
fee waivers and expense reimbursement
arrangements.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL MANAGEMENT 1 3 5 10
CONSERVATIVE GROWTH FUND YEAR YEARS YEARS YEARS
TRUST SHARES $59 $186 $324 $726
</TABLE>
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.
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.
54
<PAGE> 56
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
--------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Large Company Growth Fund 0%-75%
Equity Index Fund 0%-75%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-55%
Intermediate U.S. Government Bond Fund 0%-55%
Intermediate Corporate Bond Fund 0%-55%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-15%
Prime Money Market Fund 0%-15%
</TABLE>
<TABLE>
<S> <C>
The Underlying Funds are described 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
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 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.
</TABLE>
55
<PAGE> 57
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
<TABLE>
<S> <C>
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 pages
63-72.
</TABLE>
56
<PAGE> 58
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
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 two years
to demonstrate that the Fund's
value varied at different times.
The table below it compares the
Fund's performance over time to
that of the S&P 500(R) Index, a
widely recognized, unmanaged index
of common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 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)
<TABLE>
<S> <C>
1998 12.48%
99 10.61%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 11.74% 12/31/98
Worst
quarter: -5.47% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 10/2/97
<S> <C> <C>
TRUST SHARES
CAPITAL MANAGER MODERATE GROWTH FUND 10.61% 10.22%
S&P 500(R) INDEX 21.03% 23.27%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 4.93%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
57
<PAGE> 59
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.25%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.38%
Total Fund operating expenses(3,4) 0.63%
</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, management
fees paid by the Fund were limited to 0.05%.
Total expenses after fee waivers and expense
reimbursements were 0.43%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
(4) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio is
1.72% before fee waivers and expense
reimbursement arrangements and 1.40% after
fee waivers and expense reimbursement
arrangements.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL MANAGER 1 3 5 10
MODERATE GROWTH FUND YEAR YEARS YEARS YEARS
TRUST SHARES $64 $202 $351 $786
</TABLE>
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.
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.
58
<PAGE> 60
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
--------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Equity Index Fund 0%-90%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-40%
Intermediate U.S. Government Bond Fund 0%-40%
Intermediate Corporate Bond Fund 0%-40%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-10%
Prime Money Market Fund 0%-10%
</TABLE>
<TABLE>
<S> <C>
The Underlying Funds are described 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
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 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.
</TABLE>
59
<PAGE> 61
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
<TABLE>
<S> <C>
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 pages
63-72.
</TABLE>
60
<PAGE> 62
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 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)
<TABLE>
<S> <C>
1998 13.43%
99 14.14%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 14.77% 12/31/98
Worst
quarter: -7.87% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 10/2/97
<S> <C> <C>
TRUST SHARES
CAPITAL MANAGER GROWTH FUND 14.14% 11.90%
S&P 500(R) INDEX 21.03% 23.27%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 4.93%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
61
<PAGE> 63
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee(3) 0.25%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.41%
Total Fund operating expenses(3,4) 0.66%
</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, management
fees paid by the Fund were limited to 0.05%.
Total expenses after fee waivers and expense
reimbursements were 0.46%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
(4) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio is
1.78% before fees waivers and expense
reimbursement arrangements and 1.46% after
fee waivers and expense reimbursement
arrangements.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL MANAGER 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
TRUST SHARES $67 $211 $368 $822
</TABLE>
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.
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.
62
<PAGE> 64
[LOGO]
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
GROWTH AND INCOME STOCK FUND -- Under normal market conditions, the Fund will
invest at least 65% of its total assets in stocks, which may include common
stock, preferred stock, warrants, or debt instruments that are convertible to
common stock. Equity securities purchased by the Growth and Income Stock Fund
will be either traded on a domestic securities exchange or quoted in the
NASDAQ/NYSE system.
BALANCED FUND -- The Fund will normally invest in equity securities
consisting of common stocks but may also invest in other equity-type
securities such as warrants, preferred stocks and convertible securities.
As a fundamental policy, the Fund will invest at least 25% of its total
assets in fixed-income senior securities. Fixed-income securities include
debt securities, preferred stock and that portion of the value of securities
convertible into common stock, including convertible preferred stock and
convertible debt, which is attributable to the fixed-income characteristics
of those securities. The Fund may also invest in collateralized mortgage
obligations ("CMOs").
The Fund may only invest in bonds, notes and debentures that are investment
grade, which are those securities rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO") at the time of purchase, or if not rated, found by the 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 weighted
average capitalization is in excess of the market median capitalization of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500(R)
Index").(1)
SMALL COMPANY GROWTH FUND -- At least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $2 billion at
the time of purchase.
INTERNATIONAL EQUITY FUND -- The Fund normally invests at least 65% of its
total assets in the equity securities of foreign issuers and normally invests
at least 80% of its total assets in equity securities. The Fund invests
primarily in equity securities of issuers located in countries included in
the Morgan Stanley Capital International Europe, Australasia and the Far East
("EAFE") Index. The EAFE Index is an index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin
countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom are currently
included in the EAFE Index.
From time to time the Fund may invest more than 25% of its total assets in
the securities of issuers located in countries such as France, Germany,
Japan, and the United Kingdom.
The Fund may invest in both sponsored and unsponsored ADRs, European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other
similar global instruments.
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.
63
<PAGE> 65
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
EQUITY INDEX FUND(1) -- The Fund normally invests at least 80% of its assets
in equity securities of companies that compose the S&P 500(R). The Fund seeks
to achieve a 95% or better correlation between its total return and the total
return (before expenses) of the S&P 500(R). The Adviser monitors correlation
between the performance of the Fund and that of the S&P 500(R) on a monthly
basis. Correlation is measured by comparing the Fund's monthly returns to
those of the S&P 500(R) over the recent 36-month period. In the unlikely
event that the Fund cannot achieve a correlation of 95% or better, the
trustees will consider alternative arrangements. The Fund may not track the
S&P 500(R) perfectly. Differences between the S&P 500(R) and the Fund's
portfolio may cause differences in performance. Even if the Fund's
investments match the S&P 500(R) exactly, its returns could differ on a
day-to-day basis because of differences in how the Fund and the S&P 500(R)
are valued. Standard & Poor's is neither an affiliate nor a sponsor of the
Fund, and inclusion of a stock in the index does not imply that it is a good
investment.
ALL STOCK FUNDS (EXCEPT THE INTERNATIONAL EQUITY FUND): FOREIGN
SECURITIES -- Each Fund may invest in foreign securities through the purchase
of ADRs or the purchase of securities on the New York Stock Exchange.
However, a Fund will not do so if immediately after a purchase and as a
result of the purchase the total value of foreign securities owned by the
Fund would exceed 25% of the value of its total assets.
BOND FUNDS
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND -- At least 65% of the Fund's
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 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both
------------------
1 The "S&P 500(R)" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Fund.
64
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
from federal income tax and North Carolina personal income tax and not
treated as a preference item for purposes of the federal alternative minimum
tax for individuals ("North Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to
over 10% of its total assets.
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND -- Under normal market conditions,
the Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax
and South Carolina personal income tax and not treated as a preference item
for purposes of the federal alternative minimum tax for individuals ("South
Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than South Carolina tax-exempt obligations to
over 10% of its total assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND -- Under normal market conditions, the
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the 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.
ALL TAX-FREE BOND FUNDS -- Each Fund will invest in Tax-Exempt Obligations
which are rated at the time of purchase in one of the three highest
categories by an NRSRO in the case of bonds; one of the two highest
categories by an NRSRO in the case of notes; rated "SP-1" or higher by S&P or
"MIG-2" or higher by Moody's or rated at a comparable level of quality by
another NRSRO in the case of tax-exempt commercial paper; or rated "VMIG-1"
or higher by Moody's or rated at a comparable level of quality by another
NRSRO in the case of variable rate demand obligations or, if unrated,
determined to be of comparable quality.
Each Fund may invest up to 10% of its total assets in taxable obligations or
debt securities, the interest income from which may be subject to the federal
alternative minimum tax for individual shareholders.
ALL BOND FUNDS: PORTFOLIO MATURITY -- Certain debt securities such as, but
not limited to, mortgage backed securities, CMOs and asset-backed securities,
as well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity
dates. As a result, the effective maturity of these securities is expected to
be shorter than the stated maturity. For purposes of calculating a Fund's
weighted average portfolio maturity, the effective maturity of these
securities will be used.
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND -- Under normal market conditions, at least 25% of
the Fund's total assets will be invested in obligations of issuers in the
financial services industry and repurchase agreements relating to such
obligations. However, for temporary defensive purposes during periods when
the Adviser or Sub-Adviser believes that maintaining this concentration may
be inconsistent with the best interests of Shareholders, the Fund will not
maintain this concentration. Money market instruments of companies in the
financial services industry include, but are not limited to, certificates of
deposit, commercial paper, bankers' acceptances, demand and time deposits,
and bank notes. These money market obligations are issued by domestic or
foreign banks, savings and loan associations, consumer and industrial finance
companies, securities brokerage companies and a variety of firms in the
insurance field. Financial service companies offering money market issues
must have total assets of $1 billion or more before their issues can be
considered for investment. The Fund will not purchase securities issued by
PNC Bank or BB&T or any of their affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
65
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
TAX-FREE MONEY MARKET FUND -- As a fundamental policy, except during periods
of unusual market conditions or during temporary defensive periods, the Fund
will invest substantially all, but in no event less than 80%, of its total
assets in Municipal Securities with remaining maturities of 397 days
(thirteen months) or less as determined in accordance with the rules of the
SEC.
The Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of the Adviser, suitable
tax-exempt obligations are unavailable. There is no percentage limitation on
the amount of assets which may be held uninvested. Uninvested cash reserves
will not earn income. The securities purchased by the Fund are also subject
to the quality, diversification, and other requirements of Rule 2a-7 under
the Investment Company Act of 1940, as amended, and other rules of the SEC.
Pursuant to Rule 2a-7, the Fund generally will limit its purchase of any one
issuer's securities (other than U.S. Government securities, repurchase
agreements collateralized by such securities and securities subject to
certain guarantees or otherwise providing the right to demand payment) to 5%
of the Fund's total assets, except that up to 25% of its total assets may be
invested in the first-tier securities (securities that possess at least one
rating in the highest category by an NRSRO or, if unrated, determined by the
Adviser to be of comparable quality) of one issuer for a period of up to
three business days; provided that the Fund may not invest more than 25% of
its total assets in the securities of more than one issuer in accordance with
the foregoing at any one time.
The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of
such securities) will be Eligible Securities. Applicable Eligible Securities
are:
- Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
- securities that are issued or guaranteed by a person with such ratings;
- securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
- 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 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 the securities and techniques the Funds use, as well as the
main risks they pose. Equity securities are subject mainly to market risk.
Fixed income securities are primarily influenced by market, credit and
prepayment risks, although certain securities may be subject to additional
risks.
66
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ADDITIONAL INVESTMENT STRATEGIES AND 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>
Growth and Income Stock Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
Equity Index Fund 6
Short Intermediate U.S. Government Income Fund 7
Intermediate U.S. Government Bond Fund 8
Intermediate Corporate Bond Fund 9
North Carolina Intermediate Tax-Free Fund 10
South Carolina Intermediate Tax-Free Fund 11
Virginia Intermediate Tax-Free Fund 12
Prime Money Market Fund 13
U.S. Treasury Money Market Fund 14
Tax-Free Money Market Fund 15
Capital Manager Conservative Growth Fund 16
Capital Manager Moderate Growth Fund 17
Capital Manager Growth Fund 18
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign shares 1-6 Market
of a company held by a U.S. bank that issues a receipt Political
evidencing ownership. Foreign Investment
ASSET-BACKED SECURITIES: Securities secured by company 2, 7-9, 13 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets. Interest Rate
Income
Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 2, 13 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
Interest Rate
Income
BONDS: Interest-bearing or discounted government or 2, 7-9, 13 Market
corporate securities that obligate the issuer to pay the Credit
bondholder a specified sum of money, usually at specific Interest Rate
intervals, and to repay the principal amount of the loan at Income
maturity.
CALL AND PUT OPTIONS: A call option gives the buyer the 1-6 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 2, 13 Market
stated maturity. Credit
Liquidity
Interest Rate
Income
COMMERCIAL PAPER: Secured and unsecured short-term 1-3, 13, 15-18 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
Interest Rate
Income
COMMON STOCK: Shares of ownership of a company. 1-6 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-6, 9 Market
convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived from an 1-12, 15-18 Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some mortgage- Liquidity
backed securities. Leverage
Interest Rate
Income
FOREIGN SECURITIES: Stocks issued by foreign companies, as 1-6, 9, 13 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Foreign Investment
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to 5 Management
purchase or sell a specific amount of a currency at a fixed Liquidity
future date and price set by the parties involved at the Credit
time the contract is negotiated. Market
Political
Leverage
Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing for the 1-6, 16-18 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
HIGH-YIELD/HIGH-RISK/DEBT SECURITIES: 9 Credit
High-yield/high-risk/debt securities are securities that are Market
rated below investment grade by the primary rating agencies Liquidity
(e.g., BB or lower by Standard & Poor's and Ba or lower by
Moody's). These securities are considered speculative and
involve greater risk of loss than investment grade debt
securities. Other terms commonly used to describe such
securities include "lower rated bonds," "non-investment
grade bonds" and "junk bonds."
INDEX-BASED SECURITIES: Index-based securities such as 1-6 Market
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.
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES: Shares of investment 1-13, 15-18 Market
companies. A Fund (except the Funds of Funds) may invest up
to 5% of its assets in the shares of any one registered
investment company, but may not own more than 3% of the
securities of any one registered investment company or
invest more than 10% of its assets in the securities of
other registered investment companies. These registered
investment companies may include money market funds of BB&T
Funds and shares of other registered investment companies
for which the Adviser to a Fund or any of their affiliates
serves as investment adviser, administrator or distributor.
The Money Market Funds may only invest in shares of other
investment companies with similar objectives.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 7-9, 13 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations and real estate mortgage Credit
investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state or 10-12, 15 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include industrial Political
development bonds and other private activity bonds, as well Tax
as general obligation bonds, revenue bonds, tax anticipation Regulatory
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 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.
PREFERRED STOCKS: Preferred Stocks are equity securities 1-6 Market
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 and the 1-18 Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
RESTRICTED SECURITIES: Securities not registered under the 2, 7-9, 13 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 4, 5, 16-18 Market
simultaneous commitment to buy the security back at an Leverage
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 the 1-18 Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
SHORT-TERM OBLIGATIONS: High quality U.S. dollar-denominated 1-12, 16-18 Market
debt securities that have remaining maturities of one year Credit
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.
STAND-BY COMMITMENTS: The Fund may acquire "stand-by 15 Income
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 bank in 13-15, 17 Liquidity
exchange for the deposit of funds. Credit
Market
Income
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-13, 16-18 Interest Rate
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1-14, 16-18 Interest Rate
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured demand notes 2 Credit
that permit the indebtedness to vary and provide for Liquidity
periodic adjustments in the interest rate according to the Interest Rate
terms of the instrument. Because master demand notes are Income
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 with 10-13, 15 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WARRANTS: Securities, typically issued with preferred stock 1-6 Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 2, 3, 10-13, 15 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Under normal market conditions, Liquidity
when-issued purchases and forward commitments will not Credit
exceed 25% of the value of a Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar 9 Market
denominated bonds issued by foreign corporations or Credit
governments. Sovereign bonds are those issued by the Interest Rate
government of a foreign country. Supranational bonds are Income
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 that pay 2, 8-12 Credit
no interest, but are issued at a discount from their value Market
at maturity. When held to maturity, their entire return Interest Rate
equals the difference between their issue price and their Income
maturity value.
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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 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.
71
<PAGE> 73
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than
it was worth at an earlier time. Market risk may affect a single issuer,
industrial sector of the economy or the market as a whole. There is also the
risk that the current interest rate may not accurately reflect existing
market rates. For fixed income securities, market risk is largely, but not
exclusively, influenced by changes in interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Finally, key information about a security or market
may be inaccurate or unavailable. This is particularly relevant to
investments in foreign securities.
POLITICAL RISK. The risk of losses attributable to unfavorable governmental
or political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security
will occur at an unexpected time. Prepayment risk is the chance that the
repayment of a mortgage will occur sooner than expected. Call risk is the
possibility that, during times of declining interest rates, a bond issuer
will "call" -- or repay -higher yielding bonds before their stated maturity.
Changes in pre-payment rates can result in greater price and yield
volatility. Pre-payments and calls generally accelerate when interest rates
decline. When mortgage and other obligations are pre-paid or called, a Fund
may have to reinvest in securities with a lower yield. In this event, the
Fund would experience a decline in income -- and the potential for taxable
capital gains. Further, with early prepayment, a Fund may fail to recover any
premium paid, resulting in an unexpected capital loss. Prepayment/call risk
is generally low for securities with a short-term maturity, moderate for
securities with an intermediate-term maturity, and high for securities with a
long-term maturity.
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans.
These laws include restrictions on foreclosures, redemption rights after
foreclosure, Federal and state bankruptcy and debtor relief laws,
restrictions on "due on sale" clauses, and state usury laws.
SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky
than stocks of larger companies and may be more vulnerable than larger
companies to adverse business or economic developments. Many of these
companies are young and have a limited track record. Small cap companies may
also have limited product lines, markets, or financial resources. Securities
of such companies may be less liquid and more volatile than securities of
larger companies or the market averages in general and, therefore, may
involve greater risk than investing in larger companies. In addition, small
cap companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate
growth prospects. If a Fund concentrates on small-capitalization companies,
its performance may be more volatile than that of a fund that invests
primarily in larger companies.
TAX RISK. The risk that the issuer of the securities will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse
tax consequences.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the BB&T Funds therefore could
be adversely affected if the computer systems used by its service providers
do not properly process dates on and after January 1, 2000, because they
cannot distinguish between the year 2000 and the year 1900. Although the
critical January 1(st) date has passed largely without incident, year 2000
date-related computer problems can still occur throughout the coming year. We
are seeking assurances from each of our service providers that they expect
their systems to accommodate the year 2000 transition without significant
adverse consequences to BB&T Funds. If these assurances prove to be
incorrect, BB&T shareholders may lose money as a result of system failures or
year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
72
<PAGE> 74
[LOGO]
FUND MANAGEMENT
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for
the Funds. BB&T is the oldest bank in North Carolina and is the principal
bank affiliate of BB&T Corporation, a bank holding company that is a North
Carolina corporation, headquartered in Winston-Salem, North Carolina. As of
December 31, 1999, BB&T Corporation had assets of approximately $43.5
billion. Through its subsidiaries, BB&T Corporation operates over 655 banking
offices in Maryland, North Carolina, South Carolina, Virginia and Washington,
D.C., providing a broad range of financial services to individuals and
businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Funds, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the BB&T Funds. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds
for its fiduciary accounts for more than 17 years and currently manages
assets of more than $4.4 billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal
year ended:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 09/30/99
<S> <C>
------------------------------
Growth and Income Stock Fund 0.50%
------------------------------
Balanced Fund 0.50%
------------------------------
Large Company Growth Fund 0.50%
------------------------------
Small Company Growth Fund 1.00%
------------------------------
International Equity Fund 1.00%
------------------------------
Short-Intermediate U.S. Government Income
Fund 0.50%
------------------------------
Intermediate U.S. Government Bond Fund 0.50%
------------------------------
North Carolina Intermediate Tax-Free Fund 0.50%
------------------------------
South Carolina Intermediate Tax-Free Fund 0.30%
------------------------------
Virginia Intermediate Tax-Free Fund 0.50%
------------------------------
Prime Money Market Fund 0.20%
------------------------------
U.S. Treasury Money Market Fund 0.30%
------------------------------
Capital Manager Conservative Growth Fund 0.05%
------------------------------
Capital Manager Moderate Growth Fund 0.05%
------------------------------
Capital Manager Growth Fund 0.05%
-------------------------------------------------------------------------
</TABLE>
During the first half of 2000, BB&T intends to reorganize its investment
advisory division as a separate, wholly owned subsidiary of BB&T to be called
BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
are currently providing 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 will be wholly owned and otherwise fully controlled by
BB&T. As a result, this transaction will not be 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 will not be
required.
73
<PAGE> 75
FUND MANAGEMENT
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 AND TAX-FREE MONEY MARKET FUND. BlackRock
Institutional Management Corporation ("BIMC") (formerly PNC Institutional
Management Corporation) serves as the Sub-Adviser to the Prime Money Market
Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund, selects
its investments and places all orders for purchases and sales of each Fund's
securities, subject to the general supervision of the BB&T Funds' Board of
Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's respective investment objective, policies
and restrictions. BIMC'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, 1999, BAI and its subsidiaries had
approximately $164.5 billion in discretionary assets under management. BAI is
an indirect majority-owned subsidiary of PNC Bank Corp., a diversified
financial services company.
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.
INTERNATIONAL EQUITY FUND. Peter J. Tait has been the portfolio manager for
the International Equity Fund since February 2000. Mr. Tait has been Managing
Director and Global Strategist of BlackRock International since 1996. His
previous position was Director and Head of the Contintental European Desk at
Dunedin Fund Managers Ltd. from 1990 to 1996.
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, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as each Fund's administrator. The administrative services
of the Administrator include providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The
Distributor may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
The SAI has more detailed information about the Investment Adviser and other
service providers.
74
<PAGE> 76
[LOGO]
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 and Class B Shares, each of which has its
own expense structure. Class A Shares and Class B Shares are available to
investors who are not fiduciary clients of Branch Banking and Trust Company
and who are not otherwise eligible for Trust Shares. Distributor for more
information (see back cover of this prospectus).
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.
75
<PAGE> 77
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 other than the
Money Market Funds, you can
find the Fund's NAV daily in
The Wall Street Journal and
other newspapers. NAV is
calculated separately for each
class of shares.
------------------------------
MONEY MARKET FUNDS
Per share net asset value ("NAV") for
each Fund is determined and its shares
are priced twice a day. The NAV for the
Prime Money Market Fund, the U.S.
Treasury Money Market Fund and the
Tax-Free Money Market Fund is determined
at 12:00 p.m. Eastern time and at the
close of regular trading on the New York
Stock Exchange, normally at 4:00 p.m.
Eastern time on days the Exchange is
open.
Your order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is received.
This is what is known as the offering
price.
Each Fund uses the amortized cost method
of valuing its investments, which does
not take into account unrealized gains or
losses. For further information regarding
the methods used in valuing the Fund's
investments, please see the SAI.
OTHER FUNDS
Per share 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 (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.
76
<PAGE> 78
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.
Income dividends for the Money Market
Funds and the Bond Funds are declared
daily and paid monthly. Income
dividends for the Growth and Income
Stock Fund and the Balanced Fund are
declared and paid monthly. The Large
Company Growth, the Small Company
Growth, the International Equity, the
Equity Index Fund, and the Fund of
Funds declare and pay income dividends
quarterly. Capital gains are
distributed at least annually.
Distributions are made on a per share
basis regardless of how long you've
owned your shares. Therefore, if you
invest shortly before the distribution
date, some of your investment will be
returned to you in the form of a
distribution.
--------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided
the Fund with their certified taxpayer identification number in compliance
with IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
--------------------------------------------------------------------------
77
<PAGE> 79
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.
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.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below.)
BY MAIL
1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds, P.O. Box 182533, Columbus, OH 43218-2533.
BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS
IN WRITING REQUIRED" BELOW.)
1. See instruction 1 above.
2. Send to: BB&T Funds, c/o BISYS Fund Services, Attn: T.A. Operations,
3435 Stelzer Road, Columbus, OH 43219.
78
<PAGE> 80
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must indicate this option on your application.
The Fund will charge a $7 wire transfer fee for each wire transfer request.
Note: Your financial institution may also charge a separate fee.
Call 1-800-228-1872 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Your bank may charge for this service.
Call 1-800-288-1872 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
79
<PAGE> 81
SHAREHOLDER INFORMATION
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.
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.
80
<PAGE> 82
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. 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 and Class B 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, 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.
81
<PAGE> 83
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Please consult your tax adviser regarding your specific questions about
federal, state and local income taxes. Below we have summarized some
important tax issues that affect the Funds and their shareholders. This
summary is based on current tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or
gains earned by the Fund before your investment (and thus were included in
the price you paid).
For the Tax-Free Bond Funds and Tax-Free Money Market Fund, the income
dividends that you receive are expected to be exempt from federal income
taxes and, in the case of the North Carolina Intermediate Tax-Free Fund,
South Carolina Intermediate Tax-Free Fund and Virginia Intermediate Tax-Free
Fund, North Carolina, South Carolina and Virginia income taxes, respectively.
However, if you receive social security or railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any, an
investment in the Tax-Free Bond Funds or Tax-Free Money Market Fund may have
on the federal taxation of your benefits. In addition, an investment in the
Tax-Free Bond Funds or Tax-Free Money Market Fund may result in liability for
federal alternative minimum tax, both for individual and corporate
shareholders.
A Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, a Fund's yield on those securities would be
decreased. 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.
82
<PAGE> 84
[LOGO]
OTHER INFORMATION ABOUT THE FUNDS
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 Equity Index Fund, Intermediate Corporate Bond
Fund and Tax-Free Money Market Fund are not presented because they had not
commenced operations as September 30, 1999.
83
<PAGE> 85
OTHER INFORMATION ABOUT THE FUNDS GROWTH AND INCOME STOCK FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.52 $ 20.02 $ 15.34 $ 12.99 $ 11.28
-----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.30 0.28 0.30 0.29 0.28
Net realized and unrealized gain (loss) on investments 1.93 (0.17) 5.31 2.44 1.98
-----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.23 0.11 5.61 2.73 2.26
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.30) (0.28) (0.30) (0.29) (0.28)
Net realized gains (0.81) (1.33) (0.63) (0.09) (0.12)
In excess of net realized gains -- -- -- -- (0.15)
-----------------------------------------------------------------------------------------------------------------
Total Distributions (1.11) (1.61) (0.93) (0.38) (0.55)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.64 $ 18.52 $ 20.02 $ 15.34 $ 12.99
-----------------------------------------------------------------------------------------------------------------
Total Return 11.89% 0.35% 38.13% 21.31% 20.88%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $379,321 $348,613 $308,984 $206,659 $145,603
Ratio of expenses to average net assets 0.84% 0.85% 0.84% 0.86% 0.82%
Ratio of net investment income to average net assets 1.47% 1.43% 1.77% 2.07% 2.40%
Ratio of expenses to average net assets* 1.09% 1.09% 1.08% 1.10% 1.10%
Ratio of net investment income to average net assets* 1.23% 1.19% 1.53% 1.83% 2.11%
Portfolio turnover(a) 13.52% 13.17% 22.66% 19.82% 8.73%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
84
<PAGE> 86
OTHER INFORMATION ABOUT THE FUNDS BALANCED FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.79 $ 13.60 $ 11.93 $ 11.01 $ 9.74
--------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.39 0.42 0.49 0.46 0.46
Net realized and unrealized gain (loss) on investments 0.74 0.54 2.04 0.92 1.27
--------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.13 0.96 2.53 1.38 1.73
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.39) (0.42) (0.49) (0.46) (0.46)
Net realized gains (0.73) (0.35) (0.37) -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions (1.12) (0.77) (0.86) (0.46) (0.46)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.80 $ 13.79 $ 13.60 $ 11.93 $ 11.01
--------------------------------------------------------------------------------------------------------------
Total Return 8.01% 7.18% 22.11% 12.74% 18.23%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $120,278 $108,943 $88,524 $69,374 $49,794
Ratio of expenses to average net assets 0.90% 0.92% 0.93% 0.95% 0.92%
Ratio of net investment income to average net assets 2.69% 3.00% 3.88% 4.03% 4.51%
Ratio of expenses to average net assets* 1.14% 1.16% 1.17% 1.19% 1.21%
Ratio of net investment income to average net assets* 2.45% 2.76% 3.64% 3.79% 4.22%
Portfolio turnover(a) 35.98% 31.85% 27.07% 19.87% 23.68%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
85
<PAGE> 87
OTHER INFORMATION ABOUT THE FUNDS LARGE COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 3,
YEAR ENDED 1997 TO
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 (a)
--------------------- -----------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 10.00
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income (loss) (0.01) 0.04
Net realized and unrealized gain (loss) on investments 2.93 (0.27)
-------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.92 (0.23)
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income -- (0.04)
Net realized gains (0.56) (0.10)
-------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.14)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.99 $ 9.63
-------------------------------------------------------------------------------------------------------------
Total Return 31.15% (2.33)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $90,635 $50,975
Ratio of expenses to average net assets 0.98% 1.06%(c)
Ratio of net investment income (loss) to average net
assets (0.08)% 0.41%(c)
Ratio of expenses to average net assets* 1.22% 1.30%(c)
Ratio of net investment income (loss) to average net
assets* (0.32)% 0.17%(c)
Portfolio turnover(d) 67.59% 108.36%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions or had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
86
<PAGE> 88
OTHER INFORMATION ABOUT THE FUNDS SMALL COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
DECEMBER 7,
FOR THE YEAR ENDED SEPTEMBER 30, 1994 TO
-------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 (a)
-------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.69 $ 23.52 $ 21.18 $ 14.57 $ 10.00
---------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment loss (0.22) (0.20) (0.11) (0.17) (0.07)
Net realized and unrealized gain (loss) on investments 7.78 (5.32) 2.47 6.78 4.64
---------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 7.56 (5.52) 2.36 6.61 4.57
---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
In excess of net realized gains -- (0.31) (0.02) -- --
---------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.31) (0.02) -- --
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 25.25 $ 17.69 $ 23.52 $ 21.18 $ 14.57
---------------------------------------------------------------------------------------------------------------------
Total Return 42.66% (23.62)% 11.17% 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $105,725 $65,180 $58,660 $36,373 $16,962
Ratio of expenses to average net assets 1.54% 1.61% 1.64% 1.79% 2.33%(c)
Ratio of net investment loss to average net assets (0.98)% (1.11)% (1.04)% (1.00)% (1.34)%(c)
Ratio of expenses to average net assets* 1.55% 1.61% 1.64% 1.79% 2.24%(c)
Ratio of net investment loss to average net assets* (0.98)% (1.11)% (1.04)% (1.00)% (1.43)%(c)
Portfolio turnover(d) 184.39% 157.44% 80.66% 71.62% 46.97%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
87
<PAGE> 89
OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED JANUARY 2,
SEPTEMBER 30, 1997 TO
----------------- SEPTEMBER 30,
1999 1998 1997 (a)
------- ------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 11.28 $ 10.00
-------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.02 0.06 0.03
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 2.80 (1.10) 1.30
-------------------------------------------------------------------------------------------------
Total from Investment Activities 2.82 (1.04) 1.33
-------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.04) (0.06) (0.02)
Net realized gains (0.17) (0.23) --
In excess of net investment income -- -- (0.03)
-------------------------------------------------------------------------------------------------
Total Distributions (0.21) (0.29) (0.05)
-------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.56 $ 9.95 $ 11.28
-------------------------------------------------------------------------------------------------
Total Return 28.70% (9.45)% 13.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $97,447 $70,356 $52,373
Ratio of expenses to average net assets 1.56% 1.50% 1.79%(c)
Ratio of net investment income to average net assets 0.18% 0.50% 0.32%(c)
Ratio of expenses to average net assets* 1.56% 1.51% 1.81%(c)
Ratio of net investment income to average net assets* 0.18% 0.49% 0.30%(c)
Portfolio turnover(d) 82.00% 53.27% 41.45%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
88
<PAGE> 90
SHORT-INTERMEDIATE
OTHER INFORMATION ABOUT THE FUNDS U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 9.77 $ 9.74 $ 9.89 $ 9.61
---------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.53 0.53 0.57 0.57 0.56
Net realized and unrealized gain (loss) on investments (0.42) 0.30 0.03 (0.15) 0.28
---------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.11 0.83 0.60 0.42 0.84
---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.53) (0.53) (0.57) (0.57) (0.56)
---------------------------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.53) (0.57) (0.57) (0.56)
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.65 $ 10.07 $ 9.77 $ 9.74 $ 9.89
---------------------------------------------------------------------------------------------------------------
Total Return 1.10% 8.77% 6.33% 4.36% 9.01%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $167,285 $157,329 $103,523 $62,621 $45,005
Ratio of expenses to average net assets 0.77% 0.81% 0.86% 0.93% 0.93%
Ratio of net investment income to average net assets 5.29% 5.40% 5.85% 5.81% 5.78%
Ratio of expenses to average net assets* 0.92% 0.94% 0.96% 1.03% 1.08%
Ratio of net investment income to average net assets* 5.14% 5.27% 5.75% 5.71% 5.64%
Portfolio turnover(a) 99.99% 53.74% 87.99% 54.82% 106.81%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
89
<PAGE> 91
INTERMEDIATE
OTHER INFORMATION ABOUT THE FUNDS U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.59 $ 9.85 $ 9.64 $ 9.89 $ 9.34
----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.53 0.54 0.56 0.58 0.61
Net realized and unrealized gain (loss) on investments (0.76) 0.75 0.21 (0.25) 0.55
----------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.23) 1.29 0.77 0.33 1.16
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.53) (0.55) (0.56) (0.58) (0.61)
Net realized gains (0.11) -- -- -- --
----------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.55) (0.56) (0.58) (0.61)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.72 $ 10.59 $ 9.85 $ 9.64 $ 9.89
----------------------------------------------------------------------------------------------------------------
Total Return (2.23)% 13.46% 8.20% 3.43% 12.91%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $213,417 $186,256 $142,545 $119,633 $78,578
Ratio of expenses to average net assets 0.83% 0.84% 0.87% 0.87% 0.85%
Ratio of net investment income to average net assets 5.26% 5.35% 5.74% 5.94% 6.43%
Ratio of expenses to average net assets* 0.93% 0.94% 0.97% 0.97% 1.00%
Ratio of net investment income to average net assets* 5.16% 5.25% 5.64% 5.84% 6.28%
Portfolio turnover(a) 73.46% 60.98% 62.45% 76.29% 68.91%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
90
<PAGE> 92
NORTH CAROLINA
OTHER INFORMATION ABOUT THE FUNDS INTERMEDIATE TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.27 $ 10.05 $ 10.15 $ 9.78
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.42 0.43 0.41 0.38 0.37
Net realized and unrealized gain (loss) on investments (0.57) 0.26 0.22 (0.10) 0.37
-------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.15) 0.69 0.63 0.28 0.74
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.42) (0.43) (0.41) (0.38) (0.37)
Net realized gains (0.05) -- -- -- --
In excess of net realized gains (0.02) -- -- -- --
-------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.43) (0.41) (0.38) (0.37)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.89 $ 10.53 $ 10.27 $ 10.05 $ 10.15
-------------------------------------------------------------------------------------------------------------
Total Return (1.47)% 6.90% 6.43% 2.77% 7.77%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $70,430 $73,454 $61,120 $28,443 $28,091
Ratio of expenses to average net assets 0.80% 0.81% 0.85% 0.96% 0.91%
Ratio of net investment income to average net assets 4.09% 4.18% 4.13% 3.72% 3.78%
Ratio of expenses to average net assets* 0.98% 0.98% 1.00% 1.11% 1.13%
Ratio of net investment income to average net assets* 3.92% 4.01% 3.98% 3.57% 3.55%
Portfolio turnover(a) 39.70% 32.63% 16.98% 20.90% 9.38%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
91
<PAGE> 93
SOUTH CAROLINA
OTHER INFORMATION ABOUT THE FUNDS INTERMEDIATE TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 20,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
----------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 10.00
-------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.39 0.38
Net realized and unrealized gain (loss) on investments (0.59) 0.41
-------------------------------------------------------------------------------------------------
Total from Investment Activities (0.20) 0.79
-------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.39) (0.38)
Net realized gains (0.06) --
In excess of net realized gains (0.02) --
-------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.38)
-------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.74 $ 10.41
-------------------------------------------------------------------------------------------------
Total Return (1.98)% 8.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $16,295 $18,242
Ratio of expenses to average net assets 0.82% 0.88%(c)
Ratio of net investment income to average net assets 3.86% 3.88%(c)
Ratio of expenses to average net assets* 1.41% 1.39%(c)
Ratio of net investment income to average net assets* 3.26% 3.37%(c)
Portfolio turnover(d) 71.96% 58.80%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced or reimbursed. If
such fee reductions or reimbursements had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
92
<PAGE> 94
VIRGINIA
OTHER INFORMATION ABOUT THE FUNDS INTERMEDIATE TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
MAY 17,
1999 TO
SEPTEMBER 30,
1999 (D)
---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.24
-----------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.17
Net realized and unrealized loss on investments (0.38)
-----------------------------------------------------------------------------
Total from Investment Activities (0.21)
-----------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.17)
-----------------------------------------------------------------------------
Total Distributions (0.17)
-----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.86
-----------------------------------------------------------------------------
Total Return (1.77)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $79,353
Ratio of expenses to average net assets 0.88%(c)
Ratio of net investment income to average net assets 4.18%(c)
Ratio of expenses to average net assets* 0.99%(c)
Ratio of net investment income to average net assets* 4.07%(c)
Portfolio turnover(a) 27.05%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(b) Not annualized.
(c) Annualized.
(d) Period from commencement of operations.
93
<PAGE> 95
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 1,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
----------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.046 0.051
------------------------------------------------------------------------------------------------
Total from Investment Activities 0.046 0.051
------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.046) (0.051)
------------------------------------------------------------------------------------------------
Total Distributions (0.046) (0.051)
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------
Total Return 4.69% 5.23%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $56,492 $37,769
Ratio of expenses to average net assets 0.54% 0.55%
Ratio of net investment income to average net assets 4.57% 5.11%
Ratio of expenses to average net assets* 0.88% 0.91%
Ratio of net investment income to average net assets* 4.23% 4.75%
</TABLE>
* During the period, certain fees were voluntarily reduced or reimbursed. If
such fee reductions or reimbursements had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations.
94
<PAGE> 96
U.S. TREASURY
OTHER INFORMATION ABOUT THE FUNDS MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.043 0.049 0.046 0.046 0.050
-----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.043 0.049 0.046 0.046 0.050
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.043) (0.049) (0.046) (0.046) (0.050)
-----------------------------------------------------------------------------------------------------------------
Total Distributions (0.043) (0.049) (0.046) (0.046) (0.050)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------------------------------------------
Total Return 4.34% 5.01% 4.71% 4.74% 5.07%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $282,585 $235,796 $266,840 $205,974 $120,083
Ratio of expenses to average net assets 0.59% 0.61% 0.75% 0.75% 0.72%
Ratio of net investment income to average net assets 4.26% 4.90% 4.61% 4.63% 4.97%
Ratio of expenses to average net assets* 0.73% 0.76% 0.75% 0.75% 0.75%
Ratio of net investment income to average net assets* 4.11% 4.75% 4.61% 4.63% 4.95%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
95
<PAGE> 97
CAPITAL MANAGER
OTHER INFORMATION ABOUT THE FUNDS CONSERVATIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 2,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
----------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.08 $ 10.00
------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.32 0.32
Net realized and unrealized gain on investments with
affiliates 0.53 0.08
------------------------------------------------------------------------------------------------
Total from Investment Activities 0.85 0.40
------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.33) (0.32)
Net realized gains (0.17) --
------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.32)
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.43 $ 10.08
------------------------------------------------------------------------------------------------
Total Return 8.47% 3.95%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $32,590 $23,773
Ratio of expenses to average net assets 0.38% 0.47%(c)
Ratio of net investment income to average net assets 3.15% 3.12%(c)
Ratio of expenses to average net assets* 0.58% 0.67%(c)
Ratio of net investment income to average net assets* 2.95% 2.92%(c)
Portfolio turnover(d) 16.45% 4.28%
</TABLE>
The expense ratios noted above do not include the effect of the expenses
of the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
96
<PAGE> 98
CAPITAL MANAGER
OTHER INFORMATION ABOUT THE FUNDS MODERATE GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 2,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
----------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 10.00
------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.25 0.23
Net realized and unrealized gain (loss) on investments
with affiliates 1.05 (0.16)
------------------------------------------------------------------------------------------------
Total from Investment Activities 1.30 0.07
------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.25) (0.22)
Net realized gains (0.25) --
------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.22)
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.65 $ 9.85
------------------------------------------------------------------------------------------------
Total Return 13.34% 0.68%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $26,800 $21,682
Ratio of expenses to average net assets 0.43% 0.46%(c)
Ratio of net investment income to average net assets 2.17% 2.21%(c)
Ratio of expenses to average net assets* 0.63% 0.66%(c)
Ratio of net investment income to average net assets* 1.97% 2.01%(c)
Portfolio turnover(d) 17.33% 4.85%
</TABLE>
The expense ratios noted above do not include the effect of the expenses
of the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
97
<PAGE> 99
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 2,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
----------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.68 $ 10.00
------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment income 0.17 0.16
Net realized and unrealized gain (loss) on investments
with affiliates 1.45 (0.32)
------------------------------------------------------------------------------------------------
Total from Investment Activities 1.62 (0.16)
------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net investment income (0.19) (0.16)
Net realized gains (0.32) --
------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.16)
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.79 $ 9.68
------------------------------------------------------------------------------------------------
Total Return 16.96% (1.72)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $24,063 $21,370
Ratio of expenses to average net assets 0.46% 0.47%(c)
Ratio of net investment income to average net assets 1.43% 1.53%(c)
Ratio of expenses to average net assets* 0.66% 0.67%(c)
Ratio of net investment income to average net assets* 1.23% 1.33%(c)
Portfolio turnover(d) 17.93% 7.69%
</TABLE>
The expense ratios noted above do not include the effect of the expenses
of the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
98
<PAGE> 100
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.
<PAGE> 101
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 102
[BB&T FUNDS LOGO]
STOCK FUNDS
GROWTH AND INCOME STOCK FUND
BALANCED FUND
LARGE COMPANY GROWTH FUND
SMALL COMPANY GROWTH FUND
INTERNATIONAL EQUITY FUND
BOND FUNDS
TAXABLE BOND FUNDS
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
INTERMEDIATE U.S. GOVERNMENT BOND FUND
INTERMEDIATE CORPORATE BOND FUND
TAX-FREE BOND FUNDS
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
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
CLASS A SHARES
CLASS B SHARES
PROSPECTUS
FEBRUARY 1, 2000
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> 103
BB&T FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
Carefully review this important 3 Overview
section, which summarizes each 4 STOCK FUNDS
Fund's investments, risks, past 5 Growth and Income Stock Fund
performance, and fees. 8 Balanced Fund
12 Large Company Growth Fund
15 Small Company Growth Fund
18 International Equity Fund
21 BOND FUNDS
22 Short-Intermediate U.S. Government Income Fund
25 Intermediate U.S. Government Bond Fund
28 Intermediate Corporate Bond Fund
30 North Carolina Intermediate Tax-Free Fund
33 South Carolina Intermediate Tax-Free Fund
36 Virginia Intermediate Tax-Free Fund
38 MONEY MARKET FUNDS
39 Prime Money Market Fund
43 U.S. Treasury Money Market Fund
46 Tax-Free Money Market Fund
48 FUNDS OF FUNDS
49 Capital Manager Conservative Growth Fund
54 Capital Manager Moderate Growth Fund
59 Capital Manager Growth Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
[LOGO]
Review this section for 64 STOCK FUNDS
information on investment 64 Growth and Income Stock Fund
strategies and their risks. 64 Balanced Fund
64 Large Company Growth Fund
64 Small Company Growth Fund
64 International Equity Fund
65 BOND FUNDS
65 Short-Intermediate U.S. Government Income Fund
65 Intermediate U.S. Government Bond Fund
65 Intermediate Corporate Bond Fund
65 North Carolina Intermediate Tax-Free Fund
65 South Carolina Intermediate Tax-Free Fund
66 Virginia Intermediate Tax-Free Fund
66 MONEY MARKET FUNDS
66 Prime Money Market Fund
66 Tax-Free Money Market Fund
67 FUNDS OF FUNDS
FUND MANAGEMENT
[LOGO]
Review this section for details on 74 The Investment Adviser
the people and organizations who 75 The Investment Sub-Advisers
oversee the Funds. 75 Portfolio Managers
75 The Distributor and Administrator
SHAREHOLDER INFORMATION
[LOGO]
Review this section for details on 76 Choosing a Share Class
how shares are valued, how to 77 Pricing of Fund Shares
purchase, sell and exchange 78 Purchasing and Adding to Your Shares
shares, related charges and 81 Selling Your Shares
payments of dividends and 83 General Policies on Selling Shares
distributions. 84 Distribution Arrangements/Sales Charges
87 Distribution and Service (12b-1) Fees
88 Exchanging Your Shares
89 Dividends, Distributions and Taxes
90 Financial Highlights
BACK COVER
[LOGO]
Where to learn more about this Fund
</TABLE>
2
<PAGE> 104
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
<TABLE>
<S> <C>
THE FUNDS BB&T Funds is a mutual fund family that offers different
classes of shares in separate investment portfolios
("Funds"). The Funds have individual investment goals and
strategies. This prospectus gives you important information
about the Class A Shares and the Class B Shares of the Stock
Funds, the Bond Funds, the Money Market Funds and the Funds
of Funds that you should know before investing. Each Fund
also offers a third class of shares called Trust Shares
which is offered in a separate prospectus. Please read this
prospectus and keep it for future reference.
