BB&T MUTUAL FUNDS GROUP, 497, 1998-01-29

BB&T MUTUAL FUNDS GROUP
497, 1998-01-29

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<PAGE> 1

BB&T Mutual Funds LOGO

MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund

BOND FUNDS
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
South Carolina Intermediate Tax-Free Fund

STOCK FUNDS
Growth and Income Stock Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund

FUNDS OF FUNDS
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund

TRUST SHARES

BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER

BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR

PROSPECTUS DATED FEBRUARY 1, 1998
<PAGE> 2

TABLE OF CONTENTS

The Group............................................................................. 4

Fee Table............................................................................. 4

Financial Highlights.................................................................. 9

Investment Objectives and Policies.................................................... 17

Investment Restrictions............................................................... 36

Valuation of Shares................................................................... 38

How to Purchase and Redeem Shares..................................................... 39

Dividends and Taxes................................................................... 42

Management of BB&T Mutual Funds Group................................................. 45

General Information................................................................... 51
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

i
<PAGE> 3

BB&T MUTUAL FUNDS GROUP

3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893

THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management investment
company offering to the public fourteen separate investment funds (each a
"Fund"). Each Fund of the Group offers multiple classes of units of beneficial
interest ("Shares"). Three of the Funds, (the "Funds of Funds"), offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in securities of issuers unrelated to the Group.

THE BB&T PRIME MONEY MARKET FUND (the "Prime Money Market Fund") seeks as high
a level of current income as is consistent with maintaining liquidity and
stability of principal. The Prime Money Market Fund seeks to maintain a constant
net asset value of $1.00 per share.

THE BB&T U.S. TREASURY MONEY MARKET FUND (the "U.S. Treasury Fund"), seeks
current income with liquidity and stability of principal through investment
exclusively in short-term obligations issued or guaranteed by the U.S. Treasury,
some of which may be subject to repurchase agreements. The U.S. Treasury Fund
seeks to maintain a constant net asset value of $1.00 per share.

AN INVESTMENT IN THE PRIME MONEY MARKET FUND AND THE U.S. TREASURY FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.

THE BB&T SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the
"Short-Intermediate Fund") seeks current income consistent with the preservation
of capital through investment in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, and high grade collateralized mortgage obligations.

THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND (the "Intermediate Bond Fund")
seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.

THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and North Carolina personal income tax. Normally, the
North Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.

THE BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "South Carolina Fund")
seeks to produce a high level of current interest income which is exempt from
both federal income tax and South Carolina personal income tax. Normally, the
South Carolina Fund will invest at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South Carolina and its
political subdivisions.

THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND ARE NON-DIVERSIFIED FUNDS
AND THEREFORE THE PROPORTION OF THE FUNDS' ASSETS THAT MAY BE INVESTED IN THE
SECURITIES OF A SINGLE ISSUER IS NOT LIMITED BY THE 1940 ACT.

THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund") seeks
capital growth, current income or both through investment in stocks.

THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term capital
growth and produce current income through investment in a broadly diversified
portfolio of securities, including common stocks, preferred stocks and bonds.

THE BB&T LARGE COMPANY GROWTH FUND (the "Large Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of large capitalization growth
companies.

THE BB&T SMALL COMPANY GROWTH FUND (the "Small Company Growth Fund") seeks
long-term capital appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small capitalization growth
companies.

THE BB&T INTERNATIONAL EQUITY FUND (the "International Equity Fund") seeks
long-term capital appreciation through investment primarily in equity securities
of foreign issuers.

THE BB&T CAPITAL MANAGER CONSERVATIVE GROWTH FUND (the "Capital Manager
Conservative Growth Fund") seeks capital appreciation and income by investing
primarily in a group of diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.

THE BB&T CAPITAL MANAGER MODERATE GROWTH FUND (the "Capital Manager Moderate
Growth Fund") seeks capital appreciation and, secondarily, income by investing
primarily in a group of diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.

THE BB&T CAPITAL MANAGER GROWTH FUND (the "Capital Manager Growth Fund") seeks
capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.

This Prospectus relates to the Trust Shares of the Group, which are offered to
BB&T and its affiliates and other financial service providers approved by the
Distributor for the investment of funds for which they act in a fiduciary,
advisory, agency, custodial (other than for retirement accounts) or similar
capacity. Through a separate prospectus, the Group also offers Class A and Class
B Shares, which are offered to the general public. Additional information about
each of the Funds, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission. The Statement of Additional
Information and the prospectus relating to the Class A and Class B Shares are
available upon request without charge by writing to the Group or by calling the
Group at the telephone number shown above. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.

This Prospectus sets forth concisely the information about the Group's Trust
Shares that a prospective investor ought to know before investing. Investors
should read this Prospectus and retain it for future reference.

SHARES OF THE BB&T MUTUAL FUNDS GROUP ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, BRANCH BANKING AND TRUST COMPANY, BB&T
CORPORATION, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------

The date of this Prospectus is February 1, 1998.
<PAGE> 4

PROSPECTUS SUMMARY

<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group (the "Group"), a Massachusetts
business trust, is an open-end management investment company
which currently consists of fourteen separately managed
portfolios (each a "Fund"). Three of the Funds (the "Funds
of Funds") offer Shareholders a professionally-managed
investment program by purchasing shares of other Funds of
the Group (the "Underlying Funds"). The remaining eleven
Funds primarily invest in securities of issuers unrelated to
the Group. Each Fund is authorized to offer three classes of
Shares: Class A, Class B and Trust Class. As of the date of
this prospectus, Class B Shares were not yet being offered
in the Funds of Funds, Prime Money Market,
Short-Intermediate, North Carolina and South Carolina Funds.
This prospectus relates to only the Trust Class Shares.
Investment Objective and Poli-
cies........................ THE PRIME MONEY MARKET FUND seeks as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
THE U.S. TREASURY FUND seeks current income with liquidity
and stability of principal through investing exclusively in
short-term U.S. dollar denominated obligations issued or
guaranteed by the U.S. Treasury, some of which may be
subject to repurchase agreements.
THE SHORT-INTERMEDIATE FUND seeks current income consistent
with the preservation of capital through investment in
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and high grade
collateralized mortgage obligations, some of which may be
subject to repurchase agreements.
THE INTERMEDIATE BOND FUND seeks current income consistent
with the preservation of capital through investment of at
least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or its instrumentalities,
some of which may be subject to repurchase agreements.
THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and North Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North
Carolina and its political subdivisions.
THE SOUTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and South Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South
Carolina and its political subdivisions.
THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.
THE BALANCED FUND seeks to obtain long-term capital growth
and to produce current income through investment in a
broadly diversified portfolio of securities, including
common stocks, preferred stocks and bonds.
THE LARGE COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of large
capitalization growth companies.
THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.
</TABLE>

2
<PAGE> 5

<TABLE>
<S> <C>
THE INTERNATIONAL EQUITY FUND seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.
THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND seeks capital
appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.
THE CAPITAL MANAGER MODERATE GROWTH FUND seeks capital
appreciation and, secondarily, income by investing primarily
in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.
THE CAPITAL MANAGER GROWTH FUND seeks capital appreciation
by investing primarily in a group of diversified BB&T mutual
funds which invest primarily in equity securities.
Funds of Funds................ Capital Manager Conservative Growth, Capital Manager
Moderate Growth and Capital Manager Growth Funds intend to
primarily invest in the shares of other BB&T mutual funds.
Investment Risks.............. Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of the
obligations in each Fund's portfolio, and market conditions.
An investment in the North Carolina Fund and the South
Carolina Fund involves special risk considerations. (See
"Other Investment Policies of the North Carolina Fund and
the South Carolina Fund.") An investment in the Interna-
tional Equity Fund and the Prime Money Market Fund may
involve special risk considerations. (See "Foreign
Investments.") The net asset value of the Funds of Funds
will fluctuate with changes in the equity markets and the
value of the Underlying Funds in which they invest. For a
complete description of the manner in which the Funds of
Funds will allocate their assets among the Underlying Funds,
and the special risk considerations applicable to the Funds
of Funds, see "The Funds of Funds."
Offering Price................ The public offering price of the Prime Money Market Fund and
the U.S. Treasury Fund is equal to the net asset value per
Trust Share, which each Money Market Fund will seek to
maintain at $1.00.
The public offering price of the Short-Intermediate,
Intermediate Bond, North Carolina, South Carolina, Growth
and Income, Balanced, Large Company Growth, Small Company
Growth, International Equity, Capital Manager Conservative
Growth, Capital Manager Moderate Growth, and Capital Manager
Growth Funds is equal to that Fund's net asset value per
Trust Share. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Trust Shares.")
Minimum Purchase.............. No minimum purchase applies to purchases of Trust Shares.
Investment Adviser............ Branch Banking and Trust Company, Raleigh, North Carolina.
Dividends..................... The Prime Money Market, U.S. Treasury, North Carolina, South
Carolina, Short-Intermediate, and Intermediate Bond Funds
declare dividends daily and pay such dividends monthly. The
Growth and Income and Balanced Funds declare and pay
dividends monthly. The Large Company Growth Fund, Small
Company Growth Fund, International Equity Fund, and the
Funds of Funds declare and pay dividends quarterly.
Distributor................... BISYS Fund Services, Columbus, Ohio.
</TABLE>

3
<PAGE> 6

THE GROUP

BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of fourteen series of units of beneficial interest
("Shares"), each representing interests in one of fourteen separate investment
funds (each a "Fund"). Three of the Funds (the "Funds of Funds") offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in securities of issuers unrelated to the Group. Each Fund is
authorized to offer three classes of Shares: Class A Shares, Class B Shares and
Trust Shares. However, as of the date of this prospectus, Class B Shares were
not yet being offered in the Funds of Funds, Prime Money Market,
Short-Intermediate, North Carolina and South Carolina Funds.

FEE TABLE

The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Trust Shares of the Funds will bear, either directly or
indirectly.