Each of the Funds in this prospectus is a mutual fund. A
mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities
like stocks and bonds. Before you look at specific Funds,
you should know a few general basics about investing in
mutual funds.
The value of your investment in a Fund is based on the
market prices of the securities the Fund holds. These prices
change daily due to economic and other events that affect
securities markets generally, as well as those that affect
particular companies or government units. These price
movements, sometimes called volatility, will vary depending
on the types of securities a Fund owns and the markets where
these securities trade.
LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN A FUND. YOUR INVESTMENT IN A FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH BANKING AND TRUST
COMPANY, BB&T CORPORATION, THEIR AFFILIATES, OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for
reaching that goal. However, it cannot be guaranteed that a
Fund will achieve its goal. Before investing, make sure that
the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way
that the manager believes will help the Fund achieve its
goal. A manager's judgments about the stock markets, economy
and companies, or selecting investments may cause a Fund to
underperform other funds with similar objectives.
</TABLE>
3
<PAGE> 105
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
STOCK FUNDS
<TABLE>
<S> <C>
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
</TABLE>
4
<PAGE> 106
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks capital growth, current income or both,
primarily through investment in stocks.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
domestically traded U.S. common stocks, as well as American
Depository Receipts ("ADRs").
In managing the Fund, the portfolio manager attempts to
diversify across different economic sectors selecting those
stocks that he believes are undervalued and have a favorable
outlook. In choosing individual stocks the portfolio manager
uses a quantitative process to examine the value, growth and
momentum characteristics of a particular issuer. While some
stocks may be purchased primarily for income, most stocks
will be purchased for capital appreciation. The portfolio
manager will favor stocks of issuers which over a five-year
period have achieved cumulative income in excess of the
cumulative dividends paid to shareholders.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 64-73 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 pages
64-73.
</TABLE>
5
<PAGE> 107
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
The chart and table on this page
show how the 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 seven years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks. Of course, past
performance does not indicate how
the Fund will perform in the
future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1993 10.1%
94 -0.54%
95 31.69%
96 21.83%
97 32.83%
98 12.85%
99 -2.47%
</TABLE>
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: 16.89% 12/31/98
Worst
quarter: -11.00% 9/30/99
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS(2) SINCE INCEPTION(2)
<S> <C> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 10/9/92
GROWTH AND INCOME STOCK FUND -6.87% 17.51% 14.26%
S&P 500(R) INDEX 21.03% 28.54% 21.53%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
GROWTH AND INCOME STOCK FUND -6.75% 17.76% 14.50%
S&P 500(R) INDEX 21.03% 28.54% 21.53%
</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.
6
<PAGE> 108
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME STOCK FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
----------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
----------------------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.74% 0.74%
----------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(5) 0.50% 1.00%
----------------------------------------------------------------------
Other Expenses 0.35% 0.34%
----------------------------------------------------------------------
Total Fund Operating Expenses(5) 1.59% 2.08%
</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 0.60%. Additionally, distribution
and service (12b-1) fees for Class A Shares
are expected to be limited to 0.25%. Total
expenses after fee waivers and expense
reimbursements for each class are expected to
be: Class A Shares, 1.20%; and Class B
Shares, 1.94%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
As an investor in the 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.
------------------------------
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.
------------------------------
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
GROWTH AND INCOME 1 3 5 10
STOCK FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $604 $929 $1,277 $2,254
-----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $711 $952 $1,319 $2,288
Assuming No Redemption $211 $652 $1,119 $2,288
</TABLE>
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.
7
<PAGE> 109
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 portfolio manager believes are undervalued and have
a favorable outlook. Other equity investments include
convertible securities and ADRs. The Fund's fixed-income
investments consist primarily of "investment-grade" bonds,
notes, debentures (bonds, notes and debentures rated at the
time of purchase in one of the four highest rating
categories by a nationally recognized statistical rating
organizations (an "NRSRO")) or are determined by the
portfolio manager to be of comparable quality and money
market instruments. The average dollar-weighted maturity of
the fixed-income portion of the Fund's portfolio will range
from one to thirty years.
In managing the equity portion of the Fund, the portfolio
manager examines a variety of quantitative and qualitative
factors in formulating individual stock purchase and sale
decisions. The portfolio manager selects investments that he
believes are reasonably priced relative to their growth
potential.
In managing the fixed income portion of the Fund's
portfolio, the portfolio manager uses a "top down"
investment management approach focusing on a security's
maturity. The manager sets, and continually adjusts, a
target for the interest rate sensitivity of the Fund based
upon expectations about interest rates and other economic
factors. The manager then selects individual securities
whose maturities fit this target and which are deemed to be
the best relative values.
The Fund may also invest in certain other equity and debt
securities in addition to those described above. For a more
complete description of the various securities in which the
Fund may invest, please see the Additional Investment
Strategies and Risks on pages 64-73 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 the equity portion of this Fund
focuses -- value stocks -- will underperform other kinds of
investments or market averages.
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Generally, an increase in the average
maturity of the fixed income portion of the Fund will make
it more sensitive to interest rate risk.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
</TABLE>
8
<PAGE> 110
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
<TABLE>
<S> <C>
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 pages
64-73.
</TABLE>
9
<PAGE> 111
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
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 six
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the S&P 500(R) Index, a
widely recognized, unmanaged index
of common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1994 -1.84%
95 24.67%
96 11.63%
97 20.83%
98 14.39%
99 -1.76%
</TABLE>
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: 10.86% 12/31/98
Worst
quarter: -6.12% 9/30/99
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS(2) SINCE INCEPTION(2)
<S> <C> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 7/1/93
BALANCED FUND -6.16% 12.54% 9.79%
S&P 500(R) INDEX 21.03% 28.54% 22.46%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX 0.49% 6.93% 5.37%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
BALANCED FUND -6.17% 12.71% 10.02%
S&P 500(R) INDEX 21.03% 28.54% 22.46%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX 0.49% 6.93% 5.37%
</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.
10
<PAGE> 112
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
----------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
----------------------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.74% 0.74%
----------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(5) 0.50% 1.00%
----------------------------------------------------------------------
Other Expenses 0.40% 0.40%
----------------------------------------------------------------------
Total Fund Operating Expenses(5) 1.64% 2.14%
</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 0.60%. Additionally, distribution
and service (12b-1) fees for Class A Shares
are expected to be limited to 0.25%. Total
expenses after fee waivers and expense
reimbursements for each class are expected to
be: Class A Shares, 1.25%; and Class B
Shares, 2.00%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 3 5 10
BALANCED FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $609 $944 $1,302 $2,306
-----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $717 $970 $1,349 $2,348
Assuming No Redemption $217 $670 $1,149 $2,348
</TABLE>
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.
------------------------------
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.
------------------------------
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.
11
<PAGE> 113
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity and
equity-related securities of large capitalization growth
companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common
stocks of large capitalization companies that the portfolio
manager believes have attractive potential for growth. Large
capitalization companies are those companies whose weighted
average capitalization is in excess of the market median
capitalization of the S&P 500(R) Index.
In managing the Fund's portfolio, the manager uses a variety
of economic projections, quantitative techniques, and
earnings projections in formulating individual stock
purchase and sale decisions. In choosing individual stocks,
the portfolio manager uses a quantitative process to
identify companies with a history of above average growth or
companies that are expected to enter periods of above
average growth. Some of the criteria that the manager uses
to select these companies are return on equity, price and
earnings momentum, earnings surprise, the company's
management and the company's position within its industry.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 64-73 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 pages
64-73.
</TABLE>
12
<PAGE> 114
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks. Of course, past
performance does not indicate how
the Fund will perform in the
future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1998 24.84%
99 36.85%
</TABLE>
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: 29.64% 12/31/99
Worst
quarter: -12.55% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 10/3/97
LARGE COMPANY GROWTH FUND 30.73% 22.61%
S&P 500(R) INDEX 21.03% 23.27%
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge) 10/3/97
LARGE COMPANY GROWTH FUND 31.83% 23.27%
S&P 500(R) INDEX 21.03% 23.27%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
13
<PAGE> 115
RISK/RETURN SUMMARY AND FUND EXPENSES LARGE COMPANY GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
Maximum Deferred Sales Charge
(load) None 5.00%(3)
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.74% 0.74%
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
Other Expenses 0.47% 0.47%
Total Fund Operating Expenses(5) 1.71% 2.21%
</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 0.60%. Additionally, distribution
and service (12b-1) fees for Class A Shares
are expected to be limited to 0.25%. Total
expenses after fee waivers and expense
reimbursements for each class are expected to
be: Class A Shares, 1.32%; and Class B
Shares, 2.07%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
LARGE COMPANY 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $616 $965 $1,336 $2,379
CLASS B SHARES
Assuming Redemption $724 $991 $1,385 $2,421
Assuming No Redemption $224 $691 $1,185 $2,421
</TABLE>
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.
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.
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.
14
<PAGE> 116
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 pages 64-73 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 pages
64-73.
</TABLE>
15
<PAGE> 117
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
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
five years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Russell 2000(R)
Index, an unmanaged index
generally representative of
domestically funded common stocks
of small to mid-sized companies.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1995 45.38%
96 30.77%
97 4.69%
98 3.03%
99 72.23%
</TABLE>
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: 47.83% 12/31/99
Worst
quarter: -20.27% 3/31/97
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS(2) SINCE INCEPTION(2)
<S> <C> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 12/7/94
SMALL COMPANY GROWTH FUND 64.47% 27.53% 28.60%
RUSSELL 2000(R) INDEX 21.26% 16.69% 15.78%
CLASS B SHARES (with applicable Contingent Deferred Sales
Charge)
SMALL COMPANY GROWTH FUND 66.95% 27.85% 28.92%
RUSSELL 2000(R) INDEX 21.26% 16.69% 15.78%
</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.
16
<PAGE> 118
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
Maximum Deferred Sales Charge
(load) None 5.00%(3)
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee 1.00% 1.00%
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
Other Expenses 0.55% 0.55%
Total Fund Operating Expenses(5) 2.05% 2.55%
</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) During the last fiscal year, distribution
and service (12b-1) fees for Class A Shares
were limited to 0.25%. Total expenses after
fee waivers and expense reimbursements for
Class A Shares were 1.80%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
SMALL COMPANY GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $649 $1,064 $1,504 $2,722
CLASS B SHARES
Assuming Redemption $758 $1,093 $1,555 $2,767
Assuming No Redemption $258 $ 793 $1,355 $2,767
</TABLE>
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.
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.
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.
17
<PAGE> 119
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation through
investment primarily in equity securities of foreign
issuers.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
non-dollar denominated stocks of foreign issuers located in
countries included in the Morgan Stanley Capital
International Europe, Australasia and the Far East ("EAFE")
Index. The Fund may also invest its assets in countries with
emerging economies or securities markets. The Fund primarily
buys common stock but also can invest in preferred stock and
securities convertible into common and preferred stock.
In managing the Fund's portfolio, the portfolio manager uses
a "value" style to select stocks which he believes are worth
more than is indicated by the current market price. The
manager screens for "value" stocks by using proprietary
computer models to find stocks that meet the value stock
criteria. A security's earnings trend and its price momentum
will also be factors considered in security selection. The
manager will also consider factors such as prospects for
relative economic growth among certain foreign countries,
expected levels of inflation, government policies
influencing business conditions and the outlook for currency
relationships. The manager and his team also examine each
company for financial soundness before deciding to purchase
its stock.
The Fund generally will sell a stock when it reaches a
target price, which is when the manager believes it is fully
valued or when, in the manager's opinion, conditions change
such that the risk of continuing to hold the stock is
unacceptable when compared to the growth potential.
In an attempt to reduce portfolio risk, the manager will
diversify investments across countries, industry groups and
companies with investment at all times in at least three
foreign countries.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 64-73 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 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 pages
64-73.
</TABLE>
18
<PAGE> 120
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Morgan Stanley Capital
International Europe, Australasia
and Far East ("EAFE") Index, a
widely recognized, unmanaged index
generally representative of the
performance of stock markets in
those regions. Of course, past
performance does not indicate how
the Fund will perform in the
future.
The returns for Class B Shares
will differ from the Class A Share
returns 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 CLASS A SHARES(1)
<TABLE>
<S> <C>
1998 11.13%
99 37.97%
</TABLE>
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: 24.71% 12/31/99
Worst
quarter: -15.87% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 1/2/97
INTERNATIONAL EQUITY FUND 31.78% 15.99%
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX 26.96% 15.74%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/2/97
INTERNATIONAL EQUITY FUND 32.83% 16.27%
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX 26.96% 15.74%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
19
<PAGE> 121
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
Maximum Deferred Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee 1.00% 1.00%
Distribution and Service
(12b-1) Fee(5) 0.50% 1.00%
Other Expenses 0.56% 0.56%
Total Fund Operating Expenses(5) 2.06% 2.56%
</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) During the last fiscal year, distribution
and service (12b-1) fees for Class A Shares
were limited to 0.25%. Total expenses after
fee waivers and expense reimbursements for
Class A Shares were 1.81%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
INTERNATIONAL 1 3 5 10
EQUITY FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $650 $1,067 $1,509 $2,732
CLASS B SHARES
Assuming Redemption $759 $1,096 $1,560 $2,777
Assuming No Redemption $259 $ 796 $1,360 $2,777
</TABLE>
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.
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.
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.
20
<PAGE> 122
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
BOND FUNDS
<TABLE>
<S> <C>
TAXABLE BOND FUNDS The Short-Intermediate U.S. Government Income Fund, the
Intermediate U.S. Government Bond Fund and the Intermediate
Corporate Bond Fund seek current income consistent with the
preservation of capital and invest primarily in fixed income
securities, such as U.S. government securities, or
corporate, bank and commercial obligations.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- looking to add a monthly income component to your
portfolio
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing emergency reserves
- uncomfortable with an investment that will fluctuate in
value
TAX-FREE BOND FUNDS The North Carolina Intermediate Tax-Free Fund, the South
Carolina Intermediate Tax-Free Fund and the Virginia
Intermediate Tax-Free Fund seek tax-exempt income and invest
primarily in municipal securities which are exempt from
federal and, respectively, North Carolina, South Carolina or
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
or Virginia tax-exempt dividends
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing through a tax-exempt retirement plan
- uncomfortable with an investment that will fluctuate in
value
- investing emergency reserves
</TABLE>
21
<PAGE> 123
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The dollar-weighted average portfolio
maturity of the Fund will be from two to five years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on allocation among
sectors, interest rate risk, credit risk, and individual
securities selection. The manager sets and continually
adjusts, a target for the interest rate sensitivity of the
Fund's holdings based upon expectations about interest rates
and other economic factors. The manager then selects
individual securities consistent with the target by looking
for the best relative values within particular sectors.
The Fund may also invest in certain other debt securities.
For a more complete description of the various securities in
which the Fund may invest, please see the Additional
Investment Strategies and Risks on pages 64-73 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.
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 64-73.
</TABLE>
22
<PAGE> 124
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
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
seven years to demonstrate that
the Fund's value varied at
different times. The table below
it compares the Fund's performance
over time to that of the Merrill
Lynch 1-5 Year U.S. Government
Index, an unmanaged index
representative of the total return
of government bonds with
maturities between 1 and 5 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1993 6.61%
94 -2.19%
95 12.45%
96 2.80%
97 6.11%
98 6.66%
99 1.26%
</TABLE>
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: 4.06% 6/30/95
Worst
quarter: -1.75% 3/31/94
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
11/30/92
<S> <C> <C> <C>
CLASS A SHARES (with 2.00% sales charge)
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND -0.74% 5.37% 4.54%
MERRILL LYNCH 1-5 YEAR U.S. GOVERNMENT INDEX(2) 2.11% 6.78% 5.80%
MERRILL LYNCH 1-3 YEAR U.S. GOVERNMENT INDEX(2) 3.12% 6.52% 5.56%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Merrill Lynch 1-3 Year U.S. Government Index is an unmanaged index
representative of the total return of government bonds with maturities between 1
and 3 years. The benchmark index for the Short-Intermediate U.S. Government
Income Fund has changed from the Merrill Lynch 1-3 Year U.S. Government Index to
the Merrill Lynch 1-5 Year U.S. Government Index in order to better represent
the investment policies for comparison purposes.
23
<PAGE> 125
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT-INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 2.00%(2)
Maximum Deferred Sales Charge (load) None
Redemption Fee(3) 0%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
Distribution and Service
(12b-1) Fee(4) 0.50%
Other Expenses(4) 0.32%
Total Fund Operating Expenses(4) 1.42%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.50%.
Additionally, distribution and service
(12b-1) fees were limited to 0.25% and other
expenses were limited to 0.27%. Total
expenses after fee waivers and expense
reimbursements were 1.02%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SHORT-INTERMEDIATE
U.S. GOVERNMENT 1 3 5 10
INCOME FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $342 $640 $961 $1,868
</TABLE>
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.
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.
24
<PAGE> 126
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The dollar-weighted average portfolio
maturity of the Fund will be from five to ten years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on allocation among
sectors, interest rate risk, credit risk, and individual
securities selection. The manager sets and continually
adjusts, a target for the interest rate sensitivity of the
Fund's holdings based upon expectations about interest rates
and other economic factors. The manager then selects
individual securities consistent with the target by looking
for the best relative values within particular sectors.
The Fund may also invest in certain other debt securities in
addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 64-73 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.
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 64-73.
</TABLE>
25
<PAGE> 127
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
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 seven
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Merrill Lynch 5-10
Year U.S. Government Index, an
unmanaged index generally
representative of the total return
of government bonds with
maturities between 5 and 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1993 9.89%
94 -4.25%
95 17.81%
96 1.91%
97 8.31%
98 9.31%
99 -2.53%
</TABLE>
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: 6.44% 6/30/95
Worst
quarter: -3.24% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS(3) SINCE INCEPTION(3)
10/9/92
<S> <C> <C> <C>
CLASS A SHARES (with 4.50% sales charge)
INTERMEDIATE U.S. GOVERNMENT BOND FUND -6.87% 5.67% 4.64%
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX(2) -3.39% 7.81% 6.31%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(2) 0.49% 6.93% 5.57%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
INTERMEDIATE U.S. GOVERNMENT BOND FUND -6.97% 5.69% 4.77%
MERRILL LYNCH 5-10 YEAR U.S. GOVERNMENT INDEX(2) -3.39% 7.81% 6.31%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX(2) 0.49% 6.93% 5.57%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
representative of the performance of U.S. Government bonds with maturities of
less than 10 years. The benchmark index for the Intermediate U.S. Government
Bond Fund has changed from the Lehman Brothers Intermediate Government Bond
Index to the Merrill Lynch 5-10 Year U.S. Government Index in order to better
represent the investment policies for comparison purposes.
(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.
26
<PAGE> 128
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT
BOND FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
--------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
--------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.60% 0.60%
--------------------------------------------------------
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
--------------------------------------------------------
Other Expenses(5) 0.33% 0.33%
--------------------------------------------------------
Total Fund Operating Expenses(5) 1.43% 1.93%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.50%.
Additionally, distribution and service
(12b-1) fees for Class A Shares were limited
to 0.25%. Total expenses after fee waivers
and expense reimbursements for each class
were: Class A Shares, 1.08%; and Class B
Shares, 1.83%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE U.S. 1 3 5 10
GOVERNMENT BOND FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $589 $882 $1,196 $2,086
----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $696 $906 $1,242 $2,127
Assuming No Redemption $196 $606 $1,042 $2,127
</TABLE>
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.
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.
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.
27
<PAGE> 129
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE CORPORATE BOND
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES 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
dollar-weighted average maturity of the Fund is expected to
be from three to ten years.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on interest rate
risk, allocation among sectors, credit risk, and individual
securities selection. The manager sets and continually
adjust, a target for the interest rate sensitivity of the
Fund's holdings based upon expectations about interest rates
and other economic factors. The manager then selects
individual securities consistent with the target by looking
for the best relative values within particular sectors.
The Fund may also invest in certain other debt securities in
addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see the Additional Investment Strategies and
Risks on pages 64-73 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 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 64-73.
</TABLE>
28
<PAGE> 130
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE CORPORATE BOND
FUND
This section would normally include a bar chart and a table showing how the
Intermediate Corporate Bond Fund has performed and how its performance has
varied from year to year. Because the Fund had not commenced operations prior
to the date of this prospectus, the bar chart and table are not shown.
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
--------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
--------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.60% 0.60%
--------------------------------------------------------
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
--------------------------------------------------------
Other Expenses(5) 0.56% 0.56%
--------------------------------------------------------
Total Fund Operating Expenses(5) 1.66% 2.16%
</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. For the
current fiscal year, we expect management
fees paid by the Fund to be limited to 0.50%.
Additionally, we expect distribution and
service (12b-1) fees for Class A Shares to be
limited to 0.25% and other expenses for each
class to be limited to 0.51%. Accordingly, we
expect total expenses after fee waivers and
expense reimbursements for each class to be:
Class A Shares, 1.26%; and Class B Shares,
2.01%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C>
INTERMEDIATE CORPORATE 1 3
BOND FUND YEAR YEARS
CLASS A SHARES $611 $950
--------------------------------------
CLASS B SHARES
Assuming Redemption $719 $976
Assuming No Redemption $219 $676
</TABLE>
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.
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.
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.
29
<PAGE> 131
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of current interest
income that is exempt from both federal income tax and North
Carolina personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of North Carolina and its political
subdivisions, that provide income exempt from both federal
personal income tax and North Carolina personal income tax.
The Fund invests in North Carolina municipal securities only
if they are "high grade" (rated at the time of purchase in
one of the three highest rating categories by an NRSRO, or
are determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on pages
64-73 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 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 64-73.
</TABLE>
30
<PAGE> 132
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
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
seven years to demonstrate that
the Fund's value varied at
different times. The table below
it compares the Fund's performance
over time to that of the Lehman
Brothers 5-Year General
Obligations Index, an unmanaged
index generally representative of
the performance of tax-exempt
municipal securities with an
average maturity of five years. Of
course, past performance does not
indicate how the Fund will perform
in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1993 7.75%
94 -2.93%
95 10.27%
96 2.56%
97 6.36%
98 5.19%
99 -2.21%
</TABLE>
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: 3.82% 3/31/95
Worst
quarter: -3.62% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
10/16/92
<S> <C> <C> <C>
CLASS A SHARES (with 2.00% sales charge)
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND -4.14% 3.92% 3.36%
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX 1.51% 5.87% 5.38%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions. For current
performances information including the Fund's 30-day yield, call 1-800-228-1872.
31
<PAGE> 133
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 2.00%(2)
-----------------------------------------------------
Maximum Deferred Sales Charge (load) None
-----------------------------------------------------
Redemption Fee(3) 0%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
-----------------------------------------------------
Distribution and Service
(12b-1) Fee(4) 0.50%
-----------------------------------------------------
Other Expenses(4) 0.37%
-----------------------------------------------------
Total Fund Operating Expenses(4) 1.47%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.50%.
Additionally, distribution and service
(12b-1) fees were limited to 0.15% and other
expenses were limited to 0.30%. Total
expenses after fee waivers and expense
reimbursements were 0.95%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
NORTH CAROLINA
INTERMEDIATE TAX-FREE 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $347 $656 $987 $1,922
</TABLE>
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.
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.
32
<PAGE> 134
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of current interest
income that is exempt from both federal income tax and South
Carolina personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of South Carolina and its political
subdivisions, that provide income exempt from both federal
personal income tax and South Carolina personal income tax.
The Fund invests in South Carolina municipal securities only
if they are "high grade" (rated at the time of purchase in
one of the three highest rating categories by an NRSRO, or
are determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on pages
64-73 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 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 64-73.
</TABLE>
33
<PAGE> 135
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
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 two
years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Lehman Brothers
5-Year General Obligations Index,
an unmanaged index generally
representative of the performance
of tax-exempt municipal securities
with an average maturity of five
years. Of course, past performance
does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1998 5.29%
99 -2.72%
</TABLE>
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: 3.11% 9/30/98
Worst
quarter: -2.42% 6/30/99
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
10/20/97
<S> <C> <C>
CLASS A SHARES (with 2.00% sales charge)
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND -4.66% 1.48%
LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATIONS INDEX 1.51% 4.02%
</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.
34
<PAGE> 136
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 2.00%(2)
Maximum Deferred Sales Charge (load) None
Redemption Fee(3) 0%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
Distribution and Service
(12b-1) Fee(4) 0.50%
Other Expenses(4) 0.81%
Total Fund Operating Expenses(4) 1.91%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.30%.
Additionally, distribution and service
(12b-1) fees were limited to 0.15% and other
expenses were limited to 0.52%. Total
expenses after fee waivers and expense
reimbursements were 0.97%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SOUTH CAROLINA
INTERMEDIATE TAX-FREE 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $390 $788 $1,211 $2,388
</TABLE>
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.
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.
35
<PAGE> 137
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to produce a high level of current interest
income that is exempt from both federal income tax and
Virginia personal income tax.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the Commonwealth of Virginia and its political
subdivisions, that provide income exempt from both federal
personal income tax and Virginia personal income tax. The
Fund invests in Virginia municipal securities only if they
are "high grade" (rated at the time of purchase in one of
the three highest rating categories by an NRSRO, or are
determined by the portfolio manager to be of comparable
quality). The Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no
obligations in which the Fund invests will have remaining
maturities in excess of 25 years.
In managing the Fund's portfolio, the manager uses a "top
down" investment management approach focusing on interest
rates and credit quality. The manager sets, and continually
adjusts, a target for the interest rate sensitivity of the
Fund's portfolio based on expectations about interest rate
movements. The manager then selects securities consistent
with this target based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see the Additional Investment Strategies and Risks on pages
64-73 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 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 64-73.
</TABLE>
36
<PAGE> 138
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
This section would normally include a bar chart and a table showing how the
Virginia Intermediate Tax-Free Fund has performed and how its performance has
varied from year to year. Because the Fund has not been in operation for a
full calendar year, the bar chart and table are not shown.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 2.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee(3) 0%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses(4) 0.41%
----------------------------------------------
Total Fund Operating Expenses(4) 1.51%
</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 period beginning May 17, 1999 and
ending September 30, 1999, management fees
paid by the Fund were limited to 0.50%.
Additionally, distribution and service
(12b-1) fees were limited to 0.15% and other
expenses were limited to 0.35%. Total
expenses after fee waivers and expense
reimbursements were 1.00%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C>
VIRGINIA INTERMEDIATE 1 3
TAX-FREE FUND YEAR YEARS
CLASS A SHARES $351 $668
</TABLE>
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.
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.
37
<PAGE> 139
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
MONEY MARKET FUNDS
<TABLE>
<S> <C>
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
</TABLE>
38
<PAGE> 140
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S.
dollar-denominated, "high-quality" short-term debt
securities, including the following:
- Obligations issued or supported by the credit of U.S. or
foreign banks or savings institutions with total assets in
excess of $1 billion (including obligations of foreign
branches of such banks);
- High quality commercial paper and other obligations issued
or guaranteed by U.S. and foreign corporations and other
issuers;
- Asset-backed securities;
- Securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or
instrumentalities and related custodial receipts;
- Securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or instrumentalities;
- Guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
- Securities issued or guaranteed by state or local
government bodies; and
- Repurchase agreements relating to the above instruments.
Additionally, the Fund concentrates its investments in
obligations issued by the financial services industry.
"High-quality" debt securities are those obligations which,
at the time of purchase, (i) possess the highest short-term
rating from at least two NRSROs (for example, commercial
paper rated "A-1" by Standard & Poor's Corporation and "P-1"
by Moody's Investors Service, Inc.); or (ii) are single
rated and have received the highest short-term rating by an
NRSRO; or (iii) if unrated, are determined by the portfolio
manager to be of comparable quality.
When selecting securities for the Fund's portfolio, the
manager first considers safety of principal and the quality
of an investment. The manager then focuses on generating a
high-level of income. The manager generally evaluates
investments based on interest rate sensitivity selecting
those securities whose maturities fit the Fund's interest
rate sensitivity target and which the manager believes to be
the best relative values.
The Fund will maintain an average weighted portfolio
maturity of 90 days or less and will limit the maturity of
each security in its portfolio to 397 days or less.
For a more complete description of the securities in which
the Fund may invest, please see the Additional Investment
Strategies and Risks on pages 64-73 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 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.
</TABLE>
39
<PAGE> 141
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
<TABLE>
<S> <C>
For more information about these risks, please see the
Additional Investment Strategies and Risks on pages 64-73.
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.
</TABLE>
40
<PAGE> 142
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1998 4.86%
99 4.49%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.22% 9/30/98
Worst
quarter: 1.04% 6/30/99
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION(2)
10/1/97
<S> <C> <C>
CLASS A SHARES
PRIME MONEY MARKET FUND 4.49% 4.70%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
PRIME MONEY MARKET FUND -0.28% 2.96%
</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, 1999, the Fund's 7-day yield for Class A Shares and Class B
Shares was 4.77% and 4.02%, respectively. Without fee waivers and expense
reimbursements, the Fund's yield would have been 4.27% and 3.77%, 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.
41
<PAGE> 143
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
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 CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(4) 0.40% 0.40%
--------------------------------------------------------
Distribution and Service
(12b-1) Fee(4) 0.50% 1.00%
--------------------------------------------------------
Other Expenses(4) 0.49% 0.49%
--------------------------------------------------------
Total Fund Operating Expenses(4) 1.39% 1.89%
</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 0.30%. Additionally, distribution
and service (12b-1) fees for Class A are
expected to be limited to 0.25% and other
expenses are expected to be limited to 0.45%
for each class. Total expenses after fee
waivers and expense reimbursements for each
class are expected to be: Class A Shares,
1.00%; and Class B Shares, 1.75%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
PRIME MONEY MARKET FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $142 $440 $ 761 $1,669
----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $692 $894 $1,221 $2,084
Assuming No Redemption $192 $594 $1,021 $2,084
</TABLE>
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.
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.
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.
42
<PAGE> 144
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 pages 64-73 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 pages 64-73.
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.
</TABLE>
43
<PAGE> 145
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
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 seven years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1993 2.54%
94 3.23%
95 4.94%
96 4.41%
97 4.57%
98 4.59%
99 4.15%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.26% 6/30/95
Worst
quarter: 0.56% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS(2) SINCE INCEPTION(2)
10/5/92
<S> <C> <C> <C>
CLASS A SHARES
U.S. TREASURY MONEY MARKET FUND 4.15% 4.53% 4.02%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
U.S. TREASURY MONEY MARKET FUND -0.63% 3.69% 3.56%
</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, 1999, the Fund's 7-day yield for Class A Shares and Class B
Shares was 4.23% and 3.48% respectively. Without fee waivers and expense
reimbursements, the Fund's yield would have been 3.88% and 3.38%, 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.
44
<PAGE> 146
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases None None
-----------------------------------------------------
Maximum Deferred Sales Charge
(load) None (2).00%
-----------------------------------------------------
Redemption Fee(3) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(4) 0.40% 0.40%
-----------------------------------------------------
Distribution and Service
(12b-1) Fee(4) 0.50% 1.00%
-----------------------------------------------------
Other Expenses(4) 0.45% 0.45%
-----------------------------------------------------
Total Fund Operating Expenses(4) 1.35% 1.85%
</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 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 0.30%. Additionally, distribution
and service (12b-1) fees for Class A Shares
are expected to be limited to 0.25% and other
expenses for each class are expected to be
limited to 0.45%. Total expenses after fee
waivers and expense reimbursements for each
class are expected to be: Class A Shares,
1.00%; and Class B Shares, 1.75%. Any fee
waiver or expense reimbursement arrangement
is voluntary and may be discontinued at any
time.
<TABLE>
EXPENSE EXAMPLE
U.S. TREASURY MONEY 1 3 5 10
MARKET FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $137 $428 $ 739 $1,624
-----------------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $688 $882 $1,201 $2,039
Assuming No Redemption $188 $582 $1,001 $2,039
</TABLE>
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.
------------------------------
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.
------------------------------
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.
45
<PAGE> 147
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 64-73 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 pages 64-73.
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.
</TABLE>
46
<PAGE> 148
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
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.
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.
------------------------------
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.
------------------------------
FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
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 CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(4) 0.40% 0.40%
--------------------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50% 1.00%
--------------------------------------------------------
Other Expenses(4) 0.45% 0.45%
--------------------------------------------------------
Total Fund Operating Expenses(4) 1.35% 1.85%
</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 0.30%.
Additionally, we expect distribution and
service (12b-1) fees for Class A Shares to be
limited to 0.25% and other expenses for each
class to be limited to 0.45%. Accordingly, we
expect total expenses after fee waivers and
expense reimbursements for each class to be:
Class A Shares, 1.00%; and Class B Shares,
1.75%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET 1 3
FUND YEAR YEARS
<S> <C> <C>
CLASS A SHARES $137 $428
CLASS B SHARES
Assuming Redemption $688 $882
Assuming No Redemption $188 $582
</TABLE>
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.
47
<PAGE> 149
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
FUNDS OF FUNDS
<TABLE>
<S> <C>
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
</TABLE>
48
<PAGE> 150
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-55%
Balanced Fund 0%-30%
Small Company Growth Fund 0%-30%
International Equity Fund 0%-30%
Large Company Growth Fund 0%-55%
Equity Index Fund 0%-55%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-75%
Intermediate U.S. Government Bond Fund 0%-75%
Intermediate Corporate Bond Fund 0%-75%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-20%
Prime Money Market Fund 0%-20%
</TABLE>
<TABLE>
<S> <C>
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 64-73 or consult the SAI.
</TABLE>
49
<PAGE> 151
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
<TABLE>
<S> <C>
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 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 pages
64-73.
</TABLE>
50
<PAGE> 152
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
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 shows the performance of
the Fund's Class A Shares for its
first full calendar year of
operations. The table below it
compares the Fund's performance
over time to that of the S&P
500(R) Index, a widely recognized,
unmanaged index of common stocks,
and the Lehman Brothers
Intermediate Government Bond
Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1999 6.08%
</TABLE>
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: 7.64% 12/31/98
Worst
quarter: -2.54% 9/30/98
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 1/29/98
CAPITAL MANAGER CONSERVATIVE GROWTH FUND 1.28% 5.58%
S&P 500(R) INDEX 21.03% 25.20%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 3.89%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
CAPITAL MANAGER CONSERVATIVE GROWTH FUND N/A 1.98%
S&P 500(R) INDEX 21.03% 17.70%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 0.04%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
51
<PAGE> 153
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
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.
------------------------------
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>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
----------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
----------------------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.25% 0.25%
----------------------------------------------------------------------
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
----------------------------------------------------------------------
Other Expenses(5) 0.33% 0.33%
----------------------------------------------------------------------
Total Fund Operating Expenses(5,6) 1.08% 1.58%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.05%.
Additionally, distribution and service
(12b-1) fees for Class A Shares were limited
to 0.25%. Total expenses after fee waivers
and expense reimbursements for each class
were: Class A Shares, 0.63%; and Class B
Shares, 1.38%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
(6) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio for
each class of shares is as follows: 2.31% for
Class A Shares and 2.63% for Class B Shares
(before fee waivers and expense reimbursement
arrangements; 1.56% for Class A Shares and
2.63% for Class B Shares (after fee waivers
and expense reimbursement arrangements).
52
<PAGE> 154
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
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>
CLASS A SHARES $555 $778 $1,019 $1,708
-----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $661 $799 $1,060 $1,746
Assuming No Redemption $161 $499 $ 860 $1,746
</TABLE>
53
<PAGE> 155
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-75%
Balanced Fund 0%-50%
Small Company Growth Fund 0%-50%
International Equity Fund 0%-50%
Large Company Growth Fund 0%-75%
Equity Index Fund 0%-75%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-55%
Intermediate U.S. Government Bond Fund 0%-55%
Intermediate Corporate Bond Fund 0%-55%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-15%
Prime Money Market Fund 0%-15%
</TABLE>
<TABLE>
<S> <C>
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 64-73 or consult the SAI.
</TABLE>
54
<PAGE> 156
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
<TABLE>
<S> <C>
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 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 pages
64-73.
</TABLE>
55
<PAGE> 157
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
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
shows the performance of the
Fund's Class A Shares for its
first full calendar year of
operations. The table below it
compares the Fund's performance
over time to that of the S&P
500(R) Index, a widely recognized,
unmanaged index of common stocks,
and the Lehman Brothers
Intermediate Government Bond
Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1999 10.34%
</TABLE>
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: 11.68% 12/31/98
Worst
quarter: -5.51% 9/30/98
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 1/29/98
CAPITAL MANAGER MODERATE GROWTH FUND 5.40% 7.82%
S&P 500(R) INDEX 21.03% 25.20%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 3.89%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
CAPITAL MANAGER MODERATE GROWTH FUND N/A 6.16%
S&P 500(R) INDEX 21.03% 17.70%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 0.04%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
56
<PAGE> 158
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
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.
------------------------------
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>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
----------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
----------------------------------------------------------------------
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.25% 0.25%
----------------------------------------------------------------------
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
----------------------------------------------------------------------
Other Expenses(5) 0.38% 0.38%
----------------------------------------------------------------------
Total Fund Operating Expenses(5,6) 1.13% 1.63%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.05%.
Additionally, distribution and service
(12b-1) fees for Class A Shares were limited
to 0.25%. Total expenses after fee waivers
and expense reimbursements for each class
were: Class A Shares, 0.68%; and Class B
Shares, 1.43%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
(6) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio for
each class of shares is as follows: 2.22% for
Class A Shares and 2.72% for Class B Shares
(before fee waivers and expense reimbursement
arrangements); 1.65% for Class A Shares and
2.40% for Class B Shares (after fee waivers
and expenses reimbursement arrangements).
57
<PAGE> 159
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH
FUND
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 1 3 5 10
MODERATE GROWTH FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $560 $793 $1,044 $1,763
-----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $666 $814 $1,087 $1,800
Assuming No Redemption $166 $514 $ 887 $1,800
</TABLE>
58
<PAGE> 160
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS
Growth and Income Stock Fund 0%-90%
Balanced Fund 0%-65%
Small Company Growth Fund 0%-65%
International Equity Fund 0%-65%
Large Company Growth Fund 0%-90%
Equity Index Fund 0%-90%
BOND FUNDS
Short-Intermediate U.S. Government Income Fund 0%-40%
Intermediate U.S. Government Bond Fund 0%-40%
Intermediate Corporate Bond Fund 0%-40%
MONEY MARKET FUNDS
U.S. Treasury Fund 0%-10%
Prime Money Market Fund 0%-10%
</TABLE>
<TABLE>
<S> <C>
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 64-73 or consult the SAI.
</TABLE>
59
<PAGE> 161
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
<TABLE>
<S> <C>
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 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 pages
64-73.
</TABLE>
60
<PAGE> 162
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
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 shows
the performance of the Fund's
Class A Shares for its first full
calendar year of operations. The
table below it compares the Fund's
performance over time to that of
the S&P 500(R) Index, a widely
recognized, unmanaged index of
common stocks, and the Lehman
Brothers Intermediate Government
Bond Index, an unmanaged index
representative of the total return
of government bonds with
maturities of less than 10 years.
Of course, past performance does
not indicate how the Fund will
perform in the future.
The returns for Class B Shares
will differ from the Class A Share
returns shown in the bar chart
because of differences in expenses
of each class. The table assumes
that Class B shareholders redeem
all of their fund shares at the
end of the period indicated.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<TABLE>
<S> <C>
1999 13.77%
</TABLE>
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: 14.83% 12/31/98
Worst
quarter: -7.94% 9/30/98
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
CLASS A SHARES (with 4.50% sales charge) 1/29/98
CAPITAL MANAGER GROWTH FUND 8.69% 9.42%
S&P 500(R) INDEX 21.03% 25.20%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 3.89%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 1/29/99
CAPITAL MANAGER GROWTH FUND N/A 9.83%
S&P 500(R) INDEX 21.03% 17.70%
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND FUND 0.49% 0.04%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
61
<PAGE> 163
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
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.
------------------------------
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.
------------------------------
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
Maximum Deferred Sales Charge (load) None 5.00%(3)
Redemption Fee(4) 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
Management Fee(5) 0.25% 0.25%
Distribution and Service (12b-1)
Fee(5) 0.50% 1.00%
Other Expenses(5) 0.41% 0.41%
Total Fund Operating Expenses(5,6) 1.16% 1.66%
</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) During the last fiscal year, management
fees paid by the Fund were limited to 0.05%.
Additionally, distribution and service
(12b-1) fees for Class A Shares were limited
to 0.25%. Total expenses after fee waivers
and expense reimbursements for each class
were: Class A Shares, 0.71%; and Class B
Shares, 1.46%. Any fee waiver or expense
reimbursement arrangement is voluntary and
may be discontinued at any time.
(6) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
estimated average weighted expense ratio for
each class of shares is as follows: 2.28% for
Class A Shares and 2.78% for Class B Shares
(before fee waivers and expense reimbursement
arrangements); 1.71% for Class A Shares and
2.46% for Class B Shares (after fee waivers
and expense reimbursement arrangements).
62
<PAGE> 164
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL MANAGER 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $563 $802 $1,060 $1,796
CLASS B SHARES
Assuming Redemption $669 $823 $1,102 $1,834
Assuming No Redemption $169 $523 $ 902 $1,834
</TABLE>
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.
63
<PAGE> 165
[LOGO]
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
GROWTH AND INCOME STOCK FUND -- Under normal market conditions, the Fund will
invest at least 65% of its total assets in stocks, which may include common
stock, preferred stock, warrants, or debt instruments that are convertible to
common stock. Equity securities purchased by the Growth and Income Stock Fund
will be either traded on a domestic securities exchange or quoted in the
NASDAQ/NYSE system.
BALANCED FUND -- The Fund will normally invest in equity securities
consisting of common stocks but may also invest in other equity-type
securities such as warrants, preferred stocks and convertible securities.
As a fundamental policy, the Fund will invest at least 25% of its total
assets in fixed-income senior securities. Fixed-income securities include
debt securities, preferred stock and that portion of the value of securities
convertible into common stock, including convertible preferred stock and
convertible debt, which is attributable to the fixed-income characteristics
of those securities. The Fund may also invest in collateralized mortgage
obligations ("CMOs").
The Fund may only invest in bonds, notes and debentures that are investment
grade, which are those securities rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO") at the time of purchase, or if not rated, found by the 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 weighted
average capitalization is in excess of the market median capitalization of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500(R)
Index").(1)
SMALL COMPANY GROWTH FUND -- At least 65% of the Fund's total assets will be
invested in small companies with a market capitalization under $2 billion at
the time of purchase.
INTERNATIONAL EQUITY FUND -- The Fund normally invests at least 65% of its
total assets in the equity securities of foreign issuers and normally invests
at least 80% of its total assets in equity securities. The Fund invests
primarily in equity securities of issuers located in countries included in
the Morgan Stanley Capital International Europe, Australasia and the Far East
("EAFE") Index. The EAFE Index is an index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin
countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom are currently
included in the EAFE Index.
From time to time the Fund may invest more than 25% of its total assets in
the securities of issuers located in countries such as France, Germany,
Japan, and the United Kingdom.
The Fund may invest in both sponsored and unsponsored ADRs, European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other
similar global instruments. The Fund may also invest its assets in equity
securities of issuers located in countries with emerging economies or
securities markets. The Fund intends to limit its investment in such
countries to 20% of its total assets. The Fund may (but is not required to)
use forward foreign currency exchange contracts to hedge against movements in
the value of foreign currencies (including the Euro relative to the U.S.
dollar) in connection with specific portfolio transactions or with respect to
portfolio positions.
ALL STOCK FUNDS (EXCEPT THE INTERNATIONAL EQUITY FUND): FOREIGN
SECURITIES -- Each Fund may invest in foreign securities through the purchase
of ADRs or the purchase of securities on the New York Stock Exchange.