<TABLE>
<CAPTION>
PRIME U.S. SHORT-
MONEY MARKET TREASURY INTERMEDIATE INTERMEDIATE
FUND FUND FUND BOND FUND
------------ ----------- ------------ ------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)............. 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price).................................... 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable).................. 0% 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)............... 0% 0% 0% 0%
Exchange Fee................................. $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES (as a percentage
of net assets)
Management Fees (after voluntary fee
reductions)............................... .30%(3) .40% .50%(3) .50%(3)
12b-1 Fee.................................... 0% 0% 0% 0%
Other Expenses............................... .35%(4) .35% .36% .37%
---- ---- ---- ----
Total Fund Operating Expenses (after
voluntary fee reductions)................. .65%(5) .75% .86%(5) .87%(5)
==== ==== ==== ====
</TABLE>

4
<PAGE> 7

<TABLE>
<CAPTION>
NORTH SOUTH LARGE SMALL
CAROLINA CAROLINA GROWTH AND BALANCED COMPANY COMPANY INTERNATIONAL
FUND FUND INCOME FUND FUND GROWTH FUND GROWTH FUND EQUITY FUND
----------- ----------- ----------- ----------- ----------- ----------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES(1)
Maximum Sales
Load Imposed
on Purchases
(as a
percentage of
offering
price)....... 0% 0% 0% 0% 0% 0% 0%
Maximum Sales
Load Imposed
on Reinvested
Dividends (as
a percentage
of offering
price)....... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales
Load (as a
percentage of
original
purchase
price or
redemption
proceeds, as
applicable)... 0% 0% 0% 0% 0% 0% 0%
Redemption Fees
(as a
percentage of
amount
redeemed, if
applicable)(2)... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND
OPERATING
EXPENSES
(as a
percentage of
net assets)
Management Fees
(after
voluntary fee
reductions)... .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) 1.00% 1.00%
12b-1 Fees..... 0% 0% 0% 0% 0% 0% 0%
Other Expenses
(after
voluntary fee
reductions)... .35%(4) .49%(4) .34% .43% .49%(4) .64% .79%(4)
----- ----- ----- ----- ----- ----- -----
Total Fund
Operating
Expenses
(after
voluntary fee
reductions)... .85%(5) .99%(5) .84%(5) .93%(5) .99%(5) 1.64% 1.79%
===== ===== ===== ===== ===== ===== =====
</TABLE>

- ---------

(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Trust Shares of a Fund.
(See "HOW TO PURCHASE AND REDEEM SHARES--"Purchases of Trust Shares" and
"HOW TO PURCHASE AND REDEEM SHARES--Exchange Privilege.")

(2) A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. (See "HOW
TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.")

(3) Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through
September 30, 1998. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets for Trust
Shares would be .40% for the Prime Money Market Fund, .60% for the
Short-Intermediate, Intermediate Bond, North Carolina and South Carolina
Funds; and .74% for the Growth and Income, Balanced and Large Company Growth
Funds.

(4) With respect to the Prime Money Market Fund, International Equity Fund,
South Carolina Fund, and Large Company Growth Fund, "Other Expenses" are
based on estimated amounts for the current fiscal year. Absent voluntary fee
reductions, "Other Expenses" as a percentage of average daily net assets for
Trust Shares would be .45% for the Prime Money Market Fund, and .40% for the
North Carolina Fund and .81% for the International Equity Fund.

(5) As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of fees, Total Fund Operating Expenses for
Trust Shares, as a percentage of average daily net assets, would be .85% for
the Prime Money Market Fund, .96% for the Short-Intermediate Fund, .97% for
the Intermediate Bond Fund, 1.00% for the North Carolina Fund, 1.09% for the
South Carolina Fund, 1.08% for the Growth and Income Fund, 1.17% for the
Balanced Fund, 1.81% for the International Equity Fund, and 1.23% for the
Large Company Growth Fund.

5
<PAGE> 8

EXAMPLE:

You would pay the following expenses on a $1,000 investment in Trust Shares
of the Funds, assuming (1) 5% annual return and (2) redemption at the
end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund................. $ 7 $21 N/A N/A
U.S. Treasury Fund...................... $ 8 $24 $42 $ 93
Short-Intermediate Fund................. $ 9 $27 $48 $106
Intermediate Bond Fund.................. $ 9 $28 $48 $107
North Carolina Fund..................... $ 9 $27 $47 $105
South Carolina Fund..................... $ 10 $32 N/A N/A
Growth and Income Fund.................. $ 9 $27 $47 $104
Balanced Fund........................... $ 9 $30 $51 $114
Large Company Growth Fund............... $ 10 $32 N/A N/A
Small Company Growth Fund............... $ 17 $52 $89 $194
International Equity Fund............... $ 18 $56 N/A N/A
</TABLE>

Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.

The purpose of the table above is to assist a potential investor in the Funds
in understanding the various costs and expenses that an investor in the Trust
Shares of each Fund will bear directly or indirectly. See "MANAGEMENT OF BB&T
MUTUAL FUNDS GROUP" for a more complete discussion of annual operating expenses
of each Fund. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

FEE TABLE

The following Fee Table and example summarize the various costs and expenses
that a Shareholder of Trust Shares of the Funds of Funds will bear, either
directly or indirectly.

<TABLE>
<CAPTION>
CAPITAL MANAGER CAPITAL MANAGER
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
--------------- --------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS
--------------- --------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)............... 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)...................................... 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable).................... 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)................. 0% 0% 0%
Exchange Fee................................... $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions)(3).............................. .05% .05% .05%
12b-1 Fee...................................... 0% 0% 0%
Other Expenses (after voluntary fee
reductions)(4).............................. .43% .45% .43%
------ ------ ------
Total Fund Operating Expenses (after voluntary
fee reductions)(5).......................... .48% .48% .48%
============ ============ ============
</TABLE>

- ---------

6
<PAGE> 9

investment in Trust Shares of a Fund. (See "HOW TO PURCHASE AND REDEEM
SHARES--"Purchases of Trust Shares" and "HOW TO PURCHASE AND REDEEM
SHARES--Exchange Privilege.")

(2) A wire redemption charge (currently $7.00) may be deducted from the amount
of a wire redemption payment made at the request of a shareholder. Such fee
is currently being waived. (See "HOW TO PURCHASE AND REDEEM
SHARES--Redemption by Telephone.")

(4) "Other Expenses" are based on estimated amounts for the current fiscal year.
Absent voluntary fee reductions, "Other Expenses" as a percentage of average
daily net assets would be .58%.

(5) As indicated in the preceding notes, voluntary fee reductions have lowered
this amount. Lower total fund operating expenses will result in higher
yields. Absent the voluntary reduction of investment advisory and/or other
expenses, total fund operating expenses for Trust Shares as a percentage of
average daily net assets would be .83%.

The Funds of Funds will each indirectly bear its pro rata share of fees and
expenses incurred by the Underlying Funds and the investment returns of each
Fund of Funds will be net of the expenses of the Underlying Funds.

The following charts provide the expense ratio for each of the Underlying
Funds in which each Fund of Funds invests. The chart below provides the expense
ratios which include any voluntary reduction in fees.

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
------------------------------------------------------------ -------------
<S> <C>
Prime Money Market Fund..................................... .65%
U.S. Treasury Fund.......................................... .75%
Short-Intermediate Fund..................................... .86%
Intermediate Bond Fund...................................... .87%
Growth and Income Fund...................................... .84%
Balanced Fund............................................... .93%
Small Company Growth Fund................................... 1.64%
International Equity Fund................................... 1.79%
Large Company Growth Fund................................... .99%
</TABLE>

After combining the total operating expenses of each Fund of Funds with those
of the Underlying Funds, the estimated average weighted expense ratio for the
Trust Class Shares of the Capital Manager Conservative Growth Fund is 1.52%, for
the Capital Manager Moderate Growth Fund is 1.55% and for the Capital Manager
Growth Fund is 1.60%.

The chart below provides the expense ratios for each of the Underlying Funds,
absent any voluntary reductions in fees.

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
------------------------------------------------------------ -------------
<S> <C>
Prime Money Market Fund..................................... .85%
U.S. Treasury Fund.......................................... .75%
Short-Intermediate Fund..................................... .96%
Intermediate Bond Fund...................................... .97%
Growth and Income Fund...................................... 1.08%
Balanced Fund............................................... 1.17%
Small Company Growth Fund................................... 1.64%
International Equity Fund................................... 1.81%
Large Company Growth Fund................................... 1.23%
</TABLE>

After combining the total operating expenses of each Fund of Funds with those
of the Underlying Funds, the estimated average weighted expense ratio for the
Trust Class Shares of the Capital Manager Conservative Growth Fund is 1.77%, for
the Capital Manager Moderate Growth Fund is 1.80%, and for the Capital Manager
Growth Fund is 1.85%.

7
<PAGE> 10

EXAMPLE:

On the basis of estimated expenses for the Funds of Funds, including
voluntary fee reductions, set forth on page 6, the following examples
illustrate the expenses you would pay on a $1,000 investment in Trust
Shares of the Funds of Funds, assuming (1) 5% annual return and (2)
redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund..................................... $5 $15
Capital Manager Moderate Growth Fund......................................... $5 $15
Capital Manager Growth Fund.................................................. $5 $15
</TABLE>

Absent voluntary fee reductions, the dollar amounts in the above example would
be as follows:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Manager Conservative Growth Fund..................................... $8 $26
Capital Manager Moderate Growth Fund......................................... $8 $26
Capital Manager Growth Fund.................................................. $8 $26
</TABLE>

Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.

The purpose of the tables above is to assist a potential investor in the Funds
of Funds in understanding the various costs and expenses that an investor in the
Trust Shares of each Fund of Funds will bear directly or indirectly. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete discussion of annual
operating expenses of each Fund. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

The tables below set forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information through
the year ended September 30, 1997 has been audited by KPMG Peat Marwick LLP,
independent auditors for the Group, whose report thereon, insofar as it relates
to each of the years or periods indicated herein is included in the Statement of
Additional Information. The Prime Money Market Fund, the South Carolina Fund,
the Large Company Growth Fund and the Funds of Funds had not commenced
operations as of September 30, 1997.

The Class A Shares (formerly the Investor Shares) and Trust Shares of each
Fund (other than the Balanced Fund and the Small Company Growth Fund, which had
not yet commenced operations) effectively were operated as a single class of
shares from the commencement of operations of each of these Funds until January
31, 1993. On February 1, 1993, each of these Funds (and the Balanced Fund upon
its commencement of operations) began charging Rule 12b-1 fees exclusively to
Class A Shares pursuant to an exemptive order received from the Securities and
Exchange Commission on January 19, 1993. Information regarding the Class A and
Class B Shares can be obtained in a separate prospectus by writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling (800) 228-1872.