However, a Fund will not do so if immediately after a purchase and as a
result of the purchase the total value of foreign securities owned by the
Fund would exceed 25% of the value of its total assets.
64
<PAGE> 166
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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.
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 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax
and North Carolina personal income tax and not treated as a preference item
for purposes of the federal alternative minimum tax for individuals ("North
Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its 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 90% of its total assets in high grade
obligations issued by or on behalf of the State of South Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax
and South Carolina personal income tax and not treated as a preference item
for purposes of the federal alternative minimum tax for individuals ("South
Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than South Carolina tax-exempt obligations to
over 10% of its total assets.
65
<PAGE> 167
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
VIRGINIA INTERMEDIATE TAX-FREE FUND -- Under normal market conditions, the
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the 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.
ALL TAX-FREE BOND FUNDS -- Each Fund will invest in Tax-Exempt Obligations
which are rated at the time of purchase in one of the three highest
categories by an NRSRO in the case of bonds; one of the two highest
categories by an NRSRO in the case of notes; rated "SP-1" or higher by S&P or
"MIG-2" or higher by Moody's or rated at a comparable level of quality by
another NRSRO in the case of tax-exempt commercial paper; or rated "VMIG-1"
or higher by Moody's or rated at a comparable level of quality by another
NRSRO in the case of variable rate demand obligations or, if unrated,
determined to be of comparable quality.
Each Fund may invest up to 10% of its total assets in taxable obligations or
debt securities, the interest income from which may be subject to the federal
alternative minimum tax for individual shareholders.
ALL BOND FUNDS: PORTFOLIO MATURITY -- Certain debt securities such as, but
not limited to, mortgage backed securities, CMOs and asset-backed securities,
as well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity
dates. As a result, the effective maturity of these securities is expected to
be shorter than the stated maturity. For purposes of calculating a Fund's
weighted average portfolio maturity, the effective maturity of these
securities will be used.
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND -- Under normal market conditions, at least 25% of
the Fund's total assets will be invested in obligations of issuers in the
financial services industry and repurchase agreements relating to such
obligations. However, for temporary defensive purposes during periods when
the Adviser or Sub-Adviser believes that maintaining this concentration may
be inconsistent with the best interests of Shareholders, the Fund will not
maintain this concentration. Money market instruments of companies in the
financial services industry include, but are not limited to, certificates of
deposit, commercial paper, bankers' acceptances, demand and time deposits,
and bank notes. These money market obligations are issued by domestic or
foreign banks, savings and loan associations, consumer and industrial finance
companies, securities brokerage companies and a variety of firms in the
insurance field. Financial service companies offering money market issues
must have total assets of $1 billion or more before their issues can be
considered for investment. The Fund will not purchase securities issued by
PNC Bank or BB&T or any of their affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
TAX-FREE MONEY MARKET FUND -- As a fundamental policy, except during periods
of unusual market conditions or during temporary defensive periods, the Fund
will invest substantially all, but in no event less than 80%, of its total
assets in Municipal Securities with remaining maturities of 397 days
(thirteen months) or less as determined in accordance with the rules of the
SEC.
The Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of the Adviser, suitable
tax-exempt obligations are unavailable. There is no percentage limitation on
the amount of assets which may be held uninvested. Uninvested cash reserves
will not earn income. The securities purchased by the Fund are also subject
to the quality, diversification, and other requirements of Rule 2a-7 under
the Investment Company Act of 1940, as amended, and other rules of the SEC.
Pursuant to Rule 2a-7, the Fund generally will limit its purchase of any one
issuer's securities (other than U.S. Government securities, repurchase
agreements collateralized by such securities and securities subject to
certain guarantees or otherwise providing the right to demand payment) to 5%
of the Fund's total assets, except that up to 25% of its total assets may be
invested in the 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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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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 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 the securities and techniques the Funds use, as well as the
main risks they pose. Equity securities are subject mainly to market risk.
Fixed income securities are primarily influenced by market, credit and
prepayment risks, although certain securities may be subject to additional
risks. Following the table is a more complete discussion of risk. You may
also consult the SAI for additional details regarding these and other
permissible investments.
67
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
FUND NAME FUND CODE
--------- ---------
<S> <C>
Growth and Income Stock Fund 1
Balanced Fund 2
Large Company Growth Fund 3
Small Company Growth Fund 4
International Equity Fund 5
Short Intermediate U.S. Government Income Fund 6
Intermediate U.S. Government Bond Fund 7
Intermediate Corporate Bond Fund 8
North Carolina Intermediate Tax-Free Fund 9
South Carolina Intermediate Tax-Free Fund 10
Virginia Intermediate Tax-Free Fund 11
Prime Money Market Fund 12
U.S. Treasury Money Market Fund 13
Tax-Free Money Market Fund 14
Capital Manager Conservative Growth Fund 15
Capital Manager Moderate Growth Fund 16
Capital Manager Growth Fund 17
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign shares 1-5 Market
of a company held by a U.S. bank that issues a receipt Political
evidencing ownership. Foreign Investment
ASSET-BACKED SECURITIES: Securities secured by company 2, 6-8, 12 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets. Interest Rate
Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 2, 12 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
Interest Rate
BONDS: Interest-bearing or discounted government or 2, 6-8, 12 Market
corporate securities that obligate the issuer to pay the Credit
bondholder a specified sum of money, usually at specific Interest Rate
intervals, and to repay the principal amount of the loan at
maturity.
CALL AND PUT OPTIONS: A call option gives the buyer the 1-5 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 2, 12 Market
stated maturity. Credit
Liquidity
Interest Rate
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
COMMERCIAL PAPER: Secured and unsecured short-term 1-3, 12, Credit
promissory notes issued by corporations and other entities. 14-17 Liquidity
Maturities generally vary from a few days to nine months. Market
Interest Rate
COMMON STOCK: Shares of ownership of a company. 1-5 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-5, 8 Market
convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived from an 1-11, 14-17 Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some Liquidity
mortgage-backed securities. Leverage
Interest Rate
FOREIGN SECURITIES: Stocks issued by foreign companies, as 1-5, 8, 12 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Foreign Investment
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to Management
purchase or sell a specific amount of a currency at a fixed Liquidity
future date and price set by the parties involved at the Credit
time the contract is negotiated. Market
Political
Leverage
Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing for the 1-5, 15-17 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
HIGH-YIELD/HIGH-RISK/DEBT SECURITIES: 8 Credit
High-yield/high-risk/debt securities are securities that are Market
rated below investment grade by the primary rating agencies Liquidity
(e.g., BB or lower by Standard & Poor's and Ba or lower by Interest Rate
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 as 1-5 Market
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 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.
</TABLE>
69
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 6-8, 12 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations and real estate mortgage Credit
investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state or 9-11, 14 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include industrial Political
development bonds and other private activity bonds, as well Tax
as general obligation bonds, revenue bonds, tax anticipation Regulatory
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 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.
PREFERRED STOCKS: Preferred Stocks are equity securities 1-5 Market
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 and the 1-17 Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
RESTRICTED SECURITIES: Securities not registered under the 2, 6, 7, 8, Liquidity
Securities Act of 1933, such as privately placed commercial 12 Market
paper and Rule 144A securities.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 4, 5, 15-17 Market
simultaneous commitment to buy the security back at an Leverage
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 the 1-17 Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
SHORT-TERM OBLIGATIONS: High quality U.S. dollar-denominated 1-11, 15-17 Market
debt securities that have remaining maturities of one year Credit
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.
STAND-BY COMMITMENTS: The Fund may acquire "stand-by 14 Income
commitments" with respect to Municipal Securities held in
its portfolio. The Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity.
</TABLE>
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 12-14, 16 Liquidity
exchange for the deposit of funds. Credit
Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-12, 15-17 Interest Rate
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1-13, 15-17 Interest Rate
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured demand notes 2 Credit
that permit the indebtedness to vary and provide for Liquidity
periodic adjustments in the interest rate according to the Interest Rate
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 with 9-12, 14 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WARRANTS: Securities, typically issued with preferred stock 1-5 Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 2, 3, 9-12, Market
contract to purchase securities at a fixed price for 14 Leverage
delivery at a future date. Under normal market conditions, Liquidity
when-issued purchases and forward commitments will not Credit
exceed 25% of the value of a Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar 8 Market
denominated bonds issued by foreign corporations or Credit
governments. Sovereign bonds are those issued by the Interest Rate
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 that pay 2, 7-11 Credit
no interest, but are issued at a discount from their value Market
at maturity. When held to maturity, their entire return Interest Rate
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
71
<PAGE> 173
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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 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,
72
<PAGE> 174
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
a Fund may have to reinvest in securities with a lower yield. In this event,
the Fund would experience a decline in income -- and the potential for
taxable capital gains. Further, with early prepayment, a Fund may fail to
recover any premium paid, resulting in an unexpected capital loss.
Prepayment/call risk is generally low for securities with a short-term
maturity, moderate for securities with an intermediate-term maturity, and
high for securities with a long-term maturity.
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans.
These laws include restrictions on foreclosures, redemption rights after
foreclosure, Federal and state bankruptcy and debtor relief laws,
restrictions on "due on sale" clauses, and state usury laws.
SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky
than stocks of larger companies and may be more vulnerable than larger
companies to adverse business or economic developments. Many of these
companies are young and have a limited track record. Small cap companies may
also have limited product lines, markets, or financial resources. Securities
of such companies may be less liquid and more volatile than securities of
larger companies or the market averages in general and, therefore, may
involve greater risk than investing in larger companies. In addition, small
cap companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate
growth prospects. If a Fund concentrates on small-capitalization companies,
its performance may be more volatile than that of a fund that invests
primarily in larger companies.
TAX RISK. The risk that the issuer of the securities will fail to comply
with certain requirements of the Internal Revenue Code, which would cause
adverse tax consequences.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the BB&T Funds therefore could
be adversely affected if the computer systems used by its service providers
do not properly process dates on and after January 1, 2000, because they
cannot distinguish between the year 2000 and the year 1900. Although the
critical January 1(st) date has passed largely without incident, year 2000
date-related computer problems can still occur throughout the coming year. We
are seeking assurances from each of our service providers that they expect
their systems to accommodate the year 2000 transition without significant
adverse consequences to BB&T Funds. If these assurances prove to be
incorrect, BB&T shareholders may lose money as a result of system failures or
year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
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<PAGE> 175
[LOGO]
FUND MANAGEMENT
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for
the Funds. BB&T is the oldest bank in North Carolina and is the principal
bank affiliate of BB&T Corporation, a bank holding company that is a North
Carolina corporation, headquartered in Winston-Salem, North Carolina. As of
December 31, 1999, BB&T Corporation had assets of approximately $43.5
billion. Through its subsidiaries, BB&T Corporation operates over 655 banking
offices in Maryland, North Carolina, South Carolina, Virginia and Washington,
D.C., providing a broad range of financial services to individuals and
businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Funds, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the BB&T Funds. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds
for its fiduciary accounts for more than 17 years and currently manages
assets of more than $4.4 billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal
year ended:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 09/30/99
<S> <C>
------------------------------
Growth and Income Stock Fund 0.50%
------------------------------
Balanced Fund 0.50%
------------------------------
Large Company Growth Fund 0.50%
------------------------------
Small Company Growth Fund 1.00%
------------------------------
International Equity Fund 1.00%
------------------------------
Short-Intermediate U.S. Government Income Fund 0.50%
------------------------------
Intermediate U.S. Government Bond Fund 0.50%
------------------------------
North Carolina Intermediate Tax-Free Fund 0.50%
------------------------------
South Carolina Intermediate Tax-Free Fund 0.30%
------------------------------
Virginia Intermediate Tax-Free Fund 0.50%
------------------------------
Prime Money Market Fund 0.20%
------------------------------
U.S. Treasury Money Market Fund 0.30%
------------------------------
Capital Manager Conservative Growth Fund 0.05%
------------------------------
Capital Manager Moderate Growth Fund 0.05%
------------------------------
Capital Manager Growth Fund 0.05%
------------------------------------------------------------------------------------
</TABLE>
During the first half of 2000, BB&T intends to reorganize its investment
advisory division as a separate, wholly owned subsidiary of BB&T to be called
BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
are currently providing 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 will be wholly owned and otherwise fully controlled by
BB&T. As a result, this transaction will not be 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 will not be
required.
74
<PAGE> 176
FUND MANAGEMENT
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 AND TAX-FREE MONEY MARKET FUND. BlackRock
Institutional Management Corporation ("BIMC") (formerly PNC Institutional
Management Corporation) serves as the Sub-Adviser to the Prime Money Market
Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund, selects
its investments and places all orders for purchases and sales of each Fund's
securities, subject to the general supervision of the BB&T Funds' Board of
Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's respective investment objective, policies
and restrictions. BIMC'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, 1999, BAI and its subsidiaries had
approximately $164.5 billion in discretionary assets under management. BAI is
an indirect majority-owned subsidiary of PNC Bank Corp., a diversified
financial services company.
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.
INTERNATIONAL EQUITY FUND. Peter J. Tait has been the portfolio manager of
the International Equity Fund since February 2000. Mr. Tait has served as
Managing Director and Global Strategist of BlackRock International since
1996. His previous position was Director and Head of the Continental European
Desk at Dunedin Fund Managers Ltd. from 1990 to 1996.
ALL OTHER BB&T FUNDS. 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, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as each Fund's administrator. The administrative services
of the Administrator include providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The
Distributor may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
The SAI has more detailed information about the Adviser and other service
providers.
75
<PAGE> 177
[LOGO]
SHAREHOLDER INFORMATION
CHOOSING A SHARE CLASS
Class A Shares and Class B Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have
it invested, and whether you plan to make additional investments. Your
financial representative can help you decide which share class is best for
you.
CLASS A SHARES
- 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:
<TABLE>
<S> <C>
Growth and Income Stock Fund South Carolina Intermediate Tax-Free
Balanced Fund Fund
Large Company Growth Fund Virginia Intermediate Tax-Free Fund
Small Company Growth Fund Prime Money Market Fund
International Equity Fund U.S. Treasury Money Market Fund
Short-Intermediate U.S. Government Income Fund Tax-Free Money Market Fund*
Intermediate U.S. Government Bond Fund Capital Manager Conservative Growth Fund
Intermediate Corporate Bond Fund Capital Manager Moderate Growth Fund
North Carolina Intermediate Tax-Free Fund Capital Manager Growth Fund
</TABLE>
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 85.
- 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:
<TABLE>
<S> <C>
Growth and Income Stock Fund Prime Money Market Fund
Balanced Fund U.S. Treasury Money Market Fund
Large Company Growth Fund Tax-Free Money Market Fund*
Small Company Growth Fund Capital Manager Conservative Growth Fund
International Equity Fund Capital Manager Moderate Growth Fund
Intermediate U.S. Government Bond Fund Capital Manager Growth Fund
Intermediate Corporate Bond Fund
</TABLE>
* Class A & B shares of the Tax-Free Money Market Fund are not currently
being offered.
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.
For actual past expenses of each share class, see the fund-by-fund
information earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could
end up paying more expenses over the long term than if they had paid a sales
charge.
The Funds also offer Trust Shares, which have their own expense structure and
are only available to investors who are 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.
76
<PAGE> 178
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of the
Fund's investments and other
assets, subtracting its
liabilities and then dividing
that figure by the number of
outstanding shares of the
Fund:
NAV =
Total Assets - Liabilities
-------------------------------
Number of Shares
Outstanding
Generally, for Funds other
than the Money Market Funds,
you can find the Fund's NAV
daily in The Wall Street
Journal and other newspapers.
NAV is calculated separately
for each class of shares.
------------------------------
MONEY MARKET FUNDS
Per share net asset value ("NAV") for
each Fund is determined and its shares
are priced twice a day. The NAV for the
Prime Money Market Fund, the U.S.
Treasury Money Market Fund and the
Tax-Free Money Market Fund is determined
at 12:00 p.m. Eastern time and at the
close of regular trading on the New York
Stock Exchange, normally at 4:00 p.m.
Eastern time on days the Exchange is
open.
Your order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is received.
This is what is known as the offering
price.
Each Fund uses the amortized cost method
of valuing its investments, which does
not take into account unrealized gains or
losses. For further information regarding
the methods used in valuing the Fund's
investments, please see the SAI.
OTHER FUNDS
Per 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.
77
<PAGE> 179
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
<S> <C> <C>
Class A or Class B
-------------------------------------------------------
Regular $1,000 $0
-------------------------------------------------------
Automatic Investment Plan $25 $25
</TABLE>
All purchases must be in U.S. dollars.
A fee will be charged for any checks
that do not clear. Third-party checks
are not accepted.
A Fund may waive its minimum purchase
requirement. The Distributor may reject
a purchase order if it considers it in
the best interest of the Fund and its
shareholders.
Throughout the year 2000, BB&T or BISYS
is offering a special investment bonus
of up to $50 in value for individuals
who purchase Class A or B Shares of a
BB&T Fund (excluding Money Market
Funds) through BB&T Investment
Services. The minimum investment
required to receive the investment
bonus is $5,000 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.
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.
-----------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------
78
<PAGE> 180
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
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.
QUESTIONS?
Call 800-451-8382 or your
investment representative.
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.
79
<PAGE> 181
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
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.
-------------------------------------
AUTOMATIC INVESTMENT PLAN
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:
- Your bank name, address and
account number
- The amount you wish to invest
automatically (minimum $25)
- 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.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A Shares than for Class B Shares, because
Class A Shares have lower distribution expenses. Income dividends for the
Money Market Funds and the Bond Funds are declared daily and paid monthly.
Income dividends for the Growth and Income Stock Fund and the Balanced Fund
are declared and paid monthly. The Large Company Growth, the Small Company
Growth, the International Equity, and the Fund of Funds declare and pay
income dividends quarterly. Capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.
-----------------------------------------------------------------------------
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.
80
<PAGE> 182
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.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below.)
BY MAIL
1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds, P.O. Box 182533, Columbus, OH 43218-2533.
BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS
IN WRITING REQUIRED" BELOW.)
1. See instruction 1 above.
2. Send to: BB&T Funds, c/o BISYS Fund Services, Attn: T.A. Operations,
3435 Stelzer Road, Columbus, OH 43219.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you request a
withdrawal in cash. This is also known as
redeeming shares or a redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B Shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
These fees will be deducted from the money
paid to you. See the section on "Distribution
Arrangements/Sales Charges" below for
details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial
adviser or broker, ask him or her for
redemption procedures. Your adviser and/or
broker may have transaction minimums and/or
transaction times which will affect your
redemption. For all other sales transactions,
follow the instructions below.
81
<PAGE> 183
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must indicate this option on your application.
The Fund will charge a $7 wire transfer fee for each wire transfer request.
Note: Your financial institution may also charge a separate fee.
Call 1-800-228-1872 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Your bank may charge for this service.
Call 1-800-228-1872 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
- 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, 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.
82
<PAGE> 184
SHAREHOLDER INFORMATION
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.
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.
83
<PAGE> 185
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, FUNDS OF FUNDS, INTERMEDIATE U.S. GOVERNMENT BOND FUND
AND INTERMEDIATE CORPORATE BOND FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $99,999 4.50% 4.71%
------------------------------------------------------------------------
$100,000 up to $249,999 3.50% 3.63%
------------------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
------------------------------------------------------------------------
$500,000 up to $999,999 1.50% 1.52%
------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00%
</TABLE>
FOR THE TAX-FREE BOND FUNDS AND THE SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME
FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $99,999 2.00% 2.04%
------------------------------------------------------------------------
$100,000 up to $249,999 1.50% 1.52%
------------------------------------------------------------------------
$250,000 up to $499,999 1.00% 1.01%
------------------------------------------------------------------------
$500,000 up to $999,999 0.50% 0.50%
------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00%
</TABLE>
FOR THE MONEY MARKET FUNDS
No sales charges.
(1) There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed in
the first year after purchase. This charge will be based on the lower of your
cost for the shares or their NAV at the time of redemption. There will be no
CDSC on reinvested distributions. For sales of over $1 million or more, the
Distributor pays broker-dealers out of its own assets, a fee of up to 1% of
the offering price of such shares up to $2.5 million, 0.5% of the offering
price from $2.5 million to $5 million, and 0.25% of the offering price over
$5 million.
84
<PAGE> 186
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
Class B Shares are offered at
NAV, without any up-front sales
charge. Therefore, all the money
you invest is used to purchase
Fund shares. However, if you sell
your Class B Shares of the Fund
before the sixth anniversary, you
will have to pay a contingent
deferred sales charge at the time
of redemption. The CDSC will be
based upon the lower of the NAV
at the time of purchase or the
NAV at the time of redemption
according to the schedule below.
There is no CDSC on reinvested
dividends or distributions.
<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
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.
85
<PAGE> 187
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A Shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances.
- 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 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.
86
<PAGE> 188
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.
- 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.
87
<PAGE> 189
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your shares in
one Fund for shares of the same
class of another BB&T Fund,
usually without paying
additional sales charges (see
"Notes" below). You must meet
the minimum investment
requirements for the Fund into
which you are exchanging.
Exchanges from one Fund to
another are taxable. Class A
Shares and Class B Shares may
also be exchanged for Trust
Shares of the same Fund if you
become eligible to purchase
Trust Shares. Class B Shares may
not be exchanged for Class A
Shares. Please consult the Trust
Share prospectus for more
information. No transaction fees
are currently charged for
exchanges.
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.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written
request to BB&T Funds, P.O. Box 182533,
Columbus OH 43218-2533, or by calling
1-800-228-1872. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and
account number
- Taxpayer identification number
(usually your Social Security number)
- Dollar value or number of shares to be
exchanged
- The name of the Fund from which the
exchange is to be made.
- The name of the Fund into which the
exchange is being made.
See "Selling your Shares" for important
information about telephone transactions.
To prevent disruption in the management of
the Funds, due to market timing
strategies, exchange activity may be
limited to four exchanges from a Fund
during a calendar year.
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.
88
<PAGE> 190
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Please consult your tax adviser regarding your specific questions about
federal, state and local income taxes. Below we have summarized some
important tax issues that affect the Funds and their shareholders. This
summary is based on current tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or
gains earned by the Fund before your investment (and thus were included in
the price you paid).
For the Tax-Free Bond Funds and Tax-Free Money Market Fund, the income
dividends that you receive are expected to be exempt from federal income
taxes and, in the case of the North Carolina Intermediate Tax-Free Fund,
South Carolina Intermediate Tax-Free Fund and Virginia Intermediate Tax-Free
Fund, North Carolina, South Carolina and Virginia income taxes, respectively.
However, if you receive social security or railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any, an
investment in the Tax-Free Bond Funds or Tax-Free Money Market Fund may have
on the federal taxation of your benefits. In addition, an investment in the
Tax-Free Bond Funds or Tax-Free Money Market Fund may result in liability for
federal alternative minimum tax, both for individual and corporate
shareholders.
A Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, a Fund's yield on those securities would be
decreased. 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.
89
<PAGE> 191
OTHER INFORMATION ABOUT THE FUNDS
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 Intermediate Corporate Bond Fund and Tax-Free
Money Market Fund are not presented because they had not commenced operations
as September 30, 1999.
90
<PAGE> 192
OTHER INFORMATION ABOUT THE FUNDS GROWTH AND INCOME STOCK FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.48 $ 19.98 $ 15.31 $ 12.97 $ 11.26
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.25 0.23 0.26 0.26 0.25
Net realized and unrealized gain (loss) on
investments 1.93 (0.17) 5.30 2.43 1.98
-------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.18 0.06 5.56 2.69 2.23
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.25) (0.23) (0.26) (0.26) (0.25)
Net realized gains (0.81) (1.33) (0.63) (0.09) (0.12)
In excess of net realized gains -- -- -- -- (0.15)
-------------------------------------------------------------------------------------------------------------
Total Distributions (1.06) (1.56) (0.89) (0.35) (0.52)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.60 $ 18.48 $ 19.98 $ 15.31 $ 12.97
-------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 11.64% 0.10% 37.80% 20.97% 20.62%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 38,604 $ 39,817 $ 34,679 $ 18,949 $ 10,842
Ratio of expenses to average net assets 1.10% 1.10% 1.09% 1.11% 1.07%
Ratio of net investment income to average net
assets 1.22% 1.18% 1.52% 1.82% 2.15%
Ratio of expenses to average net assets* 1.59% 1.59% 1.58% 1.60% 1.60%
Ratio of net investment income to average net
assets* 0.73% 0.69% 1.03% 1.33% 1.62%
Portfolio turnover(a) 13.52% 13.17% 22.66% 19.82% 8.73%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
91
<PAGE> 193
OTHER INFORMATION ABOUT THE FUNDS GROWTH AND INCOME STOCK FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEAR ENDED SEPTEMBER 30, 1996 TO
--------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.42 $ 19.93 $ 15.29 $ 13.78
-------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.11 0.09 0.13 0.13
Net realized and unrealized gain (loss) on
investments 1.90 (0.18) 5.28 1.52
-------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.01 (0.09) 5.41 1.65
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.11) (0.09) (0.14) (0.14)
Net realized gains (0.81) (1.33) (0.63) --
-------------------------------------------------------------------------------------------------------------
Total Distributions (0.92) (1.42) (0.77) (0.14)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.51 $ 18.42 $ 19.93 $ 15.29
-------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 10.73% (0.67)% 36.70% 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 38,590 $ 32,455 $ 16,690 $ 3,880
Ratio of expenses to average net assets 1.84% 1.85% 1.84% 1.85%(c)
Ratio of net investment income to average net
assets 0.47% 0.43% 0.77% 1.13%(c)
Ratio of expenses to average net assets* 2.08% 2.09% 2.08% 2.09%(c)
Ratio of net investment income to average net
assets* 0.23% 0.19% 0.53% 0.89%(c)
Portfolio turnover(d) 13.52% 13.17% 22.66% 19.82%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
92
<PAGE> 194
OTHER INFORMATION ABOUT THE FUNDS BALANCED FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.82 $ 13.63 $ 11.96 $ 11.04 $ 9.76
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.35 0.39 0.45 0.43 0.44
Net realized and unrealized gain on investments 0.74 0.54 2.04 0.92 1.27
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.09 0.93 2.49 1.35 1.71
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.35) (0.39) (0.45) (0.43) (0.43)
Net realized gains (0.73) (0.35) (0.37) -- --
------------------------------------------------------------------------------------------------------------
Total Distributions (1.08) (0.74) (0.82) (0.43) (0.43)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.83 $ 13.82 $ 13.63 $ 11.96 $ 11.04
------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 7.72% 6.89% 21.76% 12.43% 18.00%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 21,207 $ 21,948 $ 17,234 $ 12,456 $ 9,257
Ratio of expenses to average net assets 1.15% 1.17% 1.18% 1.20% 1.17%
Ratio of net investment income to average net
assets 2.43% 2.75% 3.63% 3.78% 4.27%
Ratio of expenses to average net assets* 1.64% 1.66% 1.67% 1.69% 1.71%
Ratio of net investment income to average net
assets* 1.94% 2.26% 3.14% 3.29% 3.73%
Portfolio turnover(a) 35.98% 31.85% 27.07% 19.87% 23.68%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
93
<PAGE> 195
OTHER INFORMATION ABOUT THE FUNDS BALANCED FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEAR ENDED SEPTEMBER 30, 1996 TO
-------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
--------- --------- -------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.76 $ 13.57 $ 11.91 $ 11.54
--------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.26 0.28 0.36 0.27
Net realized and unrealized gain on investments 0.71 0.55 2.04 0.37
--------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.97 0.83 2.40 0.64
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.25) (0.29) (0.37) (0.27)
Net realized gains (0.73) (0.35) (0.37) --
--------------------------------------------------------------------------------------------------------------
Total Distributions (0.98) (0.64) (0.74) (0.27)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.75 $ 13.76 $ 13.57 $ 11.91
--------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 6.82% 6.16% 20.90% 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 21,610 $ 15,183 $ 6,360 $ 2,339
Ratio of expenses to average net assets 1.90% 1.92% 1.93% 1.95%(c)
Ratio of net investment income to average net
assets 1.70% 1.98% 2.88% 3.13%(c)
Ratio of expenses to average net assets* 2.14% 2.16% 2.17% 2.18%(c)
Ratio of net investment income to average net
assets* 1.46% 1.74% 2.64% 2.90%(c)
Portfolio turnover(d) 35.98% 31.85% 27.07% 19.87%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
94
<PAGE> 196
OTHER INFORMATION ABOUT THE FUNDS LARGE COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 3,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.00
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss (0.04) --
Net realized and unrealized gain (loss) on investments 2.94 (0.25)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.90 (0.25)
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- (0.03)
Net realized gains (0.56) --
In excess of net realized gains -- (0.10)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.13)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.96 $ 9.62
------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 30.93% (2.54)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 5,912 $ 1,938
Ratio of expenses to average net assets 1.22% 1.39%(c)
Ratio of net investment loss to average net assets (0.34)% (0.04)%(c)
Ratio of expenses to average net assets* 1.71% 1.87%(c)
Ratio of net investment loss to average net assets* (0.83)% (0.52)%(c)
Portfolio turnover(d) 67.59% 108.36%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
95
<PAGE> 197
OTHER INFORMATION ABOUT THE FUNDS LARGE COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 3,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58 $ 10.00
-------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss (0.12) (0.02)
Net realized and unrealized gain (loss) on investments 2.92 (0.29)
-------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.80 (0.31)
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- (0.01)
Net realized gains (0.56) --
In excess of net realized gains -- (0.10)
-------------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.11)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.82 $ 9.58
-------------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 29.97% (3.13)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 12,289 $ 3,985
Ratio of expenses to average net assets 1.97% 2.14%(c)
Ratio of net investment loss to average net assets (1.08)% (0.78)%(c)
Ratio of expenses to average net assets* 2.21% 2.37%(c)
Ratio of net investment loss to average net assets* (1.32)% (1.01)%(c)
Portfolio turnover(d) 67.59% 108.36%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
96
<PAGE> 198
OTHER INFORMATION ABOUT THE FUNDS SMALL COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
DECEMBER 7,
FOR THE YEAR ENDED SEPTEMBER 30, 1994 TO
--------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 (a)
-------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.50 $ 23.33 $ 21.06 $ 14.53 $ 10.00
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss (0.28) (0.29) (0.15) (0.20) (0.08)
Net realized and unrealized gain (loss) on
investments 7.70 (5.23) 2.44 6.73 4.61
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 7.42 (5.52) 2.29 6.53 4.53
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
In excess of net realized gains -- (0.31) (0.02) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.31) (0.02) -- --
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.92 $ 17.50 $ 23.33 $ 21.06 $ 14.53
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 42.32% (23.81)% 10.90% 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 11,336 $ 9,456 $ 12,676 $ 7,413 $ 1,096
Ratio of expenses to average net assets 1.80% 1.86% 1.89% 2.01% 2.50%(c)
Ratio of net investment loss to average net
assets (1.23)% (1.36)% (1.29)% (1.26)% (1.56)%(c)
Ratio of expenses to average net assets* 2.05% 2.11% 2.14% 2.26% 2.84%(c)
Ratio of net investment loss to average net
assets* (1.48)% (1.61)% (1.54)% (1.51)% (1.90)%(c)
Portfolio turnover(d) 184.39% 157.44% 80.66% 71.62% 46.97%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
97
<PAGE> 199
OTHER INFORMATION ABOUT THE FUNDS SMALL COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEAR ENDED SEPTEMBER 30, 1996 TO
-------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
--------- --------- -------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.13 $ 23.02 $20.92 $15.24
-----------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss (0.41) (0.39) (0.20) (0.21)
Net realized and unrealized gain (loss) on
investments 7.49 (5.19) 2.32 5.89
-----------------------------------------------------------------------------------------------------
Total from Investment Activities 7.08 (5.58) 2.12 5.68
-----------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
In excess of net realized gains -- (0.31) (0.02) --
-----------------------------------------------------------------------------------------------------
Total Distributions -- (0.31) (0.02) --
-----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 24.21 $ 17.13 $23.02 $20.92
-----------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 41.25% (24.40)% 10.16% 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $11,054 $ 8,609 $8,869 $3,200
Ratio of expenses to average net assets 2.55% 2.61% 2.64% 2.72%(c)
Ratio of net investment loss to average net
assets (1.98)% (2.11)% (2.04)% (2.01)%(c)
Portfolio turnover(d) 184.39% 157.44% 80.66% 71.62%
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
98
<PAGE> 200
OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 2,
SEPTEMBER 30, 1997 TO
------------------- SEPTEMBER 30,
1999 1998 1997 (a)
-------- -------- -------------
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $ 11.24 $ 10.00
--------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.01) 0.03 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.78 (1.09) 1.25
--------------------------------------------------------------------------------------------
Total from Investment Activities 2.77 (1.06) 1.28
--------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.03) (0.03) (0.02)
Net realized gains (0.17) (0.23) --
In excess of net investment income -- (0.01) (0.02)
--------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.27) (0.04)
--------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.48 $ 9.91 $ 11.24
--------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 28.33% (9.60)% 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 1,906 $ 1,314 $ 833
Ratio of expenses to average net assets 1.81% 1.75% 1.97%(c)
Ratio of net investment income (loss) to average
net assets (0.07)% 0.26% 0.14%(c)
Ratio of expenses to average net assets* 2.06% 2.01% 2.24%(c)
Ratio of net investment income (loss) to average
net assets* (0.32)% 0.00% (0.13)%(c)
Portfolio turnover(d) 82.00% 53.27% 41.45%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
99
<PAGE> 201
OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 2,
SEPTEMBER 30, 1997 TO
------------------- SEPTEMBER 30,
1999 1998 1997 (a)
-------- -------- -------------
<S> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 11.23 $ 10.00
--------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss (0.10) (0.04) (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.77 (1.10) 1.26
--------------------------------------------------------------------------------------------
Total from Investment Activities 2.67 (1.14) 1.25
--------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.01) -- --
Net realized gains (0.17) (0.23) --
In excess of net investment income -- (0.01) (0.02)
--------------------------------------------------------------------------------------------
Total Distributions (0.18) (0.24) (0.02)
--------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.34 $ 9.85 $ 11.23
--------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 27.46% (10.29)% 12.51%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 2,378 $ 1,923 $ 1,179
Ratio of expenses to average net assets 2.56% 2.50% 2.69%(c)
Ratio of net investment loss to average net
assets (0.84)% (0.50)% (0.62)%(c)
Ratio of expenses to average net assets* 2.56% 2.51% 2.74%(c)
Ratio of net investment loss to average net
assets* (0.84)% (0.51)% (0.66)%(c)
Portfolio turnover(d) 82.00% 53.27% 41.45%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
100
<PAGE> 202
OTHER INFORMATION ABOUT THE FUNDS SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06 $ 9.76 $ 9.73 $ 9.88 $ 9.60
--------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.50 0.51 0.54 0.55 0.53
Net realized and unrealized gain (loss) on
investments (0.41) 0.30 0.03 (0.15) 0.29
--------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.09 0.81 0.57 0.40 0.82
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.50) (0.51) (0.54) (0.55) (0.54)
--------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.51) (0.54) (0.55) (0.54)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.65 $ 10.06 $ 9.76 $ 9.73 $ 9.88
--------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 0.95% 8.50% 6.07% 4.09% 8.74%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 4,626 $ 4,476 $ 5,151 $ 6,356 $ 7,102
Ratio of expenses to average net assets 1.02% 1.06% 1.11% 1.19% 1.17%
Ratio of net investment income to average net
assets 5.04% 5.15% 5.60% 5.55% 5.50%
Ratio of expenses to average net assets* 1.42% 1.44% 1.46% 1.54% 1.58%
Ratio of net investment income to average net
assets* 4.64% 4.77% 5.25% 5.20% 5.09%
Portfolio turnover(a) 99.99% 53.74% 87.99% 54.82% 106.81%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
101
<PAGE> 203
OTHER INFORMATION ABOUT THE FUNDS INTERMEDIATE U.S. GOVERNMENT BOND
FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $10.57 $ 9.84 $ 9.63 $ 9.88 $ 9.33
---------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.50 0.51 0.53 0.56 0.59
Net realized and unrealized gain (loss) on
investments (0.76) 0.74 0.21 (0.25) 0.55
---------------------------------------------------------------------------------------------------
Total from Investment Activities (0.26) 1.25 0.74 0.31 1.14
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.50) (0.52) (0.53) (0.56) (0.59)
Net realized gains (0.11) -- -- -- --
---------------------------------------------------------------------------------------------------
Total Distributions (0.61) (0.52) (0.53) (0.56) (0.59)
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.70 $10.57 $ 9.84 $ 9.63 $ 9.88
---------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) (2.49)% 13.07% 7.93% 3.17% 12.63%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $3,308 $4,562 $4,211 $3,659 $5,173
Ratio of expenses to average net assets 1.08% 1.09% 1.12% 1.13% 1.09%
Ratio of net investment income to average net
assets 5.00% 5.10% 5.49% 5.68% 6.22%
Ratio of expenses to average net assets* 1.43% 1.44% 1.47% 1.48% 1.50%
Ratio of net investment income to average net
assets* 4.65% 4.75% 5.14% 5.33% 5.81%
Portfolio turnover(a) 73.46% 60.98% 62.45% 76.29% 68.91%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
102
<PAGE> 204
OTHER INFORMATION ABOUT THE FUNDS INTERMEDIATE U.S. GOVERNMENT BOND
FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEAR ENDED SEPTEMBER 30, 1996 TO
--------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $10.54 $ 9.81 $ 9.60 $10.17
----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.43 0.43 0.46 0.31
Net realized and unrealized gain (loss) on
investments (0.75) 0.74 0.21 (0.57)
----------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.32) 1.17 0.67 (0.26)
----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.43) (0.44) (0.46) (0.31)
Net realized gains (0.11) -- -- --
----------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.44) (0.46) (0.31)
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.68 $10.54 $ 9.81 $ 9.60
----------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) (3.13)% 12.26% 7.14% (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $2,679 $1,314 $ 623 $ 353
Ratio of expenses to average net assets 1.83% 1.84% 1.87% 1.85%(c)
Ratio of net investment income to average net
assets 4.28% 4.35% 4.74% 5.01%(c)
Ratio of expenses to average net assets* 1.93% 1.94% 1.97% 1.95%(c)
Ratio of net investment income to average net
assets* 4.18% 4.25% 4.64% 4.91%(c)
Portfolio turnover(d) 73.46% 60.98% 62.45% 76.29%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
103
<PAGE> 205
OTHER INFORMATION ABOUT THE FUNDS NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.52 $ 10.27 $ 10.05 $ 10.15 $ 9.78
-----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.40 0.42 0.40 0.36 0.36
Net realized and unrealized gain (loss)
on investments (0.56) 0.25 0.22 (0.10) 0.37
-----------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.16) 0.67 0.62 0.26 0.73
-----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.40) (0.42) (0.40) (0.36) (0.36)
Net realized gains (0.05) -- -- -- --
In excess of net realized gains (0.02) -- -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.42) (0.40) (0.36) (0.36)
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.89 $ 10.52 $ 10.27 $ 10.05 $ 10.15
-----------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) (1.53)% 6.63% 6.28% 2.61% 7.61%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 13,677 $ 11,592 $ 9,419 $ 9,261 $ 8,717
Ratio of expenses to average net assets 0.95% 0.96% 1.00% 1.11% 1.05%
Ratio of net investment income to average
net assets 3.95% 4.03% 3.94% 3.58% 3.63%
Ratio of expenses to average net assets* 1.47% 1.48% 1.50% 1.61% 1.63%
Ratio of net investment income to average
net assets* 3.44% 3.51% 3.44% 3.08% 3.05%
Portfolio turnover(a) 39.70% 32.63% 16.98% 20.90% 9.38%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions not occurred, the ratios would have been as indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
104
<PAGE> 206
OTHER INFORMATION ABOUT THE FUNDS SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 20,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.47 $ 10.00
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.38 0.31
Net realized and unrealized gain (loss) on investments (0.59) 0.47
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.21) 0.78
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.38) (0.31)
Net realized gains (0.06) --
In excess of net realized gains (0.02) --
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.46) (0.31)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.80 $ 10.47
------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) (2.09)% 7.91%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 1,160 $ 297
Ratio of expenses to average net assets 0.97% 1.04%(c)
Ratio of net investment income to average net assets 3.72% 3.85%(c)
Ratio of expenses to average net assets* 1.91% 1.97%(c)
Ratio of net investment income to average net assets* 2.78% 2.78%(c)
Portfolio turnover(d) 71.96% 58.80%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
105
<PAGE> 207
OTHER INFORMATION ABOUT THE FUNDS VIRGINIA INTERMEDIATE TAX-FREE FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
MAY 17,
1999 TO
SEPTEMBER 30,
1999 (d)
-------------
<S> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.24
----------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.30
Net realized and unrealized loss
on investments (0.38)
----------------------------------------------------------------------
Total from Investment Activities (0.08)
----------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.30)
----------------------------------------------------------------------
Total Distributions (0.30)
----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.86
----------------------------------------------------------------------
Total Return (excludes sales charge) (0.66)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 74
Ratio of expenses to average net assets 1.00%(c)
Ratio of net investment income to average
net assets 4.05%(c)
Ratio of expenses to average net assets* 1.51%(c)
Ratio of net investment income to average
net assets* 3.53%(c)
Portfolio turnover(a) 27.05%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(b) Not annualized.
(c) Annualized.
(d) Period from commencement of operations.
106
<PAGE> 208
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 1,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.043 0.048
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.043 0.048
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.043) (0.048)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.043) (0.048)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------------
Total Return 4.42% 4.93%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 5,395 $ 3,262
Ratio of expenses to average net assets 0.80% 0.83%
Ratio of net investment income to average net assets 4.34% 4.83%
Ratio of expenses to average net assets* 1.39% 1.43%
Ratio of net investment income to average net assets* 3.75% 4.23%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
107
<PAGE> 209
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE SEPTEMBER 2,
YEAR ENDED 1998 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.036 0.003
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.036 0.003
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.036) (0.003)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.036) (0.003)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.000 $1.000
------------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 3.64% 0.32%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $9,391 $ 300
Ratio of expenses to average net assets 1.56% 1.64%(c)
Ratio of net investment income to average net assets 3.58% 3.98%(c)
Ratio of expenses to average net assets* 1.89% 1.99%(c)
Ratio of net investment income to average net assets* 3.25% 3.63%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced or reimbursed. If
such fee reductions or reimbursements had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
108
<PAGE> 210
OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.040 0.046 0.044 0.044 0.047
----------------------------------------------------------------------------------------------------
Total from Investment Activities 0.040 0.046 0.044 0.044 0.047
----------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.040) (0.046) (0.044) (0.044) (0.047)
----------------------------------------------------------------------------------------------------
Total Distributions (0.040) (0.046) (0.044) (0.044) (0.047)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------------------------
Total Return 4.08% 4.75% 4.50% 4.49% 4.81%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $42,241 $41,478 $32,541 $27,931 $13,948
Ratio of expenses to average net assets 0.84% 0.86% 0.95% 0.99% 0.98%
Ratio of net investment income to average net
assets 4.00% 4.65% 4.41% 4.37% 4.81%
Ratio of expenses to average net assets* 1.23% 1.26% 1.25% 1.25% 1.24%
Ratio of net investment income to average net
assets* 3.61% 4.25% 4.11% 4.11% 4.55%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
109
<PAGE> 211
OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
For the year ended September 30, 1996 TO
--------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.033 0.039 0.036 0.025
----------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.033 0.039 0.036 0.025
----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.033) (0.039) (0.036) (0.025)
----------------------------------------------------------------------------------------------------------
Total Distributions (0.033) (0.039) (0.036) (0.025)
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 3.31% 3.97% 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 2,264 $ 1,255 $ 1,502 $ 1,305
Ratio of expenses to average net assets 1.59% 1.61% 1.75% 1.75%(c)
Ratio of net investment income to average net
assets 3.25% 3.90% 3.61% 3.55%(c)
Ratio of expenses to average net assets* 1.73% 1.76% ** **
Ratio of net investment income to average net
assets* 3.11% 3.75% ** **
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
** There were no voluntary fee reductions during this period.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
110
<PAGE> 212
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE JANUARY 29,
YEAR ENDED 1998 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 10.09
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.30 0.19
Net realized and unrealized gain (loss) on investments
with affiliates 0.52 (0.01)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.82 0.18
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.31) (0.22)
Net realized gains (0.17) --
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.22)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.05
------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 8.19% 1.89%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 532 $ 119
Ratio of expenses to average net assets 0.62% 0.83%(c)
Ratio of net investment income to average net assets 2.95% 2.91%(c)
Ratio of expenses to average net assets* 1.07% 1.33%(c)
Ratio of net investment income to average net assets* 2.49% 2.41%(c)
Portfolio turnover(d) 16.45% 4.28%
</TABLE>
The expense ratios noted do not include the effect of the expenses of the
underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
111
<PAGE> 213
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 29,
1999 TO
SEPTEMBER 30,
1999 (a)
-------------
<S> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.54
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.21
Net realized and unrealized loss on investments with
affiliates (0.15)
-----------------------------------------------------------------------------------------
Total from Investment Activities 0.06
-----------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.21)
-----------------------------------------------------------------------------------------
Total Distributions (0.21)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39
-----------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 0.59%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 110
Ratio of expenses to average net assets 1.35%(c)
Ratio of net investment income to average net assets 3.92%(c)
Ratio of expenses to average net assets* 1.75%(c)
Ratio of net investment income to average net assets* 3.52%(c)
Portfolio turnover(d) 16.45%
</TABLE>
The expense ratios noted above do not include the effect of the expenses of
the underlying fund.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as whole
without distinguishing between classes of shares issued.
112
<PAGE> 214
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE JANUARY 29,
YEAR ENDED 1998 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.67 $ 9.93
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.15 0.10
Net realized and unrealized gain (loss) on investments
with affiliates 1.46 (0.26)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.61 (0.16)
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.17) (0.10)
Net realized gains (0.32) --
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.10)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.79 $ 9.67
------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 16.81% (1.45)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 990 $ 276
Ratio of expenses to average net assets 0.69% 0.90%(c)
Ratio of net investment income to average net assets 1.24% 1.16%(c)
Ratio of expenses to average net assets* 1.14% 1.38%(c)
Ratio of net investment income to average net assets* 0.78% 0.68%(c)
Portfolio turnover(d) 17.93% 7.69%
</TABLE>
The expense ratios noted above do not include the effect of the expenses of
the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
113
<PAGE> 215
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 29,
1999 TO
SEPTEMBER 30,
1999 (a)
-------------
<S> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.69
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.10
Net realized and unrealized gain on investments with
affiliates 0.10
-----------------------------------------------------------------------------------------
Total from Investment Activities 0.20
-----------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.10)
-----------------------------------------------------------------------------------------
Total Distributions (0.10)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.79
-----------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 1.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 163
Ratio of expenses to average net assets 1.94%(c)
Ratio of net investment income to average net assets 1.16%(c)
Ratio of expenses to average net assets* 2.14%(c)
Ratio of net investment income to average net assets* 0.96%(c)
Portfolio turnover(d) 17.93%
</TABLE>
The expense ratios noted above do not include the effect of the expenses of
the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
114
<PAGE> 216
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER MODERATE
GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE JANUARY 29,
YEAR ENDED 1998 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $10.01
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.22 0.15
Net realized and unrealized gain (loss) on investments
with affiliates 1.06 (0.15)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.28 --
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.23) (0.16)
Net realized gains (0.25) --
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.16)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.65 $ 9.85
------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 13.07% 0.10%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $1,635 $1,146
Ratio of expenses to average net assets 0.68% 0.93%(c)
Ratio of net investment income to average net assets 1.93% 1.93%(c)
Ratio of expenses to average net assets* 1.13% 1.39%(c)
Ratio of net investment income to average net assets* 1.48% 1.47%(c)
Portfolio turnover(d) 17.33% 4.85%
</TABLE>
The expense ratios above do not include the effect of the expenses of the
underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
115
<PAGE> 217
OTHER INFORMATION ABOUT THE FUNDS CAPITAL MANAGER MODERATE
GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 29,
1999 TO
SEPTEMBER 30,
1999 (a)
-------------
<S> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.64
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.14
-----------------------------------------------------------------------------------------
Total from Investment Activities 0.14
-----------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.14)
-----------------------------------------------------------------------------------------
Total Distributions (0.14)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.64
-----------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 1.29%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 197
Ratio of expenses to average net assets 1.47%(c)
Ratio of net investment income to average net assets 2.54%(c)
Ratio of expense to average net assets* 1.78%(c)
Ratio of net investment income to average net assets* 2.23%(c)
Portfolio turnover(d) 17.33%
</TABLE>
The expense ratios noted above do not include the effect of the expense of
the underlying funds.
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
116
<PAGE> 218
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 219
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.
<PAGE> 220
[BB&T FUNDS LOGO]
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
CLASS A SHARES
CLASS B SHARES
TRUST SHARES
PROSPECTUS
FEBRUARY 1, 2000
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> 221
BB&T FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
Carefully review this important 3 Overview
section, which summarizes each 5 Prime Money Market Fund
Fund's investments, risks, past 9 U.S. Treasury Money Market Fund
performance, and fees. 12 Tax-Free Money Market Fund
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
[LOGO]
Review this section for 14 Money Market Funds
information on investment 14 Investment Practices
strategies and their risks.
FUND MANAGEMENT
[LOGO]
Review this section for details on 19 The Investment Adviser
the people and organizations who 19 The Investment Sub-Adviser
oversee the Funds. 20 The Distributor and Administrator
SHAREHOLDER INFORMATION
[LOGO]
Review this section for details on 21 Choosing a Share Class
how shares are valued, how to 22 Pricing of Fund Shares
purchase, sell and exchange 23 Purchasing and Adding to Your Shares
shares, related charges and 26 Selling Your Shares
payments of dividends and 28 General Policies on Selling Shares
distributions. 29 Distribution Arrangements/Sales Charges
30 Distribution and Service (12b-1) Fees
31 Exchanging Your Shares
32 Dividends, Distributions and Taxes
OTHER INFORMATION ABOUT THE FUNDS
[LOGO]
33 Financial Highlights
</TABLE>
2
<PAGE> 222
[LOGO]
OBJECTIVES, RISK/RETURN AND EXPENSES OVERVIEW
<TABLE>
<S> <C>
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.
</TABLE>
3
<PAGE> 223
OBJECTIVES, RISK/RETURN AND EXPENSES OVERVIEW
MONEY MARKET FUNDS
<TABLE>
<S> <C>
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
</TABLE>
4
<PAGE> 224
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
<TABLE>
<S> <C>
RISK/RETURN
SUMMARY
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S.
dollar-denominated, "high-quality" short-term debt
securities, including the following:
- Obligations issued or supported by the credit of U.S. or
foreign banks or savings institutions with total assets in
excess of $1 billion (including obligations of foreign
branches of such banks);
- "High quality" commercial paper and other obligations
issued or guaranteed by U.S. and foreign corporations and
other issuers;
- Asset-backed securities;
- Securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or
instrumentalities and related custodial receipts;
- Securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or instrumentalities;
- Guaranteed investment contracts issued by highly-rated
U.S. insurance companies;
- Securities issued or guaranteed by state or local
government bodies; and
- Repurchase agreements relating to the above instruments.
Additionally, the Fund concentrates its investments in
obligations issued by the financial services industry.
"High-quality" debt securities are those obligations which,
at the time of purchase, (i) possess the highest short-term
rating from at least two NRSROs (for example, commercial
paper rated "A-1" by Standard & Poor's Corporation and "P-1"
by Moody's Investors Service, Inc.); or (ii) are single
rated and have received the highest short-term rating by an
NRSRO; or (iii) if unrated, are determined by the portfolio
manager to be of comparable quality.
When selecting securities for the Fund's portfolio, the
manager first considers safety of principal and the quality
of an investment. The manager then focuses on generating a
high-level of income. The manager generally evaluates
investments based on interest rate sensitivity selecting
those securities whose maturities fit the Fund's interest
rate sensitivity target and which the manager believes to be
the best relative values.
The Fund will maintain an average weighted portfolio
maturity of 90 days or less and will limit the maturity of
each security in its portfolio to 397 days or less.
For a more complete description of the securities in which
the Fund may invest, please see the Additional Investment
Strategies and Risks on pages 14-18 or consult the Statement
of Additional Information ("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 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.
</TABLE>
5
<PAGE> 225
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
<TABLE>
<S> <C>
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 pages 14-18.
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.
</TABLE>
6
<PAGE> 226
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
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 two years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
The 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)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1998 5.14%
99 4.75%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.29% 9/30/98
Worst
quarter: 1.11% 6/30/99
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION(2)
<S> <C> <C>
CLASS A SHARES 10/1/97
PRIME MONEY MARKET FUND 4.49% 4.70%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
PRIME MONEY MARKET FUND -0.28% 2.96%
TRUST SHARES
PRIME MONEY MARKET FUND 4.75% 4.98%
</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, 1999, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Trust Shares was 4.77%, 4.02% and 5.02%, respectively. Without fee
waivers and expense reimbursements, the Fund's yield would have been 4.27%,
3.77% and 4.77%, 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> 227
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum sales charge (load) on
purchases None None None
Maximum deferred sales charge
(load) None 5.00%(2) None
Redemption fee(3) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management fee(4) 0.40% 0.40% 0.40%
Distribution and service (12b-1)
fee(4) 0.50% 1.00% 0.00%
Other expenses(4) 0.49% 0.49% 0.48%
Total fund operating expenses(4) 1.39% 1.89% 0.88%
</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 0.30%. Additionally, distribution
and service (12b-1) fees for Class A are
expected to be limited to 0.25% and other
expenses are expected to be limited to be 0.45%
for each class. Total expenses after fee
waivers and expense reimbursements for each
class are expected to be: Class A Shares,
1.00%; Class B Shares, 1.75%; and Trust Shares,
0.75%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be
discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
PRIME MONEY MARKET FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $142 $440 $ 761 $1,669
CLASS B SHARES
Assuming redemption $692 $894 $1,221 $2,084
Assuming no redemption $192 $594 $1,021 $2,084
TRUST SHARES $ 90 $281 $ 488 $1,084
</TABLE>
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.
-----------------------------
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.
-----------------------------
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.
8
<PAGE> 228
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 pages 14-18 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 pages 14-18.
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.
</TABLE>
9
<PAGE> 229
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
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 seven years to
demonstrate that the Fund's value
varied at different times. The
table below it shows the Fund's
performance over time. Of course,
past performance does not indicate
how the Fund will perform in the
future.
The returns for Class A Shares and
Class B Shares will differ from
the Trust Share returns shown in
the bar chart because of the
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)
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<S> <C>
1993 2.71%
94 3.49%
95 5.20%
96 4.65%
97 4.79%
98 4.85%
99 4.41%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 1.32% 6/30/95
Worst
quarter: 0.62% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 1999)(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 4.15% 4.53% 4.02%
CLASS B SHARES (with applicable Contingent Deferred Sales Charge)
U.S. TREASURY MONEY MARKET FUND -0.63% 3.69% 3.56%
TRUST SHARES
U.S. TREASURY MONEY MARKET FUND 4.41% 4.78% 4.25%
</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, 1999, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Trust Shares was 4.23%, 3.48% and 4.47% respectively. Without fee
waivers and expense reimbursements, the Fund's yield would have been 3.88%,
3.38% and 4.37%, 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.
10
<PAGE> 230
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
FEES AND EXPENSES
<TABLE>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum sales charge (load) on
purchases None None None
Maximum deferred sales charge
(load) None 5.00%(2) None
Redemption fee(3) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management fee(4) 0.40% 0.40% 0.40%
Distribution and service (12b-1)
fee(4) 0.50% 1.00% 0.00%
Other expenses(4) 0.45% 0.45% 0.45%
Total fund operating expenses(4) 1.35% 1.85% 0.85%
</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 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 0.30%. Additionally, distribution
and service (12b-1) fees for Class A Shares are
expected to be limited to 0.25% and other
expenses for each class are expected to be
limited to 0.45%. Total expenses after fee
waivers and expense reimbursements for each
class are expected to be: Class A Shares,
1.00%; Class B Shares, 1.75% and Trust Shares,
0.75%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be
discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
U.S. TREASURY MONEY 1 3 5 10
MARKET FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $137 $428 $ 739 $1,624
CLASS B SHARES
Assuming redemption $688 $882 $1,201 $2,039
Assuming no redemption $188 $582 $1,001 $2,039
TRUST SHARES $ 87 $271 $ 471 $1,049
</TABLE>
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.
-----------------------------
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.
-----------------------------
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.
11
<PAGE> 231
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 14-18 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 pages 14-18.
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.
</TABLE>
12
<PAGE> 232
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE MONEY MARKET FUND
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.
FEES AND EXPENSES
<TABLE>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum sales charge (load) on
purchases None None None
Maximum deferred sales charge
(load) None 5.00%(2) None
Redemption fee(3) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management fee(4) 0.40% 0.40% 0.40%
Distribution and service (12b-1)
fee(4) 0.50% 1.00% 0.00%
Other expenses(4) 0.45% 0.45% 0.45%
Total fund operating expenses(4) 1.35% 1.85% 0.85%
</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 0.30%.
Additionally, we expect distribution and
service (12b-1) fees for Class A Shares to be
limited to 0.25% and other expenses for each
class to be limited to 0.45%. Accordingly, we
expect total expenses after fee waivers and
expense reimbursements for each class to be:
Class A Shares, 1.00%; Class B Shares, 1.75%
and Trust Shares, 0.75%. Any fee waiver or
expense reimbursement arrangement is voluntary
and may be discontinued at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C>
TAX-FREE MONEY MARKET 1 3
FUND YEAR YEARS
CLASS A SHARES $137 $428
CLASS B SHARES
Assuming redemption $688 $882
Assuming no redemption $188 $582
TRUST SHARES $ 87 $271
</TABLE>
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.
-----------------------------
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.
-----------------------------
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.
13
<PAGE> 233
[LOGO]
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND -- Under normal market conditions, at least 25% of
the Fund's total assets will be invested in obligations of issuers in the
financial services industry and repurchase agreements relating to such
obligations. However, for temporary defensive purposes during periods when
the Adviser or Sub-Adviser believes that maintaining this concentration may
be inconsistent with the best interests of Shareholders, the Fund will not
maintain this concentration. Money market instruments of companies in the
financial services industry include, but are not limited to, certificates of
deposit, commercial paper, bankers' acceptances, demand and time deposits,
and bank notes. These money market obligations are issued by domestic or
foreign banks, savings and loan associations, consumer and industrial finance
companies, securities brokerage companies and a variety of firms in the
insurance field. Financial service companies offering money market issues
must have total assets of $1 billion or more before their issues can be
considered for investment. The Fund will not purchase securities issued by
PNC Bank or BB&T or any of their affiliates.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
TAX-FREE MONEY MARKET FUND -- As a fundamental policy, except during periods
of unusual market conditions or during temporary defensive periods, the Fund
will invest substantially all, but in no event less than 80%, of its total
assets in Municipal Securities with remaining maturities of 397 days
(thirteen months) or less as determined in accordance with the rules of the
SEC.
The Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of the Adviser, suitable
tax-exempt obligations are unavailable. There is no percentage limitation on
the amount of assets which may be held uninvested. Uninvested cash reserves
will not earn income. The securities purchased by the Fund are also subject
to the quality, diversification, and other requirements of Rule 2a-7 under
the Investment Company Act of 1940, as amended, and other rules of the SEC.
Pursuant to Rule 2a-7, the Fund generally will limit its purchase of any one
issuer's securities (other than U.S. Government securities, repurchase
agreements collateralized by such securities and securities subject to
certain guarantees or otherwise providing the right to demand payment) to 5%
of the Fund's total assets, except that up to 25% of its total assets may be
invested in the first-tier securities (securities that possess at least one
rating in the highest category by an NRSRO or, if unrated, determined by the
Adviser to be of comparable quality) of one issuer for a period of up to
three business days; provided that the Fund may not invest more than 25% of
its total assets in the securities of more than one issuer in accordance with
the foregoing at any one time.
The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of
such securities) will be Eligible Securities. Applicable Eligible Securities
are:
- Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
- securities that are issued or guaranteed by a person with such ratings;
- securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
- shares of other open-end investment companies that invest in the type of
obligations in which the Fund may invest.
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the
main risks they pose. Equity securities are subject mainly to market risk.
Fixed income securities are primarily influenced by market, credit and
prepayment risks, although certain securities may be subject to additional
risks. Following the table is a more complete discussion of risk. You may
also consult the SAI for additional details regarding these and other
permissible investments.
14
<PAGE> 234
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
FUND NAME FUND CODE
--------- ---------
<S> <C>
Prime Money Market Fund 1
U.S. Treasury Money Market Fund 2
Tax-Free Money Market Fund 3
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
ASSET-BACKED SECURITIES: Securities secured by company 1 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets. Interest Rate
Income
Regulatory
Liquidity
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1 Credit
on and accepted by a commercial bank. Maturities are Liquidity
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 the Credit
bondholder a specified sum of money, usually at specific Interest Rate
intervals, and to repay the principal amount of the loan at Income
maturity.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1 Market
stated maturity. Credit
Liquidity
Interest Rate
Income
COMMERCIAL PAPER: Secured and unsecured short-term 1,3 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
Interest Rate
Income
DERIVATIVES: Instruments whose value is derived from an 3 Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some Liquidity
mortgage-backed securities. Leverage
Interest Rate
Income
FOREIGN SECURITIES: Stocks issued by foreign companies, as 1 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Foreign Investment
</TABLE>
15
<PAGE> 235
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES: Shares of investment 1, 3 Market
companies. A 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 by real 1 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations and real estate mortgage Credit
investment conduits. Regulatory
MUNICIPAL SECURITIES: Securities issued by a state or 3 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include industrial Political
development bonds and other private activity bonds, as well Tax
as general obligation bonds, revenue bonds, tax anticipation Regulatory
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 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 and the 1-3 Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
RESTRICTED SECURITIES: Securities not registered under the 1 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of the 1-3 Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
STAND-BY COMMITMENTS: The Fund may acquire "stand-by 3 Income
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 bank in 1-3 Liquidity
exchange for the deposit of funds. Credit
Market
Income
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1 Interest Rate
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1, 2 Interest Rate
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
</TABLE>
16
<PAGE> 236
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1, 3 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1, 3 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Under normal market conditions, Liquidity
when-issued purchases and forward commitments will not Credit
exceed 25% of the value of a Fund's total assets.
</TABLE>
INVESTMENT RISKS
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Funds may fluctuate, as will the
value of your investment in the Funds. Certain investments and Funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade
securities. The price of a security can be adversely affected prior to actual
default as its credit status deteriorates and the probability of default
rises.
FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments.
This also includes the risk that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect an investment.
Adverse changes in exchange rates may erode or reverse any gains produced by
foreign currency denominated investments and may widen any losses. Exchange
rate volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk. Foreign securities may also
be affected by incomplete or inaccurate financial information on companies,
social upheavals or political actions ranging from tax code changes to
governmental collapse. These risks are more significant in emerging markets.
INTEREST RATE RISK. The risk that debt prices overall will decline over
short or even long periods due to rising interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Interest rate risk should be modest for shorter-term
securities, moderate for intermediate-term securities, and high for
longer-term securities. Generally, an increase in the average maturity of the
Fund will make it more sensitive to interest rate risk. The market prices of
securities structured as zero coupon or pay-in-kind securities are generally
affected to a greater extent by interest rate changes. These securities tend
to be more volatile than securities which pay interest periodically.
LEVERAGE RISK. The risk associated with securities or practices that
multiply small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also may be
embedded directly in the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Portfolio also holds, any loss generated by the 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.
17
<PAGE> 237
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the BB&T Funds therefore could
be adversely affected if the computer systems used by its service providers
do not properly process dates on and after January 1, 2000, because they
cannot distinguish between the year 2000 and the year 1900. Although the
critical January 1st date has passed largely without incident, year 2000
date-related computer problems can still occur throughout the coming year. We
are seeking assurances from each of our service providers that they expect
their systems to accommodate the year 2000 transition without significant
adverse consequences to BB&T Funds. If these assurances prove to be
incorrect, BB&T shareholders may lose money as a result of system failures or
year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
18
<PAGE> 238
[LOGO]
FUND MANAGEMENT
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for
the Funds. BB&T is the oldest bank in North Carolina and is the principal
bank affiliate of BB&T Corporation, a bank holding company that is a North
Carolina corporation, headquartered in Winston-Salem, North Carolina. As of
December 31, 1999, BB&T Corporation had assets of approximately $43.5
billion. Through its subsidiaries, BB&T Corporation operates over 655 banking
offices in Maryland, North Carolina, South Carolina, Virginia and Washington,
D.C., providing a broad range of financial services to individuals and
businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Funds, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the BB&T Funds. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds
for its fiduciary accounts for more than 17 years and currently manages
assets of more than $4.4 billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Funds paid as follows during their fiscal
year ended:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 09/30/99
<S> <C>
------------------------------
Prime Money Market Fund 0.20%
------------------------------
U.S. Treasury Money Market Fund 0.30%
-------------------------------------------------------------------------
</TABLE>
During the first half of 2000, BB&T intends to reorganize its investment
advisory division as a separate, wholly owned subsidiary of BB&T to be called
BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
are currently providing 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 will be wholly owned and otherwise fully controlled by
BB&T. As a result, this transaction will not be 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 will not be
required.
THE INVESTMENT SUB-ADVISERS
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. BlackRock
Institutional Management Corporation ("BIMC") (formerly PNC Institutional
Management Corporation) serves as the Sub-Adviser to the Prime Money Market
Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund, selects
its investments and places all orders for purchases and sales of each Fund's
securities, subject to the general supervision of the BB&T Funds' Board of
Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's respective investment objectives, policies
and restrictions.
BIMC is a wholly owned subsidiary of BlackRock Advisors, Inc. ("BAI")
(formerly PNC Asset Management Group, Inc.). BAI was organized in 1994 to
perform advisory services for investment companies, and has its principal
offices at 345 Park Avenue, 29th Floor, New York, New York 10154. BAI is an
indirect majority-owned subsidiary of PNC Bank Corp., a diversified financial
services company. BIMC's principal business address is 400 Bellevue Parkway,
4th Floor, Wilmington, Delaware 19809.
19
<PAGE> 239
FUND MANAGEMENT
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as each Fund's administrator. The administrative
services of the Administrator include providing office space, equipment and
clerical personnel to the Funds and supervising custodial, auditing,
valuation, bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The
Distributor may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
The SAI has more detailed information about the Adviser and other service
providers.
20
<PAGE> 240
[LOGO]
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 29.
- 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.
* Class A Shares, Class B Shares and Trust Shares of the Tax-Free Money
Market Fund are not currently being offered.
21
<PAGE> 241
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of the
Fund's investments and other
assets, subtracting its
liabilities and then dividing
that figure by the number of
outstanding shares of the
Fund:
NAV =
Total Assets - Liabilities
-------------------------------
Number of Shares
Outstanding
NAV is calculated separately
for each class of shares.
------------------------------
MONEY MARKET FUNDS
Per share net asset value ("NAV") for
each Fund is determined and its shares
are priced twice a day. The NAV for the
Prime Money Market Fund, the U.S.
Treasury Money Market Fund and the
Tax-Free Money Market Fund is determined
at 12:00 p.m. Eastern time and at the
close of regular trading on the New York
Stock Exchange, normally at 4:00 p.m.
Eastern time on days the Exchange is
open.
Your order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is received.
This is what is known as the offering
price.
Each Fund uses the amortized cost method
of valuing its investments, which does
not take into account unrealized gains or
losses. For further information regarding
the methods used in valuing the Fund's
investments, please see the SAI.
22
<PAGE> 242
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
<S> <C> <C>
Class A or Class B
----------------------------------------------------------
Regular $1,000 $0
----------------------------------------------------------
Automatic Investment Plan $25 $25
</TABLE>
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.
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.
-----------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------
23
<PAGE> 243
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT -- CLASS A AND 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
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 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.
QUESTIONS?
Call 800-451-8382 or your
investment representative.
24
<PAGE> 244
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
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.
-------------------------------------
AUTOMATIC INVESTMENT PLAN -- CLASS A
AND 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:
- Your bank name, address and
account number
- The amount you wish to invest
automatically (minimum $25)
- 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.
-----------------------------------------------------------------------------
25
<PAGE> 245
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is received
by the Fund, its transfer
agent, or your investment
representative. Normally you
will receive your proceeds
within a week after your
request is received. See
section on "General Policies
on Selling Shares below."
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you request
a withdrawal in cash. This is also known as
redeeming shares or a redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B Shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
These fees will be deducted from the money
paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your
financial adviser or broker, ask him or her
for redemption procedures. Your adviser
and/or broker may have transaction minimums
and/or transaction times which will affect
your redemption. For all other sales
transactions, follow the instructions below.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below.)
BY MAIL
1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds, P.O. Box 182533, Columbus, OH 43218-2533.
BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS
IN WRITING REQUIRED" BELOW)
1. See instruction 1 above.
2. Send to: BB&T Funds, c/o BISYS Fund Services, Attn: T.A. Operations,
3435 Stelzer Road, Columbus, OH 43219.
26
<PAGE> 246
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must indicate this option on your application.
The Fund will charge a $7 wire transfer fee for each wire transfer request.
Note: Your financial institution may also charge a separate fee.
Call 1-800-228-1872 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Your bank may charge for this service.
Call 1-800-228-1872 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
AUTO WITHDRAWAL PLAN -- CLASS A AND B SHARES ONLY
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
- Complete the supplemental sign-up form which you may obtain by calling
1-800-228-1872.
- Include a voided personal check.
- Your account must have a value of $5,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- CLASS A AND B SHARES ONLY
You may write checks in amounts of $100 or more on your account in the Prime
Money Market Fund, U.S. Treasury Money Market Fund or Tax-Free Money Market
Fund. To obtain checks, complete the signature card section of the account
application or contact the Fund to obtain a signature card. Dividends and
distributions will continue to be paid up to the day the check is presented
for payment. The check writing feature may be modified or terminated upon
30-days' written notice. You must maintain the minimum required account
balance in the Fund of $1,000 and you may not close your Fund account by
writing a check.
27
<PAGE> 247
SHAREHOLDER INFORMATION
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.
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.
28
<PAGE> 248
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.
<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
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.
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.
29
<PAGE> 249
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
The CDSC will be waived under certain circumstances, including the following:
- Minimum required distributions from an IRA or other qualifying retirement
plan to a shareholder who has attained age 70 1/2.
- Redemptions from accounts following the death or disability of the
shareholder.
- Investors who purchased through a participant directed defined benefit
plan.
- Returns of excess contributions to retirement plans.
- Distributions of less than 12% of the annual account value under an Auto
Withdrawal Plan.
- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
- Investors who purchased through the Cash Sweep Program and BB&T Treasury
Services Division.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase
the cost of your investment.
- The 12b-1 and shareholder servicing fees vary by share class as follows:
- Class A Shares pay a 12b-1 fee of up to .50% of the average daily net
assets of a Fund.
- Class B Shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. This will cause expenses for Class B
Shares to be higher and dividends to be lower than for Class A Shares.
- The higher 12b-1 fee on Class B Shares, together with the CDSC, help the
Distributor sell Class B Shares without an "up-front" sales charge. In
particular, these fees help to defray the Distributor's costs of advancing
brokerage commissions to investment representatives.
- The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
Over time shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees
are paid out of the Fund's assets on an on-going basis.
30
<PAGE> 250
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your shares in
one Fund for shares of the same
class of another BB&T Fund,
usually without paying
additional sales charges (see
"Notes" below). You must meet
the minimum investment
requirements for the Fund into
which you are exchanging.
Exchanges from one Fund to
another are taxable. Class A
Shares and Class B Shares may
also be exchanged for Trust
Shares of the same Fund if you
become eligible to purchase
Trust Shares. Additionally,
Trust Shares may also be
exchanged for Class A Shares of
the same Fund if you cease to be
eligible to purchase Trust
Shares. Trust Shares may not be
exchanged for Class B Shares and
Class A Shares may not be
exchanged for Class B Shares. No
transaction fees are currently
charged for exchanges. However,
the exchange of Trust Shares for
Class A Shares will require
payment of the sales charge
unless the sales charge is
waived.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written
request to BB&T Funds, P.O. Box 182533,
Columbus OH 43218-2533, or by calling
1-800-228-1872. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and
account number
- Taxpayer identification number (usually
your Social Security number)
- Dollar value or number of shares to be
exchanged
- The name of the Fund from which the
exchange is to be made.
- The name of the Fund into which the
exchange is being made.
See "Selling your Shares" for important
information about telephone transactions.
To prevent disruption in the management of
the Funds, due to market timing strategies,
exchange activity may be limited to four
exchanges from a Fund during a calendar
year.
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.
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.
31
<PAGE> 251
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Please consult your tax adviser regarding your specific questions about
federal, state and local income taxes. Below we have summarized some
important tax issues that affect the Funds and their shareholders. This
summary is based on current tax laws, which may change.
Each Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or
gains earned by the Fund before your investment (and thus were included in
the price you paid).
For the Tax-Free Money Market Fund, the income dividends that you receive are
expected to be exempt from federal income taxes. However, if you receive
social security or railroad retirement benefits, you should consult your tax
adviser to determine what effect, if any, an investment in the Tax-Free Money
Market Fund may have on the federal taxation of your benefits. In addition,
an investment in the Tax-Free Money Market Fund may result in liability for
federal alternative minimum tax, both for individual and corporate
shareholders.
BB&T Funds will send you a statement each year showing the tax status of all
your distributions.
- For each Fund, other than the Tax-Free Money Market Fund, the dividends
that you receive are considered ordinary income for tax purposes.
- Generally, the Funds' advisers do not consider taxes when deciding to buy
or sell securities.
- Distributions of dividends (or capital gains, if any) may be subject to
state and local income taxes as well.
- Foreign governments may withhold taxes on dividends and interest paid,
while imposing taxes on other payments or gains, with respect to foreign
securities.
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account
such as an IRA or a qualified employee benefit plan. (Non-U.S. investors may
be subject to U.S. withholding and estate tax.)
More information about taxes is in our SAI.
32
<PAGE> 252
[ICON]
OTHER INFORMATION ABOUT THE FUNDS
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 September 30, 1999.
33
<PAGE> 253
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 1,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
--------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.043 0.048
--------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.043 0.048
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.043) (0.048)
--------------------------------------------------------------------------------------------------------------
Total Distributions (0.043) (0.048)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
--------------------------------------------------------------------------------------------------------------
Total Return 4.42% 4.93%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 5,395 $ 3,262
Ratio of expenses to average net assets 0.80% 0.83%
Ratio of net investment income to average
net assets 4.34% 4.83%
Ratio of expenses to average net assets* 1.39% 1.43%
Ratio of net investment income to average
net assets* 3.75% 4.23%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
34
<PAGE> 254
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE SEPTEMBER 2,
YEAR ENDED 1998 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.036 0.003
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.036 0.003
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.036) (0.003)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.036) (0.003)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 3.64% 0.32%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 9,391 $ 300
Ratio of expenses to average net assets 1.56% 1.64%(c)
Ratio of net investment income to average
net assets 3.58% 3.98%(c)
Ratio of expenses to average net assets* 1.89% 1.99%(c)
Ratio of net investment income to average
net assets* 3.25% 3.63%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced or reimbursed. If
such fee reductions or reimbursements had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
35
<PAGE> 255
OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE OCTOBER 1,
YEAR ENDED 1997 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 (a)
------------- -------------
<S> <C> <C>
TRUST SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
--------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.046 0.051
--------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.046 0.051
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.046) (0.051)
--------------------------------------------------------------------------------------------------------------
Total Distributions (0.046) (0.051)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
--------------------------------------------------------------------------------------------------------------
Total Return 4.69% 5.23%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $56,492 $37,769
Ratio of expenses to average net assets 0.54% 0.55%
Ratio of net investment income to average
net assets 4.57% 5.11%
Ratio of expenses to average net assets* 0.88% 0.91%
Ratio of net investment income to average
net assets* 4.23% 4.75%
</TABLE>
* During the period, certain fees were voluntarily reduced or reimbursed. If
such fee reductions or reimbursements had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations.
36
<PAGE> 256
OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.040 0.046 0.044 0.044 0.047
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.040 0.046 0.044 0.044 0.047
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.040) (0.046) (0.044) (0.044) (0.047)
-------------------------------------------------------------------------------------------------------
Total Distributions (0.040) (0.046) (0.044) (0.044) (0.047)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.08% 4.75% 4.50% 4.49% 4.81%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 42,241 $ 41,478 $ 32,541 $ 27,931 $ 13,948
Ratio of expenses to average net assets 0.84% 0.86% 0.95% 0.99% 0.98%
Ratio of net investment income to average
net assets 4.00% 4.65% 4.41% 4.37% 4.81%
Ratio of expenses to average net assets* 1.23% 1.26% 1.25% 1.25% 1.24%
Ratio of net investment income to average
net assets* 3.61% 4.25% 4.11% 4.11% 4.55%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
37
<PAGE> 257
OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEAR ENDED SEPTEMBER 30, 1996 TO
--------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 (a)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000
----------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.033 0.039 0.036 0.025
----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.033 0.039 0.036 0.025
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.033) (0.039) (0.036) (0.025)
----------------------------------------------------------------------------------------------------------------
Total Distributions (0.033) (0.039) (0.036) (0.025)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000
----------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption
charge) 3.31% 3.97% 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $2,264 $1,255 $1,502 $1,305
Ratio of expenses to average net assets 1.59% 1.61% 1.75% 1.75%(c)
Ratio of net investment income to average
net assets 3.25% 3.90% 3.61% 3.55%(c)
Ratio of expenses to average net assets* 1.73% 1.76% ** **
Ratio of net investment income to average
net assets* 3.11% 3.75% ** **
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
** There were no voluntary fee reductions during this period.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
38
<PAGE> 258
OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TRUST SHARES
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.043 0.049 0.046 0.046 0.050
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.043 0.049 0.046 0.046 0.050
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.043) (0.049) (0.046) (0.046) (0.050)
------------------------------------------------------------------------------------------------------------
Total Distributions (0.043) (0.049) (0.046) (0.046) (0.050)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------------------------------------------------------------------------------------------------------
Total Return 4.34% 5.01% 4.71% 4.74% 5.07%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $ 282,585 $ 235,796 $ 266,840 $ 205,974 $ 120,083
Ratio of expenses to average net assets 0.59% 0.61% 0.75% 0.75% 0.72%
Ratio of net investment income to average
net assets 4.26% 4.90% 4.61% 4.63% 4.97%
Ratio of expenses to average net assets* 0.73% 0.76% 0.75% 0.75% 0.75%
Ratio of net investment income to average
net assets* 4.11% 4.75% 4.61% 4.63% 4.95%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
39
<PAGE> 259
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.
<PAGE> 260
[BB&T FUNDS LOGO]
SMALL COMPANY GROWTH FUND
TRUST SHARES
PROSPECTUS
FEBRUARY 1, 2000
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> 261
BB&T FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
Carefully review this important 3 Overview
section, which summarizes each Fund's 4 Small Company Growth Fund
investments, risks, past performance,
and fees.
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
[Logo]
Review this section for information 8 Investment Practices
on investment strategies and their 9 Investment Risks
risks.
FUND MANAGEMENT
[Logo]
Review this section for details on 11 The Investment Adviser
the people and organizations who 11 The Investment Sub-Advisers
oversee the Funds. 12 Portfolio Managers
12 The Distributor and Administrator
SHAREHOLDER INFORMATION
[Logo]
Review this section for details on 13 Choosing a Share Class
how shares are valued, how to 14 Pricing of Fund Shares
purchase, sell and exchange shares, 15 Purchasing and Adding to Your Shares
related charges and payments of 16 Selling Your Shares
dividends and distributions. 18 General Policies on Selling Shares
19 Exchanging Your Shares
20 Dividends, Distributions and Taxes
OTHER INFORMATION ABOUT THE FUND
[Logo]
21 Financial Highlights
</TABLE>
2
<PAGE> 262
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
<TABLE>
<S> <C>
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
two additional classes of shares called Class A Shares and
Class B 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.
</TABLE>
3
<PAGE> 263
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
SMALL COMPANY GROWTH FUND
<TABLE>
<S> <C>
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
</TABLE>
4
<PAGE> 264
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 8 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 8.
</TABLE>
5
<PAGE> 265
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
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
five years to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time
to that of the Russell 2000(R)
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)
<TABLE>
<S> <C>
1995 45.99%
96 31.19%
97 4.96%
98 3.29%
99 72.65%
</TABLE>
The performance information shown above is
based on a calendar year.
Best
quarter: 47.97% 12/31/99
Worst
quarter: -20.24% 3/31/97
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ended
December 31, 1999)(1)
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS (12/7/94)
<S> <C> <C> <C>
TRUST SHARES
SMALL COMPANY GROWTH FUND 72.65% 29.09% 30.13%
RUSSELL 2000(R)INDEX 21.26% 16.69% 15.78%
</TABLE>
(1) Both charts assume reinvestment of dividends and distributions.
6
<PAGE> 266
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL COMPANY GROWTH FUND
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES TRUST
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
Redemption fee(2) 0%
ANNUAL FUND OPERATING EXPENSES TRUST
(FEES PAID FROM FUND ASSETS) SHARES
Management fee 1.00%
Distribution and service (12b-1)
fee 0.00%
Other expenses(3) 0.55%
Total Fund operating expenses(3) 1.55%
</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 were limited to 0.54%. Total
expenses after fee waivers and expense
reimbursements were 1.54%. Any fee waiver or
expense reimbursement arrangement is
voluntary and may be discontinued at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
SMALL COMPANY 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
TRUST SHARES $158 $490 $845 $1,845
</TABLE>
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.
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.
7
<PAGE> 267
[LOGO]
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.
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 the 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.
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign shares Market
of a company held by a U.S. bank that issues a receipt Political
evidencing ownership. Foreign Investment
CALL AND PUT OPTIONS: A call option gives the buyer the Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that Market
convert to common stock. Credit
DERIVATIVES: Instruments whose value is derived from an Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some Liquidity
mortgage-backed securities. Leverage
Interest Rate
Income
FOREIGN SECURITIES: Stocks issued by foreign companies, as Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing for the Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
INDEX-BASED SECURITIES: Index-based securities such as Market
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. A 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.
</TABLE>
8
<PAGE> 268
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
PREFERRED STOCKS: Preferred Stocks are equity securities Market
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 and the Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the Market
simultaneous commitment to buy the security back at an Leverage
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 the Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
SHORT-TERM OBLIGATIONS: High quality U.S. dollar-denominated Market
debt securities that have remaining maturities of one year Credit
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 issued by Interest Rate
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately Interest Rate
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
WARRANTS: Securities, typically issued with preferred stock Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
</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.
9
<PAGE> 269
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
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.
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.
YEAR 2000 RISK. BB&T Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the BB&T Funds therefore could
be adversely affected if the computer systems used by its service providers
do not properly process dates on and after January 1, 2000, because they
cannot distinguish between the year 2000 and the year 1900. Although the
critical January 1st date has passed largely without incident, year 2000
date-related computer problems can still occur throughout the coming year. We
are seeking assurances from each of our service providers that they expect
their systems to accommodate the year 2000 transition without significant
adverse consequences to BB&T Funds. If these assurances prove to be
incorrect, BB&T shareholders may lose money as a result of system failures or
year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
10
<PAGE> 270
[LOGO]
FUND MANAGEMENT
THE INVESTMENT ADVISER
Branch Banking and Trust Company (BB&T or the "Adviser") is the adviser for
the Fund. BB&T is the oldest bank in North Carolina and is the principal bank
affiliate of BB&T Corporation, a bank holding company that is a North
Carolina corporation, headquartered in Winston-Salem, North Carolina. As of
December 31, 1999, 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 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 $4.4 billion.
Through its portfolio management team, BB&T makes the day-to-day investment
decisions and continuously reviews, supervises and administers the Funds'
investment programs.
For these advisory services, the Fund paid as follows during its fiscal year
ended:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 09/30/99
<S> <C>
------------------------------
Small Company Growth Fund 1.00%
-------------------------------------------------------------------------
</TABLE>
During the first half of 2000, BB&T intends to reorganize its investment
advisory division as a separate, wholly owned subsidiary of BB&T to be called
BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of the BB&T
that are currently providing 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 will be wholly owned and otherwise fully
controlled by BB&T. As a result, this transaction will not be 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 will
not be 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.
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, 1999, BAI and its subsidiaries had approximately $164.5 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. PNC Bank is a wholly-owned indirect subsidiary of PNC Bank Corp.
11
<PAGE> 271
FUND MANAGEMENT
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(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.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, Inc. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as each Fund's administrator. The administrative services
of the Administrator include providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.
BISYS Fund Services, L.P. (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The
Distributor may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
The SAI has more detailed information about the Adviser and other service
providers.
12
<PAGE> 272
[LOGO]
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 and Class B Shares, each of which has its
own expense structure. Class A Shares and Class B Shares are available to
investors who are not fiduciary clients of Branch Banking and Trust Company
and who are not otherwise eligible for Trust Shares. Call the 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.
13
<PAGE> 273
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.
14
<PAGE> 274
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.
--------------------------------------------------------------------------
15
<PAGE> 275
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.
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.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below.)
BY MAIL
1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds, P.O. Box 182533 Columbus, OH 43218-2533.
BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS
IN WRITING REQUIRED" BELOW.)
1. See instruction 1 above.
2. Send to: BB&T Funds, c/o BISYS Fund Services, Attn: T.A. Operations,
3435 Stelzer Road, Columbus, OH 43219.
16
<PAGE> 276
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must indicate this option on your application.
The Fund will charge a $7 wire transfer fee for each wire transfer request.
Note: Your financial institution may also charge a separate fee.
Call 1-800-228-1872 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Your bank may charge for this service.
Call 1-800-288-1872 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
17
<PAGE> 277
SHAREHOLDER INFORMATION
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.
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.
18
<PAGE> 278
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. 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 and Class B 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, 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.
19
<PAGE> 279
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.
The Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or
gains earned by the Fund before your investment (and thus were included in
the price you paid).
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.
20
<PAGE> 280
[ICON]
OTHER INFORMATION ABOUT THE FUND
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.
21
<PAGE> 281
OTHER INFORMATION ABOUT THE FUND SMALL COMPANY GROWTH FUND
FINANCIAL HIGHLIGHTS
CONTINUED
<TABLE>
<CAPTION>
DECEMBER 7,
FOR THE YEAR ENDED SEPTEMBER 30, 1994 TO
-------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 (a)
-------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.69 $ 23.52 $ 21.18 $ 14.57 $ 10.00
------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment loss (0.22) (0.20) (0.11) (0.17) (0.07)
Net realized and unrealized gain (loss) on investments 7.78 (5.32) 2.47 6.78 4.64
------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 7.56 (5.52) 2.36 6.61 4.57
------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
In excess of net realized gains -- (0.31) (0.02) -- --
------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.31) (0.02) -- --
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 25.25 $ 17.69 $ 23.52 $ 21.18 $ 14.57
------------------------------------------------------------------------------------------------------------------------
Total Return 42.66% (23.62)% 11.17% 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of period (000) $105,725 $65,180 $58,660 $36,373 $ 16,962
Ratio of expenses to average net assets 1.54% 1.61% 1.64% 1.79% 2.33%(c)
Ratio of net investment loss to average net assets (0.98)% (1.11)% (1.04)% (1.00)% (1.34)%(c)
Ratio of expenses to average net assets* 1.55% 1.61% 1.64% 1.79% 2.24%(c)
Ratio of net investment loss to average net assets* (0.98)% (1.11)% (1.04)% (1.00)% (1.43)%(c)
Portfolio turnover(d) 184.39% 157.44% 80.66% 71.62% 46.97%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
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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.
<PAGE> 284
----------------
BB&T FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2000
----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Class A Shares and Class B Shares Prospectus and Trust
Shares Prospectuses of the BB&T Prime Money Market Fund, the BB&T U.S. Treasury
Money Market Fund, the BB&T Tax-Free Money Market Fund, the BB&T
Short-Intermediate U.S. Government Income Fund, the BB&T Intermediate U.S.