8
<PAGE> 11

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.046 0.046 0.050 0.030 0.027
--------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.046 0.046 0.050 0.030 0.027
--------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.046) (0.046) (0.050) (0.030) (0.027)
--------- -------- -------- -------- -------
Total
Distributions... (0.046) (0.046) (0.050) (0.030) (0.027)
--------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ======== =======
Total Return........... 4.71% 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $266,840 $205,974 $120,083 $ 77,464 $74,962
Ratio of expenses to
average net
assets............. 0.75% 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net
investment income
average net
assets............. 4.61% 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to
average net
assets*............ 0.75% 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net
investment income
to average net
assets*............ 4.61% 4.63% 4.95% 2.82% 2.27%(c)
</TABLE>

<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 9.74 $ 9.89 $ 9.61 $ 10.30 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.57 0.57 0.56 0.52 0.49
Net realized and
unrealized gains
(losses) on
investments........ 0.03 (0.15) 0.28 (0.68) 0.30
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.60 0.42 0.84 (0.16) 0.79
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.57) (0.57) (0.56) (0.52) (0.49)
Net realized gains... -- -- -- (0.01) --
-------- -------- -------- -------- -------
Total
Distributions... (0.57) (0.57) (0.56) (0.53) (0.49)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 9.77 $ 9.74 $ 9.89 $ 9.61 $ 10.30
======== ======== ======== ======== =======
Total Return........... 6.33% 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $103,523 $ 62,621 $ 45,005 $ 38,208 $34,646
Ratio of expenses to
average net
assets............. 0.86% 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net
investment income
average net
assets............. 5.85% 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to
average net
assets*............ 0.96% 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net
investment income
to average net
assets*............ 5.75% 5.71% 5.64% 4.83% 4.94%(c)
Portfolio
turnover(d)........ 87.99% 54.82% 106.81% 7.06% 14.06%
</TABLE>

- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of Shares issued.

9
<PAGE> 12

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 9.64 $ 9.89 $ 9.34 $ 10.40 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.56 0.58 0.61 0.62 0.64
Net realized and
unrealized gains
(losses) on
investments........ 0.21 (0.25) 0.55 (1.04) 0.40
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.77 0.33 1.16 (0.42) 1.04
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.56) (0.58) (0.61) (0.62) (0.64)
Net realized gains... -- -- -- (0.02) --
-------- -------- -------- -------- -------
Total
Distributions... (0.56) (0.58) (0.61) (0.64) (0.64)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 9.85 $ 9.64 $ 9.89 $ 9.34 $ 10.40
======== ======== ======== ======== =======
Total Return........... 8.20% 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $142,545 $119,633 $ 78,578 $ 68,451 $59,816
Ratio of expenses to
average net
assets............. 0.87% 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net
investment income
to average net
assets............. 5.74% 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to
average net
assets*............ 0.97% 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net
investment income
to average net
assets*............ 5.64% 5.84% 6.28% 5.91% 5.82%(c)
Portfolio
turnover(d)........ 62.45% 76.29% 68.91% 0.38% 15.27%
</TABLE>

<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.41 0.38 0.37 0.38 0.36
Net realized and
unrealized gains
(losses) on
investments........ 0.22 (0.10) 0.37 (0.50) 0.29
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.63 0.28 0.74 (0.12) 0.65
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.41) (0.38) (0.37) (0.38) (0.36)
Net realized gains... -- -- -- (0.01) --
-------- -------- -------- -------- -------
Total
Distributions... (0.41) (0.38) (0.37) (0.39) (0.36)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29
======== ======== ======== ======== =======
Total Return........... 6.43% 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 61,120 $ 28,443 $ 28,091 $ 27,770 $20,128
Ratio of expenses to
average net
assets............. 0.85% 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net
investment income
to average net
assets............. 4.13% 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to
average net
assets*............ 1.00% 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net
investment income
to average net
assets*............ 3.98% 3.57% 3.55% 3.24% 2.92%(c)
Portfolio
turnover(d)........ 16.98% 20.90% 9.38% 0.56% 5.92%
</TABLE>

10
<PAGE> 13

<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 15.34 $ 12.99 $ 11.28 $ 11.28 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.30 0.29 0.28 0.28 0.30
Net realized and
unrealized gains on
investments........ 5.31 2.44 1.98 0.11 1.28
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 5.61 2.73 2.26 0.39 1.58
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.30) (0.29) (0.28) (0.28) (0.30)
Net realized gains... (0.63) (0.09) (0.12) (0.11) --
In excess of net
realized gains..... -- -- (0.15) -- --
-------- -------- -------- -------- -------
Total
Distributions... (0.93) (0.38) (0.55) (0.39) (0.30)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 20.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28
======== ======== ======== ======== =======
Total Return........... 38.13% 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $308,984 $206,659 $145,603 $ 89,355 $82,358
Ratio of expenses to
average net
assets............. 0.84% 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net
investment income
to average net
assets............. 1.77% 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to
average net
assets*............ 1.08% 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net
investment income
to average net
assets*............ 1.53% 1.83% 2.11% 2.02% 2.31%(c)
Portfolio
turnover(d)........ 22.66% 19.82% 8.73% 21.30% 27.17%
Average commission
rate(e)............ $ 0.0637 $ 0.0721
</TABLE>

<TABLE>
<CAPTION>
BALANCED FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 1, 1993 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 11.93 $ 11.01 $ 9.74 $ 10.18 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.49 0.46 0.46 0.40 0.09
Net realized and
unrealized gains
(losses) on
investments........ 2.04 0.92 1.27 (0.44) 0.18
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 2.53 1.38 1.73 (0.04) 0.27
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.49) (0.46) (0.46) (0.40) (0.09)
Net realized gains... (0.37) -- -- -- --
-------- -------- -------- -------- -------
Total
Distributions... (0.86) (0.46) (0.46) (0.40) (0.09)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 13.60 $ 11.93 $ 11.01 $ 9.74 $ 10.18
======== ======== ======== ======== =======
Total Return........... 22.11% 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 88,524 $ 69,374 $ 49,794 $ 39,715 $20,374
Ratio of expenses to
average net
assets............. 0.93% 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net
investment income
to average net
assets............. 3.88% 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to
average net
assets*............ 1.17% 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net
investment income
to average net
assets*............ 3.64% 3.79% 4.22% 3.70% 3.42%(c)
Portfolio
turnover(d)........ 27.07% 19.87% 23.68% 12.91% 8.32%
Average commission
rate(e)............ $ 0.0658 $ 0.0749
</TABLE>

- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of Shares issued.
(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

11
<PAGE> 14

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 7, 1994 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995(a)
------------------ ------------------ ---------------------
TRUST CLASS TRUST CLASS TRUST CLASS
------------------ ------------------ ---------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 21.18 $ 14.57 $ 10.00
-------- -------- -------
INVESTMENT ACTIVITIES
Net investment loss.................................... (0.11) (0.17) (0.07)
Net realized and unrealized gains on investments....... 2.47 6.78 4.64
-------- -------- -------
Total from Investment Activities................... 2.36 6.61 4.57
-------- -------- -------
DISTRIBUTIONS
Net realized gains..................................... (0.02) -- --
Total Distributions................................ (0.02) -- --
-------- -------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 23.52 $ 21.18 $ 14.57
======== ======== =======
Total Return............................................. 11.17% 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................ $ 58,660 $ 36,373 $16,962
Ratio of expenses to average net assets................ 1.64% 1.79% 2.33%(c)
Ratio of net investment loss to average net assets..... (1.04)% (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*............... 1.64% 1.79% 2.42%(c)
Ratio of net investment loss to average net assets*.... (1.04)% (1.00)% (1.43)%(c)
Portfolio Turnover(d).................................... 80.66% 71.62% 46.97%
Average commission rate(e)............................... $ 0.0570 $ 0.0562
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
------------------
JANUARY 2, 1997 TO
SEPTEMBER 30,
1997(a)
------------------
TRUST CLASS
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................................................... $ 10.00
--------
INVESTMENT ACTIVITIES
Net investment income.................................................................... 0.03
Net realized and unrealized gains on investments......................................... 1.30
--------
Total from Investment Activities..................................................... 1.33
--------
DISTRIBUTIONS
Net investment income.................................................................... (0.02)
In excess of net investment income....................................................... (0.03)
--------
Total Distributions.................................................................. (0.05)
--------
NET ASSET VALUE, END OF PERIOD............................................................. $ 11.28
========
Total Return............................................................................... 13.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......................................................... $ 52,373
Ratio of expenses to average net assets.................................................. 1.79%(c)
Ratio of net investment income to average net assets..................................... 0.32%(c)
Ratio of expenses to average net assets*................................................. 1.81%(c)
Ratio of net investment income to average net assets*.................................... 0.30%(c)
Portfolio Turnover(d).................................................................... 41.45%
Average commission rate(e)............................................................... $ 0.0457
</TABLE>

12
<PAGE> 15

INVESTMENT OBJECTIVES AND POLICIES

MONEY MARKET FUNDS

All instruments in which the Money Market Funds invest are valued based on the
amortized cost valuation technique pursuant to Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"). All instruments in which the Money Market
Funds invest will have remaining maturities of 397 days or less, although
instruments subject to repurchase agreements and certain variable or floating
rate obligations may bear longer maturities. The average dollar weighted
maturity of the securities in each Money Market Fund will not exceed 90 days.
See "VALUATION OF SHARES" and the Statement of Additional Information for
further explanation of the amortized cost valuation method.

All securities acquired by the Money Market Funds will be determined at the
time of purchase by the Group's adviser or sub-adviser, under guidelines
established by the Group's Board of Trustees, to present minimal credit risks.
The Prime Money Market Fund will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by at least
two nationally recognized statistical ratings organizations ("NRSROs") (e.g.,
"A-1" by Standard's & Poor's Corporation and "P-1" by Moody's Investors
Services, Inc.); or (2) are single rated and have received the highest
short-term rating by a NRSRO; or (3) are unrated, but are determined to be of
comparable quality by the Investment Adviser or Sub-Adviser pursuant to
guidelines approved by the Board of Trustees, See the Statement of Additional
Information for explanations of the rating systems.