Government Bond Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the
BB&T South Carolina Intermediate Tax-Free Fund, the BB&T Virginia Intermediate
Tax-Free Fund, the BB&T Intermediate Corporate Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T Balanced Fund, the BB&T Large Company Growth Fund,
the BB&T Small Company Growth Fund, the BB&T International Equity Fund, the BB&T
Equity Index Fund, the BB&T Capital Manager Conservative Growth Fund, the BB&T
Capital Manager Moderate Growth Fund, and the BB&T Capital Manager Growth Fund,
which are dated February 1, 2000, the Prospectus of the BB&T U.S. Treasury Money
Market Fund, the BB&T Prime Money Market Fund, and the BB&T Tax-Free Money
Market Fund which is dated February 1, 2000 and the Prospectus of the BB&T Small
Company Growth Fund (Trust Shares) which is dated February 1, 2000. This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectuses. Copies of the Prospectuses 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 FUNDS...........................................................................................................1
INVESTMENT OBJECTIVES AND POLICIES...................................................................................2
Additional Information on Portfolio Instruments....................................................2
Investment Restrictions...........................................................................30
Portfolio Turnover................................................................................36
VALUATION...........................................................................................................38
Valuation of the Money Market Funds...............................................................38
Valuation of the Growth and Income Fund, the North Carolina Fund, the South
Carolina Fund, the Virginia Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Intermediate Corporate Bond
Fund, the Balanced Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the Equity Index Fund, and the Funds of Funds..............39
Valuation of the International Equity Fund........................................................40
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................................41
Purchase of Class A and Class B Shares............................................................41
Matters Affecting Redemption......................................................................48
ADDITIONAL TAX INFORMATION..........................................................................................50
Additional Tax Information Concerning the International Equity Fund...............................55
Additional Tax Information Concerning the North Carolina, South Carolina and
Virginia Funds..................................................................56
Special Considerations Regarding Investment in South Carolina Tax-Exempt
Obligations.....................................................................65
MANAGEMENT OF BB&T FUNDS............................................................................................74
Officers..........................................................................................76
Investment Adviser................................................................................77
Sub-Advisers......................................................................................79
Portfolio Transactions............................................................................81
Glass-Steagall Act................................................................................85
Manager and Administrator.........................................................................86
Distributor.......................................................................................88
Custodian.........................................................................................92
Independent Auditors..............................................................................92
Legal Counsel.....................................................................................92
PERFORMANCE INFORMATION.............................................................................................92
Yields of the Money Market Funds..................................................................92
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<TABLE>
<S> <C>
Yields of the Other Funds of the BB&T Funds........................................................93
Calculation of Total Return........................................................................95
Performance Comparisons............................................................................98
ADDITIONAL INFORMATION..............................................................................................107
Organization and Description of Shares............................................................107
Shareholder and Trustee Liability.................................................................108
Miscellaneous.....................................................................................109
FINANCIAL STATEMENTS................................................................................................126
Audited Financial Statements as of September 30, 1999.............................................126
APPENDIX............................................................................................................127
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
BB&T FUNDS
BB&T Funds is an open-end management investment company. The
BB&T Funds consist of eighteen series of units of beneficial interest ("Shares")
offered to the public, each representing interests in one of eighteen separate
investment portfolios ("Funds"):
MONEY MARKET FUNDS
The BB&T U.S. Treasury Money Market Fund (the "U.S. Treasury Fund")
The BB&T Prime Money Market Fund (the "Prime Money Market Fund")
The BB&T Tax-Free Money Market Fund (the "Tax-Free Money Market Fund")
BOND FUNDS
TAXABLE BOND FUNDS
The BB&T Short-Intermediate U.S. Government Income Fund (the "Short-Intermediate
Fund")
The BB&T Intermediate U.S. Government Bond Fund (the "Intermediate U.S.
Government Bond Fund")
The BB&T Intermediate Corporate Bond Fund (the "Intermediate Corporate Bond
Fund")
TAX-FREE BOND FUNDS
The BB&T North Carolina Intermediate Tax-Free Fund (the "North Carolina Fund")
The BB&T South Carolina Intermediate Tax-Free Fund (the "South Carolina Fund")
The BB&T Virginia Intermediate Tax-Free Bond Fund (the "Virginia Fund")
STOCK FUNDS
The BB&T Growth and Income Stock Fund (the "Growth and Income Fund")
The BB&T Balanced Fund (the "Balanced Fund")
The BB&T Large Company Growth Fund (the "Large Company Growth Fund")
The BB&T Small Company Growth Fund (the "Small Company Growth Fund")
The BB&T International Equity Fund (the "International Equity Fund")
The BB&T Equity Index Fund (the "Equity Index Fund")
FUNDS OF FUNDS
The BB&T Capital Manager Conservative Growth Fund (the "Conservative Growth
Fund")
The BB&T Capital Manager Moderate Growth Fund (the "Moderate Growth Fund")
The BB&T Capital Manager Growth Fund (the "Growth Fund")
The Funds of Funds offer Shareholders a professionally-managed investment
program by purchasing shares of existing Funds of the BB&T Funds (the
"Underlying Funds"). Each Fund may offer to the public three classes of Shares:
Class A Shares, Class B Shares and Trust Shares. As of the date of this
Statement of Additional Information, Class B Shares of the
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Short-Intermediate Fund, the North Carolina Fund, the South Carolina Fund, and
the Virginia Fund were not yet being offered. Class A, B and Trust Shares of the
Equity Index Fund and Tax-Free Money Market Fund were also not yet being
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") and BlackRock Institutional Management Corporation
("BIMC") (BFMI, BlackRock International and BIMC, each a "Sub-Adviser") with
regard to portfolio investments for the Funds and provides a description of
relevant ratings assigned by each such NRSRO. A rating by an NRSRO may be used
only where the NRSRO is neither controlling, controlled by, nor under common
control with the issuer of, or any issuer, guarantor, or provider of credit
support for, the instrument.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the
Funds, except the U.S. Treasury Fund, may invest in bankers' acceptances,
certificates of deposit, and demand and time deposits. The Prime Money Market
Fund and the Tax-Free Money Market Fund may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of its
total assets. Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' acceptances will be those guaranteed by domestic and
foreign banks, if at the time of investment such banks have capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand and
time deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment they have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently
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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").
GUARANTEED INVESTMENT CONTRACTS. The Prime Money Market Fund
may make limited investments in guaranteed investment contracts ("GICs") issued
by highly rated U.S. insurance companies. Under these contracts, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits interest to the Fund on a monthly basis,
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Prime Money Market
Fund does not expect to invest more than 5% of its net assets in GICs at any
time during the current fiscal year.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master
demand notes, in which each Fund, except for the U.S. Treasury Fund, may invest,
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. They are also referred to as variable rate demand notes. Because
these notes are direct lending arrangements between the Fund and the issuer,
they are not normally traded. Although there may be no secondary market in the
notes, the Fund may demand payment of principal and accrued interest at any time
or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
absence of such an active secondary market, however, could make it difficult for
a Fund to dispose of a variable amount master demand note if the issuer
defaulted on its payment obligations or during periods when the Fund is not
entitled to exercise their demand rights, and a Fund could, for this or other
reasons, suffer a loss to the extent of the default. While the notes are not
typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the criteria for commercial paper. BB&T or the
Sub-Adviser will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand. Where necessary to
ensure that a note is of "high quality," a Fund will
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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.
The Prime Money Market Fund will not invest in excess of 10%
of its net assets in time deposits, including ETDs and CTDs but not including
certificates of deposit, with maturities in excess of seven days which are
subject to penalties upon early withdrawal.
Investments in securities issued by foreign branches of U.S.
banks, foreign banks, or other foreign issuers, including American Depositary
Receipts ("ADRs") and securities purchased on foreign securities exchanges, may
subject a Fund to investment risks that differ in some respects from those
related to investment in obligations of U.S. domestic issuers or in U.S.
securities markets. Such risks include future adverse political and economic
developments, possible seizure, currency blockage, nationalization or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, and
the adoption of other foreign governmental restrictions.
ADRs typically are issued by an American bank or trust company
and evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depositary Receipts, are
receipts issued in Europe, typically by foreign banks and trust companies, that
evidence ownership of either foreign or domestic underlying securities. GDRs are
depository receipts structured like global debt issues to facilitate trading on
an international basis. Unsponsored ADR, EDR and GDR programs
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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 Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, the Equity Index Fund, and the Funds of Funds
will acquire such securities only when BB&T or the Sub-Adviser believes the
risks associated with such investments are minimal.
The International Equity Fund may invest its assets in
countries with emerging economies or securities markets. These countries may
include Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, Lebanon, Malaysia,
Mexico, Morocco, Peru, The Philippines, Poland, Romania, Russia, South Africa,
South Korea, Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political
and economic structures in many of these countries may be undergoing significant
evolution and rapid development, and these countries may lack the social,
political and economic stability characteristic of more developed countries.
Some of these countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the risks
of nationalization or expropriation of assets, may be heightened. In
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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 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
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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
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prepayments of principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayments are important because of their effect
on the yield and price of the securities. During periods of declining interest
rates, such prepayments can be expected to accelerate, and the Funds would be
required to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages which underlie securities purchased at a
premium may not have been fully amortized at the time the obligation is repaid.
As a result of these principal prepayment features, mortgage-backed pass-through
securities are generally more volatile investments than other U.S. Government
Securities. Although under normal market conditions, the Prime Money Market Fund
does not expect to do so, except in connection with repurchase agreements, it
may invest in such mortgage-backed pass-through securities.
The Short-Intermediate, the Intermediate U.S. Government Bond,
the Intermediate Corporate Bond, the Growth and Income, the Balanced, the Large
Company Growth, and the Small Company Growth Funds may also invest in "zero
coupon" U.S. Government Securities. These securities tend to be more volatile
than other types of U.S. Government Securities. Zero coupon securities are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Even though such securities do not pay current interest in cash,
a Fund nonetheless is required to accrue interest income on these investments
and to distribute the interest income on a current basis. Thus, a Fund could be
required at times to liquidate other investments in order to satisfy its
distribution requirements.
The North Carolina Fund and the South Carolina Fund may invest
in U.S. Government Securities in connection with the purchase of taxable
obligations (as described below).
SUPRANATIONAL ORGANIZATIONAL OBLIGATIONS. The Large Company
Growth Fund, the Small Company Growth Fund, the Equity Index Fund, the
International Equity Fund and the Prime Money Market Fund may purchase debt
securities of supranational organizations such as the European Coal and Steel
Community, the European Economic Community and the World Bank, which are
chartered to promote economic development.
INVESTMENT GRADE DEBT OBLIGATIONS. The Intermediate Corporate
Bond Fund and the Stock Funds may invest in "investment grade securities," which
are securities rated in the four highest rating categories of an NRSRO. It
should be noted that debt obligations rated in the lowest of the top four
ratings (i.e., "Baa" by Moody's Investors Services, Inc. ("Moody's") or "BBB" by
Standard & Poor's Corporation ("S&P"), are considered to have some speculative
characteristics and are more sensitive to economic change than higher rated
securities. The Growth and Income Fund, Balanced Fund, Large Company Growth Fund
and Small Company Growth Fund may each invest up to 35% of their total assets in
such securities.
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NON-INVESTMENT GRADE SECURITIES. The Intermediate Corporate
Bond Fund may invest in debt securities rated below investment grade, also known
as junk bonds. These securities are regarded as predominantly speculative.
Securities rated below investment grade generally provide a higher yield than
higher rated securities of similar maturity, but are subject to a greater degree
of risk that the issuer may not be able to make principal and interest payments.
Issuers of these securities may not be as strong financially as those issuing
higher rated securities. Such high yield issuers may include smaller, less
creditworthy companies or highly indebted firms.
The market value of high yield securities may fluctuate more
than the market value of higher rated securities, since high yield securities
tend to reflect short-term corporate and market developments to a greater extent
than higher rated securities. Thus, periods of economic uncertainty and change
can result in the increased volatility of market prices of high yield bonds and
of the fund's net asset value. Additional risks of high yield securities include
limited liquidity and secondary market support. As a result, the prices of high
yield securities may decline rapidly in the event that a significant number of
holders decide to sell. Issuers of high yield securities also are more
vulnerable to real or perceived economic changes, political changes or adverse
developments specific to the issuer. A projection of an economic downturn, for
example, could cause the price of these securities to decline because a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. In the event of a
default, the Intermediate Corporate Bond Fund would experience a decline in the
market value of its investment. In addition, a long-term track record on bond
default rates, such as that for investment grade corporate bonds, does not exist
for the high yield market. It may be that future default rates on high-yield
bonds will be more widespread and higher than in the past, especially during
periods of deteriorating economic conditions.
The market prices of debt securities generally fluctuate with
changes in interest rates so that these Funds' net asset values can be expected
to decrease as long-term interest rates rise and to increase as long-term rates
fall. The market prices of high yield securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically.
Credit quality in the high yield market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. The Intermediate
Corporate Bond Fund will limit its investments in non-investment grade
securities to 15% of its total assets. Subject to SEC restrictions, the
Intermediate Corporate Bond Fund may invest in such securities by investing in
investment companies that primarily invest in non-investment grade securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Each of the Fixed Income
Funds, the Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may also invest in collateralized
mortgage obligations ("CMOs"). Although under normal market conditions it does
not expect to do so, except in connection with repurchase agreements, the Prime
Money Market Fund may also invest in CMOs. CMOs are
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mortgage-related securities which are structured pools of mortgage pass-through
certificates or mortgage loans. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by a Fund would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
CMOs may include stripped mortgage-backed securities
("SMBSs"). Such securities are derivative multi-class mortgage securities issued
by agencies or instrumentalities of the United States Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. SMBSs are usually structured with two
classes that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped mortgage
security will have one class receiving all of the interest from the mortgage
assets (the interest-only or "IO" class), while the other class will receive all
of the principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold
by institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not fully developed. Stripped mortgage
securities issued or guaranteed by the U.S. Government and held by a Fund may be
considered liquid securities pursuant to guidelines established by the BB&T
Funds' Board of Trustees. The Funds will not purchase a stripped mortgage
security that is illiquid if, as a result thereof, more than 15% (10% in the
case of the Prime Money Market Fund) of the value of the Fund's net assets would
be invested in such securities and other illiquid securities.
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.
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Offerings of Certificates for Automobile Receivables ("CARS")
are structured either as flow-through grantor trusts or as pay-through notes.
CARS structured as flow-through instruments represent ownership interests in a
fixed pool of receivables. CARS structured as pay-through notes are debt
instruments supported by the cash flows from the underlying assets. CARS may
also be structured as securities with fixed payment schedules which are
generally issued in multiple-classes. Cash-flow from the underlying receivables
is directed first to paying interest and then to retiring principal via paying
down the two respective classes of notes sequentially. Cash-flows on
fixed-payment CARS are certain, while cash-flows on other types of CARS issues
depends on the prepayment rate of the underlying automobile loans. Prepayments
of automobile loans are triggered mainly by automobile sales and trade-ins. Many
people buy new cars every two or three years, leading to rising prepayment rates
as a pool becomes more seasoned.
Certificates for Amortizing Revolving Debt ("CARDS") represent
participation in a fixed pool of credit card accounts. CARDS pay "interest only"
for a specified period. The CARDS principal balance remains constant during this
period, while any cardholder repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the
underlying assets or provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and over
collateralization. Asset-backed securities purchased by the Prime Money Market
Fund and the Intermediate Corporate Bond Fund will be subject to the same
quality requirements as other securities purchased by the Fund.
MUNICIPAL OBLIGATIONS. Municipal Obligations include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of 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
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Municipal Obligations and to the exemption of interest thereon from federal
income taxes are rendered by counsel to the issuers or bond counsel to the
respective issuing authorities at the time of issuance. Neither the Tax-Free
Money Market Fund nor the Adviser or BIMC will review independently the
underlying proceedings relating to the issuance of Municipal Obligations or the
bases for such opinions.
The Tax-Free Money Market Fund may hold tax-exempt derivatives
which may be in the form of tender option bonds, participations, beneficial
interests in a trust, partnership interests or other forms. A number of
different structures have been used. For example, interests in long-term
fixed-rate Municipal Obligations, held by a bank as trustee or custodian, are
coupled with tender option, demand and other features when the tax-exempt
derivatives are created. Together, these features entitle the holder of the
interest to tender (or put) the underlying Municipal Obligation to a third party
at periodic intervals and to receive the principal amount thereof. In some
cases, Municipal Obligations are represented by custodial receipts evidencing
rights to receive specific future interest payments, principal payments, or
both, on the underlying municipal securities held by the custodian. Under such
arrangements, the holder of the custodial receipt has the option to tender the
underlying municipal securities at its face value to the sponsor (usually a bank
or broker dealer or other financial institution), which is paid periodic fees
equal to the difference between the bond's fixed coupon rate and the rate that
would cause the bond, coupled with the tender option, to trade at par on the
date of a rate adjustment. The Tax-Free Money Market Fund may hold tax-exempt
derivatives, such as participation interests and custodial receipts, for
Municipal Obligations which give the holder the right to receive payment of
principal subject to the conditions described above. The Internal Revenue
Service has not ruled on whether the interest received on tax-exempt derivatives
in the form of participation interests or custodial receipts is tax-exempt, and
accordingly, purchases of any such interests or receipts are based on the
opinion of counsel to the sponsors of such derivative securities. Neither the
Tax-Free Money Market Fund nor the Adviser or BIMC will review independently the
underlying proceedings related to the creation of any tax-exempt derivatives or
the bases for such opinions.
As described in the Tax-Free Money Market Fund Prospectus, the
two principal classifications of Municipal Obligations consist of "general
obligation" and "revenue" issues, and the Tax-Free Money Market Fund's portfolio
may include "moral obligation" issues, which are normally issued by special
purpose authorities. The Tax-Free Money Market Fund's portfolio may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ratings of
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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 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
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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 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
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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 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt both from federal income tax and
North Carolina personal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). Under normal market conditions, the South Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of South Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and South
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("South Carolina
Tax-Exempt Obligations"). Under normal market conditions, the Virginia Fund will
invest at least 90% of its total assets in high grade obligations issued by or
on behalf of the 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"). In addition to
North Carolina Tax-Exempt Obligations, South Carolina Tax- Exempt Obligations
and Virginia Tax-Exempt Obligations, the North Carolina Fund, the South Carolina
Fund and the Virginia Fund may invest in tax-exempt obligations issued by or
on behalf of states other than North Carolina, South Carolina and Virginia,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which, in the opinion of the issuer's counsel at
the time of issuance, is exempt from federal income tax and is not treated as a
preference item for individuals for purposes of the federal alternative minimum
tax. Such securities, North Carolina Tax-Exempt Obligations, South Carolina
Tax-Exempt Obligations and Virginia Tax-Exempt Obligations are hereinafter
collectively referred to as "Tax-Exempt Obligations."
Tax-Exempt Obligations include debt obligations issued by
governmental entities to obtain funds for various public purposes, such as the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses, and the extension of
loans to other public institutions and facilities. Private activity bonds that
are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Tax-Exempt
Obligations if the interest paid thereon is both
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exempt from federal income tax and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Tax-Exempt Obligations may also include General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Project Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and
other forms of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
Project Notes are issued by a state or local housing agency
and are sold by the Department of Housing and Urban Development. While the
issuing agency has the primary obligation with respect to its Project Notes,
they are also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus, the two principal
classifications of Tax-Exempt Obligations consist of "general obligation" and
"revenue" issues. 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 and the Virginia Fund are permitted to invest in
Tax-Exempt Obligations and may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. Currently, neither North
Carolina nor South Carolina issuers have authority to issue moral obligation
securities. Moral obligation securities are issued by state and local
governments in Virginia. There are, of course, variations in the quality of Tax-
Exempt Obligations, both within a particular classification and between
classifications, and the yields on Tax-Exempt Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Tax- Exempt Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Tax-Exempt Obligations
with the same maturity, interest rate and rating may have different yields,
while Tax-Exempt Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to purchase by the North
Carolina Fund, the South Carolina Fund and the Virginia Fund, an issue of
Tax-Exempt Obligations may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Funds. Neither event would under
all circumstances require the elimination of such an obligation from the North
Carolina Fund's, the South Carolina Fund's or the Virginia Fund's investment
portfolio. However, the obligation generally would be retained only if such
retention was determined by the Board of Trustees to be in the best interests of
the North Carolina Fund, the South Carolina Fund or the Virginia Fund.
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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 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
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notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by a Fund will be determined by BB&T
with respect to the Tax-Free Bond Funds, (or BIMC with respect to the Prime
Money Market Fund and the Tax-Free Money Market Fund) under guidelines
established by the BB&T Funds' Board of Trustees to be of comparable quality at
the time of purchase to rated instruments eligible for purchase under a Fund's
investment policies. In making such determinations, BB&T with respect to the
Tax-Free Bond Funds (or BIMC with respect to the Prime Money Market Fund and the
Tax- Free Money Market Fund) will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Prime Money Market Fund or the Tax-Free Bond Funds, a Fund may
resell a note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
obligations and a Fund could, as a result or for other reasons, suffer a loss to
the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit. Variable and floating rate notes for which no readily
available market exists will be purchased in an amount which, together with
other securities which are not readily marketable, exceeds 15% of each Tax-Free
Bond Fund's net assets (10% for the Prime Money Market Fund and the Tax-Free
Money Market Fund) only if such notes are subject to a demand feature that will
permit the Fund to receive payment of the principal within seven days after
demand by the Fund.
For purposes of the Tax-Free Bond Funds, the Prime Money
Market Fund and the Tax- Free Money Market Fund, the maturities of the variable
and floating rate notes will be determined in accordance with Rule 2a-7 under
the 1940 Act.
WHEN-ISSUED SECURITIES. Each Fund, except the U.S. Treasury
Fund, may purchase securities on a when-issued basis. In addition, the Large
Company Growth Fund, the Small Company Growth Fund, the Equity Index Fund, the
International Equity Fund, the Prime Money Market Fund and the Tax-Free Money
Market Fund may purchase and sell securities on a forward commitment basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield), including "TBA" (to be announced) purchase commitments. When these Funds
agree to purchase securities on a when-issued or forward commitment basis, the
Fund's custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, a Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that any such Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
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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 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
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write a covered call option if, as a result, the aggregate market value of all
portfolio securities covering call options or subject to put options exceeds 25%
of the market value of its net assets.
Fund securities on which call options may be written will be
purchased solely on the basis of investment considerations consistent with a
Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options which the Funds will not
do), but capable of enhancing a Fund's total return. When writing a covered call
option, a Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security above the exercise price, but
retains the risk of loss should the price of the security decline. Unlike one
who owns securities not subject to an option, a Fund does not have any control
over the point at which it may be required to sell the underlying securities,
because it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which a Fund has
written expires, a Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security. The
security covering the call will be maintained in a segregated account of a
Fund's custodian. A Fund does not consider a security covered by a call to be
"pledged" as that term is used in its policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The
premium a Fund will receive from writing a call option will reflect, among other
things, the current market price of the underlying security, the relationship of
the exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, BB&T or the Sub-Adviser, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for those options. The premium
received by a Fund for writing covered call options will be recorded as a
liability in a Fund's statement of assets and liabilities. This liability will
be readjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of a Fund
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price (or, with respect to the 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
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which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the time the options are written. From time to time, a
Fund may purchase an underlying security for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering such
security from its portfolio. In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
PUTS. The Tax-Free Bond Funds may acquire "puts" with respect
to Tax-Exempt Obligations held in their portfolios, the Tax-Free Money Market
Fund may acquire puts with respect to Municipal Obligations held in its
portfolio, and the Funds of Funds may acquire puts with respect to the
securities in their portfolios. The Large Company Growth Fund, the Small Company
Growth Fund and the International Equity Fund may buy put options, buy call
options, and write secured put options for the purpose of hedging or earning
additional income, which may be deemed speculative or, with respect to the
International Equity Fund, cross-hedging. A put is a right to sell a specified
security (or securities) within a specified period of time at a specified
exercise price. Each of these Funds may sell, transfer, or assign a put only in
conjunction with the sale, transfer, or assignment of the underlying security or
securities.
The amount payable to a Fund upon its exercise of a "put" is
normally (i) the Fund's acquisition cost of the securities subject to the put
(excluding any accrued interest which the Fund paid on the acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
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
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maturity of underlying assets. Puts may also be used to facilitate the
reinvestment of assets at a rate of return more favorable than that of the
underlying security.
The Tax-Free Bond Funds, the Tax-Free Money Market Fund and
the Funds of Funds will generally acquire puts only where the puts are available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for puts either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
puts (thus reducing the yield to maturity otherwise available for the same
securities).
The Tax-Free Bond Funds, the Tax-Free Money Market Fund and
the Funds of Funds intend to enter into puts only with dealers, banks, and
broker-dealers which, in BB&T's opinion, present minimal credit risks.
PUT AND CALL OPTIONS. A Fund will not purchase put and call
options when the aggregate premiums on outstanding options exceed 5% of its net
assets at the time of purchase, and will not write options on more than 25% of
the value of its net assets (measured at the time an option is written). Options
trading is a highly specialized activity that entails greater than ordinary
investment risks. In addition, unlisted options are not subject to the
protections afforded purchasers of listed options issued by the Options Clearing
Corporation, which performs the obligations of its members if they default.
Cross-hedging is the use of options or forward contracts in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency based on a belief that there is a pattern of correlation between the
two currencies.
Each Fund of the BB&T Funds (other than the U.S. Treasury
Money Market Fund, the Prime Money Market Fund, and the Tax-Free Money Market
Fund) may purchase and sell call and put options on futures contracts traded on
an exchange or board of trade. When a Fund purchases an option on a futures
contract, it has the right to assume a position as a purchaser or a seller of a
futures contract at a specified exercise price during the option period. When a
Fund sells an option on a futures contract, it becomes obligated to sell or buy
a futures contract if the option is exercised. In connection with a Fund's
position in a futures contract or related option, a Fund will create a
segregated account of liquid assets or will otherwise cover its position in
accordance with applicable SEC requirements.
STAND-BY COMMITMENTS. The Tax-Free Bond Funds may acquire
"stand-by commitments" with respect to Tax-Exempt Obligations held in their
portfolios and the Tax- Free Money Market Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified securities at their amortized cost value to the Fund plus accrued
interest, if any. (Stand-by commitments acquired by a Fund may also be referred
to as "put" options.) Stand-by commitments may be exercisable by a Fund at any
time before the maturity of the underlying securities and may be sold,
transferred, or assigned only with the
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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 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
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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.
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
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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 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
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exercised prior to the rights' and warrants' expiration. Also, the purchase of
rights and/or warrants involves the risk that the effective price paid for the
right and/or warrant added to the subscription price of the related security may
exceed the value of the subscribed security's market price such as when there is
no movement in the level of the underlying security.
INDEX-BASED INVESTMENTS. Each of the Growth and Income Stock
Fund, Balanced Fund, Large Company Growth Fund, Small Company Growth Fund and
Equity Index Fund may invest in Index-Based Investments, such as Standard &
Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ
100s") and Dow Jones DIAMONDS ("Diamonds"), which are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the American
Stock Exchange.
A UIT will generally issue Index-Based Investments in
aggregations of 50,000 known as "Creation Units" in exchange for a "Portfolio
Deposit" consisting of (a) a portfolio of securities substantially similar to
the component securities ("Index Securities") of the applicable index (the
"Index"), (b) a cash payment equal to a pro rata portion of the dividends
accrued on the UIT's portfolio securities since the last dividend payment by the
UIT, net of expenses and liabilities, and (c) a cash payment or credit
("Balancing Amount") designed to equalize the net asset value of the Index and
the net asset value of a Portfolio Deposit.
Index-Based Investments are not individually redeemable,
except upon termination of the UIT. To redeem, the portfolio must accumulate
enough Index-Based Investments to reconstitute a Creation Unit (large
aggregations of a particular Index-Based Investment). The liquidity of small
holdings of Index-Based Investments, therefore, will depend upon the existence
of a secondary market. Upon redemption of a Creation Unit, the portfolio will
receive Index Securities and cash identical to the Portfolio Deposit required of
an investor wishing to purchase a Creation Unit that day.
The price of Index-Based Investments is derived and based upon
the securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of Index-Based Investments is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based Investments
purchased or sold by the Portfolio could result in losses on Index-Based
Investments. Under the 1940 Act, a fund must limit investments in Index-Based
Investments to 5% of the fund's total assets and 3% of the outstanding voting
securities of the Index-Based Investments issuer. Moreover, a Fund's investments
in Index-Based Investments, when aggregated with all other investments in
investment companies, may not exceed 10% of the Fund's total assets.
INVESTMENT COMPANIES. For liquidity purposes, each Fund,
except the U.S. Treasury Fund and the Fund of Funds, may invest up to 5% of the
value of its total assets in the
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securities of any one money market mutual fund and up to 10% of its total assets
in more than one money market mutual fund. Pursuant to exemptive relief granted
by the SEC for each Fund, except the Prime Money Market Fund, the U.S. Treasury
Fund, and the Tax-Free Money Market Fund, investments in money market funds may
include Shares of the Prime Money Market Fund, the U.S. Treasury Fund, and the
Tax-Free Money Market Fund. In order to avoid the imposition of additional fees
as a result of investments in Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, or the Tax-Free Money Market Fund, BB&T and BISYS Fund Services
(the "Administrator") will reduce that portion of their usual asset-based
service fees from each investing Fund by an amount equal to their service fees
from the Prime Money Market Fund, the U.S. Treasury Fund, or the Tax-Free Money
Market Fund, that are attributable to those Fund investments. BB&T and the
Administrator will promptly forward such fees to the investing Funds. The Funds
will incur additional expenses due to the duplication of expenses as a result of
investing in securities of other unaffiliated money market mutual funds.
In addition, the International Equity Fund may purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds." 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,
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except that the warrants generally will expire before the bond's maturity.
Convertible securities are senior to equity securities, and, therefore, have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar non-convertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality.
RESTRICTED SECURITIES. Each Fund of the BB&T Funds (other than
the U.S. Treasury Money Market Fund) may invest in commercial paper issued by
corporations without registration under the Securities Act of 1933 (the "1933
Act") in reliance on the exemption in Section 3(a)(3), and commercial paper
issued in reliance on the so-called "private placement" exemption in Section
4(2) ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the Federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers
which make a market in Section 4(2) paper, thus providing liquidity.
Each Fund of the BB&T Funds (other than the U.S. Treasury
Money Market Fund) may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act. These securities will not be considered
illiquid so long as the Adviser or Sub-Adviser 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.
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INVESTMENT RESTRICTIONS
Except as provided otherwise, the following investment
restrictions may be changed with respect to a particular Fund only by a vote of
a majority of the outstanding Shares of that Fund (as defined under "GENERAL
INFORMATION - Miscellaneous" in this Statement of Additional Information).
THE PRIME MONEY MARKET FUND, THE U.S. TREASURY FUND, AND THE
TAX-FREE MONEY MARKET FUND MAY NOT:
1. Purchase securities of any issuer, other than obligations
issued or guaranteed by the U.S. Government if, as a result, with respect to 75%
of its portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. In addition, although not a fundamental investment
restriction (and therefore subject to change without shareholder vote), to the
extent required by rules of the Securities and Exchange Commission, the Prime
Money Market Fund, the U.S. Treasury Fund and the Tax-Free Money Market Fund
will apply this restriction to 100% of its portfolio, except that for the Prime
Money Market Fund and the Tax- Free Money Market Fund, 25% of the value of its
total assets may be invested in any one issuer for a period of up to three
business days.
EACH BOND FUND MAY NOT:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase with respect to 75% of
its portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. There is no limit as to the percentage 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:
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1. Purchase any securities that would cause 25% or more of the
value of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities or securities issued by
"regulated investment companies" as defined in the Internal Revenue Code of
1986, as amended (the "Code"); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
2. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or "regulated investment companies" as defined in the Code,
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more than
10% of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
THE GROWTH AND INCOME FUND, THE BALANCED FUND, THE LARGE
COMPANY GROWTH FUND, AND THE SMALL COMPANY GROWTH FUND MAY NOT:
1. Purchase any securities that would cause 25% or more of the
value of such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured 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
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percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
THE INTERNATIONAL EQUITY FUND MAY NOT:
1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or certificates of deposit for any such securities) if more
than 5% of the value of the Fund's total assets would (taken at current value)
be invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund, except that up to 25%
of the value of the Fund's total assets may (taken at current value) be invested
without regard to these limitations. For purposes of this limitation, a security
is considered to be issued by the entity (or entities) whose assets and revenues
back the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to (i) instruments issued (as defined in Investment Limitation No. 1
above) or guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivision, and (ii) repurchase
agreements secured by the instruments described in clause (i); (b) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of the
parents; and (c) utilities will be divided according to their services; for
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry.
3. Purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
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.
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6. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to the Fund's transactions in futures contracts and
related options or the Fund's sale of securities short against the box, and (b)
the Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Fund may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.
EACH OF THE FUNDS MAY NOT:
1. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% (one-third with respect to the Prime Money Market
Fund and the International Equity Fund) of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of (one-third
of the value of the Fund's total assets at the time of such borrowing with
respect to the Prime Money Market Fund and the International Equity Fund) the
lesser of the dollar amounts borrowed or 10% of the value of a Fund's total
assets at the time of its borrowing. Each of the Funds (except the U.S. Treasury
Fund) will not purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are outstanding. The
U.S. Treasury Fund will not purchase securities while borrowings are
outstanding.
2. Make loans, except that each of the Funds may purchase or
hold debt securities and lend portfolio securities in accordance with its
investment objective and policies and may enter into repurchase agreements.
THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND THE
VIRGINIA FUND MAY NOT:
1. Write or sell puts, calls, straddles, spreads, or
combinations thereof except that the Funds may acquire puts with respect to
Tax-Exempt Obligations in their portfolios and sell those puts in conjunction
with a sale of those Tax-Exempt Obligations.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
securities of one or more 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
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Tax-Exempt Obligations or governmental guarantees of Tax-Exempt Obligations. For
purposes of this limitation, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the security, or,
with respect to a private activity bond that is backed only by the assets and
revenues of a non-governmental user, such nongovernmental user.
NONE OF THE FUNDS OF THE BB&T FUNDS (OTHER THAN THE
INTERNATIONAL EQUITY FUND AND PRIME MONEY MARKET FUND) MAY:
1. Purchase securities on margin, sell securities short,
participate on a joint or joint and several basis in any securities trading
account, or underwrite the securities of other issuers, except to the extent
that a Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities" acquired in accordance with such
Fund's investment objectives and policies;
2. Purchase or sell commodities, commodity contracts
(including futures contracts, with respect to each Fund other than the
Intermediate Corporate Bond Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the Equity Index Fund and the Funds of Funds, which may
purchase futures contracts) oil, gas or mineral exploration or development
programs, or real estate (although investments by the Growth and Income Fund,
the North Carolina Fund, the South Carolina Fund, the Virginia Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, the
Intermediate Corporate Bond Fund, the Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund, the Equity Index Fund, and the Funds of
Funds in marketable securities of companies engaged in such activities and in
securities secured by real estate or interests therein are not hereby
precluded);
NONE OF THE FUNDS (EXCEPT THE FUNDS OF FUNDS) MAY:
1. Invest in securities of other investment companies, except
as such securities may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets; PROVIDED, HOWEVER, that (i) the Growth
and Income Fund, the North Carolina Fund, the South Carolina Fund, the Virginia
Fund, the Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund,
the Intermediate Corporate Bond Fund, the Balanced Fund, the Large Company
Growth Fund, the Small Company Growth Fund, the International Equity Fund and
the Equity Index Fund may purchase securities of a money market fund, including
securities of the U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free Money Market Fund; (ii) the North Carolina Fund, the South Carolina
Fund and the Virginia Fund may purchase securities of a money market fund which
invests primarily in high quality short-term obligations exempt from Federal
income tax, if, with respect to the Fund, immediately after such purchase, the
acquiring Fund does not own in the aggregate (a) more than 3% of the acquired
company's outstanding voting securities, (b) securities issued by the acquired
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or
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(c) securities issued by the acquired company and all other investment companies
(other than Treasury stock of the acquiring Fund) having an aggregate value in
excess of 10% of the value of the acquiring Fund's total assets; (iii) the
Intermediate Corporate Bond Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the International Equity Fund, the Equity Index Fund, the
Prime Money Market Fund, and the Tax-Free Money Market Fund may purchase shares
of other investment companies in accordance with the provisions of the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder; and (iv) this restriction is not fundamental with
respect to the Intermediate Corporate Bond Fund, Large Company Growth Fund, the
Small Company Growth Fund, the International Equity Fund, the Equity Index Fund,
the Prime Money Market Fund, and the Tax-Free Money Market Fund and may
therefore be changed by a vote of a majority of the Trustees of the BB&T Funds.
The U.S. Treasury Fund may not buy common stocks or voting
securities, or state, municipal, or private activity bonds. The U.S. Treasury
Fund, the North Carolina Fund, the South Carolina Fund, the Virginia Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund and the
Intermediate Corporate Bond Fund may not write or purchase call options. Each of
the Funds may not write put options. The U.S. Treasury Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund and the
Intermediate Corporate Bond Fund may not purchase put options. The North
Carolina Fund and the South Carolina Fund may not invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operation.
THE PRIME MONEY MARKET FUND MAY NOT:
1. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of its total assets to be invested in the
obligations of issuers in the financial services industry, or in obligations,
such as repurchase agreements, secured by such obligations (unless the Fund is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry. In applying the investment
limitations stated in this paragraph, (i) there is no limitation with respect to
the purchase of (a) instruments issued or guaranteed by the United States, any
state, territory or possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or political subdivisions,
(b) instruments issued by domestic banks (which may include U.S. branches of
foreign banks) and (c) repurchase agreements secured by the instruments
described in clauses (a) and (b); (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (iii)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will be each considered a
separate industry. For purposes of this limitation, a security is considered to
be issued by the entity (or entities) whose assets and revenues back the
security. A guarantee of a security is not deemed
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to be a security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets.
2. Underwrite securities except to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as such
statutes, rules or regulations may be amended from time to time.
3. Purchase or sell commodities, commodities contracts,
futures contracts, or real estate except to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as such
statutes, rules or regulations may be amended from time to time.
Although the foregoing investment limitations would permit the
Prime Money Market Fund to invest in options, futures contracts and options on
futures contracts, the Fund does not currently intend to trade in such
instruments or engage in such transactions during the next twelve months (except
to the extent a portfolio security may be subject to a "demand feature" or "put"
as permitted under SEC regulations for money market funds). Prior to making any
such investments, the Prime Money Market Fund would notify its shareholders and
add appropriate descriptions concerning the instruments and transactions to its
Prospectus.
The following investment restrictions are considered
non-fundamental and therefore may be changed by a vote of a majority of the
Trustees of the BB&T Funds:
The Prime Money Market Fund, the U.S. Treasury Fund and the
Tax-Free Money Market Fund may not invest more than 10% of its net assets in
illiquid securities.
1. The Prime Money Market Fund, the U.S. Treasury Fund,
and the Tax-Free Money Market Fund may not invest
more than 10% of its net assets in instruments which
are not readily marketable.
2. None of the Funds (except the Prime Money Market
Fund) may invest in any issuer for purposes of
exercising control or management.
3. If any percentage restriction described above is
satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a
change in net asset value will not constitute a
violation of such restriction.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund of the BB&T Funds is
calculated by dividing the lesser of a Fund's purchases or sales of portfolio
securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities at the time
of acquisition were one year or less.
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For the fiscal years ended September 30, 1999, and September
30, 1998, the portfolio turnover rates for each of the Funds with a full year of
operations in the subject fiscal years (other than the Money Market Funds) were
as follows:
<TABLE>
<CAPTION>
Fund 1999 1998
---- ---- ----
<S> <C> <C>
Short-Intermediate Fund 99.99% 53.74%
Intermediate U.S. Government Bond Fund 73.46% 60.98%
Intermediate Corporate Bond Fund N/A N/A
North Carolina Fund 39.70% 32.63%
South Carolina Fund 71.96% 58.80%
Virginia Fund 27.05% N/A
Growth and Income Fund 13.52% 13.17%
Balanced Fund - common stock 23.35% 11.88%
- fixed income 51.20% 61.41%
Large Company Growth Fund 67.59% 108.36%
Small Company Growth Fund 184.39% 157.44%
International Equity Fund 82.00% 53.27%
Equity Index Fund N/A N/A
Capital Manager Conservative Growth Fund 16.45% 4.28%
Capital Manager Moderate Growth Fund 17.33% 4.85%
Capital Manager Growth Fund 17.93% 7.69%
</TABLE>
High turnover rates will generally result in higher
transaction costs to the Funds and may result in higher levels of taxable
realized gains (including short-term taxable gains generally taxed at ordinary
income tax rates) to a Fund's shareholders. The portfolio turnover rate may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of Shares. A higher portfolio
turnover rate for each Fund of the BB&T Funds other than the U.S. Treasury Fund
may lead to increased taxes and transaction costs. Portfolio turnover will not
be a limiting factor in making investment decisions. See "Additional Tax
Information."
Because the U.S. Treasury Fund, the Prime Money Market Fund
and the Tax-Free Money Market Fund intend to invest entirely in securities with
maturities of less than one year and because the Securities and Exchange
Commission requires such securities to be excluded from the calculation of the
portfolio turnover rate, the portfolio turnover with respect to each of the
Money Market Fund was zero percent for the fiscal years ended September 30, 1999
and September 30, 1998, and is expected to remain zero percent for regulatory
purposes.
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VALUATION
The net asset value of each of the Funds, other than the Money
Market Funds, is determined and its Shares are priced as of the close of regular
trading of the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on
each Business Day ("Valuation Time"). The net asset value of each Money Market
Fund is determined and its Shares are priced as of 12:00 p.m. and as of the
close of regular trading of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time) on each Business Day ("Valuation Times"). As used herein a
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day (other than a day on which no
Shares are tendered for redemption and no orders to purchase Shares are
received) during which there is sufficient trading in a Fund's portfolio
securities that a Fund's net asset value per Share might be materially affected.
Currently, the NYSE is closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE MONEY MARKET FUNDS
The U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free Money Market Fund have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free Money Market Fund would receive if it sold the instrument. The value of
securities in the U.S. Treasury Fund, the Prime Money Market Fund and the
Tax-Free Money Market Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will not
purchase any security with a remaining maturity of more than thirteen months
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The
BB&T Funds' Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and each
Money Market Fund's investment objective, to stabilize the net asset value per
Share of each Money Market Fund for purposes of sales and redemptions at $1.00.
These procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of the Money Market Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Trustees promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from a Money
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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, STOCK FUNDS 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 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
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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.
As discussed above, the International Equity Fund may use a
pricing service or market/dealer experienced in such matters to value the Fund's
securities.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares of each Fund of the BB&T Funds are sold
on a continuous basis by BISYS Fund Services ("BISYS"). In addition to
purchasing Shares directly from BISYS, Class A, Class B or Trust Shares may be
purchased through procedures established by BISYS in connection with the
requirements of accounts at BB&T, or BB&T's affiliated or correspondent banks.
Customers purchasing Shares of the BB&T Funds may include officers, directors,
or employees of BB&T or BB&T's affiliated or correspondent banks.
PURCHASE OF CLASS A AND CLASS B SHARES
As stated in the Class A and Class B Prospectus, the public
offering price of Class A Shares of the Growth and Income Fund, the North
Carolina Fund, the South Carolina Fund, the Virginia Fund, the
Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, the
Intermediate Corporate Bond Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund is their net asset value next computed
after an order is received, plus a sales charge which varies based upon the
quantity purchased. The public offering price of such Class A Shares of the BB&T
Funds is calculated by dividing net asset value by the difference (expressed as
a decimal) between 100% and the sales charge percentage of offering price
applicable to the purchase. The offering price is rounded to two decimal places
each time a computation is made. The sales charge scale set forth in the Class A
and Class B Prospectus applies to purchases of Class A Shares of such a Fund by
a Purchaser.
Shares of the U.S. Treasury Fund, the Prime Money Market Fund
and the Tax-Free Money Market Fund and Class B Shares of each Fund offering such
Shares are sold at their net asset value per share, as next computed after an
order is received. However, as discussed in the Class A and Class B Prospectus,
the Class B Shares are subject to a Contingent Deferred Sales Charge if they are
redeemed prior to the sixth anniversary of purchase. Investors purchasing Shares
of the U.S. Treasury Fund, Prime Money Market Fund, and the Tax-Free Money
Market Fund are generally required to purchase Class A or Trust Shares, since
such Shares are not subject to any initial sales charge or contingent deferred
sales charge. Shareholders investing directly in Class B Shares of the U.S.
Treasury Money Market Fund, Prime Money Market Fund, or the Tax-Free Money
Market Fund, as opposed to Shareholders obtaining Class B Shares of the U.S.
Treasury Money Market Fund, Prime Money Market Fund, or the Tax-Free Money
Market Fund upon an exchange of Class B Shares of any of the other Funds, will
be requested to participate in the Auto Exchange and to set the time and amount
of their regular, automatic withdrawals in such a way that all of their Class B
Shares have been withdrawn from the U.S. Treasury Money Market Fund, Prime Money
Market Fund, or the Tax-Free Money Market Fund within two years of purchase.