Under the guidelines adopted by the Trustees and in accordance with Rule 2a-7
under the 1940 Act, the Adviser or the Sub-Adviser may be required prompted to
dispose of an obligation held in a Fund's portfolio in the event of certain
developments that indicate a diminishment of the instrument's credit quality,
such as where an NRSRO downgrades an obligation below the second highest rating
category or in the event of a default relating to the financial condition of the
issuer.

PRIME MONEY MARKET FUND

The investment objective of the Prime Money Market Fund is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal.

The Prime Money Market Fund may invest in a broad range of short-term, high
quality, U.S. dollar-denominated instruments, such as government, bank,
commercial and other obligations, that are available in the money markets. In
particular, the Fund may invest in:

(A) U.S. dollar-denominated obligations issued or supported by the
credit of U.S. or foreign banks or savings institutions with total
assets in excess of $1 billion (including obligations of foreign
branches of such banks);

(B) high quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers;

(C) asset-backed securities (including interests in pools of assets
such as mortgages, installment purchase obligations and credit
card receivables);

(D) securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies or instrumentalities and
related custodial receipts;

(E) dollar-denominated securities issued or guaranteed by foreign
governments or their political subdivisions, agencies or
instrumentalities;

(F) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;

(G) securities issued or guaranteed by state or local governmental
bodies; and

(H) repurchase agreements relating to the above instruments.

The Prime Money Market Fund concentrates its investments in obligations issued
by the financial services industry. However, for temporary defensive purposes
during periods when the Adviser or Sub-Adviser believes that maintaining this
concentration may be inconsistent with the best interest 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

13
<PAGE> 16

service companies offering money market issues must have total assets of $1
billion or more before their issues can be considered for investment. Because
the Fund concentrates more than 25% of its total assets in the financial
services industry, it will be exposed to greater risks associated with that
industry, such as adverse interest rate trends, increased credit defaults,
potentially burdensome government regulation, the availability and cost of
capital funds, and general economic conditions. The Fund will not purchase
securities issued by PNC Bank or BB&T or any of their affiliates.

U.S. TREASURY FUND

The investment objective of the U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term United States dollar-denominated obligations issued or guaranteed by
the U.S. Treasury, some of which may be subject to repurchase agreements.

Obligations purchased by the U.S. Treasury Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.

THE FIXED INCOME FUNDS

The investment objective of the Short-Intermediate Fund and the Intermediate
Bond Fund (the "Fixed Income Funds") is to seek current income consistent with
the preservation of capital. The Short-Intermediate Fund will invest primarily
in securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities"), some of which may be subject
to repurchase agreements, or in high grade collateralized mortgage obligations
("CMOs"). At least 65% of the Short-Intermediate Fund's assets will be invested
in U.S. Government Securities. The dollar-weighted average portfolio maturity of
the Short-Intermediate Fund will be from two to five years. The Intermediate
Bond Fund will also invest primarily in U.S. Government Securities, and at least
65% of its total assets will be invested in bonds. Bonds for this purpose will
include both bonds (maturities of ten years or more) and notes (maturities of
one to ten years) of the U.S. Government. The dollar-weighted average portfolio
maturity of the Intermediate Bond Fund will be from five to ten years. CMOs will
be considered bonds for this purpose if their expected average life is
comparable to the maturity of other bonds eligible for purchase by the Fixed
Income Funds. The Fixed Income Funds may also invest in short-term obligations,
commercial bonds and the shares of other investment companies.

Bonds, notes and debentures in which the Fixed Income Funds may invest may
differ in interest rates, maturities and times of issuance. Mortgage-related
securities purchased by the Fixed Income Funds will be either (i) issued by
United States Government-owned or sponsored corporations or (ii) rated in the
highest category by a nationally recognized statistical rating organization
("NRSRO") at the time of purchase, (for example, rated Aaa by Moody's Investors
Service, Inc. ("Moody's") or AAA by Standard & Poor's Corporation ("S&P")), or,
if not rated, are of comparable quality as determined by BB&T. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.

THE NORTH CAROLINA FUND

The North Carolina Fund's investment objective is to produce a high level of
current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.

The North Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the North Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether investment in the North Carolina Fund
would be suitable for them.

THE SOUTH CAROLINA FUND

14
<PAGE> 17

invest at least 90% of its total assets in high grade obligations issued by or
on behalf of the State of South Carolina and its political subdivisions, the
interest on which, in the opinion of the issuer's bond counsel at the time of
issuance, is exempt both from federal income tax and South Carolina personal
income tax and not treated as a preference item for purposes of the federal
alternative minimum tax for individuals ("South Carolina Tax-Exempt
Obligations"). The South Carolina Fund will maintain a dollar-weighted average
portfolio maturity of between three and ten years, and no obligations in which
the Fund invests will have remaining maturities in excess of 25 years.

The South Carolina Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the South Carolina Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether investment in the South Carolina Fund
would be suitable for them.

THE GROWTH AND INCOME FUND

The Growth and Income Fund's investment objective is to seek capital growth,
current income or both, primarily through investment in stocks. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.

Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/ NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.

Stocks such as those in which the Growth and Income Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Growth and Income Fund's investments, the net asset value
per Share of the Fund may decrease instead of increase.

THE BALANCED FUND

The Balanced Fund's investment objective is to seek long-term capital growth
and to produce current income. The Balanced Fund seeks to achieve this objective
by investing in a broadly diversified portfolio of securities, including common
stocks, preferred stocks and bonds.

The portion of the Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the Balanced Fund
seeks to reduce the risks associated with any one investment medium by utilizing
a variety of investments, performance will depend upon the additional factors of
timing and the ability of BB&T to judge and react to changing market conditions.
The Balanced Fund may invest in short-term obligations in order to acquire
interest income combined with liquidity. For temporary defensive purposes, as
determined by BB&T, these investments may constitute 100% of the Balanced Fund's
portfolio and, in such circumstances, will constitute a temporary suspension of
the Balanced Fund's attempt to achieve its investment objective.

The Balanced Fund's equity securities will generally consist of common stocks
but may also consist of other equity-type securities such as warrants, preferred
stocks and convertible debt instruments. The Fund's equity investments will be
in companies with a favorable outlook and which are believed by BB&T to be
undervalued.

The Balanced Fund's debt securities will consist of securities such as bonds,
notes, debentures and money market instruments. The Balanced Fund may also
invest in CMOs. The average dollar-weighted maturity of debt securities held by
the Balanced Fund will vary according to market conditions and interest rate
cycles and will range between 1 year and 30 years under normal market
conditions.

It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income senior securities. For this purpose,
fixed-income senior securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.

15
<PAGE> 18

THE LARGE COMPANY GROWTH FUND

The Large Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of large capitalization growth companies.
("Capitalization" is the total market value of all the outstanding shares of a
company.) The Large Company Growth Fund will invest in companies that are
considered to have favorable and above average earnings growth prospects and, as
a matter of fundamental policy, at least 65% of the Fund's total assets will be
invested in companies whose weighted average capitalization is in excess of the
market median capitalization of the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index").(1) In making portfolio investments, the Large Company
Growth Fund will assess characteristics such as financial condition, revenue,
growth, profitability, earnings per share growth, and trading liquidity. The
remainder of the Fund's assets, if not invested in the securities of large
companies, will be invested in the instruments described below and under
"Specific Investment Policies."

THE SMALL COMPANY GROWTH FUND

The Small Company Growth Fund's investment objective is to seek long-term
capital appreciation through investment primarily in a diversified portfolio of
equity and equity-related securities of small capitalization growth companies.
The Small Company Growth Fund will invest in companies that are considered to
have favorable and above average earnings growth prospects and, as a matter of
fundamental policy, at least 65% of the Fund's total assets will be invested in
small companies with a market capitalization under $1 billion at the time of
purchase. In making portfolio investments, the Small Company Growth Fund will
assess characteristics such as financial condition, revenue, growth,
profitability, earnings per share growth and trading liquidity. The remainder of
the Fund's assets, if not invested in the securities of small companies, will be
invested in the instruments described below and under "Specific Investment
Policies."

Smaller, less seasoned companies may be subject to greater business risk than
larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.

THE FUNDS OF FUNDS

The investment objective of the Capital Manager Conservative Growth Fund is to
seek capital appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in equity and fixed income
securities.

The investment objective of the Capital Manager Moderate Growth Fund is to
seek capital appreciation and, secondarily, income by investing primarily in a
group of diversified BB&T mutual funds which invest primarily in equity and
fixed income securities.

The investment objective of the Capital Manager Growth Fund is to seek capital
appreciation by investing primarily in a group of diversified BB&T mutual funds
which invest primarily in equity securities.

Under normal market conditions, each Fund of Funds will invest at least 65% of
its total assets in up to nine Underlying Funds of the Group. These assets will
be allocated within the ranges indicated below.

The Conservative Growth 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.

- ---------------

(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.

16
<PAGE> 19

CAPITAL MANAGER CONSERVATIVE GROWTH FUND

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
---------------------------------------------------- ------------------------
<S> <C>
EQUITY FUNDS
Growth and Income Fund.............................. 0%-55%
Balanced Fund....................................... 0%-30%
Small Company Growth Fund........................... 0%-30%
International Equity Fund........................... 0%-30%
Large Company Growth Fund........................... 0%-55%
FIXED INCOME FUNDS
Short-Intermediate Fund............................. 0%-75%
Intermediate Bond Fund.............................. 0%-75%
MONEY MARKET FUNDS
U.S. Treasury Fund.................................. 0%-20%
Prime Money Market Fund............................. 0%-20%
</TABLE>

CAPITAL MANAGER MODERATE GROWTH FUND

The Moderate Growth 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.

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
---------------------------------------------------- ------------------------
<S> <C>
EQUITY FUNDS
Growth and Income Fund.............................. 0%-75%
Balanced Fund....................................... 0%-50%
Small Company Growth Fund........................... 0%-50%
International Equity Fund........................... 0%-50%
Large Company Growth Fund........................... 0%-75%
FIXED INCOME FUNDS
Short-Intermediate Fund............................. 0%-55%
Intermediate Bond Fund.............................. 0%-55%
MONEY MARKET FUNDS
U.S. Treasury Fund.................................. 0%-15%
Prime Money Market Fund............................. 0%-15%
</TABLE>

The Growth 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.