Such Class B shares may be exchanged for Class B Shares of any other Fund
through the Auto Exchange (see "Auto Exchange Plan").
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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 and Class B
Shares held of record by a Participating Organization but beneficially owned by
a Customer, confirmations of purchases, exchanges and redemptions of Class A and
Class B Shares by a Participating Organization will
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be sent to the Customer by the Participating Organization. Certificates
representing Shares will not be issued.
AUTO INVEST PLAN. BB&T Funds Auto Invest Plan enables
Shareholders to make regular purchases of Class A and Class B Shares through
automatic deduction from their bank accounts. With Shareholder authorization,
the BB&T Funds' transfer agent will deduct the amount specified (subject to the
applicable minimums) from the Shareholder's bank account and will automatically
invest that amount in Class A or Class B Shares at the public offering price on
the date of such deduction.
For a Shareholder to change the Auto Invest instructions or to
discontinue the feature, the request must be made in writing to the BB&T Funds,
P.O. Box 182533, Columbus, OH 43218-2533. The Auto Invest Plan may be amended or
terminated without notice at any time by the Distributor.
BB&T FUNDS INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). A BB&T Funds
IRA enables individuals, even if they participate in an employer-sponsored
retirement plan, to establish their own retirement program by purchasing Class A
or Class B Shares for an IRA. BB&T Funds IRA contributions may be tax-deductible
and earnings are tax deferred. Under the Tax Reform Act of 1986 and Taxpayer
Relief Act of 1997, the tax deductibility of IRA contributions is restricted or
eliminated for individuals who participate in certain employer pension plans and
whose annual income exceeds certain limits. Existing IRAs and future
contributions up to the IRA maximums, whether deductible or not, still earn
income on a tax-deferred basis.
All BB&T Funds IRA distribution requests must be made in
writing to BISYS Fund Services. Any additional deposits to a BB&T Funds IRA must
distinguish the type and year of the contribution.
For more information on a BB&T Funds IRA call the BB&T Funds
at (800) 228-1872. Investment in Shares of the North Carolina Fund, the South
Carolina Fund, the Virginia Fund, and the Tax-Free Money Market Fund would not
be appropriate for any IRA. Shareholders are advised to consult a tax adviser on
BB&T Funds IRA contribution and withdrawal requirements and restrictions.
SALES CHARGES
As the BB&T Funds' principal underwriter, BISYS acts as principal in selling
Class A and Class B Shares of the BB&T Funds to dealers. BISYS re-allows the
applicable sales charge as dealer discounts and brokerage commissions. However,
the Distributor, in its sole discretion, may pay certain dealers all or part of
the portion of the sales charge it receives. A broker or dealer who receives a
reallowance in excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the 1933 Act. From time to time dealers who
receive dealer
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discounts and broker commissions from the Distributor may reallow all or a
portion of such dealer discounts and broker commissions to other dealers or
brokers.
The Distributor, at its expense, will also provide additional
compensation to dealers in connection with sales of Class A Shares of any of the
Funds of the BB&T Funds. The maximum cash compensation payable by the
Distributor is 4.50% of the public offering price of Class A Shares.
Compensation will also include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more of the Funds, and/or
other dealer-sponsored special events. In some instances, this compensation will
be made available only to dealers whose representatives have sold a significant
amount of such Shares. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Dealers may not
use sales of a Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by any Fund or its shareholders. Neither
BISYS nor dealers are permitted to delay the placement of orders to benefit
themselves by a price change.
The sales charges set forth in the table above are applicable
to purchases made at one time by any purchaser (a "Purchaser"), which includes:
(i) an individual, his or her spouse and children under the age of 21; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
In determining whether a particular redemption is subject to a
Contingent Deferred Sales Charge, it is assumed that the redemption is first of
any Class A Shares in the Shareholder's Fund account (unless the Shareholder
elects to have Class B Shares redeemed first) or Shares representing capital
appreciation, next of Shares acquired pursuant to reinvestment of dividends and
capital gain distributions, and finally of other Shares held by the Shareholder
for the longest period of time. This method should result in the lowest possible
sales charge.
SALES CHARGE REDUCTIONS AND WAIVERS
Certain sales of Class A Shares are made without a sales charge, as described in
the Class A and Class B Prospectus under the caption "Sales Charge Waivers," to
promote goodwill with
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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 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
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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 distribution-related and
Shareholder services to the Fund in connection with the sale of the Class B
Shares, such as the payment of compensation to dealers and agents selling Class
B Shares. A dealer commission of 4.30% of the original purchase price of the
Class B Shares of the Fund will be paid to financial institutions and
intermediaries. However, the Distributor may, in its sole discretion, pay a
higher dealer commission at its sole discretion.
CLASS B SHARES. The Contingent Deferred Sales Charge is waived
on redemption of Shares: (i) following the death or disability (as defined in
the Code) of a Shareholder or a participant or beneficiary of a qualifying
retirement plan if redemption is made within one year of such death or
disability; (ii) to the extent that the redemption represents a minimum required
distribution from an Individual Retirement Account or other qualifying
retirement plan to a Shareholder who has attained the age of 70 1/2; (iii)
provided that the Shareholder withdraws no more than 12% of the account value
annually using the Auto Withdrawal Plan Feature; (iv) for Investors who
purchased Class B Shares of the Prime Money Market Fund, Class B Shares of the
U.S. Treasury Fund, or Class B Shares of the Tax-Free Money Market Fund through
the Cash Sweep Program at BB&T Treasury Services Division; and (v) for Investors
who purchased through a participant directed defined contribution plan. A
Shareholder or his or her representative should contact the Transfer Agent to
determine whether a retirement plan qualifies for a waiver and must notify the
Transfer Agent prior to the time of redemption if such circumstances exist and
the Shareholder is eligible for this waiver. In addition, the following
circumstances are not deemed to result in a "redemption" of Class B Shares for
purposes of the assessment of a Contingent Deferred Sales Charge, which is
therefore waived: (i) plans of reorganization of the Fund, such as mergers,
asset acquisitions and exchange offers to which the Fund is a party; and (ii)
exchanges for Class B Shares of other Funds of the BB&T Funds as described under
"Exchange Privilege."
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.
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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 may exchange their Class A Shares of the other
Funds for Class A Shares of the South Carolina Fund. Only residents of Virginia
may exchange their Class A Shares of the other Funds for Class A Shares of the
Virginia Fund.
If Class A Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, or the Tax-Free Money Market Fund were acquired in a previous
exchange involving Shares of a Variable NAV Fund, then such Shares of the Prime
Money Market Fund, the U.S. Treasury Fund, or the Tax-Free Money Market Fund may
be exchanged for Shares of a Variable NAV Fund without payment of any additional
sales load within a twelve month period. Under such circumstances, the
Shareholder must notify the Distributor that a sales load was originally paid.
Depending upon the terms of a particular Customer account, a Participating
Organization may charge a fee with regard to such an exchange. Information about
such charges will be supplied by the Participating Organization.
CLASS B. Class B Shares of each Fund may be exchanged for
Class B Shares of the other Funds on the basis of relative net asset value per
Class B Share, without the payment of any Contingent Deferred Sales Charge which
might otherwise be due upon redemption of the outstanding Class B Shares.
For purposes of computing the Contingent Deferred Sales Charge
that may be payable upon a disposition of the newly acquired Class B Shares, the
holding period for outstanding Class B Shares of the Fund from which the
exchange was made is "tacked" to the holding period of the newly acquired Class
B Shares. For purposes of calculating the holding period applicable to the newly
acquired Class B Shares, the newly acquired Class B Shares shall be deemed to
have been issued on the date of receipt of the Shareholder's order to purchase
the outstanding Class B Shares of the Fund from which the exchange was made.
ADDITIONAL INFORMATION. An exchange is considered a sale of
Shares and will result in a capital gain or loss for federal income tax
purposes, which, in general, is calculated by netting the Shareholder's tax cost
(or "basis") in the Shares surrendered and the value of the Shares received in
the exchange. If a Shareholder exchanges Class A Shares within 90 days of
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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 or Class B Shares purchased through a Participating
Organization or Bank may do so by contacting the Participating Organization or
Bank. If an exchange request in good order is received by the Distributor or the
Transfer Agent by 12:00 noon (Eastern Time) on any Business Day, the exchange
usually will occur on that day.
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,
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BB&T or the BB&T Funds will be liable for any losses, damages, expense or cost
arising out of any telephone transaction (including exchanges and redemptions)
effected in accordance with the BB&T Funds' telephone transaction procedures,
upon instructions reasonably believed to be genuine. The BB&T Funds will employ
procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
BB&T Funds may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verifying the account name and a shareholder's account number or
tax identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone transactions, Shareholders
may also mail the redemption request to the BB&T Funds.
The BB&T Funds may suspend the right of redemption or postpone
the date of payment for Shares during any period when (a) trading on the New
York Stock Exchange (the "Exchange") is restricted by applicable rules and
regulations of the Securities and Exchange Commission, (b) the Exchange is
closed for other than customary weekend and holiday closings, (c) the Securities
and Exchange Commission has by order permitted such suspension, or (d) an
emergency exists as a result of which (i) disposal by the BB&T Funds of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Company to determine the fair market value of its total net
assets.
The BB&T Funds may redeem any class of Shares involuntarily if
redemption appears appropriate in light of the BB&T Funds' responsibilities
under the 1940 Act.
AUTO WITHDRAWAL PLAN. BB&T Funds Auto Withdrawal Plan enables
Shareholders to make regular redemptions of Class A Shares and Class B Shares of
a Fund. With Shareholder authorization, the BB&T Funds' transfer agent will
automatically redeem Class A Shares and Class B Shares at the net asset value of
the applicable Fund on the dates of withdrawal and have the amount specified
transferred according to the instructions of the Shareholder.
Purchase of additional Class A Shares concurrent with
withdrawals may be disadvantageous to certain Shareholders because of tax
liabilities.
To participate in the Auto Withdrawal Plan, Shareholders
should complete a supplemental sign-up form that can be acquired by calling the
Distributor. For a Shareholder to change the Auto Withdrawal instructions or to
discontinue the feature, the request must be made in writing to the BB&T Funds,
P.O. Box 182533, Columbus, OH 43218-2533. The Auto Withdrawal Plan may be
amended or terminated without notice at any time by the Distributor.
PAYMENTS TO SHAREHOLDERS. Redemption orders are effected at
the net asset value per Share next determined after the Shares are properly
tendered for redemption, as described
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above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the BB&T Funds will attempt to honor requests from
Shareholders for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last Valuation Time, to honor requests for payment within two Business
Days, unless it would be disadvantageous to the BB&T Funds or the Shareholders
of the particular Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. The Prime Money
Market Fund, the U.S. Treasury Fund, and the Tax-Free Money Market Fund will
attempt to honor requests from its Shareholders for same day payment upon
redemption of Shares if the request for redemption is received by the Transfer
Agent before 12:00 noon Eastern Time, on a Business Day or, if the request for
redemption is received after 12:00 noon Eastern Time, to honor requests for
payment on the next Business Day, unless it would be disadvantageous to the Fund
or its Shareholders to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
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
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assets is invested in the securities (other than those of the U.S. Government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses.
A non-deductible excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they have a non-calendar taxable year) an amount equal to 98% of their "ordinary
income" (as defined) for the calendar year plus 98% of their capital gain net
income for the 1-year period ending on October 31 of such calendar year plus any
undistributed amounts from prior years. For the foregoing purposes, a Fund is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year. If distributions during a
calendar year by a Fund were less than the required amount, the Fund would be
subject to a non-deductible excise tax equal to 4% of the deficiency.
Distributions from a Fund (other than exempt-interest
dividends, as discussed below) will be taxable to Shareholders as ordinary
income to the extent derived from the Fund's investment income and net
short-term capital gains. Distributions of net capital gains, if any, designated
as capital gain dividends, are taxable as long-term capital gains (generally
subject to a 20% tax rate), regardless of how long a Shareholder has held a
Fund's shares and are not eligible for the dividends received deduction. Any
distributions that are not from a Fund's investment company taxable income or
net capital gains may be characterized as a return of capital to Shareholders
or, in some cases, as capital gain. The tax treatment of dividends and
distributions will be the same whether a Shareholder reinvests them in
additional shares or elects to receive them in cash. A Fund of Funds will not be
able to offset gains realized by one Fund in which such Fund of Funds invests
against losses realized by another Fund in which such Fund of Funds invests. The
use of a fund-of-funds structure could therefore affect the amount, timing and
character of distributions to shareholders.
Dividends and distributions on a Fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the Fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular Shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when a Fund's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a Fund's net asset value also reflects unrealized
losses.
Upon the disposition of shares of a Fund (whether by
redemption, sale or exchange), a Shareholder will realize a gain or loss. Such
gain or loss will be capital gain or loss if the shares are capital assets in
the Shareholder's hands, and will be long-term or short-term generally depending
upon the Shareholder's holding period for the shares. Depending on the
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
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exceeds the tax basis of the Fund of Funds in the shares of the underlying Fund,
but instead to be treated as receiving a dividend taxable as ordinary income on
the full amount of the distribution. This could cause Shareholders of a Fund of
Funds to recognize higher amounts of ordinary income than if the Shareholders
had held the shares of the underlying Funds directly.
Each Fund of the BB&T Funds will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends and other
distributions paid to any Shareholder who has provided either an incorrect
taxpayer identification number or no number at all, who is subject to
withholding by the Internal Revenue Service for failure properly to report
payments of interest or dividends, or who fails to provide a certified statement
that he or she is not subject to "backup withholding."
Dividends received by a Shareholder of a Fund that are derived
from such Fund's investments in U.S. Government Securities may not be entitled
to the exemption from state and local income taxes that would be available if
the Shareholder had purchased U.S. Government Securities directly. Shareholders
are advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.
Shareholders will be advised at least annually as to the
amount and federal income tax character of distributions made during the year.
Dividends are generally taxable in the taxable year received.
However, dividends declared in October, November or December to Shareholders of
record during such a month and paid during the following January are treated for
tax purposes as if they were received by each Shareholder on December 31 of the
year in which the dividends were declared.
Dividends will generally be taxable to a Shareholder as
ordinary income to the extent of the Shareholder's ratable share of the earnings
and profits of a Fund as determined for tax purposes. Certain dividends paid by
the Growth and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds, and so-designated by the Funds, may qualify for the
dividends received deduction for corporate shareholders. A corporate shareholder
will only be eligible to claim such a dividends received deduction with respect
to a dividend from one of these Funds if the shareholder held its shares on the
ex- dividend date and for at least 45 more days during the 90-day period
surrounding the ex- dividend date. Because all of the net investment income of
the remaining Funds is expected to be interest income, it is anticipated that no
distributions from such Funds will qualify for the dividends received deduction.
Distributions designated by a Fund as deriving from net gains on securities held
for more than one year will be taxable to Shareholders as such, regardless of
how long the Shareholder has held Shares in the Fund. Shareholders who are not
subject to tax on their income generally will not have to pay federal income tax
on amounts distributed to them.
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Distributions are taxable to a Shareholder of a Fund even if
they are paid from income or gains earned by the Fund prior to the Shareholder's
investment (and thus were included in the price paid by the Shareholder).
Dividends that are derived from interest on a Fund's
investments in U.S. Government Securities and that are received by a Shareholder
who is a North Carolina, South Carolina, or Virginia resident are currently
eligible for exemption from those states' income taxes. Such dividends may be
eligible for exemption from the state and local taxes of other jurisdictions as
well, although state and local tax authorities may not agree with this view.
However, in North Carolina, South Carolina, and Virginia, as well as in other
states, distributions of income derived from repurchase agreements and
securities lending transactions generally will not qualify for exemption from
state and local income taxes.
A Fund's transactions in futures contracts, options, and
foreign-currency-denominated securities, and certain other investment and
hedging activities of the Fund, will be subject to special tax rules (including
"mark-to-market," "straddle," "wash sale," "constructive sale," and "short sale"
rules), the effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of the Fund's
assets, convert short-term capital losses into long-term capital losses, convert
long-term capital gains into short-term capital losses, and otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to Shareholders. Income earned as a
result of these transactions would, in general, not be eligible for the
dividends received deduction or for treatment as exempt-interest dividends when
distributed to Shareholders. The Funds will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Funds. 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
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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.
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
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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.
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.
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Fund transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book income
and taxable income. This difference may cause a portion of a Fund's income
distributions to constitute a return of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a RIC for tax
purposes.
ADDITIONAL TAX INFORMATION CONCERNING THE NORTH CAROLINA, SOUTH CAROLINA AND
VIRGINIA FUNDS
As indicated in the Prospectuses, the North Carolina Fund, the
South Carolina Fund and the Virginia Fund are designed to provide North
Carolina, South Carolina and Virginia Shareholders, respectively, with current
tax-exempt interest income. The Funds are not intended to constitute a balanced
investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the North Carolina Fund, the South Carolina Fund and the
Virginia Fund would not be suitable for tax-exempt institutions and may not be
suitable for retirement plans qualified under Section 401 of the Code, so-called
Keogh or H.R. 10 plans, and individual retirement accounts. Such plans and
accounts are generally tax-exempt and, therefore, would not realize any
additional benefit from the dividends of the North Carolina Fund, the South
Carolina Fund and the Virginia Fund being tax-exempt, and such dividends would
be ultimately taxable to the beneficiaries of such plans and accounts when
distributed to them.
The portions of dividends paid for each year that are exempt
from federal, and North Carolina, South Carolina, or Virginia income tax,
respectively, will be designated within 60 days after the end of a Fund's
taxable year and will be based for each of the North Carolina, South Carolina,
and Virginia Funds upon the ratio of net tax-exempt income to total net income
earned by the Fund during the entire year. That ratio may be substantially
different from the ratio of net tax-exempt income to total net income earned
during any portion of the year. Thus, a Shareholder who holds Shares in either
Fund for only a part of the year may be allocated more or less tax-exempt
dividends than would be the case if the allocation were based on the ratio of
net tax-exempt income to total net income actually earned by the Fund while he
or she was a Shareholder.
Distributions from the North Carolina Fund will not be subject
to North Carolina income tax if made to individual Shareholders residing in
North Carolina or to trusts or estates subject to North Carolina income tax to
the extent such distributions are either (i) 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.
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Distributions from the South Carolina Fund will not be subject
to South Carolina income tax if made to individual Shareholders residing in
South Carolina or to trusts or estates subject to South Carolina income tax to
the extent such distributions are either (i) attributable to interest on
obligations of South Carolina or its political subdivisions, including any
agencies, instrumentalities and authorities thereof, or (ii) attributable to
interest on direct obligations of the United States. However, distributions from
the South Carolina Fund may be subject to certain estate transfer and bank
transfer taxes by South Carolina.
Distributions from the Virginia Fund will not be subject to
Virginia income tax if the Virginia Fund pays distributions to Shareholders that
it derived from interest on debt obligations of Virginia or its political
subdivisions, debt obligations of the United States excludable from Virginia
income tax under the laws of the United States, or debt obligations of Puerto
Rico, Guam, or the Virgin Islands, which debt obligations are backed by the full
faith and credit of the borrowing government.
Distributions designated by the Funds as "exempt-interest
dividends" are not generally subject to federal income tax. However, if the
Shareholder receives Social Security or railroad retirement benefits, the
Shareholder should consult his or her tax adviser to determine what effect, if
any, an investment in a Fund may have on the taxation of such benefits.
Dividends derived from interest income from certain types of
securities in which the North Carolina Fund, the South Carolina Fund or the
Virginia Fund may invest may subject individual and corporate investors to
liability under the federal alternative minimum tax. As a matter of policy,
under normal market conditions, not more than 10% of a Fund's total assets will
be invested in securities the interest on which is treated as a preference item
for purposes of the federal alternative minimum tax for individuals. To the
extent the North Carolina Fund, the South Carolina Fund or the Virginia Fund
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 and the Virginia Fund.
Under the Code, if a Shareholder receives an exempt-interest
dividend with respect to any Share and such Share is held for six months or
less, any loss on the sale or exchange of such Share will be disallowed for
North Carolina, South Carolina, Virginia and federal income tax purposes to the
extent of the amount of such exempt-interest dividend, even though, in the case
of North Carolina, South Carolina or Virginia, some portion of such dividend
actually may have been subject to North Carolina, South Carolina or Virginia
income tax. Although the Treasury Department is authorized to issue regulations
reducing such period to as short as 31 days for 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.
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The North Carolina Fund, the South Carolina Fund and the
Virginia Fund may at times purchase Tax-Exempt Obligations at a discount from
the price at which they were originally issued. For federal income tax purposes,
some or all of this market discount will be included in a Fund's ordinary income
and will be taxable to shareholders as such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from
taxable income (for example, from interest on certificates of deposit, market
discount, securities lending transactions or repurchase agreements), or from
long-term or short-term capital gains, such dividends will be subject to federal
income tax, whether such dividends are paid in the form of cash or additional
Shares. Distributions by the North Carolina Fund, the South Carolina Fund, and
the Virginia Fund of net gains on securities held for more than one year are
taxable to Shareholders as such, regardless of how long the Shareholder has held
Shares in the North Carolina Fund, the South Carolina Fund or the Virginia Fund,
except that distributions which are directly attributable to gains from certain
obligations of the State of North Carolina and its political subdivisions that
were issued before July 1, 1995 are exempt from North Carolina State income tax.
Distributions will be taxable as described above even if the net asset value of
a Share in the North Carolina Fund, the South Carolina Fund or the Virginia Fund
is reduced below the Shareholder's cost of that Share by the distribution of
income or gain realized on the sale of securities and the distribution is, as an
economic matter, a return of capital. If a shareholder purchases mutual fund
shares, receives a capital gain dividend (or is credited with an undistributed
capital gain) and then sells the shares at a loss within 6 months after
purchasing the shares, the loss is treated as a long-term capital loss to the
extent of the capital gain dividend (or undistributed capital gain).
Part or all of the interest on indebtedness incurred by a
Shareholder to purchase or carry Shares of the North Carolina Fund, the South
Carolina Fund or the Virginia Fund is not deductible for federal, North
Carolina, South Carolina or Virginia income tax 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 or the Virginia Fund will be eligible
for the dividends received deduction for corporations.
In addition, the North Carolina Fund, the South Carolina Fund
and the Virginia Fund may not be appropriate investments for Shareholders who
are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business, and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds represent more than
5% of the total revenues derived by all users of such facilities, or who
occupies more than 5% of the usable area of such facilities, or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related person" includes certain related natural persons, affiliated
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corporations, a partnership and its partners and an S Corporation and its
shareholders. Each Shareholder who may be considered a "substantial user" should
consult a tax adviser with respect to whether exempt-interest dividends would
retain the exclusion under Section 103 of the Code if the Shareholder were
treated as a "substantial user" or a "related person."
The Code permits a RIC which invests at least 50% of its total
assets in Tax-Exempt Obligations to pass through to its investors, tax-free, net
Tax-Exempt Obligations interest income. The policy of the North Carolina Fund,
the South Carolina Fund and the Virginia Fund is to pay each year as dividends
substantially all the Fund's Tax-Exempt Obligations interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the North Carolina Fund, the South
Carolina Fund and the Virginia Fund and designated as an exempt-interest
dividend in a written notice mailed to Shareholders within sixty days after the
close of the Fund's taxable year, but not to exceed in the aggregate the net
Tax-Exempt Obligations interest received by the Fund during the taxable year.
The percentage of the total dividends paid for any taxable year which qualifies
as federal exempt-interest dividends will be the same for all Shareholders
receiving dividends from the North Carolina Fund, the South Carolina Fund and
the Virginia Fund, respectively, during such year, regardless of the period for
which the Shares were held.
While the North Carolina Fund, the South Carolina Fund and the
Virginia Fund do not expect to realize any significant amount of long-term
capital gains, any net realized long-term capital gains will be distributed
annually. The North Carolina Fund, the South Carolina Fund and the Virginia Fund
will have no tax liability with respect to such distributed gains, and the
distributions will be taxable to Shareholders as net gains on securities held
for more than one year regardless of how long a Shareholder has held the Shares
of the North Carolina Fund, the South Carolina Fund or the Virginia Fund. Such
distributions will be designated as a capital gains dividend in a written notice
mailed by the North Carolina Fund, the South Carolina Fund and the Virginia Fund
to their respective Shareholders within sixty days after the close of each
Fund's taxable year.
Distributions of exempt-interest dividends, to the extent
attributable to interest on North Carolina, South Carolina and Virginia
Tax-Exempt Obligations and to interest on direct obligations of the United
States (including territories thereof), are not subject to North Carolina, South
Carolina or 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.
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While the North Carolina Fund, the South Carolina Fund and the
Virginia Fund do not expect to earn any significant amount of investment company
taxable income, taxable income earned by the North Carolina Fund, the South
Carolina Fund and the Virginia Fund will be distributed to their respective
Shareholders. In general, the investment company taxable income will be the
taxable income of each Fund (for example, short-term capital gains) subject to
certain adjustments and excluding the excess of any net long-term capital gains
for the taxable year over the net short-term capital loss, if any, for such
year. Any such income will be taxable to Shareholders as ordinary income
(whether paid in cash or additional Shares).
As indicated in the Prospectuses, the Funds may acquire puts
with respect to Tax- Exempt Obligations held in the portfolios. See "INVESTMENT
OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the North
Carolina Fund, the South Carolina Fund and the Virginia Fund is to limit the
acquisition of puts to those under which the Fund will be treated for federal
income tax purposes as the owner of the Tax-Exempt Obligations acquired subject
to the put and the interest on the Tax-Exempt Obligations will be tax-exempt to
the Fund. Although the Internal Revenue Service has issued a published ruling
that provides some guidance regarding the tax consequences of the purchase of
puts, there is currently no guidance available from the Internal Revenue Service
that definitively establishes the tax consequences of many of the types of puts
that the North Carolina Fund, the South Carolina Fund and the Virginia Fund
could acquire under the 1940 Act. Therefore, although the North Carolina Fund,
the South Carolina Fund and the Virginia Fund will only acquire a put after
concluding that such put will have the tax consequences described above, the
Internal Revenue Service could reach a different conclusion from that of the
North Carolina Fund, the South Carolina Fund and the Virginia Fund. If the North
Carolina Fund, the South Carolina Fund or the Virginia Fund were not treated as
the owners of the Tax-Exempt Obligations, income from such securities would
probably not be tax exempt.
The foregoing is only a summary of some of the important
federal tax considerations generally affecting purchasers of Shares of the North
Carolina Fund, the South Carolina Fund and the Virginia Fund. No attempt has
been made to present a detailed explanation of the Federal or state income tax
treatment of the North Carolina Fund, the South Carolina Fund and the Virginia
Fund or their Shareholders and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential purchasers of Shares of the
North Carolina Fund, the South Carolina Fund and the Virginia Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
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
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economic condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities, and authorities could adversely
affect the value of the North Carolina Fund and its portfolio securities. This
section briefly describes current economic trends in North Carolina. The
information set forth below is derived from official statements prepared in
connection with the issuance of North Carolina Tax-Exempt Obligations and other
sources that are generally available to investors. The BB&T Funds has not
independently verified this information.
The State of North Carolina has three major operating funds:
the General Fund, the Highway Fund, and the Highway Trust Fund. North Carolina
derives most of its revenue from taxes, including individual income tax,
corporation income tax, sales and use taxes, corporation franchise tax,
alcoholic beverage tax, insurance tax, and tobacco products tax. State sales
taxes on food, as well as the inheritance and soft drink taxes, are being phased
out. North Carolina receives other non-tax revenues which are also deposited in
the General Fund. The most important are Federal funds collected by North
Carolina agencies, university fees and tuition, interest earned by the North
Carolina Treasurer on investments of General Fund moneys and revenues from the
judicial branch. The proceeds from the motor fuel tax, highway use tax and motor
vehicle license tax are deposited in the Highway Fund and the Highway Trust
Fund.
Fiscal year 1997 ended with a positive General Fund balance of
approximately $760.6 million. Along with additional reserves, $135 million was
reserved in the Reserve for Repair and Renovation of State Facilities, in
addition to a supplemental reserve of $39.3 million for repairs and renovations.
An additional $49.4 million was transferred to the Clean Water Management Trust
Fund and $115 million and $156 million were reserved in newly-created Disaster
Relief and Intangible Tax Refund Reserves, respectively. No additional amounts
were transferred to the Savings Reserve for the year. After additional reserves,
the unrestricted General Fund balance at the end of fiscal year 1997 was
approximately $319.9 million.
Fiscal Year 1998 ended with a positive General Fund balance of
approximately $1,662 million. Along with additional reserves, $21.6 million was
reserved in the Savings Reserve, and $55 million was reserved to fund public
school employee performance bonuses, longevity payments, school bus purchases
and purchases of additional school technology. $145 million was placed in the
Reserve for Repairs and Renovations of State Facilities (bringing the total
reserve to $174.2 million) and $47.4 million was placed in the reserve for the
Clean Water Management Trust Fund. After additional reserves, the unreserved
General Fund balance at the end of fiscal year 1998 was approximately $101
million.
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The foregoing results are presented on a budgetary basis.
Accounting principles applied to develop data on a budgetary basis differ
significantly from those principles used to present financial statements in
conformity with generally accepted accounting principles.
On October 28, 1998, the North Carolina General Assembly
adopted the biennium budget for 1998 to 2000. The $12.6 billion budget for
fiscal year 1999 included over $100 million in new spending for the state's
universities and community colleges, over $90 million in new spending for health
and human services, including $42.5 million for expansion of North Carolina's
Smart Start program for preschool children, and almost $30 million in new
spending on law enforcement. The legislature also approved teacher pay raises
averaging 6.5%.
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 has also taken action to reduce some
taxes, including elimination of the sales tax on food (estimated cost $185.5
million 1999-2000) and the inheritance tax (estimated cost $52.5 million
1999-2000).
The North Carolina budget is based upon a number of existing
and assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject to
change which may be material and affect the budget. The Congress of the United
States is considering a number of matters affecting the Federal government's
relationship with state governments that, if enacted into law, could affect
fiscal and economic policies of the states, including North Carolina.
During recent years North Carolina has moved from an
agricultural to a service and goods producing economy. According to the North
Carolina Employment Security Commission (the "Commission"), in July 1998, North
Carolina ranked tenth among the states in non-agricultural employment and eighth
in manufacturing employment. The Commission estimated North Carolina's
seasonally adjusted unemployment rate in September 1999 to be 3.1% of the
labor force, as compared with an unemployment rate of 4.2% nationwide.
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
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estimate of property damage caused by the storm and its aftermath had not been
determined as of the date of this Statement of Additional Information 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 the Bonds.
The following are certain cases pending in which the State of
North Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet its
financial obligations:
Patton v. State North Carolina and Bailey v. State of North
Carolina - State Tax Refunds -Federal and State Retirees. On May 8, 1998, in
Bailey, et. al. v. State of North Carolina, the North Carolina Supreme Court
held that the act of the General Assembly that repealed a tax exemption on State
and local government retirement benefits was an unconstitutional impairment of
contract and a taking of property without just compensation Accordingly,
retirement benefits that were vested before August 1989 were held to be exempt
from State income taxation. In addition, the North Carolina Supreme Court ruled
that recovery of taxes previously paid by retirees on those benefits was not
limited to retirees who paid the tax under protest or requested a refund within
the time periods specified by the statute.
Potential refunds and interest are estimated by the State to
be $352.68 million through December 31, 1997, with respect to refunds, and
through June 30, 1998, with respect to interest. Until this matter is resolved,
any additional potential refunds and interest will continue to accrue. In
addition to refunds and interest, the State will be unable to continue to tax
the applicable retirement benefits, thus reducing future revenue. The case was
remanded by the North Carolina Supreme Court for administration and further
orders to carry out the decision. Under the initial order of the trial judge,
the State would offset its liabilities to improperly taxed retirees by allowing
tax credits to eligible retirees to be applied against future State income
taxes, or in the case of eligible retirees who are deceased, no longer residents
of the State, or who have no tax liability, to be paid in whole to such retirees
or their estates.
Federal retirees in Patton, et. al. v. State of North
Carolina, filed a class action suit in Wake County Superior Court in 1995
seeking monetary relief for taxes paid since 1989. This case was brought in
anticipation of a favorable outcome for the plaintiffs in the Bailey case. The
federal retirees allege that a result in the Bailey case that exempts State and
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local retirement benefits from State income taxes would require a similar
exemption for federal retirement benefits under the United States Supreme
Court's 1989 decision in Davis v. Michigan. In Davis, the United State Supreme
Court ruled that a Michigan income tax statute that taxed federal retirement
benefits while exempting those paid by the state and local government violated
the constitutional doctrine of intergovernmental tax immunity. At the time of
the Davis decision, North Carolina law contained similar exemptions in favor of
the state and local retirees. Those exemptions were repealed prospectively,
beginning with the 1998 tax year by the act of the General Assembly held
unconstitutional in Bailey. The Patton case was being held in abeyance pending
the outcome in Bailey. Potential refunds and interest have been estimated by the
State to be $585.09 million through June 30, 1997. Until this matter is
resolved, any additional potential refunds and interest have continued and will
continue to accrue.
In June 1998, the plaintiff classes in the Bailey and Patton
cases reached a tentative settlement with the State of North Carolina. Under the
terms of the settlement, the General Assembly will appropriate $400,000,000 in
the 1998-1999 fiscal year, and $399,000,000 by July 15, 1999 in the 1999-2000
fiscal year, to a settlement fund. Amounts in the fund will be paid to the
state, local and federal retirees in the cases. The terms of the settlement
provide that such payments will completely extinguish all of the state's
liability to the retirees arising from the taxation of state, local and federal
retirement income and benefits from 1989 through 1997.
The tentative court settlement was made subject to the
appropriation of funds by the General Assembly, and to court approval following
notice to the class members. The $400,000,000 appropriation was made by action
of the Assembly in September, 1998, and on October 7, 1998, the court entered an
order approving the settlement.
The final $399 million appropriation was made by action of the
General Assembly in June 1999.
Smith et. al v. State of North Carolina -- State Tax Refunds
- --Intangibles Tax. On February 21, 1996, the U.S. Supreme Court declared North
Carolina's intangibles tax unconstitutional. Subsequently, the State refunded
intangibles taxes paid by all persons who had paid such taxes under protest in
compliance with the state's tax refund statute. In the Smith case, refunds were
sought by a class of taxpayers who had not complied with the tax refund statute.
On December 4, 1998, the Supreme Court ruled that North Carolina will have to
pay these refunds. Refunds to non-protesters will total approximately $233
million plus interest of approximately $100 million. In July 1999, the General
Assembly authorized the appropriation of $440 million over the next two years to
pay such refunds, and a tentative court settlement made subject to such
appropriations was approved. An initial $200 million appropriation was made by
action of the General Assembly on July 21, 1999. In order to achieve final
consummation of the settlement, the
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General Assembly must appropriate an additional $240 million amount for such
refunds no later than July 10, 2000.
In its 1996 Short Session, the North Carolina General Assembly
approved additional North Carolina general obligation bonds in the amount of
$950 million for highways and $1.8 billion for schools. These bonds were
approved by the voters of the State in November, 1996. In March, 1997, and again
in March, 1998, North Carolina issued $450 million of the authorized school
bonds (Public School Building Bonds). In November, 1997, North Carolina issued
$250 million of the authorized highway bonds (Highway Bonds). In March 1999, the
State again issued an additional $450 million of the Public School Building
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 $800,000,000 in clean water bonds and $200,000,000 natural gas
facilities bonds. The clean water bonds will provide grants and loans for needed
water and sewer improvement projects for the state's municipalities, and fund
programs to reduce pollution in the state's waterways. The natural gas bond
issue will provide grants, loans and other financing for local distribution
companies or state or local government agencies to build natural gas facilities,
in part to help attract industry to the state's rural regions. In September
1999, the State issued a total of $197.4 million of authorized clean water bonds
and natural gas facilities bond, $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.
Most recently, Moody's, S&P, and Fitch IBCA rate North
Carolina general obligation bonds Aaa, AAA, and AAA, respectively. There can be
no assurance that the economic conditions 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
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fiscal year. The State Constitution also provides that the State Budget and
Control Board may, if a deficit appears likely, effect such reductions in
appropriations as may be necessary to prevent a deficit. In the November 1984
general election the electorate approved a constitutional amendment providing
that annual increases in State appropriations may not exceed the average growth
rate of the economy of the State and that the annual increases in the number of
State employees may not exceed the average growth of the population of the
State. Such limits on growth are subject to suspension by a super-majority of
the General Assembly. The State Constitution also establishes a General Reserve
Fund to be maintained in an amount equal to 3% (4% prior to 1988) of General
Fund revenue for the latest fiscal year.
In the November 1988 general election the electorate approved
a constitutional amendment creating a Capital Reserve Fund equal to 2% of
General Fund revenue. Before March 1 of each year, the Capital Reserve Fund must
be used to offset mid-year budget reductions before mandating cuts in operating
appropriations, and after March 1, the Capital Reserve Fund may be appropriated
by a special vote in separate legislation by the General Assembly to finance in
cash previously authorized capital improvement bond projects, retire bond
principal or interest on bonds previously issued, and for capital improvements
or other nonrecurring purposes which must be ranked in order of priority of
expenditure. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item which has been reduced due to
application of the monies to year-end deficit, must go back to the General Fund.
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 four percent 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
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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 contained a
provision requiring the Budget and Control Board to monitor the collection of
revenues and the expenditure of funds. 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.
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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.
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.
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. South Carolina's general obligation bonds
are rated Aaa by Moody's Investor Services, Inc. In addition, with the State's
economy improving since January 1993, the State regained its AAA rating from
Standard & Poor's Rating Service on July 9, 1996. Such ratings apply only to the
general obligation bonded indebtedness of the State, and do not apply to bonds
issued by political subdivisions or to revenue bonds not backed by the full
faith and credit of the State. There can be no assurance that the economic
conditions on which the above ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic or political
conditions.
South Carolina is primarily a manufacturing state. In 1998,
one-fifth of all jobs in the State were in manufacturing, compared to 15%
nationally. While the textile industry is still the major industrial employer in
the State, since 1950 the State's economy has undergone a gradual transition.
The economic base of the State has diversified as the trade and service
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sectors developed and with the added development of the durable goods
manufacturing industries.
Personal income in South Carolina grew five and six-tenths
percent (5.6%) during 1997 compared to income growth of five and seven-tenths
percent (5.7%) nationwide and five and eight-tenths percent (5.8%) in the
Southeast. Over the last five (5) years (1993-1998) personal income in South
Carolina rose at a compounded annual rate of five and seven-tenths percent
(5.7%), falling short of the annual income growth for the Southeast region, at
five and eight-tenths percent (5.8%), and outpacing the five and five-tenths
percent (5.50%) growth in the United States in the same period.
In 1998, employment in the state increased three and
nine-tenths percent (3.9%) while the rate of employment growth in the United
States was two and six-tenths percent (2.6%). Monthly unemployment rates in the
State have declined below comparable national rates throughout 1998 and
reached an historical low unemployment rate of two and four-tenths percent in
March 1998. The unemployment rate for South Carolina in 1998 was three and
eight-tenths percent (3.8%), seven-tenths of one percent lower than the four
and five-tenths percent (4.5%) nationwide.
General Fund Revenues increased at a rate of eight and
seven-tenths percent (8.7%) during Fiscal Year 1998-99 over the previous
fiscal year. The state finished Fiscal Year 1998-99 with a revenue excess of
$263 million above the Fiscal Year 1998-99 Appropriation Act. Revenues
through August 1999 have increased at a rate of four and one-tenth percent
(4.1%) during fiscal year 1999-00.
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. 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, 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.
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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.
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.
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The rate of economic growth in the Commonwealth of Virginia
has increased steadily over the past decade. Per capita income in Virginia has
been consistently above national levels during that time. The services sector in
Virginia generates the largest number of jobs, followed by wholesale and retail
trade, manufacturing and state and local government. Because of Northern
Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has
the nation's largest concentration of military installations, the Federal
government has a greater economic impact on Virginia relative to its size than
any states other than Alaska and Hawaii.
According to statistics published by the U.S. Department of
Labor, Virginia typically has one of the lowest unemployment rates in the
nation. This is generally attributed to the balance among the various sectors
represented in the economy. Virginia is one of twenty states with a
right-to-work law and is generally regarded as having a favorable business
climate marked by few strikes or work stoppages. Virginia is also one of the
least unionized among the industrialized states.
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by the
Governor, assisted by the Secretary of Finance and the Department of Planning
and Budget, to ensure that a balanced budget is maintained. If projected revenue
collections fall below amounts appropriated at any time, the Governor must
reduce expenditures and withhold allotments of appropriations (other than for
debt service and other specified purposes) to restore balance. An amendment to
the Constitution, effective January 1, 1993, established a Revenue Stabilization
Fund. This Fund is used to offset a portion of anticipated shortfalls in
revenues in years when appropriations based on previous forecasts exceed
expected revenues in subsequent forecasts. The Revenue Stabilization Fund
consists of an amount not to exceed 10 percent of Virginia's average annual tax
revenues derived from taxes on income and retail sales for the three preceding
fiscal years.
General Fund revenues are principally composed of direct
taxes. In recent fiscal years most of the total tax revenues have been derived
from five major taxes imposed by Virginia on individual and fiduciary income,
sales and use, corporate income, public service corporations and premiums of
insurance companies.
In September 1991, the Debt Capacity Advisory Committee was
created by the Governor through an executive order. The committee is charged
with annually estimating the amount of tax-supported debt that may prudently be
authorized, consistent with the financial goals, capital needs and policies of
Virginia. The committee annually reviews the outstanding debt of all agencies,
institutions, boards and authorities of Virginia for which Virginia has either a
direct or indirect pledge of tax revenues or moral obligation. The Committee
provides
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its recommendations on the prudent use of such obligations to the Governor and
the General Assembly.
The Constitution of Virginia prohibits the creation of debt by
or on behalf of Virginia that is backed by Virginia's full faith and credit,
except as provided in Section 9 of Article X. Section 9 of Article X contains
several different provisions for the issuance of general obligation and other
debt, and Virginia is well within its limit for each:
Section 9(a)(2) provides that the General Assembly may incur
general obligation debt to meet certain types of emergencies, subject to
limitations on amount and duration; to meet casual deficits in the revenue or in
anticipation of the collection of revenues of Virginia; and to redeem a previous
debt obligation of Virginia. Total indebtedness issued pursuant to this Section
may not exceed 30 percent of an amount equal to 1.15 times the annual tax
revenues derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize
the creation of general obligation debt for capital projects. Such debt is
required to be authorized by an affirmative vote of a majority of each house of
the General Assembly and approved in a statewide election. The outstanding
amount of such debt is limited to an amount equal to 1.15 times the average
annual tax revenues derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts for the three preceding fiscal years less the
total amount of bonds outstanding. The amount of 9(b) debt that may be
authorized in any single fiscal year is limited to 25 percent of the limit on
all 9(b) debt less the amount of 9(b) debt authorized in the current and prior
three fiscal years.
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
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Assembly from general tax revenues, while others are paid solely from revenues
of the applicable project. The repayment of debt issued by the Virginia Public
Building Authority, the Virginia Port Authority, the Virginia College Building
Authority Equipment Leasing Program, the Virginia College Building Authority
21st Century Program, The Innovative Technology Authority and the Virginia
Biotechnology Research Park Authority is supported in large part by General Fund
appropriations.
The Commonwealth Transportation Board is a substantial issuer of bonds
for highway projects. These bonds are secured by and are payable from funds
appropriated by the General Assembly from the Transportation Trust Fund for such
purpose. The Transportation Trust Fund was established by the General Assembly
in 1986 as a special non-reverting fund administered and allocated by the
Transportation Board to provide increased funding for construction, capital and
other needs of state highways, airports, mass transportation and ports. The
Virginia Port Authority has also issued bonds that are secured by a portion of
the Transportation Trust Fund.
Virginia is involved in numerous leases that are subject to
appropriation of funding by the General Assembly. Virginia also finances the
acquisition of certain personal property and equipment through installment
purchase agreements.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion of
the Virginia Housing Development Authority and Virginia Public School Authority
bonds and all of the Virginia Resources Authority bonds are secured in part by a
moral obligation pledge of Virginia. Should the need arise, Virginia may
consider funding deficiencies in the respective debt service reserves for such
moral obligation debt. To date, none of these authorities has advised Virginia
that any such deficiencies exist.