CAPITAL MANAGER GROWTH FUND

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
---------------------------------------------------- ------------------------
<S> <C>
EQUITY FUNDS
Growth and Income Fund.............................. 0%-90%
Balanced Fund....................................... 0%-65%
Small Company Growth Fund........................... 0%-65%
International Equity Fund........................... 0%-65%
Large Company Growth Fund........................... 0%-90%
FIXED INCOME FUNDS
Short-Intermediate Fund............................. 0%-40%
Intermediate Bond Fund.............................. 0%-40%
MONEY MARKET FUNDS
U.S. Treasury Fund.................................. 0%-10%
Prime Money Market Fund............................. 0%-10%
</TABLE>

17
<PAGE> 20

The allocation of each Fund of Funds' assets among the Underlying Funds will
be made by BB&T under the supervision of the Group's Board of Trustees within
the percentage ranges set forth in the table above. BB&T will make allocation
decisions according to its outlook for the economy, financial markets, and
relative market valuation of the Underlying Funds. BB&T may vary the allocation
within the above ranges. There is no assurance that the Funds of Funds will
achieve their stated objectives.

The Funds of Funds' net asset value will fluctuate with changes in the equity
markets and the value of the Underlying Funds in which they invest. Each Fund of
Funds' investment return is diversified by its investment in the Underlying
Funds, which invest in growth and income stocks, foreign securities, debt
securities, and cash and cash equivalents.

With their remaining assets, the Funds of Funds may make direct investments in
any domestic and foreign securities and other instruments which the Underlying
Funds may purchase, as described in this prospectus.

The Funds of Funds and the Underlying Funds are permitted for temporary
defensive purposes to invest up to 100% of their assets in short-term fixed
income securities. Such securities include obligations of the U.S. government
and its agencies and instrumentalities, commercial paper, bank certificates of
deposit, repurchase agreements, bankers' acceptances, variable amount master
demand notes, and bank money market deposit accounts. The Funds of Funds and the
Underlying Funds may also hold cash for liquidity purposes.

To the extent the Funds of Funds or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.

The investments of the Funds of Funds are concentrated in the Underlying
Funds, so each Fund of Funds' performance is directly related to the performance
of the Underlying Funds. In addition, as a matter of fundamental policy, each
Fund of Funds must allocate its investments among the Underlying Funds within
certain ranges. As a result, the Funds of Funds do not have the same flexibility
to invest as mutual funds without such constraints.

INTERNATIONAL EQUITY FUND

The International Equity Fund's investment objective is to seek long-term
capital appreciation through investment primarily in equity securities of
foreign issuers. During normal market conditions, the International Equity Fund
will normally invest at least 80%, and, in any event, at least 65%, of the value
of its total assets in equity securities. Equity securities include common stock
and preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; and depositary receipts
of companies.

During normal market conditions, the International Equity Fund will normally
invest at least 90%, and, in any event, at least 65%, of the value of its total
assets in securities of foreign issuers. The Fund will pursue investments in
non-dollar denominated stocks primarily in countries included in the Morgan
Stanley Capital International Europe, Australia and the Far East Index ("EAFE").
The Fund may also invest its assets in countries with emerging economies or
securities markets. The Fund will be diversified across countries, industry
groups and companies with investment at all times in at least three foreign
countries.

When choosing securities, a value investment style is employed so that the
investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative economic
growth among certain foreign countries, expected levels of inflation, government
policies influencing business conditions, and the outlook for currency
relationships.

ALL FUNDS

The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous"). There can be, of course, no
assurance that a Fund will achieve its investment objective.

Depending upon the performance of the portfolio investments of each of the
Short-Intermediate, Intermediate Bond, North Carolina, South Carolina, Growth
and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds (collectively, the "Variable NAV Funds"), the net
asset value per Share of each Variable NAV Fund will fluctuate. Correspondingly,
the net asset value of the Funds of Funds will

18
<PAGE> 21

fluctuate with changes in the value of the Underlying Funds in which they
invest.

SPECIFIC INVESTMENT POLICIES

The following is a description of certain of the permitted investments for the
Funds. As described above in "The Funds of Funds," each Fund of Funds may also
invest directly in certain of the following instruments which the Underlying
Funds may purchase. For a more detailed description, see the Statement of
Additional Information.

REPURCHASE AGREEMENTS

Securities held by each Fund may be subject to repurchase agreements. A Fund
will enter into repurchase agreements for the purposes of maintaining liquidity
and obtaining favorable yields. Under the terms of a repurchase agreement, a
Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Equity Advisors Company ("PEAC"), the Small
Company Growth Fund's investment sub-adviser, CastleInternational Asset
Management Limited ("CastleInternational"), the International Equity Fund's
investment sub-adviser, or PNC Institutional Management Corporation ("PIMC"),
the Prime Money Market Fund's investment sub-adviser. Except as described in the
Statement of Additional Information, there is no aggregate limitation on the
amount of a Fund's total assets that may be invested in instruments which are
subject to repurchase agreements. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940.

REVERSE REPURCHASE AGREEMENTS

In accordance with the investment restrictions described below, each Fund may
borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.

WHEN-ISSUED SECURITIES

Each of the Funds except the U.S. Treasury Fund may purchase securities on a
when-issued or delayed-delivery basis. In addition, the Prime Money Market Fund,
the Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time. When a Fund
agrees to purchase securities on a when-issued basis, the Fund's custodian must
set aside cash or liquid Fund securities equal to the amount of that commitment
in a separate account and may be required to subsequently place additional
assets in the separate account to maintain equivalence with the Fund's
commitment. The ability to purchase when-issued securities will provide a Fund
with the flexibility of participating in new issues of government securities,
particularly mortgage-related securities. Prior to delivery of when-issued
securities, the securities are subject to fluctuations in value, and no income
accrues until their receipt. A Fund engages in when-issued and delayed-delivery
transactions only with the intent of acquiring Fund securities consistent with
its investment objective and policies, and not for investment leverage. In
when-issued and delayed-delivery transactions, the Funds rely on the seller to
complete the transaction; its failure to do so may cause a Fund to miss a price
or yield considered to be advantageous. A Fund expects that commitments by a
Fund to purchase when-issued securities will not exceed 25% of the value of its

19
<PAGE> 22

total assets under normal market conditions. The Prime Money Market Fund, the
Large Company Growth Fund's, the Small Company Growth Fund's and the
International Equity Fund's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of their respective total assets absent
unusual market conditions.

SHORT-TERM OBLIGATIONS

The Fixed Income Funds, the North Carolina Fund, the South Carolina Fund, the
Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund, the
Small Company Growth Fund, and the International Equity Fund may invest in high
quality, short-term obligations (with maturities of 12 months or less) such as
domestic and foreign commercial paper (including variable-amount master demand
notes), bankers' acceptances, certificates of deposit and demand and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase agreements. Such investments will be limited to those obligations
which, at the time of purchase, (i) possess one of the two highest short-term
ratings from at least two nationally recognized statistical rating organizations
("NRSROs") (for example, commercial paper rated "A-1" or "A-2" by S&P and "P-1"
or "P-2" by Moody's), or (ii) do not possess a rating (i.e., are unrated) but
are determined by BB&T (or PEAC with respect to the Small Company Growth Fund or
CastleInternational with respect to the International Equity Fund), to be of
comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund,
the Large Company Growth Fund and the Small Company Growth Fund will limit its
investment in short-term obligations to 35% of its total assets.

Each of the Fixed Income Funds, the Growth and Income Fund, the Large Company
Growth Fund and the Small Company Growth Fund may invest in short-term
obligations in order to acquire interest income combined with liquidity. Pending
investments or to meet anticipated redemption requests, the International Equity
Fund may also invest in short-term obligations. For temporary defensive
purposes, as determined by BB&T (or, in the case of the Small Company Growth
Fund, PEAC or, in the case of the International Equity Fund,
CastleInternational), these investments may constitute 100% of such Funds'
portfolio and, in such circumstances, will constitute a temporary suspension of
such Funds' attempts to achieve their investment objectives.

U.S. GOVERNMENT SECURITIES

U.S. Government Securities will constitute the primary investment of the
Short-Intermediate and Intermediate Bond Funds. The Prime Money Market Fund, the
Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund, the
Small Company Growth Fund, and the International Equity Fund may also invest in
U.S. Government Securities. The types of U.S. Government Securities in which
these Funds will invest include obligations issued or guaranteed as to payment
of principal and interest by the full faith and credit of the U.S. Government,
such as Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by the agencies or instrumentalities of the
U.S. Government, but not supported by such full faith and credit. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks, or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.

20
<PAGE> 23

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, Intermediate Bond, Growth and Income, Balanced, Large
Company Growth and 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.

The U.S. Treasury Fund may invest in U.S. Government Securities to the extent
that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund and the South Carolina Fund may invest in U.S.
Government Securities in connection with the purchase of taxable obligations (as
described below).

COLLATERALIZED MORTGAGE OBLIGATIONS

Each of the Fixed Income Funds, the Growth and Income Fund, the Balanced Fund,
the Large Company Growth Fund and the Small Company Growth Fund may also invest
in collateralized mortgage obligations ("CMOs"). Although under normal market
conditions it does not expect to do so, except in connection with repurchase
agreements, the Prime Money Market Fund may also invest in CMOs. CMOs are
mortgage-related securities which are structured pools of mortgage pass-through
certificates or mortgage loans. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by a Fund would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.

Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.

CMOs may include stripped mortgage securities. Such securities are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated in the highest rating category.

21
<PAGE> 24

held by a Fund may be considered liquid securities pursuant to guidelines
established by the Group's Board of Trustees. The Funds will not purchase a
stripped mortgage security that is illiquid if, as a result thereof, more than
15% of the value of the Fund's net assets would be invested in such securities
and other illiquid securities.

Unless stated otherwise, each Fund will limit its investment in CMOs to 25% of
the value of its total assets.

COMMERCIAL BONDS

The Growth and Income Fund, the Large Company Growth Fund, the Small Company
Growth Fund, and the Fixed Income Funds may invest up to 35% of their total
assets, and the Balanced Fund also may invest in bonds, notes and debentures of
a wide range of U.S. corporate issuers. Debentures represent unsecured promises
to pay, while notes and bonds may be secured by mortgages on real property or
security interests in personal property.

Bonds, notes and debentures in which the Growth and Income Fund, the Balanced
Fund, the Large Company Growth Fund and the Small Company Growth Fund may invest
may differ in interest rates, maturities and times of issuance and may include
CMOs (which are described above).

The Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund, and the Fixed Income Funds will invest only in
bonds, notes, and debentures which are rated at the time of purchase within the
three highest rating groups assigned by an NRSRO (for example, at least A by
Moody's or S&P), or, if unrated, which BB&T (or PEAC, with respect to the Small
Company Growth Fund) deems to be of comparable quality. The applicable ratings
are described in the Appendix to the Statement of Additional Information. In the
event that the rating of any debt securities falls below the third highest
rating category, these Funds will not be obligated to dispose of such
obligations and may continue to hold such obligations if, in the opinion of BB&T
(or PEAC, with respect to the Small Company Growth Fund), such investment is
considered appropriate under the circumstances.

OPTIONS AND FUTURES CONTRACTS

To the extent consistent with its investment objective, the Large Company
Growth, Small Company Growth, International Equity, Growth and Income Fund and
the Balanced Fund may engage in writing call options from time to time as BB&T
deems to be appropriate. Options are written solely as covered call options
(options on securities owned by a Fund). Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation. In
order to close out an option position, a Fund will enter into a "closing
purchase transaction"--the purchase of a call option on the same security with
the same exercise price and expiration date as any call option which it may
previously have written. Upon the sale of a portfolio security upon which it has
written a covered call option, a Fund must effect a closing purchase transaction
so as to avoid converting a covered call into a "naked call," i.e., a call
option on a security not owned by the Fund. If a Fund is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the option expires or the Fund delivers the underlying security
upon exercise. When writing a covered call option, a Fund, in return for the
premium, gives up the opportunity for profit from a price increase in the
underlying security above the exercise price but retains the risk of loss should
the price of the security decline.

To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund and the International Equity Fund may
write covered call options, buy put options, buy call options and write secured
put options for the purpose of hedging or earning additional income, which may
be deemed speculative or, with respect to the International Equity Fund,
cross-hedging. These options may relate to particular securities, financial
instruments, foreign currencies, stock or bond indices or the yield differential
between two securities, and may or may not be listed on a securities exchange
and may or may not be issued by the Options Clearing Corporation. A Fund will
not purchase put and call options when the aggregate premiums on outstanding
options exceed 5% of its net assets at the time of purchase, and will not write
options on more than 25% of the value of its net assets (measured at the time an
option is written). Options trading is a highly specialized activity that
entails greater than ordinary investment risks. In addition, unlisted options
are not subject to the protections afforded purchasers of listed options issued
by the Options Clearing Corporation, which performs the obligations of its
members if they default. Cross hedging is the use of options or forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency based on a

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belief that there is a pattern of correlation between the two currencies.

To the extent consistent with its investment objective, each Fund of the Group
(other than the U.S. Treasury Money Market Fund and the Prime Money Market Fund)
may also invest in futures contracts and options on futures contracts to commit
funds awaiting investment in stocks or maintain cash liquidity or for other
hedging purposes. The value of a Fund's contracts may equal or exceed 100% of
the Fund's total assets, although a Fund will not purchase or sell a futures
contract unless immediately afterwards the aggregate amount of margin deposits
on its existing futures positions plus the amount of premiums paid for related
futures options entered into for other than bona fide hedging purposes is 5% or
less of its net assets.

Futures contracts obligate a Fund, at maturity, to take or make delivery of
securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Fund may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Fund may do so
either to hedge the value of its securities portfolio as a whole, or to protect
against declines occurring prior to sales of securities in the value of the
securities to be sold. In addition, a Fund may utilize futures contracts in
anticipation of changes in the composition of its holdings or in currency
exchange rates.

Each Fund of the Group (other than the U.S. Treasury Money Market Fund and the
Prime Money Market Fund) may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When a Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or a seller of a futures contract at a specified exercise price during
the option period. When a Fund sells an option on a futures contract, it becomes
obligated to sell or buy a futures contract if the option is exercised. In
connection with a Fund's position in a futures contract or related option, a
Fund will create a segregated account of liquid assets or will otherwise cover
its position in accordance with applicable SEC requirements.

The risks related to the use of futures contracts include: (i) the correlation
between movements in the market price of the portfolio investments (held or
intended for purchase) being hedged and in the price of the futures contract may
be imperfect; (ii) possible lack of a liquid secondary market for closing out
futures positions; (iii) the need for additional portfolio management skills and
techniques; (iv) losses due to unanticipated market movements; and (v) a
purchaser's inability to predict correctly the direction of securities prices,
interest rates, currency exchange rates, and other economic factors. Successful
use of futures is subject to the ability correctly to predict movements in the
direction of the market. For example, if a Fund uses futures contracts as a
hedge against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will lose
part or all of the benefit of the increased value of its securities that it has
hedged because the Fund will have approximately equal offsetting losses in its
future positions. The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in future pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor. Thus, a purchase or sale of a
futures contract may result in losses or gains in excess of the amount invested
in the contract.

A Fund's ability to engage in options and futures transactions and to sell
related securities may be limited by tax considerations.

FOREIGN INVESTMENTS

The Prime Money Market Fund may invest in debt obligations of foreign
corporations and banks. The Prime Money Market Fund may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank;
Canadian Time Deposits ("CTDs") which are essentially the same as ETDs except
they are issued by Canadian offices of major Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.

The Prime Money Market Fund will not invest in excess of 10% of its net assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.

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<PAGE> 26

The Prime Money Market Fund may invest in commercial paper (including variable
amount master demand notes) issued by U.S. or foreign corporations. The Prime
Money Market Fund may also invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.

Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may subject
the Prime Money Market Fund to investment risks that differ in some respects
from those related to investments in obligations of U.S. domestic issuers. Such
risks include future adverse political and economic developments, the possible
imposition of foreign withholding taxes on interest income, possible seizure,
currency blockage, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely effect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and record keeping standards than
those applicable to domestic branches of U.S. banks. The Prime Money Market Fund
will acquire securities issued by foreign branches of U.S. banks, foreign banks,
or other foreign issuers only when the Adviser or Sub-Adviser believes that the
risks associated with such instruments are minimal and only when such
instruments are denominated and payable in United States dollars.

The Balanced Fund, the Growth and Income Fund, the Large Company Growth Fund
and the Small Company Growth Fund may invest in foreign securities through the
purchase of American Depository Receipts ("ADRs") or the purchase of securities
on the New York Stock Exchange. However, the Balanced Fund, the Growth and
Income Fund and the Large Company Growth Fund will not do so if immediately
after a purchase and as a result of the purchase the total value of such foreign
securities owned by such Fund would exceed 25% of the value of the total assets
of the Fund. A Fund may also invest in securities issued by foreign branches of
U.S. banks and foreign banks and in CCP and Europaper.

During normal market conditions, the International Equity Fund will invest at
least 90% and, in any event, at least 65%, of its total assets in securities of
foreign issuers. The International Equity Fund invests primarily in equity
securities of issuers located in countries included in EAFE and may invest in
equity securities of issuers located in emerging markets. EAFE is an index
composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of securities listed on the stock exchanges of
such countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Singapore,
Malaysia, Spain, Sweden, Switzerland and the United Kingdom are currently
included in EAFE.

From time to time the International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in countries such as
France, Germany, Japan and the United Kingdom. Investments of 25% or more of the
Fund's total assets in this or any other country will make the Fund's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. For example, in the past events in the Japanese
economy as well as social developments and natural disasters have affected
Japanese securities and currency markets, and have periodically disrupted the
relationship of the Japanese yen with other currencies and with the U.S. dollar.

The International Equity Fund may invest in both sponsored and unsponsored
ADRs, European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs")
and other similar global instruments. ADRs typically are issued by an American
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic
underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR and
GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored

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<PAGE> 27

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.

Accordingly, a Fund's foreign investments may be less liquid and their prices
may be more volatile than comparable investments in securities in U.S.
companies. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.

The expense ratio of the International Equity Fund is expected to be higher
than that of Funds of the Group investing primarily in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as the higher cost of investment research, higher cost of custody of
foreign securities, higher commissions paid on comparable transactions on
foreign markets, foreign income taxes withheld at the source, and additional
costs arising from delays in settlements of transactions involving foreign
securities.

The International Equity Fund may invest its assets in countries with emerging
economies or securities markets. These countries may include Argentina, Brazil,
Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco, Peru, The
Philippines, Poland, Romania, Russia, South Africa, South Korea, Taiwan,
Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in countries with emerging economies
or securities markets to 20% of its total assets.

The International Equity Fund may (but is not required to) use forward foreign
currency exchange contracts to hedge against movements in the value of foreign
currencies (including the European Currency Unit (ECU)) relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time. The Funds
of Funds may not use forward foreign currency exchange contracts.

OTHER INVESTMENT PRACTICES

For liquidity purposes, each Fund except the Prime Money Market Fund and the
U.S. Treasury Fund may invest in money market funds. For a

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<PAGE> 28

description of the Funds of Funds' practices, see "Funds of Funds." Each other
Fund except the Prime Money Market Fund and the U.S. Treasury Fund may invest up
to 5% of the value of its total assets in the securities of any one money market
mutual fund (including Shares of the Prime Money Market Fund and the U.S.
Treasury Fund, pursuant to exemptive relief granted by the Securities and
Exchange Commission) and up to 10% of its total assets in more than one money
market mutual fund. In order to avoid the imposition of additional fees as a
result of investments in Shares of the Prime Money Market Fund and the U.S.
Treasury Fund, BB&T and BISYS Fund Services (the "Administrator") (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP"--"Investment Adviser" and "Administrator
and Distributor") will reduce that portion of their usual asset-based service
fees from each investing Fund by an amount equal to their service fees from the
Prime Money Market Fund or the U.S. Treasury Fund that are attributable to those
Fund investments. BB&T and the Administrator will promptly forward such fees to
the investing Funds. The Funds, except the Funds of Funds, will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of other unaffiliated money market mutual funds. Additional
restrictions on the Funds' investments in the securities of an unaffiliated
money market fund and/or the Prime Money Market Fund or the U.S. Treasury Fund
are contained in the Statement of Additional Information.

In addition, the International Equity Fund may purchase shares of investment
companies investing primarily in foreign securities, including so-called
"country funds." Country funds have portfolios consisting exclusively of
securities of issuers located in one country.