Local government in Virginia is comprised of 95 counties, 40
incorporated cities, and 190 incorporated towns. Virginia is unique among the
several states in that cities and counties are independent, and their land areas
do not overlap. The largest expenditures by local governments in Virginia are
for education, but local governments also provide other services such as water
and sewer, police and fire protection and recreational facilities. The Virginia
Constitution imposes numerous restrictions on local indebtedness, affecting both
its incurrence and amount.
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.
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DIVERSIFICATION AND CONCENTRATION
The North Carolina Fund, the South Carolina Fund, and the Virginia Fund
are non-diversified funds under the 1940 Act. This means they may concentrate
their investments in the securities of a limited number of issuers. Under the
Internal Revenue Code of 1986, as amended, at the end of each fiscal quarter
each of the North Carolina Fund, the South Carolina Fund, and the Virginia Fund
must nevertheless diversify its portfolio such that, with respect to 50% of its
total assets, not more than 25% of its 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 total assets is invested
in the securities of any one issuer (other than U.S. Government Securities or
securities of other regulated investment companies). Because of the relatively
small number of issuers of North Carolina Tax-Exempt Obligations, South Carolina
Tax-Exempt Obligations, and Virginia Tax-Exempt Obligations, the North Carolina
Fund, the South Carolina Fund, and the Virginia Fund are more likely to invest a
higher percentage of their assets in the securities of a single issuer than is
an investment company that invests in a broad range of tax-exempt securities.
This concentration involves an increased risk of loss to the North Carolina
Fund, the South Carolina Fund, and the Virginia Fund if the issuer is unable to
make interest or principal payments or if the market value of such securities
declines, and consequently may cause greater fluctuation in the net asset value
of the North Carolina, the South Carolina, and the Virginia Funds' Shares.
MANAGEMENT OF BB&T FUNDS
TRUSTEES
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 six 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
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
- ---------------- ------------------- ---------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 54
</TABLE>
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
- ---------------- ------------------- ---------------------------
<S> <C> <C>
William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall from 1985 to December, 1993,
P.O. Box 109 Vice Chairman, Carolina
Raleigh, NC 27602 Power & Light Company
Age: 70
Thomas W. Lambeth Trustee From 1978 to present,
101 Reynolda Village Executive Director, Z. Smith
Winston-Salem, NC 27106 Reynolds Foundation
Age: 65
*W. Ray Long Trustee Retired; Executive Vice
605 Blenheim Drive President, Branch Banking and
Raleigh, NC 27612 Trust Company prior to August
Age: 65 1998.
Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of
Greenville, SC 29615 Engineered Custom Plastics
Age: 67 Corporation from 1969 to 1990
*Raymond K. McCulloch Trustee From August 1998 to present,
434 Fayetteville Executive Vice President,
Street Mall Branch Banking and Trust
29th Floor Company; employee of Branch
Raleigh, NC 27601 Banking and Trust Company
Age: 43 since 1989.
</TABLE>
* Indicates an "interested person" of the BB&T Funds as defined in the 1940
Act.
The Trustees receive fees and are reimbursed for expenses in connection
with each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the BB&T Funds for
acting as a Trustee. Walter B. Grimm is an employee of BISYS Fund Services.
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<PAGE> 362
OFFICERS
The officers of each Fund of the BB&T Funds, their current addresses,
and principal occupations during the past five years are as follows (if no
address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
- ---------------- ------------------- ---------------------------
<S> <C> <C>
Walter B. Grimm Chairman of the Board From June 1992 to present,
Age: 54 and President employee of ISYS Fund
Services.
Preston Loftin Secretary From April 1995 to present,
Age: 53 employee of BISYS Fund
Services; from May 1992 to
April 1995, employee of
Concord Financial.
Gary Tenkman Treasurer From April 1998 to present,
Age: 29 Director, Financial Services
BISYS Fund Services; from
1990 to March 1998, Audit
Manager, Ernst & Young LLP.
Bob Tuch Assistant Secretary From June 1991 to present
Age: 48 employee of BISYS Fund
Services.
Alaina V. Metz Assistant Secretary From June 1995 to present,
Age: 32 employee, BISYS Fund Services;
from May 1989 - June 1995,
Supervisor, Mutual Fund Legal
Department, Alliance Capital
Management.
</TABLE>
The officers of the BB&T Funds receive no compensation directly from
the BB&T Funds for performing the duties of their offices. BISYS Fund Services,
Inc. receives fees from the BB&T Funds for acting as Administrator and BISYS
Fund Services Ohio, Inc. receives fees from the BB&T Funds for acting as
Transfer Agent and for providing fund accounting services to the BB&T Funds.
COMPENSATION TABLE(1)
---------------------
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Compensation Retirement Benefits Annual Compensation
Name of Person, from the Accrued As Part Benefits Upon from the BB&T Funds
Position BB&T Funds of Fund Expenses Retirement Paid to Trustee
- --------------- ------------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C>
Walter B. Grimm None None None None
Chairman of the Board
</TABLE>
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<PAGE> 363
<TABLE>
<S> <C> <C> <C> <C>
W. Ray Long $10,500 None None $10,500
Trustee
William E. Graham $ 8,500 None None $ 8,500
Trustee
Thomas W. Lambeth $10,500 None None $10,500
Trustee
Robert W. Stewart $10,500 None None $10,500
Trustee
Raymond K. McCulloch None None None None
Trustee
</TABLE>
(1) Figures are for the Funds' fiscal year ended September 30, 1999. The
BB&T Funds includes eighteen separate series.
INVESTMENT ADVISER
Investment advisory and management services are provided to each Fund
of the BB&T Funds by BB&T pursuant to an Investment Advisory Agreement
("Advisory Agreement") dated October 1, 1992.
Under the Advisory Agreement between the BB&T Funds and BB&T, the fee
payable to BB&T by the Prime Money Market Fund, the U.S. Treasury Fund, and the
Tax-Free Money Market Fund, for investment advisory services is the lesser of:
(a) a fee computed daily and paid monthly at the annual rate of forty one
hundredths of one percent (0.40%) of each Fund's average daily net assets; sixty
one-hundredths of one percent (0.60%) of each Fixed Income Funds' and the North
Carolina, South Carolina , and Virginia Funds' average daily net assets; and
seventy-four one-hundredths of one percent (0.74%) of the Large Company Growth
Fund's, the Growth and Income Fund's and the Balanced Fund's average daily net
assets; one percent (1.00%) of the Small Company Growth and International Equity
Funds' average daily net assets; and twenty-five one-hundredths of one percent
(0.25%) of each Funds of Funds' and the Equity Index Fund's average daily net
assets; or (b) such fee as may from time to time be agreed upon in writing by
the BB&T Funds and BB&T. A fee agreed to in writing from time to time by the
BB&T Funds and BB&T may be significantly lower than the fee calculated at the
annual rate and the effect of such lower fee would be to lower a Fund's expenses
and increase the net income of the fund during the period when such lower fee is
in effect.
The Advisory Agreement provides that BB&T shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the BB&T Funds
in connection with the performance of such Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of BB&T in the performance of its duties,
or from reckless disregard by BB&T of its duties and obligations thereunder.
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<PAGE> 364
Unless sooner terminated, the Advisory Agreement will continue in
effect until September 30, 2000 as to each of the Funds and from year to year if
such continuance is approved at least annually by the BB&T Funds' Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
that Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The Advisory
Agreement is terminable as to a particular Fund at any time upon 60 days written
notice without penalty by the Trustees, by vote of the holders of a majority of
the outstanding Shares of that Fund, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.
For the fiscal years ended September 30, 1999, September 30, 1998, and
September 30, 1997, the Adviser received the following investment advisory fees:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
September 30, 1999 September 30, 1998 September 30, 1997
------------------------ ---------------------- ---------------------------
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
---- ---------- ---- ---------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund $2,419,047 $1,162,144 $2,095,241 $1,005,608 $2,147,800 $698,408
Balanced Fund 819,527 393,747 694,357 333,244 707,060 229,694
Large Company Growth Fund 445,918 215,095 258,070 123,874 N/A N/A
Small Company Growth Fund 1,086,782 1,227 890,569 N/A 551,965 N/A
International Equity Fund 910,101 770 710,172 N/A 326,911 6,794
Equity Index Fund N/A N/A N/A N/A N/A N/A
Short-Intermediate Fund 825,817 165,331 770,752 154,167 562,927 94,368
Intermediate U.S. Government Bond Fund 986,335 197,720 907,396 181,482 812,351 135,725
Intermediate Corporate Bond Fund N/A N/A N/A N/A N/A N/A
North Carolina Fund 419,339 83,853 416,698 83,340 363,548 61,045
South Carolina Fund 55,211 55,186 64,984 43,717 N/A N/A
Virginia Fund 151,197 30,239 N/A N/A N/A N/A
Prime Money Market Fund 121,002 120,995 132,875 73,260 N/A N/A
U.S. Treasury Money Market Fund 956,300 318,377 883,574 271,649 940,705 N/A
Tax-Free Money Market Fund N/A N/A N/A N/A N/A N/A
Capital Manager Conservative Growth Fund 15,625 65,521 11,280 45,273 N/A N/A
Capital Manager Moderate Growth Fund 13,070 52,251 11,256 45,181 N/A N/A
Capital Manager Growth Fund 12,274 49,100 11,209 44,992 N/A N/A
</TABLE>
During the first half of 2000, BB&T intends to reorganize its
investment advisory division as a separate, wholly owned subsidiary of BB&T to
be called BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized
and registered with the Securities and Exchange Commission, BB&T Asset
Management will replace BB&T as investment adviser to BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
are currently providing 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 will be wholly owned and otherwise fully controlled by BB&T. As
a result, this transaction will not be an "assignment" of the Advisory Agreement
(and Sub-Advisory Agreements) for purposes of the 1940 Act and, therefore, a
shareholder vote will not be required.
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<PAGE> 365
SUB-ADVISERS
SMALL COMPANY GROWTH FUND. Investment sub-advisory and management
services are provided to the Small Company Growth Fund by BlackRock Financial
Management, Inc. ("BFMI") (formerly PNC Equity Advisors Company), an indirect
majority-owned subsidiary of PNC Bank Corp., pursuant to a Sub-Advisory
Agreement ("Sub-Advisory Agreement") dated as of February 13, 1997 between BB&T
and BFMI.
For its services and expenses incurred under the Sub-Advisory
Agreement, BFMI is entitled to a fee, payable by BB&T. The fee is computed daily
and paid monthly at the 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, 2000 and thereafter will continue from year to year
if such continuance is approved at least annually by the BB&T Funds' Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty by the
Trustees, by vote of the holders of a majority of the outstanding Shares of the
Fund, or, on 60 days' written notice, by BFMI or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act. Sub-advisory fees payable to BFMI are borne exclusively
by BB&T as Adviser to the Small Company Growth Fund.
For the fiscal years ended September 30, 1999 and September 30, 1998,
BB&T paid BFMI $507,543 and $426,658, respectively, for sub-advisory services
to the Small Company Growth Fund. For the fiscal year ended September 30, 1997,
BB&T paid BFMI and PNC Bank (the former Sub-Adviser to the Small Company Growth
Fund) $272,847 and $124,980 for sub-advisory services.
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<PAGE> 366
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:
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, 2000 and thereafter will continue from year to year
if such continuance is approved at least annually by the BB&T Funds' Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty, on 60 days'
written notice by the Trustees, by vote of the holders of a majority of the
outstanding Shares of the Fund, by BlackRock International, or by BB&T. The
Sub-Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act. Sub-advisory fees payable to BlackRock
International are borne exclusively by BB&T as Adviser to the International
Equity Fund. For the fiscal years ended September 30, 1999 and September 30,
1998, and for the period from the commencement of operations, January 2, 1997 to
September 30, 1997, BB&T paid BlackRock International $434,369, $344,577 and
$163,456, respectively, for sub-advisory services to the International Equity
Fund.
PRIME MONEY MARKET FUND AND TAX-FREE MONEY MARKET FUND. Investment sub-
advisory and management services are provided to the Prime Money Market Fund and
Tax- Free Money Market Fund by BlackRock Institutional Management Corporation
("BIMC") (formerly PNC Institutional Management Corporation), an indirect
majority-owned subsidiary of PNC Bank Corp., pursuant to a Sub-Advisory
Agreement ("Sub-Advisory Agreement") dated as of April 30, 1997 between BB&T and
BIMC.
For its services and expenses incurred under the Sub-Advisory
Agreement, BIMC is entitled to a fee, payable by BB&T. The fee is computed daily
and paid monthly at the annual rate of nine one-hundredths of one percent
(0.09%) of the Prime Money Market Fund's
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<PAGE> 367
average daily net assets and eleven one-hundredths of one percent (0.11%) of the
Tax-Free Money Market Fund's average daily net assets or such lower fee as may
be agreed upon in writing by BB&T and BIMC.
Unless sooner terminated, the Sub-Advisory Agreement will continue in
effect until September 30, 2000 and thereafter will continue from year to year
if such continuance is approved at least annually by the BB&T Funds' Board of
Trustees or by vote of the holders of a majority of the outstanding Shares of
the Fund (as defined under "GENERAL INFORMATION - Miscellaneous"). The
Sub-Advisory Agreement is terminable at any time without penalty, by the
Trustees, by vote of the holders of a majority of the outstanding Shares of the
Fund, or on 60 days' written notice by BIMC or by BB&T. The Sub-Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act. Sub-advisory fees payable to BIMC are borne exclusively
by BB&T as Adviser to the Prime Money Market Fund. For the fiscal year ended
September 30, 1999 and for the period from the commencement of operations,
October 1, 1997, to September 30, 1998, BB&T paid BIMC $55,516 and $46,694,
respectively, for sub-advisory services to the Prime Money Market Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the BB&T Funds
may include descriptions of each Sub-Adviser including, but not limited to, (i)
descriptions of the Sub-Adviser's operations; (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
Sub-Adviser's operations.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, BB&T and each Sub-Adviser
determines, subject to the general supervision of the Board of Trustees of the
BB&T Funds and in accordance with each Fund's investment objective and
restrictions, which securities are to be purchased and sold by a Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Growth and
Income Fund, the North Carolina Fund, the South Carolina Fund, the Virginia
Fund, the Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund,
the Intermediate Corporate Bond Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the Equity Index Fund, and the Funds of Funds usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include (but not in the case of mutual fund shares purchased by the Funds of
Funds) a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the BB&T Funds, where possible, will deal
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<PAGE> 368
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
While BB&T and each Sub-Adviser generally seek competitive spreads or
commissions, the BB&T Funds may not necessarily pay the lowest spread or
commission available on each transaction, for reasons discussed below.
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<PAGE> 369
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
September 30, 1999 September 30, 1998
------------------------------------------ ----------------------------------------------
Aggregate Directed Aggregate Directed
Brokerage Aggregate Brokerage Brokerage Aggregate Brokerage
Commission Transactions Commission Commission Transactions Commission
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income 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
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
September 30, 1997
------------------------------------------------
Aggregate Directed
Brokerage Aggregate Brokerage
Commission Transactions Commission
---------- ------------ ----------
<S> <C> <C> <C>
Growth and Income Fund $151,013 $106,698,201 $142,060
Balanced Fund 42,859 29,962,265 41,873
Large Company Growth Fund N/A N/A N/A
Small Company Growth Fund 40,983 18,945,369 N/A
International Equity Fund N/A N/A N/A
</TABLE>
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<PAGE> 370
Allocation of transactions, including their frequency, to various
dealers is determined by BB&T and each Sub-Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The major consideration in
allocating brokerage business is the assurance that the best execution is being
received on all transactions effected for all accounts. Brokerage will at times
be allocated to firms that supply research, statistical data and other services
when the terms of the transaction and the capabilities of different
broker/dealers are consistent with the guidelines set forth in Section 28(e) of
the Securities Exchange Act of 1934. Information so received is in addition to
and not in lieu of services required to be performed by BB&T and each
Sub-Adviser and does not reduce the advisory fees payable to BB&T or each
Sub-Adviser. Such information may be useful to BB&T or each Sub-Adviser in
serving both the BB&T Funds and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to BB&T or each Sub-Adviser in carrying out its obligations to the BB&T Funds.
To the extent permitted by applicable rules and regulations, either
BB&T or the Sub-Advisers may execute portfolio transactions on behalf of the
Funds through an affiliate of BB&T. As required by Rule 17e-1 under the 1940
Act, the Funds have adopted procedures which provide that commissions paid to
such affiliate must be fair and reasonable compared to the commission, fees or
other remuneration paid to other brokers in connection with comparable
transactions. The procedures also provide that the Board will review reports of
such affiliated brokerage transactions in connection with the foregoing
standard.
Investment decisions for each Fund of the BB&T Funds are made
independently from those for the other Funds or any other investment company or
account managed by BB&T or any Sub-Adviser. Any such other investment company or
account may also invest in the same securities as the BB&T Funds. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund of the BB&T Funds, investment company or
account, the transaction will be averaged as to price and available investments
will be allocated as to amount in a manner which BB&T or the Sub-Adviser
believes to be equitable to the Fund(s) and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, BB&T or the Sub-Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for the other Funds or for other investment companies or accounts in order to
obtain best execution. As provided by the Advisory Agreement and the Sub-
Advisory Agreements, in making investment recommendations for the BB&T Funds,
BB&T or the Sub-Adviser will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the BB&T Funds is a
customer of BB&T or a Sub-Adviser or their parents, subsidiaries, or affiliates,
and, in dealing with their customers, BB&T or a Sub-Adviser and their parents,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the BB&T Funds.
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<PAGE> 371
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a bank complied with
the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a bank performing investment
advisory services for an investment company would not violate the Glass-Steagall
Act.
BB&T and PNC Bank Corp. subsidiaries, BFMI, BIMC and BlackRock
International believe that they possess the legal authority to perform the
services for each Fund contemplated by the Advisory Agreement and Sub-Advisory
Agreements and described in the Prospectuses and this Statement of Additional
Information and has so represented in the Advisory Agreement and Sub-Advisory
Agreements. Future changes in either federal or state statutes and regulations
relating to the permissible activities of banks or bank holding companies and
the subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent or restrict BB&T or PNC Bank Corp.'s subsidiaries
from continuing to perform such services for the BB&T Funds. Depending upon the
nature of any changes in the services which could be provided by BB&T or PNC
Bank Corp.'s subsidiaries, the Board of Trustees of the BB&T Funds would review
the BB&T Funds' relationship with BB&T and the Sub-Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of BB&T or any Sub-Adviser or their
affiliated and correspondent banks (the "Banks") in connection with Customer's
purchases of Shares of the BB&T Funds, the Banks might be required to alter
materially or discontinue the services offered by them to Customers. It is not
anticipated, however, that any change in the BB&T Funds' method of operations
would affect its net asset value per Share or result in financial losses to any
Customer.
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<PAGE> 372
MANAGER AND ADMINISTRATOR
BISYS Fund Services, Inc. serves as Administrator (the "Administrator")
to each Fund pursuant to the Management and Administration Agreement dated as of
October 1, 1992, as amended (the "Administration Agreement"). The Administrator
is wholly owned by The BISYS Group, Inc., 150 Clove Road, Little Falls, New
Jersey 07424, a publicly owned company engaged in information processing, loan
servicing and 401(k) administration and recordkeeping services to and through
banking and other financial organizations. The Administrator assists in
supervising all operations of each Fund (other than those performed by BB&T
under the Advisory Agreement and BFMI, BlackRock International, and BIMC under
the Sub-Advisory Agreements, those performed by Star Bank, N.A. and Bank of New
York under their custodial services agreements with the BB&T Funds and those
performed by BISYS Fund Services Ohio, Inc. under its transfer agency and
shareholder service and fund accounting agreements with the BB&T Funds). The
Administrator is a broker-dealer registered with the Securities and Exchange
Commission, and is a member of the National Association of Securities Dealers,
Inc. The Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
monitor the net asset value of the U.S. Treasury Fund, the Prime Money Market
Fund, and the Tax-Free Money Market Fund, to maintain office facilities for the
BB&T Funds, to maintain the BB&T Funds' financial accounts and records, and to
furnish the BB&T Funds statistical and research data and certain bookkeeping
services, and certain other services required by the BB&T Funds. The
Administrator prepares annual and semi-annual reports to the Securities and
Exchange Commission, prepares Federal and state tax returns, prepares filings
with state securities commissions, and generally assists in supervising all
aspects of the BB&T Funds' operations (other than those performed by BB&T under
the Advisory Agreement and BFMI, BlackRock International and BIMC under the
Sub-Advisory Agreements, those by Star Bank, N.A. and Bank of New York under its
custodial services agreements with the BB&T Funds and those performed by BISYS
Fund Services Ohio, Inc. under its transfer agency and shareholder service and
fund accounting agreements with the BB&T Funds). Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
Under the Administration Agreement for expenses assumed and services
provided as manager and administrator, the Administrator receives a fee from
each Fund equal to the lesser of (a) a fee computed at the annual rate of twenty
one-hundredths of one percent (0.20%) (five one-hundreths 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.
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For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following fees:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
September 30, 1999 September 30, 1998
--------------------------- ----------------------------
Additional Additional
Amount Amount
Paid Waived Paid Waived
---- ---------- ---- -----------
<S> <C> <C> <C> <C>
Growth and Income 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
Equity Index Fund N/A N/A N/A 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
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
September 30, 1997
----------------------------
Additional
Amount
Paid Waived
---- ----------
<S> <C> <C>
Growth and Income Fund $599,761 N/A
Balanced Fund 190,947 N/A
Large Company Growth Fund N/A N/A
Small Company Growth Fund 110,393 N/A
International Equity Fund 64,023 N/A
Equity Index Fund N/A N/A
Short-Intermediate Fund 187,425 N/A
Intermediate U.S. Government Bond Fund 270,652 N/A
Intermediate Corporate Bond Fund N/A N/A
North Carolina Fund 90,751 $30,432
South Carolina Fund N/A N/A
Virginia Fund N/A N/A
Prime Money Market Fund N/A N/A
U.S. Treasury Money Market Fund 470,355 N/A
Tax-Free Money Market Fund N/A N/A
Capital Manager Conservative Growth Fund N/A N/A
Capital Manager Moderate Growth Fund N/A N/A
Capital Manager Growth Fund N/A N/A
</TABLE>
The Administration Agreement shall, unless sooner terminated as
provided in the Administration Agreement (described below), will continue until
September 30, 2002. Thereafter, the Administration Agreement shall be renewed
automatically for successive five year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least 60 days prior to
the expiration of the then-current term. The Administration Agreement is
terminable with respect to a particular Fund only upon mutual agreement of the
parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60 days
notice by the BB&T Funds' Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the BB&T Funds in connection with the matters
to which the Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or from the reckless disregard by the Administrator of its obligations
and duties thereunder.
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<PAGE> 374
DISTRIBUTOR
BISYS Fund Services LP serves as distributor to each Fund of the BB&T
Funds pursuant to a Distribution Agreement dated October 1, 1993, (the
"Distribution Agreement"). The Distribution Agreement provides that, unless
sooner terminated it will continue in effect for continuous one-year periods if
such continuance is approved at least annually (i) by the BB&T Funds' Board of
Trustees or by the vote of a majority of the outstanding Shares of the Funds or
Fund subject to such Distribution Agreement, and (ii) by the vote of a majority
of the Trustees of the BB&T Funds who are not parties to such Distribution
Agreement or interested persons (as defined in the 1940 Act) of any party to
such Distribution Agreement, cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated in the
event of any assignment, as defined in the 1940 Act.
No compensation is paid to the Distributor under the Distribution
Agreement. However, the Distributor is entitled to receive payments under the
Distribution and Shareholder Services Plan, dated October 1, 1992, as restated
February 7, 1997 (the "Distribution Plan"). Under the Distribution Plan, a Fund
will pay a monthly distribution fee to the Distributor as compensation for its
services in connection with the Distribution Plan at an annual rate equal to
fifty one-hundredths of one percent (0.50%) of the average daily net assets of
Class A Shares of each Fund and one percent (1.00%) of the average daily net
assets of Class B Shares of each Fund. The Distributor may periodically waive
all or a portion of the fee with respect to a Fund in order to increase the net
investment income of the Fund available for distribution as dividends. The
Distributor has agreed with the BB&T Funds to reduce its fee under the
Distribution Plan to an amount not to exceed twenty-five one-hundredths of one
percent (0.25%) of the average daily net assets of Class A Shares of each Fund
(in the case of the North Carolina Fund, the South Carolina Fund, the Virginia
Fund, and the Funds of Funds, 0.15% of the average daily net assets of the Class
A Shares of each Fund).
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For the fiscal year ended September 30, 1999, the Distributor received
the following fees with respect to the Class A and Class B Shares from the
following Funds:
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares
- ---- -------------- --------------
Additional Additional
Amount Amount Amount Amount
Paid Waived Paid Medical
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Growth and Income Fund $106,043 $106,041 $ 389,341 200
Balanced Fund 55,638 55,630 196,241 187
Large Company Growth Fund 9,784 9,839 82,419 0
Small Company Growth Fund 28,074 28,100 99,062 67
International Equity Fund 4,075 4,083 22,239 0
Equity Index Fund N/A N/A N/A N/A
Short-Intermediate Fund 11,130 11,132 N/A N/A
Intermediate U.S. Government Bond Fund 9,470 9,453 19,534 37
Intermediate Corporate Bond Fund N/A N/A N/A N/A
North Carolina Fund 20,234 47,243 N/A N/A
South Carolina Fund 1,084 2,541 N/A N/A
Virginia Fund 16 40 N/A N/A
Prime Money Market Fund 8,758 8,759 32,895 0
U.S. Treasury Money Market Fund 108,490 108,490 18,817 0
Tax-Free Money Market Fund N/A N/A N/A N/A
CAPITAL MANAGER CONSERVATIVE 859 865 284 65
CAPITAL MANAGER MODERATE 3,974 3,981 464 72
CAPITAL MANAGER GROWTH 1,923 1,933 221 0
</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
Trustees"). An Amended and Re-Executed Distribution Plan was approved on
February 7, 1997. The Distribution Plan provides for fees only upon the Class A
and Class B Shares of each Fund.
The Distribution Agreement is the successor to the previous
distribution agreement, which terminated automatically by its terms upon
consummation of the acquisition of Winsbury by The BISYS Group, Inc. The
Distribution Agreement was unanimously approved by the Board of Trustees of the
BB&T Funds, and is materially identical to the terminated distribution
agreement.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plan may be amended by vote of the
Fund's Board of Trustees, including a majority of the Independent Trustees, cast
in person at a meeting called for such purpose, except that any change in the
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of the holders of that Fund's Class A
and Class B Shares. The BB&T Funds' Board of Trustees will review on a quarterly
and annual basis written reports of the amounts received and expended under the
Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the
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<PAGE> 376
Servicing Agreements entered into under the Distribution Plan) indicating the
purposes for which such expenditures were made.
The Distributor may use the distribution fee to provide distribution
assistance with respect to a Fund's Class A and Class B Shares or to provide
shareholder services to the holders of such Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and intermediaries (such
as insurance companies and investment counselors but not including banks),
broker-dealers, and the Distributor's affiliates and subsidiaries compensation
for services or reimbursement of expenses incurred in connection with
distribution assistance or (ii) to pay banks, other financial institutions and
intermediaries, broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with the provision of shareholder services. All payments by the
Distributor for distribution assistance or shareholder services under the
Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of a Fund's Class A and Class B Shares to the
Participating Organization's customers on whose behalf the investment in such
Shares is made and/or to the provision of shareholder services to the
Participating Organization's customers owning a Fund's Class A and Class B
Shares. Under the Distribution Plan, a Participating Organization may include
Southern National Corporation or a subsidiary bank or nonbank affiliates, or the
subsidiaries or affiliates of those banks. A Servicing Agreement entered into
with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the
amount of the fee is more or less than the actual expenses incurred in a
particular year by the Distributor in connection with distribution assistance or
shareholder services rendered by the Distributor itself or incurred by the
Distributor pursuant to the Servicing Agreements entered into under the
Distribution Plan. If the amount of the distribution fee is greater than the
Distributor's actual expenses incurred in a particular year (and the Distributor
does not waive that portion of the distribution fee), the Distributor will
realize a profit in that year from the distribution fee. If the amount of the
distribution fee is less than the Distributor's actual expenses incurred in a
particular year, the Distributor will realize a loss in that year under the
Distribution Plan and will not recover from a Fund the excess of expenses for
the year over the distribution fee, unless actual expenses incurred in a later
year in which the Distribution Plan remains in effect were less than the
distribution fee paid in that later year.
The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the
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<PAGE> 377
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 and Trust Class of a Fund on the basis of
the relative net asset value of each class. At present, the only expenses that
will be borne solely by Class A and Class B Shares, other than in accordance
with the relative net asset value of the class, are expenses under the
Distribution Plan which relate only to the Class A and Class B Shares.
SECURITIES LENDING AGENT
The BB&T Funds has retained Cantor Fitzgerald & Co. ("Cantor
Fitzgerald") as its securities lending agent and will compensate that firm based
on a percentage of the profitability generated by securities lending
transactions effected on the behalf of the BB&T Funds. Cantor Fitzgerald has
employed BISYS to provide certain administrative services
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<PAGE> 378
relating to securities lending transactions entered into on behalf of the BB&T
Funds. Cantor Fitzgerald, rather than the BB&T Funds, will compensate BISYS for
those services.
CUSTODIAN
Firstar Bank, N.A. serves as the Custodian to the BB&T Funds. Bank of
New York serves as the International Equity Fund's Custodian.
TRANSFER AGENT AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc. serves as transfer agent to each Fund of
the BB&T Funds pursuant to a Transfer Agency Agreement with the BB&T Funds.
BISYS Fund Services Ohio, Inc. also provides fund accounting services
to each of the Funds pursuant to a Fund Accounting Agreement with the BB&T
Funds. Under the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc.
receives a fee from each Fund at the annual rate of 0.03% of such Fund's average
daily net assets, subject to a minimum annual fee.
INDEPENDENT AUDITORS
KPMG LLP ("KPMG") has been selected as independent auditors. KPMG's
address is Two Nationwide Plaza, Suite 1600, Columbus, Ohio 43215.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, DC 20005 are counsel to the BB&T Funds.
PERFORMANCE INFORMATION
YIELDS OF THE MONEY MARKET FUNDS
The "yield" of the U.S. Treasury Fund, the Prime Money Market Fund and
the Tax-Free Money Market Fund for a seven-day period (a "base period") will be
computed by determining the "net change in value" (calculated as set forth
below) of a hypothetical account having a balance of one share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but will not include realized gains or
losses or unrealized appreciation or depreciation on portfolio
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<PAGE> 379
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, 1999, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
-------------------------------- -----------------------------
Class A Class B Trust Class A Class B Trust
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund 4.50% 3.75% 4.75% 4.60% 3.82% 4.86%
U.S. Treasury Money Market Fund 4.20% 3.45% 4.45% 4.29% 3.51% 4.54%
</TABLE>
YIELDS OF THE OTHER FUNDS OF THE BB&T FUNDS
Yields of the Growth and Income Fund, North Carolina Fund, South
Carolina Fund, Virginia Fund, Short-Intermediate Fund, Intermediate U.S.
Government Bond Fund, Intermediate Corporate Bond Fund, Balanced Fund, Large
Company Growth Fund, Small Company Growth Fund, International Equity Fund,
Equity Index Fund and the Funds of Funds will be computed by annualizing net
investment income per share for a recent 30-day period and dividing that amount
by the maximum offering price per share (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last trading day of that
period, according to the following formula:
a-b
30-Day Yield = 2[( ----- +1) to the 6th power-1]
cd
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of
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<PAGE> 380
dividend paying portfolio securities. The yield of each of the Funds will vary
from time to time depending upon market conditions, the composition of the
Fund's portfolio and operating expenses of the BB&T Funds allocated to each
Fund. These factors and possible differences in the methods used in calculating
yield should be considered when comparing a Fund's yield to yields published for
other investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Fund's shares and to the
relative risks associated with the investment objectives and policies of each
Fund.
The yield and effective yield for the 30-day period ending September
30, 1999, for the non-Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
-------------------------------- -----------------------------
Class A Class B Trust Class A Class B Trust
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Short-Intermediate Fund 5.01% N/A 5.26% 5.13% N/A 5.39%
Intermediate U.S. Government Bond Fund 5.19% 4.45% 5.44% 5.32% 4.54% 5.58%
North Carolina Fund 4.07% N/A 4.23% 4.15% N/A 4.31%
South Carolina Fund 3.76% N/A 3.91% 3.83% N/A 3.98%
VIRGINIA FUND 4.09% N/A 4.24% 4.17% N/A 4.32%
BALANCED FUND 2.58% 1.93% 2.95% 2.61% 1.95% 2.99%
</TABLE>
The North Carolina Fund, the South Carolina Fund and the Virginia Fund
may also advertise a "tax equivalent yield" and a "tax equivalent effective
yield." Tax equivalent yield will be computed by dividing that portion of the
North Carolina, South Carolina and Virginia Funds' yield which is tax-exempt by
the difference between one and a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax-exempt. The
tax equivalent effective yield for the North Carolina Fund, the South Carolina
Fund and the Virginia Fund is computed by dividing that portion of the effective
yield of the North Carolina, South Carolina and Virginia Funds which is
tax-exempt by the difference between one and a stated income tax rate and adding
the product to that portion, if any, of the effective yield of the Fund that is
not tax-exempt.
The tax-equivalent yield and tax-equivalent effective yield for the
North Carolina, South Carolina and Virginia Funds for the 30-day period ended
September 30, 1999 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent
Tax-Equivalent Effective
Yield Yield
------------------------ -----------------------
Class A Trust Class A Trust
------- ----- ------- -----
<S> <C> <C> <C> <C>
North Carolina Fund 7.30% 7.59% 7.45% 7.74%
South Carolina Fund 6.69% 6.96% 6.82% 7.09%
Virginia Fund 7.18% 7.45% 7.32% 7.59%
</TABLE>
Investors in the Growth and Income Fund, the North Carolina Fund, the
South Carolina Fund, the Virginia Fund, the Short-Intermediate Fund, the
Intermediate U.S. Government Bond Fund, the Intermediate Corporate Bond Fund,
the Balanced Fund, the
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Large Company Growth Fund, the Small Company Growth Fund, the International
Equity Fund, the Equity Index Fund, and the Funds of Funds, are specifically
advised that share prices, expressed as the net asset values per share, will
vary just as yields will vary.
CALCULATION OF TOTAL RETURN
Total Return is a measure of the change in value of an investment in a
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year. 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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The average total return for the Class A Shares of each Fund, computed as of
September 30, 1999, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Returns - Class A Shares
Fund/Class
Commencement One Five Ten
Fund Name of Operations Year Years Years
- --------- ------------- ---- ----- -----
With Without With Without With Without
Sales Sales Sales Sales Sales Sales
Load(*) Load Load(*) Load Load(*) Load
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund 10/9/92 6.62% 11.64% 16.52% 17.58% N/A N/A
Balanced Fund 7/1/93 2.88% 7.72% 12.18% 13.21% N/A N/A
Large Company Growth Fund 10/3/97 25.08% 30.93% N/A N/A N/A N/A
Small Company Growth Fund 12/7/94 35.88% 42.32% N/A N/A N/A N/A
International Equity Fund 1/2/97 22.52% 28.33% N/A N/A N/A N/A
Short-Intermediate Fund 11/30/92 -1.12% 0.95% 5.19% 5.63% N/A N/A
Intermediate U.S. Government
Bond Fund 10/9/92 -6.90% -2.49% 5.72% 6.70% N/A N/A
North Carolina Fund 10/16/92 -3.45% -1.53% 3.84% 4.27% N/A N/A
South Carolina Fund 10/20/97 -4.02% -2.09% N/A N/A N/A N/A
Virginia Fund 5/17/99 N/A N/A N/A N/A N/A N/A
Prime Money Market Fund 10/1/97 N/A 4.42% N/A N/A N/A N/A
U.S. Treasury Money Market
Fund 10/5/92 N/A 4.08% N/A 4.52% N/A N/A
Capital Manager Conservative
Growth Fund 1/29/98 3.36% 8.19% N/A N/A N/A N/A
Capital Manager Moderate
Growth Fund 1/29/98 8.02% 13.07% N/A N/A N/A N/A
Capital Manager Growth Fund 1/29/98 11.51% 16.81% N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns - Class A Shares
Life of
Fund Name Fund
- --------- -------
With Without
Sales Sales
Load(*) Load
------- -------
<S> <C> <C>
Growth and Income Fund 14.47% 15.22%
Balanced Fund 10.02% 10.83%
Large Company Growth Fund 10.44% 13.02%
Small Company Growth Fund 20.14% 21.29%
International Equity Fund 8.49% 10.32%
Short-Intermediate Fund 4.65% 4.95%
Intermediate U.S. Government
Bond Fund 4.88% 5.57%
North Carolina Fund 3.50% 3.80%
South Carolina Fund 1.82% 2.87%
Virginia Fund -2.65% -0.66%
Prime Money Market Fund N/A 4.68%
U.S. Treasury Money Market
Fund N/A 4.00%
Capital Manager Conservative
Growth Fund 3.47% 5.88%
Capital Manager Moderate
Growth Fund 4.26% 6.68%
Capital Manager Growth Fund 4.63% 7.07%
</TABLE>
* Reflects maximum sales charge (4.50% for the Stock Funds, Funds of Funds,
Intermediate U.S. Government Bond Fund and Intermediate Corporate Bond Fund and
2.00% for the North Carolina, South Carolina, Virginia and Short-Intermediate
Funds).
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<PAGE> 383
The average total return for the Class B Shares of each Fund, computed
as of September 30, 1999, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Returns - Class B Shares
Commencement One Five Ten
Fund Name of Operations Year Years Years
- --------- ------------- ---- ----- -----
With Without With Without With Without
Sales Sales Sales Sales Sales Sales
Load(*) Load Load (*) Load Load(*) Load
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund(+) 10/9/92 6.73% 10.73% 16.79% 16.90% N/A N/A
Balanced Fund(+) 7/1/93 2.82% 6.82% 12.39% 12.52% N/A N/A
Large Company Growth Fund 10/3/97 25.97% 29.97% N/A N/A N/A N/A
Small Company Growth Fund(+) 12/7/94 37.25% 41.25% N/A N/A N/A N/A
International Equity Fund 1/2/97 23.46% 27.46% N/A N/A N/A N/A
Intermediate U.S. Government
Bond Fund(+) 10/9/92 -6.81% -3.13% 5.81% 5.97% N/A N/A
Prime Money Market Fund(+) 10/1/97 -0.36% 3.64% N/A N/A N/A N/A
U.S. Treasury Money Market
Fund(+) 10/5/92 -0.69% 3.31% 3.72% 3.90% N/A N/A
Capital Manager Conservative
Fund 1/29/99 N/A N/A N/A N/A N/A N/A
Capital Manager Moderate Fund 1/29/99 N/A N/A N/A N/A N/A N/A
Capital Manager Growth Fund 1/29/99 N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns - Class B Shares
Life of
Fund Name Fund
- --------- -------
With Without
Sales Sales
Load(*) Load
------- -------
<S> <C> <C>
Growth and Income Fund(+) 14.74% 14.74%
Balanced Fund(+) 10.28% 10.28%
Large Company Growth Fund 10.91% 12.26%
Small Company Growth
Fund(+) 20.37% 20.97%
International Equity Fund 8.68% 9.62%
Intermediate U.S. Government 5.06% 5.06%
Bond Fund(+)
Prime Money Market Fund(+) 2.32% 4.26%
U.S. Treasury Money Market
Fund(+) 3.55% 3.55%
Capital Manager Conservative
Fund -4.34% 0.59%
Capital Manager Moderate Fund -3.71% 1.29%
Capital Manager Growth Fund -3.13% 1.87%
</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 returns for the Trust Shares of each Fund, computed
as of September 30, 1999, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Returns - Trust Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
------------- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund 10/9/92 11.89% 17.86% N/A 15.51%
Balanced Fund 7/1/93 8.01% 13.51% N/A 11.07%
Large Company Growth Fund 10/3/97 31.15% N/A N/A 13.24%
Small Company Growth Fund 12/7/94 42.66% N/A N/A 21.62%
International Equity Fund 1/2/97 28.70% N/A N/A 10.68%
Short-Intermediate Fund 11/30/92 1.10% 5.86% N/A 5.18%
Intermediate U.S. Government
Bond Fund 10/9/92 -2.23% 6.98% N/A 5.84%
North Carolina Fund 10/16/92 -1.47% 4.42% N/A 3.93%
South Carolina Fund 10/20/97 -1.98% N/A N/A 2.98%
Virginia Fund 5/17/99 N/A N/A N/A -1.77%
Prime Money Market Fund 10/1/97 4.69% N/A N/A 4.97%
U.S. Treasury Money Market
Fund 10/5/92 4.34% 4.77% N/A 4.23%
Capital Manager Conservative
Growth Fund 10/2/97 8.47% N/A N/A 6.20%
Capital Manager Moderate
Growth Fund 10/2/97 13.34% N/A N/A 6.84%
Capital Manager Growth Fund 10/2/97 16.96% N/A N/A 7.24%
</TABLE>
-97-
<PAGE> 384
The yields, effective yields, tax-equivalent yields, tax-equivalent
effective yields, and total return set forth above were calculated for each
class of each Fund's Shares. No yield or total return information is available
for the Tax-Free Money Market Fund, the Virginia Fund, the Intermediate
Corporate Bond Fund and the Equity Index Fund, which had not commenced
operations as of the date of this Statement of Additional Information.
At any time in the future, yields and total return may be higher or
lower than past yields, there can be no assurance that any historical results
will continue.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. From time to time, performance information for
the Funds showing their average annual total return, aggregate total return
yield, effective yield and/or tax-equivalent yield may be included in
advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper, Inc. as having the
same investment objectives may from time to time be included in advertisements.
Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Class A Shares are
subject to lower Distribution Plan fees than Class B Shares, the yield and total
return for Class A Shares will be higher than that of the Class B Shares for the
same period. Because Trust Shares are not subject to Distribution Plan fees, the
yield and total return for Trust Shares will be higher than that of the Class A
and Class B Shares for the same period.
From time to time, the BB&T Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principals (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the BB&T Funds, (5) descriptions of investment strategies for one
or more of such Funds; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, insured 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.
-98-
<PAGE> 385
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.
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.
-99-
<PAGE> 386
The Lehman Brothers Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by an NRSRO.
The Variable NAV Funds may also calculate a distribution rate.
Distribution rates will be computed by dividing the distribution per Share of a
class made by a Fund over a twelve-month period by the maximum offering price
per Share. The distribution rate includes both income and capital gain dividends
and does not reflect unrealized gains or losses. The calculation of income in
the distribution rate includes both income and capital gain dividends and does
not reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by BB&T or
its affiliated or correspondent banks for cash management services will reduce a
Fund's effective yield to Customers.
In addition, with respect to the North Carolina Fund, the South
Carolina Fund and the Virginia Fund, the benefits of tax-free investments may be
communicated in advertisements or communications to shareholders. For example,
the table below presents the approximate yield that a taxable investment must
earn at various income brackets to produce after-tax yields equivalent to those
of tax-exempt investments yielding from 3.00% to 5.50%. The yields below are for
illustration purposes only and are not intended to represent current or future
yields for the North Carolina Fund, the South Carolina Fund and the Virginia
Fund, which may be higher or lower than those shown. The rates shown in the
table below are subject to adjustment for the Internal Revenue Service inflation
indexation. This table does not reflect any alternative minimum tax liability.
Investors should consult their tax advisers with specific reference to their own
tax situation.
-100-
<PAGE> 387
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
- ----------------------------------------------------------------------------------------------------------------------------------
SINGLE RETURN COMBINED
SAMPLE NORTH FEDERAL AND
TAXABLE FEDERAL CAROLINA N.C.
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM
$0 TO
$12,750 15.00% 6.00% 20.10% 3.75%
FROM
$12,751 TO
$25,350 15.00% 7.00% 20.95% 3.80%
FROM
$25,351 TO
$60,000 28.00% 7.00% 33.04% 4.48%
FROM
$60,001 TO
$62,950 28.00% 7.75% 33.58% 4.52%
FROM
$62,951 TO
$130,250 31.00% 7.75% 36.35% 4.71%
FROM
$130,251 TO
$283,150 36.00% 7.75% 40.96% 5.08%
OVER
$283,150 39.60% 7.75% 44.28% 5.38%
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
- -----------------------------------------------------------------------------------------------------------------------------------
................... TAX-EXEMPT YIELDS .......................