In order to generate additional income, each Fund except the North Carolina
Fund and the South Carolina Fund may, from time to time, lend its portfolio
securities to broker-dealers, banks or institutional borrowers of securities.
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
receive 100% collateral in the form of cash or U.S. Government Securities. This
collateral will be valued daily by BB&T (or PEAC with respect to the Small
Company Growth Fund, CastleInternational with respect to the International
Equity Fund, or PIMC with respect to the Prime Money Market Fund) and should the
market value of the loaned securities increase, the borrower will furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities. Loans are subject to termination by a Fund or the borrower at any
time. While a Fund will not have the right to vote securities on loan, the Funds
intend to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. The Funds will only enter into loan
arrangements with broker-dealers, banks or other institutions which BB&T (or
PEAC with respect to the Small Company Growth Fund, CastleInternational with
respect to the International Equity Fund, or PIMC with respect to the Prime
Money Market Fund) has determined are creditworthy under guidelines established
by the Group's Board of Trustees. Each Fund will restrict its securities lending
to 30% (33 1/3% with respect to the Prime Money Market Fund and the
International Equity Fund) of its total assets.

In order to generate income, the Short-Intermediate, Intermediate Bond, Growth
and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/ or income of the Funds
in order to take advantage of what BB&T (or PEAC, with respect to the Small
Company Growth Fund or CastleInternational, with respect to the International
Equity Fund) believes are changes in market, industry or individual company
conditions or outlook. Any such trading would increase the portfolio turnover
rate of the Funds and their transaction costs.

CORPORATE AND BANK OBLIGATIONS

To the extent consistent with its investment objective, the Prime Money Market
Fund may invest in debt obligations of domestic corporations and banks. Bank
obligations may include certificates of deposit, notes, bankers' acceptances and
fixed time deposits. These obligations may be general obligations of the parent
bank or may be limited to the issuing branch or subsidiary by the terms of the
specific obligation or by government regulation. The Prime Money Market Fund may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.

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PRIVATE PLACEMENT INVESTMENTS

Each Fund of the Group (other than the U.S. Treasury Money Market Fund) may
invest in commercial paper issued by corporations without registration under the
Securities Act of 1933 (the "1933 Act") in reliance on the exemption in Section
3(a)(3), and commercial paper issued in reliance on the so-called "private
placement" exemption in Section 4(2) ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers which make a market in Section 4(2) paper, thus providing
liquidity.

Each Fund of the Group (other than the U.S. Treasury Money Market Fund) may
purchase securities which are not registered under the 1933 Act but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. These securities will not be considered illiquid so long as the
adviser or sub-adviser determines that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in the Fund during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities.

GUARANTEED INVESTMENT CONTRACTS

The Prime Money Market Fund may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Under these contracts, the Fund makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits
interest to the Fund on a monthly basis, which is based on an index (such as the
Salomon Brothers CD Index), but is guaranteed not to be less than a certain
minimum rate. The Prime Money Market Fund does not expect to invest more than 5%
of its net assets in GICs at any time during the current fiscal year.

ASSET-BACKED SECURITIES

The Prime Money Market Fund may invest in securities backed by automobile
receivables and credit-card receivables and other securities backed by other
types of receivables.

Offerings of Certificates for Automobile Receivables ("CARS") are structured
either as flow-through grantor trusts or as pay-through notes. CARS structured
as flow-through instruments represent ownership interests in a fixed pool of
receivables. CARS structured as pay-through notes are debt instruments supported
by the cash flows from the underlying assets. CARS may also be structured as
securities with fixed payment schedules which are generally issued in
multiple-classes. Cash-flow from the underlying receivables is directed first to
paying interest and then to retiring principal via paying down the two
respective classes of notes sequentially. Cash-flows on fixed-payment CARS are
certain, while cash-flows on other types of CARS issues depends on the
prepayment rate of the underlying automobile loans. Prepayments of automobile
loans are triggered mainly by automobile sales and trade-ins. Many people buy
new cars every two or three years, leading to rising prepayment rates as a pool
becomes more seasoned.

Certificates for Amortizing Revolving Debt ("CARDS") represent participation
in a fixed pool of credit card accounts. CARDS pay "interest only" for a
specified period. The CARDS principal balance remains constant during this
period, while any cardholder repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.

Credit support for asset-backed securities may be based on the underlying
assets or provided by a third party. Credit enhancement techniques include
letters of credit, insurance bonds, limited guarantees (which are generally
provided by the issuer), senior-subordinated structures and over
collateralization. Asset-backed securities purchased by the Prime Money Market
Fund will be subject to the

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<PAGE> 30

same quality requirements as other securities purchased by the Fund.

MUNICIPAL OBLIGATIONS

The Prime Money Market Fund may, when deemed appropriate by its sub-adviser,
invest in high quality short-term obligations issued by state and local
governmental issuers.

The Prime Money Market Fund may invest in participation certificates in a
lease, an installment purchase contract, or a conditional sales contract ("lease
obligations") entered into by a state or political subdivision to finance the
acquisition or construction of equipment, land or facilities. Although lease
obligations are not general obligations of the issuer for which the state or
other governmental body's unlimited taxing power is pledged, certain lease
obligations are backed by a covenant to appropriate money to make the lease
obligation payments. However, under certain lease obligations, the state or
governmental body has no obligation to make these payments in future years
unless money is appropriated on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet marketable as more
conventional securities. Certain investments in lease obligations may be
illiquid. Under guidelines established by the Board of Trustees, the following
factors will be considered when determining the liquidity of a lease obligation:
(1) the frequency of trades and quotes for the obligation; (2) the number of
dealers willing to purchase or sell the obligation and the number of potential
buyers; (3) the willingness of dealers to undertake to make a market in the
obligation; and (4) the nature of the marketplace trades.

VARIABLE AND FLOATING RATE INSTRUMENTS

The Prime Money Market Fund may purchase rated and unrated variable and
floating rate instruments, which may have a stated maturity in excess of 13
months but will, in any event, permit the Fund to demand payment of the
principal of the instrument at least once every 13 months upon not more than 30
days' notice (unless the instrument is guaranteed by the U.S. Government or any
agency or instrumentality thereof).

VARIABLE AMOUNT DEMAND NOTES

Variable amount master demand notes in which the Prime Money Market Fund may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary, and that provide for periodic adjustments in the interest rate according
to the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Money Market Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Money Market Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as to quality as set forth above for commercial paper. PIMC will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note may not exceed seven
days.

MONEY MARKET FUNDS

In connection with the management of its daily cash positions, the Prime Money
Market Fund may invest in securities issued by other investment companies which
invest in short-term, high quality debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method of
valuation. Securities of other investment companies will be acquired by the Fund
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory fees and other
expenses the Fund bear directly in connection with its own operations.

CLOSED-END INVESTMENT COMPANIES

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bonds and warrants or a combination of the features of several of these
securities. As a shareholder of a closed-end investment company holding such
convertible securities, the Fund would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory fees and other
expenses the Fund bear directly in connection with its own operations.

STANDARD & POOR'S DEPOSITORY RECEIPTS

Each of the Growth and Income Stock Fund, Balanced Fund, Large Company Growth
Fund, and Small Company Growth Fund may invest in Standard & Poor's Depository
Receipts ("SPDRs"). SPDRs represent interests in trusts sponsored by a
subsidiary of the American Stock Exchange, Inc. and structured to provide
investors proportionate undivided interests in a securities portfolio consisting
of substantially all of the common stocks (in substantially the same weighting)
as the component common stocks of a particular Standard & Poor's Index, e.g.,
the S&P 500 Index. SPDRs are generally not redeemable, but are exchange traded.
SPDRs are issued by a trust that is a unit investment trust, a type of
registered investment company. SPDRs, therefore, will be acquired by a fund only
within the limits prescribed under the 1940 Act.

UNINVESTED CASH RESERVES

The Prime Money Market Fund may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Fund's sub-adviser, suitable obligations are unavailable. During normal market
periods, no more than 20% of the Fund's total assets will be held uninvested.
Uninvested cash reserves will not earn income.

OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND

TAX-EXEMPT OBLIGATIONS

In addition to their respective investments in North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund may invest in tax-exempt obligations issued by or on
behalf of states other than North Carolina or South Carolina, as the case may
be, territories and possessions of the United States, the District of Columbia
and their respective authorities, agencies, instrumentalities, and political
subdivisions the interest on which, in the opinion of the issuer's counsel at
the time of issuance, is exempt from federal income tax and is not treated as a
preference item for individuals for purposes of the federal alternative minimum
tax. Such securities, together with North Carolina Tax-Exempt Obligations and
South Carolina Tax-Exempt Obligations, are hereinafter collectively referred to
as "Tax-Exempt Obligations."

Up to 10% of the North Carolina Fund's total assets may be invested in
Tax-Exempt Obligations other than North Carolina Tax-Exempt Obligations. Up to
10% of the South Carolina Fund's total assets may be invested in Tax-Exempt
Obligations other than South Carolina Tax-Exempt Obligations. If deemed
appropriate for temporary defensive periods, as determined by BB&T, each of the
North Carolina Fund and the South Carolina Fund may suspend attempts to achieve
its investment objective and may increase its holdings in Tax-Exempt Obligations
other than North Carolina Tax-Exempt Obligations or South Carolina Tax-Exempt
Obligations, respectively, to over 10% of its total assets. Investments made for
temporary defensive purposes will not be intended to achieve either Fund's
investment objective with respect to North Carolina or South Carolina taxation,
as the case may be, but rather will be intended to preserve the value of the
Fund's Shares.

The two principal classifications of Tax-Exempt Obligations which may be held
by the North Carolina Fund and the South Carolina Fund are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Funds are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
private user of the facility involved.

Also included within the general category of Tax-Exempt Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a state or political subdivision to finance the acquisition or
construction of equipment, land, or facilities. In South Carolina, governmental
lease obligations are

29
<PAGE> 32

included in calculation of the general obligation debt limit.

Among other types of Tax-Exempt Obligations, the North Carolina Fund and the
South Carolina Fund may purchase Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper and other forms
of short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.

The North Carolina Fund and the South Carolina Fund may also invest in "moral
obligation" securities, which are normally issued by special purpose public
authorities. However, such investments by the North Carolina Fund are expected
to be limited by the fact that North Carolina issuers are currently precluded by
North Carolina State law from issuing such securities, and issuers in South
Carolina also currently do not have authority to issue moral obligation
securities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.