3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
5.27% 6.02% 6.78% 7.53% 8.28% 9.03% 9.79% 10.54%
5.50% 6.28% 7.07% 7.86% 8.64% 9.43% 10.21% 11.00%
5.93% 6.78% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
6.28% 7.18% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
-101-
<PAGE> 388
APPROXIMATE YIELD TABLE: NORTH CAROLINA FUND
<TABLE>
<CAPTION>
MARRIED COMBINED
FILING JOINTLY FEDERAL
SAMPLE NORTH AND
TAXABLE FEDERAL CAROLINA N.C. ................... TAX-EXEMPT YIELDS .......................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$21,250 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$21,251 TO
$42,350 15.00% 7.00% 20.95% 3.80% 4.43% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
FROM
$42,351 TO
$100,000 28.00% 7.00% 33.04% 4.48% 5.23% 5.97% 6.72% 7.47% 8.21% 8.96% 9.71% 10.45%
FROM
$100,001 TO
$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>
-102-
<PAGE> 389
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMBINED
SINGLE RETURN FEDERAL
SAMPLE SOUTH AND
TAXABLE FEDERAL CAROLINA S.C. ................... TAX-EXEMPT YIELDS .......................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,340 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>
-103-
<PAGE> 390
APPROXIMATE YIELD TABLE: SOUTH CAROLINA FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARRIED COMBINED
FILING FEDERAL
JOINTLY SOUTH AND
TAXABLE FEDERAL CAROLINA S.C. ................... TAX-EXEMPT YIELDS .......................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,340 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>
-104-
<PAGE> 391
APPROXIMATE YIELD TABLE: VIRGINIA FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMBINED
FEDERAL
SINGLE AND
TAXABLE FEDERAL VIRGINIA VIRGINIA ................... TAX-EXEMPT YIELDS .......................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,999 15.00% 2.00% 16.70% 3.60% 4.20% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$17,000 TO
$25,750 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>
-105-
<PAGE> 392
APPROXIMATE YIELD TABLE: VIRGINIA FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARRIED COMBINED
FILING FEDERAL
JOINTLY AND
TAXABLE FEDERAL VIRGINIA VIRGINIA ................... TAX-EXEMPT YIELDS .......................
INCOME MARGINAL MARGINAL MARGINAL
(1998) TAX RATE TAX RATE TAX RATE 3.00 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$2,999 15.00% 2.00% 16.70% 3.60% 4.20% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40%
FROM
$3,000 TO
$4,999 15.00% 3.00% 17.55% 3.64% 4.24% 4.85% 5.46% 6.06% 6.67% 7.28% 7.88% 8.49%
FROM
$5,000 TO
$16,999 15.00% 5.00% 19.25% 3.72% 4.33% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
FROM
$17,000 TO
$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>
-106-
<PAGE> 393
The "combined Federal and N.C., S.C., or VA Marginal Tax Rate"
represents the combined federal and North Carolina, South Carolina and Virginia
tax rates, respectively, available to taxpayers who itemize deductions adjusted
to account for the federal deduction of state taxes paid.
Such data are for illustrative purposes only and are not
intended to indicate past or future performance results of the North Carolina,
South Carolina and Virginia Funds. Actual performance of the Funds may be more
or less than that noted in the hypothetical illustrations.
ADDITIONAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The BB&T Funds (previously The BB&T Mutual Funds Group) was
organized as a Massachusetts business trust by the Agreement and Declaration of
Trust, dated October 1, 1987, under the name "Shelf Registration Trust IV." The
BB&T Funds' Agreement and Declaration of Trust has been amended three times: (1)
on June 25, 1992 to change the Trust's name, (2) on August 18, 1992, to provide
for the issuance of multiple classes of shares, and (3) on May 17, 1999 to
change the Trust's name. A copy of the BB&T Funds' Amended and Restated
Agreement and Declaration of Trust, (the "Declaration of Trust") is on file with
the Secretary of State of The Commonwealth of Massachusetts. The Declaration of
Trust authorizes the Board of Trustees to issue an unlimited number of Shares,
which are units of beneficial interest. The BB&T Funds presently has eighteen
series of Shares offered to the public which represent interests in the U.S.
Treasury Fund, the Prime Money Market Fund, the Tax-Free Money Market Fund, the
Growth and Income Fund, the North Carolina Fund, the South Carolina Fund, the
Virginia Fund, the Short-Intermediate Fund, the Intermediate U.S. Government
Bond Fund, the Intermediate Corporate Bond Fund, the Balanced Fund, the Large
Company Growth Fund, the Small Company Growth Fund, the International Equity
Fund, and Equity Index Fund, the Capital Manager Conservative Growth Fund, the
Capital Manager Moderate Growth Fund, and the Capital Manager Growth Fund,
respectively. The BB&T Funds' Declaration of Trust authorizes the Board of
Trustees to divide or redivide any unissued Shares of the BB&T Funds into one or
more additional series.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the BB&T Funds' Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the BB&T
Funds, Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon
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the relative asset values of the respective Funds, of any general assets not
belonging to any particular Fund which are available for distribution.
Shares of the BB&T Funds are entitled to one vote per share
(with proportional voting for fractional shares) on such matters as shareholders
are entitled to vote. Shareholders vote in the aggregate and not by series or
class on all matters except (i) when required by the 1940 Act, shares shall be
voted by individual series, (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class, then only
Shareholders of such series or class shall be entitled to vote thereon, and
(iii) only the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such class. There will normally be no meetings of Shareholders for
the purposes of electing Trustees unless and until such time as less than a
majority of the Trustees have been elected by the Shareholders, at which time
the Trustees then in office will call a Shareholders' meeting for the election
of Trustees. In addition, Trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares of the
BB&T Funds and filed with the BB&T Funds' custodian or by vote of the holders of
two-thirds of the outstanding shares of the BB&T Funds at a meeting duly called
for the purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares of any Fund. Except as
set forth above, the Trustees shall continue to hold office and may appoint
their successors.
As used in this Statement of Additional Information, a "vote
of a majority of the outstanding Shares" of the BB&T Funds or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the BB&T Funds or such
Fund present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the BB&T Funds or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the BB&T Funds or such Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the BB&T Funds.
However, the BB&T Funds' Declaration of Trust disclaims Shareholder liability
for acts or obligations of the BB&T Funds and requires that notice of such
disclaimer be given in every agreement, obligation or instrument entered into or
executed by the BB&T Funds or the Trustees. The Declaration of Trust provides
for indemnification out of a Fund's property for all loss and expense of any
Shareholder of such Fund held liable on account of being or having been a
Shareholder. Thus, the risk of a Shareholder incurring financial loss on account
of Shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations.
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
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preservation of the assets of the BB&T Funds or the conduct of the BB&T Funds'
business; nor shall any Trustee, officer, or agent be personally liable to any
person for any action or failure to act expect for his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties. The
Agreement and Declaration of Trust also provides that all persons having any
claim against the Trustees or the BB&T Funds shall look solely to the assets of
the BB&T Funds for payment.
MISCELLANEOUS
The BB&T Funds may include information in its Annual Reports
and Semi-Annual Reports to Shareholders that (1) describes general economic
trends, (2) describes general trends within the financial services industry or
the mutual fund industry, (3) describes past or anticipated portfolio holdings
for one or more of the Funds within the BB&T Funds, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
Shareholders of the activities of the BB&T Funds for the most recent fiscal year
or half-year and to provide the views of the Adviser and/or BB&T Funds officers
regarding expected trends and strategies.
The organizational expenses of each Fund of the BB&T Funds
except the Virginia 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 were
paid the past fiscal year. 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.
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As of January 19, 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:
U.S. TREASURY MONEY MARKET FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
National Financial Services Corp. 75.02%
For the Exclusive Benefit of
Our Customers
P.O. Box 3752 Church Street Station
New York, NY 10008-3752
Sanwa Bank California 9.05%
Wilshire Associates Incorporated
444 Market Street, Floor 23
San Francisco, CA 94111
U.S. TREASURY MONEY MARKET FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
BISYS Fund Services 59.53%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Road
Columbus, OH 43219
Rankin Brothers Company 7.68%
P.O. Box 876
Fayetteville, NC 28302
U.S. TREASURY MONEY MARKET FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Benefit Service Corporation 6.64%
BB&T Savings & Thrift Plans
1375 Peachtree Street, Suite 300
Atlanta, GA 30309-0000
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Wilbranch 70.70%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 19.30%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
PRIME MONEY MARKET FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
John P. Parker 6.58%
1220 Graydon Ave.
Norfolk, VA 23507
R. Donahue Peebles 7.41%
100 S.E. 2nd Street Apt. 4650
Miami, FL 33131
PRIME MONEY MARKET FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
BISYS Fund Services 87.33%
FBO BB&T Sweep Customers
Attn: Jeff Haller
3435 Stelzer Rd.
Columbus, OH 43219
PRIME MONEY MARKET FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 100.00%
P.O. Box 2887
Wilson, NC 27894-2887
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SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Henry Fibers, Inc. 18.64%
P.O. Box 1675
Gastonia, NC 28053
NAME AND ADDRESS PERCENT OWNED OF RECORD
Powell Goldstein Frazer & Murphy 19.06%
Harry Huge Shareholders Agent
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 60.78%
P.O. Box 2887
Wilson, NC 27894-2887
Hometown Bank Co. 14.36%
c/o BB&T
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 11.35%
P.O. Box 2887
Wilson, NC 27894-2887
INTERMEDIATE U.S. GOVERNMENT BOND FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Raymond H. Parks 5.78%
Merril Parks
4818 Vickery Chapel Rd
Greensboro, NC 27407
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INTERMEDIATE U.S. GOVERNMENT BOND FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 66.63%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 6.73%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 7.80%
P.O. Box 2887
Wilson, NC 27894-2887
INTERMEDIATE CORPORATE BOND FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
BYSIS Fund Services Ohio, Inc. 100.00%
3435 Stelzer Rd.
Columbus, Oh 43219
INTERMEDIATE CORPORATE BOND FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Roy S. Mcbee 80.73%
4202 Willingham Dr.
Columbia, Sc 29206
NAME AND ADDRESS PERCENT OWNED OF RECORD
BYSIS Fund Services Ohio, Inc. 19.27%
3435 Stelzer Rd.
Columbus, Oh 43219
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INTERMEDIATE CORPORATE BOND FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
WILBRANCH CO. 68.15%
P.O. BOX 2887
WILSON, NC 27894-2887
CAP CO. 7.73%
P.O. BOX 2887
WILSON, NC 27894-2887
BB&T Capital Mgr. 9.06%
Conservative Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
BB&T Capital Mgr. 6.34%
Moderate Growth Fund
434 Fayetteville Street Mall
5Th Floor
Raleigh, NC 27601
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Helen H. Hendricks 5.69%
277 Beechwood Dr.
Mocksville, NC 27028
RL Honbarrier Co. 15.98%
1507 Crestlin Road
High Point, NC 27260
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NORTH CAROLINA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 98.51%
P.O. Box 2887
Wilson, NC 27894-1847
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Cheryl K. Boone 12.56%
Wilt C. Boone
1901 Martin Rd.
Chapin, SC 29036
Cheryl K. Boone 14.22%
George D. Boone
1901 Martin Rd.
Chapin, SC 29036
George S. Morgan 11.79%
4477 Mandi Drive
Little River, SC 29566
Nancy Jenkins Stewart 8.41%
Nancy Jenkins Stewart Trust
201 Huntington Road
Greenville, SC 29615
Charles R. Nolan 8.40%
Nelda W. Nolan
1644 Farmsteam Road
Rook Hill, SC 29732
Knowltone Bouknight 5.26%
Thelamae Bouknight
1835 1/2 Sunset Boulevard
W. Columbia, SC 29169
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Betty R. Roof 5.33%
Terry C. Roof
1566 Pisgah Church Road
Lexington, SC 29072
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Cap Co. 97.18%
P.O. Box 2887
Wilson, NC 27894-2887
VIRGINIA INTERMEDIATE TAX-FREE FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Gail F. Pruden 66.31%
309 Western Avenue
Suffolk, VA 23434
Ann P. Watson 32.37%
7511 Glebe Road
Richmond, VA 23229
VIRGINIA INTERMEDIATE TAX-FREE FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Hometown Bank Co. 100.00%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
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BALANCED FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Louisburg College Inc. 5.59%
501 N Main Street
Louisburg, NC 27549-2335
BALANCED FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Benefit Service Corporation 8.23%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
BB&T Capital Manager 5.83%
Conservative Growth Fund
434 Fayetteville Street Mall
5th Floor
Raleigh, NC 27601
Wilbranch 39.44%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 33.02%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
GROWTH AND INCOME STOCK FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Benefit Service Corporation 11.25%
BB&T Savings & Thrift Plan
1375 Peachtree Street
Suite 300
Atlanta, GA 30309-0000
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Wilbranch 56.21%
P.O. Box 2887
Wilson, NC 27894-1847
Hometown Bank Co. 9.39%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
Branch Banking & Trust Co. 8.23%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 7.16%
P.O. Box 2887
Wilson, NC 27894-2887
INTERNATIONAL EQUITY FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Jerald T. Howell 5.43%
628 Walnut Creek Drive
Goldsboro, NC 27530
NAME AND ADDRESS PERCENT OWNED OF RECORD
Poindexter Lumber Company 5.42%
P.O. Box 769
Clemmons, NC 27012-0769
INTERNATIONAL EQUITY FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
WILBRANCH CO. 78.55%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 7.53%
P.O. Box 2887
Wilson, NC 27894-2887
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LARGE COMPANY GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch Co. 59.48%
P.O. Box 2887
Wilson, NC 27894-2887
Cap Co. 6.51%
P.O. Box 2887
Wilson, NC 27894-2887
Hometown Bank Co. 26.39%
c/o BBT
P.O. Box 2887
Wilson, NC 27894-2887
SMALL COMPANY GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 46.08%
P.O. Box 2887
Wilson, NC 27894-1847
Benefit Service Corporation 10.86%
BB&T Savings & Thrift Plans
1375 Peachtree Street, Suite 300
Atlanta, GA 30309-0000
Branch Banking & Trust Co. 11.58%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
Cap Co. 5.12%
P.O. Box 2887
Wilson, NC 27894-2887
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Branch Banking & Trust Co. 16.81%
State of North Carolina 401(k)
P.O. Box 29541
Raleigh, NC 27626-0541
CAPITAL MANAGER CONSERVATIVE GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Lorraine K. Cauthen 24.06%
108 Strawberry Lane
Clemson, SC 29631
Cheryl B. Cobb 26.19%
Linda Z. Greer
214 Park Road
Lexington, SC 29072
Melton Ellerby 11.33%
Route 1 Box 34
Wadesboro, NC 28170
Willetta Huffman 17.89%
1112 Woodland Street
Whiteville, NC 28472
Horace J. Traylor 9.21%
500 Pacific Ave., Apt. 403
Virginia Beach, VA 23451
William M. Benton 7.10%
P.O. Box 1127
Pinebluff, NC 28373
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CAPITAL MANAGER CONSERVATIVE GROWTH FUND - B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Betty F. Fincher 54.35%
55 Chambler Road
Walterboro, SC 29488
Sandra A. Headley 22.76%
3050 Cottageville
Walterboro, SC 29488
Margo A. Stevenson 6.33%
764 Zion Church Road
Bladenboro, NC 28320
Dale Gierszewski 11.92%
102 Crowaton
Castle Hayne, NC 28429
CAPITAL MANAGER CONSERVATIVE GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 75.05%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 23.62%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
CAPITAL MANAGER MODERATE GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
William H. Peeler 24.90%
Betty P. Peeler
3802 Old Sptg Hwy
Moore, SC 29369
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Leslie L. Keeter 13.34%
1704 Hodges Ferry Rd.
Portsmouth, VA 23701
David A. Jarvis 5.33%
P.O. Box 2292
Walterboro, SC 29488
Nfsc Fmtc Ira Rollover
7.47%
1250 Mollie Ironhill Road
Clarendon, NC 28432
Walter Cooper 16.01%
2232 Windburn St.
Conway, SC 29527
CAPITAL MANAGER MODERATE GROWTH FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Belinda Jo Gray 15.17%
217 Porter Road
Portsmouth, VA 23707
Doris H. Howell 14.21%
191 Old Spartanburg Highway
Pacolet, SC 29372
Willie A. Smith 18.65%
403 Sierra Road
Spartanburg, SC 29301
Dennis B. Raney 14.15%
Melissa D. Raney
RR 3 Box 9
Old Fort, NC 28762
Francisco U. Lopez 5.14%
129 Hearth Stone Lane
Boiling Springs, SC 29316
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Robert P. Baker 7.54%
5392 Highway 701 N.
Elizabethtown, NC 28337
Mary G. Bridges 18.09%
1213 Walls Church Road
Ellenboro, NC 28040
CAPITAL MANAGER GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 85.41%
P.O. Box 2887
Wilson, NC 27894-1847
Branch Banking & Trust Co. 12.97%
Daily Recordkeeping Plans
434 Fayetteville Street, 4th Floor
Raleigh, NC 27601-1767
CAPITAL MANAGER GROWTH FUND - CLASS A SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Elham B. Makam 9.52%
and Adly A. Girgis
JTWROS
110 Sedgefield Dr.
Clemson, SC 29631
Susan M. Bowman 16.14%
301 Compton Rd.
Raleigh, NC 27609
Sharlene Mcrae 8.73%
4492 Daniel McLeod Road
Red Springs, NC 28377
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James B. Cranford 7.03%
Chadwick Kyle Cranford
Memorial Scholarship Fund
9413 Cove Drive
Myrtle Beach, SC 29572
Ronald D. Hodge 5.35%
RR 4 Box 75H
Rutherfordton, NC 28139
CAPITAL MANAGER GROWTH FUND - CLASS B SHARES
NAME AND ADDRESS PERCENT OWNED BENEFICIALLY
Lamar J. Schlegel 17.55%
11 Algonquin Street
Portsmouth, VA 23707
James G. Ferneyhough 8.47%
1285 Cedar Gate Road
Monroe, VA 24574
Alton Kenneth Henson 5.81%
203 Goodes Creek Church Rd.
Mooresboro, NC 28114-8675
William Stephen Howie 14.44%
Dawn D. Howie
10856 Drum Hill Road
Gates, NC 27937
CAPITAL MANAGER GROWTH FUND - TRUST SHARES
NAME AND ADDRESS PERCENT OWNED OF RECORD
Wilbranch 97.97%
P.O. Box 2887
Wilson, NC 27894-1847
As of January 19, 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
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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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FINANCIAL STATEMENTS
Audited Financial Statements as of September 30, 1999 are incorporated by
reference to the Annual Report to Shareholders, dated as of September 30, 1999,
which has been previously sent to Shareholders of each Fund pursuant to the 1940
Act and previously filed with the Securities and Exchange Commission. A copy of
the Annual Report and the Funds' latest Semi-Annual Report may be obtained
without charge by contacting the Distributor at 3435 Stelzer Road, Columbus,
Ohio 43219 or by telephoning toll-free at (800) 228-1872.
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APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Funds with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch IBCA, and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by the Funds and the description of each NRSRO's ratings is as of
the date of this Statement of Additional Information, and may subsequently
change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and municipal
bonds)
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edged." Interest
payments are protected by a large or by an
exceptionally stable margin and principal is
secure. While the various protective
elements are likely to change, such changes
as can be visualized are most unlikely to
impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of
high quality by all standards. Together with
the Aaa group they comprise what are
generally known as high-grade bonds. They
are rated lower than the best bonds because
margins of protection may not be as large as
in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
present which make the long-term risk appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many
favorable investment attributes and are to
be considered as upper-medium-grade
obligations. Factors giving security to
principal and interest are considered
adequate, but elements may be present which
suggest a susceptibility to impairment some
time in the future.
Baa Bonds which are rated Baa are considered as
medium-grade obligations, (i.e., they are
neither highly protected nor poorly
secured). Interest payments and principal
security appear adequate for the present but
certain protective elements may be lacking
or may be characteristically unreliable over
any great length of time. Such bonds lack
outstanding investment characteristics and
in fact have speculative characteristics as
well.
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Ba Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the
protection of interest and principal
payments may be very moderate, and thereby
not well safeguarded during both good and
bad times in the future. Uncertainty of
position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA An obligation rated AAA has the highest
rating assigned by S&P. The obligor's
capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the
highest-rated obligations only in small
degree. The obligor's capacity to meet its
financial commitment on the obligation is
very strong.
A An obligation rated A is somewhat more
susceptible to the adverse effects of
changes in circumstances and economic
conditions than obligations in higher-rated
categories. However, the obligor's capacity
to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated BBB exhibits adequate
protection parameters. However, adverse
economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC, and C are
regarded as having significant speculative
characteristics. BB indicates the least
degree of speculation and C the highest.
While such obligations will likely have some
quality and protective characteristics,
these may be outweighed by large
uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to
nonpayment than other speculative issues.
However, it faces major ongoing
uncertainties or exposure to adverse
business, financial, or economic conditions
which could lead to the obligor's inadequate
capacity to meet its financial commitment on
the obligation.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than
for risk-free U.S. Treasury debt.
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AA+ High credit quality. Protection factors are
strong.
AA Risk is modest but may vary slightly from
time to
AA- time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch IBCA (plus or
minus signs are used with a rating symbol to indicate the relative position of
the credit within the rating category):
AAA Obligations which have the highest rating
assigned by Fitch IBCA. Capacity for timely
repayment principal and interest is
extremely strong relative to other obligors
in the same country.
AA Obligations for which capacity for timely
repayment of principal and interest is very
strong relative to other obligors in the
same country. The risk attached to these
obligations differs only slightly from the
country's highest rated debt.
A Obligations for which capacity for timely
repayment of principal and interest is
strong relative to other obligors in the
same country. However, adverse changes in
business, economic or financial conditions
are more likely to affect the capacity for
timely repayment than for obligations in
higher rated categories.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime 1 Issuers rated Prime-1 (or
supporting institutions) have
a superior ability for
repayment of senior
short-term debt obligations.
Prime-1 repayment ability
will often be evidenced by
many of the following
characteristics:
-Leading market positions in
well-established industries.
-High rates of return on
funds employed.
-Conservative capitalization
structures with moderate
reliance on debt and ample
asset protection.
-Broad margins in earnings
coverage of fixed financial
charges and high internal
cash generation.
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-Well-established access to a
range of financial markets
and assured sources of
alternate liquidity.
Prime 2 Issuers rated Prime 2 (or supporting
institutions) have a strong ability
for repayment of senior short-term
debt obligations. This will normally
be evidenced by many of the
characteristics cited above but to a
lesser degree. Earnings trends and
coverage ratios, while sound, may be
more subject to variation.
Capitalization characteristics, while
still appropriate, may be more
affected by external conditions.
Ample alternate liquidity is
maintained.
Prime 3 Issuers rated Prime-3 (or
supporting institutions) have an
acceptable ability for repayment of
senior short-term obligations. The
effect of industry characteristics
and market compositions may be more
pronounced. Variability in earnings
and profitability may result in
changes in the level of debt
protection measurements and may
require relatively high financial
leverage. Adequate alternate
liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated A-1 is rated
in the highest category by S&P. The
obligor's capacity to meet its financial
commitment on the obligation is strong.
Within this category, certain obligations
are designated with a plus sign (+). This
indicates that the obligor's capacity to
meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is
somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than obligations in
higher rating categories. However, the
obligor's capacity to meet its financial
commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits
adequate protection parameters. However,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
D-1+ Highest certainty of timely payment.
Short-term liquidity, including internal
operating factors and/or access to
alternative sources of funds, is
outstanding, and safety is just below
risk-free U.S. Treasury short-term
obligations.
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D-1 Very high certainty of timely payment.
Liquidity factors are excellent and
supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors
are very small.
D-2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge
total financing requirements, access to
capital markets is good. Risk factors are
small.
D-3 Satisfactory liquidity and other protection
factors qualify issues as to investment
grade. Risk factors are larger and subject
to more variation. Nevertheless, timely
payment is expected.
Fitch IBCA's description of its three highest short-term debt ratings:
Fl Obligations assigned this rating have the
highest capacity for timely repayment under
Fitch IBCA's national rating scale for that
country, relative to other obligations in
the same country. Where issues possess a
particularly strong credit feature, a "+" is
added to the assigned rating.
F2 Obligations supported by a strong capacity
for timely repayment relative to other
obligors in the same country. However, the
relative degree of risk is slightly higher
than for issues classified as 'Al' and
capacity for timely repayment may be
susceptible to adverse changes in business,
economic, or financial conditions.
F3 Obligations supported by an adequate
capacity for timely repayment relative to
other obligors in the same country. Such
capacity is more susceptible to adverse
changes in business, economic, or financial
conditions than for obligations in higher
categories.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to
the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
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SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category;
indicates a very high
likelihood that principal and
interest will be paid on a
timely basis.
TBW-2 The second highest category;
while the degree of safety
regarding timely repayment of
principal and interest is
strong, the relative degree
of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment-grade
category; indicates that
while the obligation is more
susceptible to adverse
developments (both internal
and external) than those with
higher ratings, capacity to
service principal and
interest in a timely fashion
is considered adequate.
TBW-4 The lowest rating category;
this rating is regarded as
non-investment grade and
therefore speculative.
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Registration Statement
of
BB&T FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Amended and Restated Agreement and Declaration of Trust
dated August 18, 1992 is incorporated by reference to
Exhibit 1(c) to Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A
(filed March 24, 1993).
(b) Bylaws, Amended and Restated November 8, 1996 are
incorporated by reference to Exhibit (2) to Post Effective
Amendment No. 11 to the Registration Statement of the
Registrant on Form N-1A (filed February 14, 1997).
(c) (1) Article III, Article V, Article VIII,
Section 4, and Article IX, Sections 1, 4, 5, and
7 of the Amended and Restated Declaration of
Trust dated August 18, 1992, is incorporated by
reference to Exhibit 1(c) to Post-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A (filed March 24, 1993).
(2) Article 9, Article 10, Section 6, Article 11 of
the By-laws responsive to this item is
incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (filed July
2, 1997).
(d) (1) Investment Advisory Agreement between the
Registrant and Branch Banking and Trust Company
is incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form
N-1A (filed March 24, 1993).
(2) Revised Schedule A to the Investment Advisory
Agreement between the Registrant and Branch
Banking and Trust Company is incorporated by
reference to Exhibit 5(b) to Post-Effective
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Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(3) Sub-Advisory Agreement between Branch Banking
and Trust Company and CastleInternational Asset
Management Limited is incorporated by reference
to Exhibit 5(f) to Post-Effective Amendment No.
11 to the Registration Statement of the
Registrant on Form N-1A (filed February 14,
1997).
(4) Sub-Advisory Agreement between Branch Banking
and Trust Company and PNC Equity Advisors
Company is incorporated by reference to Exhibit
5(g) to Post-Effective Amendment No. 11 to the
Registration Statement of the Registrant on Form
N-1A (filed February 14, 1997).
(5) Sub-Advisory Agreement between Branch Banking
and Trust Company and PNC Institutional
Management Corporation is incorporated by
reference to Exhibit 5(f) to Post-Effective
Amendment No. 12 to the Registration Statement
on Form N-1A (filed July 2, 1997).
(e) (1) Distribution Agreement between the
Registrant and BISYS Fund Services LP as
re-executed February 7, 1997 is incorporated by
reference to Exhibit 6(a) to Post-Effective
Amendment No. 11 to the Registration Statement
of the Registrant on Form N-1A (filed February
14, 1997).
(2) Revised Schedules A-D to the Distribution
Agreement between the Registrant and BISYS Fund
Services LP are incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 16
to the Registration Statement of the Registrant
on Form N-1A (filed March 3, 1999).
(g) (1) Custody Agreement between the Registrant and
Star Bank, N.A. is incorporated by reference to
Exhibit 8(a) to Post-Effective Amendment No. 11
to the Registration Statement of the Registrant
on Form N-1A (filed February 14, 1997).
(2) Amended Appendix B to the Custody Agreement
between the Registrant and Firststar Bank, N.A.
(formerly Star Bank, N.A.) is incorporated by
reference to Exhibit 8(b) to Post-Effective
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Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(3) Custody Agreement between the Registrant and
Bank of New York is incorporated by reference to
Exhibit 8(c) to Post-Effective Amendment No. 11
to the Registration Statement of the Registrant
on Form N-1A (filed February 14, 1997).
(4) Form of Foreign Custody Manager Agreement
between the Registrant and Bank of New York is
incorporated by reference to Exhibit 8(d) to
Post-Effective Amendment No. 13 to the
Registration Statement of the Registrant on Form
N-1A (filed November 26, 1997).
(h) (1) Management and Administration Agreement
between the Registrant and BISYS Fund Services
LP (formerly The Winsbury Company Limited
Partnership) is incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 1
to the Registration Statement of the Registrant
on Form N-1A (filed March 24, 1993).
(2) Transfer Agency Agreement between the Registrant
and BISYS Fund Services Ohio, Inc. (formerly The
Winsbury Service Corporation) is incorporated by
reference to Exhibit 9(b) to Post-Effective
Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (filed March 24,
1993).
(3) Fund Accounting Agreement between the Registrant
and BISYS Fund Services Ohio, Inc. (formerly The
Winsbury Service Corporation) is incorporated by
reference to Exhibit 9(c) to Post-Effective
Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (filed March 24,
1993).
(4) License Agreement between the Registrant and
Branch Banking and Trust Company is incorporated
by reference to Exhibit 9(d) to Post-Effective
Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (filed March 24,
1993).
(5) Revised Schedule A to the Management and
Administration Agreement between the Registrant
and BISYS Fund Services Limited Partnership
(formerly The Winsbury Company Limited
Partnership) is incorporated by reference to
Exhibit 9(e) to Post-
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Effective Amendment No. 16 to the Registration
Statement of the Registrant on Form N-1A (filed
March 3, 1999).
(6) Amended Schedule A to the Transfer Agency
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(f) to Post-Effective
Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(7) Revised Schedule A to the Fund Accounting
Agreement between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly The Winsbury
Service Corporation) is incorporated by
reference to Exhibit 9(g) to Post-Effective
Amendment No. 16 to the Registration Statement
of the Registrant on Form N-1A (filed March 3,
1999).
(i) Opinion of Ropes & Gray is filed herewith.
(j) (1) Consent of Ropes & Gray is filed herewith.
(2) Consent of KPMG LLP is filed herewith.
(k) None.
(l) Purchase Agreement dated September 3, 1992
between Registrant and Winsbury Associates is
incorporated by reference to Exhibit 13 of
Pre-Effective Amendment No. 2 to the
Registration Statement of the Registrant on Form
N-1A (filed September 23, 1992).
(m) (1) Amended and Restated Distribution and
Shareholder Services Plan as Re-Executed
February 7, 1997 between the Registrant and
BISYS Fund Services Limited Partnership is
incorporated by reference to Exhibit 15(a) to
Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A
(filed February 14, 1997).
(2) Revised Schedule A to the Amended and Restated
Distribution and Shareholder Services Plan as
re-executed February 7, 1997 between the
Registrant and BISYS Fund Services Limited
Partnership is incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 16
to the Registration Statement of the Registrant
on Form N-1A (filed March 3, 1999).
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(3) Servicing Agreement with respect to Shareholder
Services between Branch Banking and Trust
Company and BISYS Fund Services Limited
Partnership (formerly The Winsbury Company
Limited Partnership) is incorporated by
reference to Exhibit 15(b) to Post-Effective
Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (filed March 24,
1993).
(4) Revised Schedule A to the Servicing Agreement
with Branch Banking and Trust Company and BISYS
Fund Services Limited Partnership (formerly The
Winsbury Company Limited Partnership) is
incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 16 to the
Registration Statement of the Registrant on Form
N-1A (filed March 3, 1999).
(n) Multiple Class Plan for BB&T Mutual Funds Group
adopted by the Board of Trustees on September
21, 1995 is incorporated by reference to Exhibit
18 to Post-Effective Amendment No. 7 to the
Registration Statement of the Registrant on Form
N-1A (filed October 18, 1995).
Item 24. Persons Controlled By or Under Common Control with Registrant
None.
Item 25. Indemnification
Article VIII, Sections 1 and 2 of the Registrant's Declaration of
Trust provides as follows:
"Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid
in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered
Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or
with which such Covered Person may be or may have
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been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any
matter as to which such Covered Person shall have been finally
adjudicated in any such action, suit or other proceeding to be
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to
time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the Trust
if it is ultimately determined that indemnification of such
expenses is not authorized under this Article, provided, however,
that either (a) such Covered Person shall have provided appropriate
security for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or (c) either
a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person either (a) did not
act in good faith in the reasonable belief that his action was in
the best interests of the Trust or (b) is liable to the Trust or
its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if
(a) approved as in the best interests of the Trust, after notice
that it involves such indemnification, by at least a majority of
the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the
matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such
Covered Person acted in good faith in the reasonable belief that
his action was in the best interests of the Trust and is not liable
to the Trust or its Shareholders by reasons of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been
obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person appears
to have acted in good faith in
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the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such
Person against any liability to the Trust to which he would
otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. Any approval pursuant to this Section
shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this Section
as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer,
or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Indemnification for the Group's principal underwriter is provided
for in the Distribution Agreement incorporated herein by reference
as Exhibit 6(a).
In addition, the Trust maintains a directors and officer liability
insurance policy with a maximum coverage of $3,000,000.
Item 26. Business and Other Connections of Investment Adviser and Investment
Sub-Advisers.
BB&T is the investment adviser to each fund. BB&T is the oldest
bank in North Carolina and is the principal bank affiliate of BB&T
Corporation, a bank and savings and loan holding company. As of
December 31, 1999, 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,
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Virginia and Washington, D.C., providing a broad range of financial
services to individuals and businesses.
In addition to general commercial, mortgage and retail banking
services, BB&T also provides trust, investment, insurance and
travel services. BB&T has provided investment management services
through its Trust and Investment Services Division since 1912. BB&T
employs an experienced staff of professional portfolio managers and
traders who use a disciplined investment process that focuses on
maximization of risk-adjusted investment returns. BB&T has managed
common and collective investment funds for its fiduciary accounts
for more than 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.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
- ----------------------------- ---------------------------
John A. Allison IV
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W.R. Cuthbertson, Jr.
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
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Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
Director Greenville, S.C.
Dr. Lloyd Vincent Hackley President
Director NC System of Community Colleges
Raleigh, N.C.
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, V.A.
James A. Hardison
Director
Dr. Richard Janeway Executive Vice President for Health
Director Affairs Bowman Gray
School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate
Director Diagnostics
Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
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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,
Director President McLean,
Stacy, Henry & McLean,
P.A. Lumberton, N.C.
Charles E. Nichols Attorney at Law, North Carolina Trust
Director Center
Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
BlackRock Financial Management, Inc. ("BFMI") (formerly PNC Equity
Advisors Company) is an indirect majority-owned subsidiary of PNC Bank Corp.
BFMI serves as the investment sub-adviser to the Small Company Growth Fund. The
list required by this Item 26 of officers and directors of BFMI, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and D of Form
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ADV, filed by BFMI pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-48433).
BlackRock International, Ltd. ("BlackRock International") (formerly
CastleInternational Asset Management Limited) is an indirect majority-owned
subsidiary of PNC Bank Corp. BlackRock International serves as the investment
sub-adviser to the International Equity Fund. The list required by this Item 26
of officers and directors of BlackRock International, together with information
as to any other business, profession, vocation or employment of a substantial
nature engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV, filed by BlackRock
International pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-51087).
BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) is an indirect majority-owned subsidiary
of PNC Bank Corp. BIMC serves as the investment sub-adviser to the Prime Money
Market Fund. The list required by this Item 26 of officers and directors of
BIMC, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by BIMC pursuant to the Investment Advisers Act of 1940 (SEC
File No. 801-13304).
Item 27. Principal Underwriter.
(a) BISYS Fund Services LP (formerly known as The Winsbury Company)
acts as distributor and administrator for the Registrant. BISYS
Fund Services LP also distributes the securities of Alpine Equity
Trust, American Performance Funds, AmSouth Funds, BB&T Funds, The
Coventry Group, ESC Strategic Funds, Inc., The Eureka Funds, Fifth
Third Funds, Governor Funds, Hirtle Callaghan Trust, HSBC Funds
Trust and HSBC Mutual Funds Trust, INTRUST Funds Trust, The
Infinity Mutual Funds, Inc., Magna Funds, Mercantile Mutual Funds,
Inc., Metamarkets.com, Meyers Investment Trust, MMA Praxis Mutual
Funds, M.S.D.&T. Funds, Pacific Capital Funds, Republic Advisor
Funds Trust, Republic Funds Trust, Sefton Funds Trust, SSgA
International Liquidity Fund, Summit Investment Trust, USAllianz
Funds, USAllianz Funds Variable Insurance Products Trust, Variable
Insurance Funds, The Victory Portfolios, The Victory Variable
Insurance Funds, and Vintage Mutual Funds, Inc., each of which is a
management investment company. The parent of BISYS Fund Services,
Inc. (the sole general partner of BISYS Fund Services) is The BISYS
Group, Inc.
C-11
<PAGE> 430
(b) Partners of BISYS Fund Services as of the date of this Part C
are as follows:
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company The Registrant
- ------------------ ---------------- --------------
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General None
3435 Stelzer Road Partner
Columbus, OH 43219
OTHER BISYS DISTRIBUTORS:
In addition to the following officers of the BISYS related distributors listed
below, each distributor has additional officers listed to the right (business
address for each person and distributor unless noted otherwise is 3435 Stelzer
Road, Columbus, OH 43219 and unless noted otherwise each person holds no
position with the Fund):
Lynn Mangum Director
Dennis Sheehan Director
Kevin Dell Vice President/Secretary
William Tomko Sr. Vice President
Robert Tuch Assistant Secretary
*Barr Rosenberg Funds Distributor, Inc. Irimga McKay - President
Barr Rosenberg Funds Greg Maddox - Vice President(1)
BNY Hamilton Distributors, Inc. William J. Tomko - President(2)
BNY Hamilton Funds, Inc. Richard Baxt - Sr. Vice President(3)
*Centura Funds Distributor, Inc. Walter B. Grimm - President
Centura Funds William J. Tomko - Sr. Vice President
CFD Fund Distributors, Inc. Richard Baxt - President
Chase Funds
Concord Financial Group, Inc. Walter B. Grimm - President
ProFunds-
C-12
<PAGE> 431
*Evergreen Distributor, Inc. D'Ray Moore - President
Evergreen Funds
*Performance Funds Distributor, Inc. Walter B. Grimm - President(4)
Performance Funds William J. Tomko - Sr. Vice President
The One Group Services Company Mark Redman - President(5)
The One Group of Funds William J. Tomko - Sr. Vice President(2)
Vista Funds Distributors, Inc. Richard Baxt - President
Chase Vista Funds Lee Schultheis - Sr. Vice President
William J. Tomko - Sr. Vice President
Kent Funds Distributors
Mentor Distributors, LLC D'Ray Moore, President
*IBJ Funds Distributor, Inc. Walter B. Grimm, Sr. Vice President
*address is 90 Park Avenue, New York, NY
(1) Serves as Assistant to Treasurer to Centura Funds
(2) Serves as President to BNY Hamilton Funds and Treasurer to One Group of
Funds
(3) Serves as Vice President to BNY Hamilton Funds
(4) Serves as President to Performance Funds
(5) Serves as President to One Group of Funds
C-13
<PAGE> 432
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are as follows:
(1) BB&T Funds
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Trust Investments
(Investment Adviser)
(3) BlackRock Financial Management, Inc.
1600 Market Street, 27th Floor
Philadelphia, PA 19103
(Investment Sub-Adviser to the Small Company
Growth Fund)
(4) BlackRock International, Ltd.
(Investment Sub-Adviser to the International
Equity Fund)
7 Castle Street
Edinburgh, Scotland EH23AH
(5) BlackRock Institutional Management Corporation
(Investment Sub-Adviser to the Prime Money Market
Fund)
400 Bellevue Parkway, 4th Floor
Wilmington, DE 19809
(6) BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Manager, Administrator and Distributor)
C-14
<PAGE> 433
(7) Firststar Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45201
(Custodian)
(8) BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(Transfer and Shareholder Servicing Agent,
Provider of Fund Accounting Services)
(9) Bank of New York
90 Washington Street, 22nd Floor
New York, NY 10286
(Custodian to the International Equity Fund)
(10) Ropes & Gray
One Franklin Square, 1301 K Street, N.W., Suite
800 East
Washington, D.C. 20005
(Declaration of Trust, Bylaws, Minutes Book)
Item 29. Management Services
None.
Item 30. Undertakings
The Registrant undertakes to call a meeting of
Shareholders, at the request of at least 10% of the
Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and
to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of
1940.
The Registrant undertakes to furnish to each person to
whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders upon request and
without charge.
C-15
<PAGE> 434
NOTICE
------
A copy of the Agreement and Declaration of Trust, as amended, of the
BB&T Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by officers of the registrant as officers and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property of the Registrant.
C-16
<PAGE> 435
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
No. 18 to the Registrant's Registration Statement on Form N-1A pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Washington, District of Columbia on
this 1st day of February, 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. 18 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Walter B. Grimm Chairman February 1, 2000
- -------------------
*Walter B. Grimm
/s/ William E. Graham Trustee February 1, 2000
- ---------------------
*William E. Graham
/s/ Thomas W. Lambeth Trustee February 1, 2000
- ---------------------
*Thomas W. Lambeth
/s/ Gary R. Tenkman Treasurer February 1, 2000
- -------------------
*Gary R. Tenkman
/s/ W. Ray Long Trustee February 1, 2000
- ---------------
*W. Ray Long
/s/ Robert W. Stewart Trustee February 1, 2000
- ---------------------
*Robert W. Stewart
/s/ Raymond K. McCulloch Trustee February 1, 2000
- ------------------------
*Raymond K. McCulloch
*By:/s/Alan G. Priest
-----------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
C-17
<PAGE> 436
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> 437
POWER OF ATTORNEY
-----------------
William E. Graham, Jr., whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The BB&T Mutual
Funds Group (the "Group"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee William E. Graham, Jr. and/or officer of the Fund
any and all amendments to the Group's Registration Statement as filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: 2-15-94
/s/ William E. Graham
-----------------------------
William E. Graham
<PAGE> 438
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> 439
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> 440
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> 441
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> 442
POWER OF ATTORNEY
-----------------
Raymond K. McCulloch, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albetelli,
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: May 24, 1999 /s/ Raymond K. McCulloch
------------ ------------------------
Raymond K. McCulloch
<PAGE> 443
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
(i) Opinion of Ropes & Gray
(j)(1) Consent of Ropes & Gray
(j)(2) Consent of KPMG LLP
<PAGE> 1
EXHIBIT (i)
Opinion of Ropes & Gray
<PAGE> 2
ROPES & GRAY
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005-3333
WRITER'S DIRECT DIAL NUMBER: (202) 626-3967
February 1, 2000
BB&T Funds
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest ("Shares") of
the BB&T Funds ("Trust"), as permitted by Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). You propose to file a
post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) of the 1933 Act and the
Rules thereunder and Section 8(b) of the 1940 Act and the rules thereunder. The
purpose of this filing is to update disclosure with regard to each Fund of the
Trust described in said Registration Statement (each a "series").
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clerk of
the City of Boston. We have also examined a copy of your Bylaws and such other
documents, receipts and records as we have deemed necessary for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that the issue and sale
of the authorized but unissued Class A, Class B and Trust shares of each Series
have been duly authorized under Massachusetts law. Upon the original issue and
sale of your authorized but unissued Class A, Class B and Trust shares of the
Series and upon receipt of the authorized consideration therefor in an amount
not less than the net asset value of the shares of the Series established and in
force at the time of their sale (plus any applicable sales charge), the Class A,
Class B and Trust shares of the Series issued will be validly issued, fully paid
and non-assessable.
<PAGE> 3
BB&T Funds
February 1, 2000
Page 2
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust provides for indemnification out
of the property of a particular series of Shares for all loss and expenses of
any shareholder of that series held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of shareholder liability is
limited to circumstances in which that series of Shares itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this opinion
with and as part of your Post-Effective Amendment.
Sincerely,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
EXHIBIT j(1)
Consent of Ropes & Gray
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 18 to the Registration Statement of the BB&T Funds on Form N-1A
under the Securities Act of 1933, as amended.
/s/ ROPES & GRAY
ROPES & GRAY
Washington, D.C.
February 1, 2000
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
BB&T Funds:
We consent to use of our report dated November 12, 1999 for the BB&T Funds
incorporated by reference herein and to the references to our firm under the
headings "Financial Highlights" in the Prospectuses and "Independent Auditors"
in the Statement of Additional Information included herein.
KPMG LLP
Columbus, Ohio
January 27, 2000