The North Carolina Fund and the South Carolina Fund invest in Tax-Exempt
Obligations which are rated at the time of purchase in one of the three highest
categories by an NRSRO in the case of bonds; one of the two highest categories
by an NRSRO in the case of notes; rated "SP-1" or higher by S&P or "MIG-2" or
higher by Moody's or rated at a comparable level of quality by another NRSRO in
the case of tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's
or rated at a comparable level of quality by another NRSRO in the case of
variable rate demand obligations. The North Carolina Fund and the South Carolina
Fund may also purchase Tax-Exempt Obligations which are unrated at the time of
purchase but are determined to be of comparable quality by BB&T pursuant to
guidelines approved by the Group's Board of Trustees. The applicable ratings are
described in the Appendix to the Statement of Additional Information.

Opinions relating to the validity of Tax-Exempt Obligations and to the
exemption of interest thereon from federal and state income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
North Carolina Fund, the South Carolina Fund, nor BB&T will review the
proceedings relating to the issuance of Tax-Exempt Obligations or the basis for
such opinions.

TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND

The North Carolina Fund and the South Carolina Fund each may invest up to 10%
of its net assets in taxable obligations or debt securities, the interest income
from which may be subject to the federal alternative minimum tax for both
individual and corporate shareholders. There is no limit on the amount of
taxable obligations that may be held for temporary defensive purposes. Taxable
obligations may include U.S. Government Securities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
domestic banks and domestic branches of foreign banks, commercial paper meeting
the North Carolina and South Carolina Funds' quality standards (as described
above) for tax-exempt commercial paper, and shares issued by other open-end
registered investment companies issuing taxable dividends (as described above).
The North Carolina Fund and the South Carolina Fund may hold uninvested cash
reserves pending investment, during temporary defensive periods or if, in the
opinion of BB&T, suitable North Carolina Tax-Exempt Obligations or South
Carolina Tax-Exempt Obligations, respectively, are unavailable.

PUTS

The North Carolina Fund and the South Carolina Fund may acquire "puts" with
respect to securities held in their portfolios. Under a put, the Funds would
have the right to sell a specified security within a specified period of time at
a specified price. A put would be sold, transferred, or assigned only with the
underlying security. The North Carolina Fund and the South Carolina Fund expect
that they will generally acquire puts only where the puts are available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Funds may pay for a put either separately in cash or by paying a
higher price for Fund securities which are acquired subject to the puts (thus
reducing the yield to maturity otherwise available for the same securities). The
North Carolina Fund and the South Carolina Fund will acquire puts solely to
facilitate Fund liquidity, shorten the maturity of the underlying security, or
permit the investment of their funds at a more favorable rate of return.

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<PAGE> 33

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND

Because the North Carolina Fund will invest at least 90% of the value of its
total assets in North Carolina Tax-Exempt Obligations and because it seeks to
maximize income derived from North Carolina Tax-Exempt Obligations, it is more
susceptible to factors adversely affecting issuers of North Carolina Tax-Exempt
Obligations than are comparable municipal bond mutual funds that are not
concentrated in these issuers to this degree. North Carolina experienced a
positive General Fund balance for each of its last five fiscal years. See
"SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS" in the Statement of Additional Information for further discussion
of investment considerations associated with North Carolina Tax-Exempt
Obligations.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE SOUTH CAROLINA FUND

Because the South Carolina Fund will invest at least 90% of the value of its
total assets in South Carolina Tax-Exempt Obligations and because it seeks to
maximize income derived from South Carolina Tax-Exempt Obligations, it is more
susceptible to factors adversely affecting issuers of South Carolina Tax-Exempt
Obligations than are comparable municipal bond mutual funds that are not
concentrated in these issuers to this degree. If any issuer of securities held
by the South Carolina Fund is unable to meet its financial obligations, the
Fund's income, capital, and liquidity may be adversely affected. The State of
South Carolina's economy has been dominated since the early 1920's by the
textile industry, with over one-third of the manufacturing workers directly or
indirectly related to the textile industry. The economic base of the state is
gradually becoming more diversified as the trade and service sectors and durable
goods manufacturing industries have developed. Currently, Moody's rates South
Carolina general obligation bonds "Aaa" and S&P rates such bonds "AA+." There
can be no assurance that the economic conditions on which the above ratings for
a specific state are based will continue or that particular bond issues may not
be adversely affected by changes in economic or political conditions. See
"SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN SOUTH CAROLINA TAX-EXEMPT
OBLIGATIONS" in the Statement of Additional Information for further discussion
of investment considerations associated with South Carolina Tax-Exempt
Obligations.

DIVERSIFICATION AND CONCENTRATION

The North Carolina Fund and the South Carolina Fund are non-diversified funds
under the Investment Company Act of 1940. This means they may concentrate their
investments in the securities of a limited number of issuers. Under the Internal
Revenue Code of 1986, as amended, at the end of each fiscal quarter each of the
North Carolina Fund and the South Carolina Fund must nevertheless diversify its
portfolio such that, with respect to 50% of its total assets, not more than 25%
of its assets is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies),
and with respect to the remainder of its total assets, no more than 5% of its
assets is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies).
Because of the relatively small number of issuers of North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund are more likely to invest a higher percentage of
their assets in the securities of a single issuer than is an investment company
that invests in a broad range of tax-exempt securities. This concentration
involves an increased risk of loss to the North Carolina Fund and the South
Carolina Fund if the issuer is unable to make interest or principal payments or
if the market value of such securities declines, and consequently may cause
greater fluctuation in the net asset value of the North Carolina and South
Carolina Funds' Shares.

VARIABLE AND FLOATING RATE SECURITIES

North Carolina Tax-Exempt Obligations purchased by the North Carolina Fund and
South Carolina Tax-Exempt Obligations purchased by the South Carolina Fund may
include variable and floating rate tax-exempt notes with ratings that are
similar to those described above. There may be no active secondary market with
respect to a particular variable or floating rate note. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the North Carolina Fund and the South Carolina Fund will approximate their
par value. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other
securities which are not readily marketable, exceeds 15% of the North Carolina
Fund's total assets or of the South Carolina Fund's total assets only if such
notes

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<PAGE> 34

are subject to a demand feature that will permit the Fund to receive payment of
the principal within seven days after demand by the Fund.

STAND-BY COMMITMENTS

In addition, the North Carolina Fund and the South Carolina Fund may acquire
"stand-by commitments" with respect to Tax-Exempt Obligations held in either
Fund. Under a stand-by commitment, a dealer would agree to purchase at the
Fund's option specified Tax-Exempt Obligations at a specified price. The Funds
will acquire stand-by commitments solely to facilitate Fund liquidity and do not
intend to exercise their rights thereunder for trading purposes. Stand-by
commitments acquired by the North Carolina Fund and the South Carolina Fund may
also be referred to as "put" options.

PORTFOLIO TURNOVER

For the fiscal year ended September 30, 1997, the Portfolio turnover rate for
each of the Funds with a full year of operations (other than Money Market Funds)
was as follows: Short-Intermediate Fund 87.99%, Intermediate Bond Fund 62.45%,
Growth and Income Fund 22.66%, North Carolina Fund 16.98%, Small Company Growth
Fund 80.66%, equity portion of the Balanced Fund 26.57% and fixed income portion
of the Balanced Fund 27.59%, and International Equity Fund 41.45%. The portfolio
turnover of each of the Funds (except the Money Market Funds) may vary greatly
from year to year as well as within a particular year. It is presently
anticipated that the portfolio turnover rate of the South Carolina Fund will not
exceed 50% and the portfolio turnover rate of the Large Company Growth Fund will
not exceed 100%. High turnover rates will generally result in higher transaction
costs to a Fund and may result in higher levels of taxable realized gains to a
Fund's shareholders.

INVESTMENT RESTRICTIONS

The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund (see "GENERAL INFORMATION-- Miscellaneous").

The Prime Money Market Fund and the U.S. Treasury Fund may not:

1. Purchase securities of any issuer, other than obligations issued or
guaranteed by the U.S. Government if, as a result, with respect to 75% of its
portfolio, more than 5% of the value of the Fund's total assets would be
invested in such issuer. In addition, although not a fundamental investment
restriction (and therefore subject to change without shareholder vote), to the
extent required by rules of the Securities and Exchange Commission the Prime
Money Market Fund and the U.S. Treasury Fund will apply this restriction to
100% of its portfolio, except that for the Prime Money Market Fund, 25% of the
value of its total assets may be invested in any one issuer for a period of up
to three business days.

Each Fixed Income Fund may not:

1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase with respect to 75% of its portfolio, more
than 5% of the value of the Fund's total assets would be invested in such
issuer. There is no limit as to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.

2. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.

Each of the Funds of Funds may not:

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<PAGE> 35

tions of the U.S. Government or its agencies or instrumentalities or
securities issued by "regulated investment companies" as defined in the
Internal Revenue Code of 1986, as amended (the "Code"); (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.

2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
"regulated investment companies" as defined in the Code, if, immediately after
such purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, or the Fund would hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding voting securities
of the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.

The Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
and the Small Company Growth Fund may not:

1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.

2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations. There
is no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.

The International Equity Fund may not:

1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value
of the Fund's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may (taken at current value) be invested without
regard to these limitations. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and revenues
back the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities issued and
guaranteed by the grantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.

2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to (i)
instruments issued (as defined in Investment Limitation No. 1 above) or
guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their 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 transmis-

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<PAGE> 36

sion, electric and gas, electric and telephone will each be considered a
separate industry.

Each of the Funds may not:

1. Borrow money or issue senior securities, except that a Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% (one-third with respect to the Prime Money Market Fund
and the International Equity Fund) of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of
(one-third of the value of the Fund's total assets at the time of such
borrowing with respect to the Prime Money Market Fund and the International
Equity Fund) the lesser of the dollar amounts borrowed or 10% of the value of
a Fund's total assets at the time of its borrowing. Each of the Funds (except
the U.S. Treasury Fund) will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. The U.S. Treasury Fund will not purchase securities while
borrowings are outstanding.

2. Make loans, except that each of the Funds may purchase or hold debt
securities and lend portfolio securities in accordance with its investment
objective and policies and may enter into repurchase agreements.

The North Carolina Fund and the South Carolina Fund may not:

1. Write or sell puts, calls, straddles, spreads, or combinations thereof
except that the Funds may acquire puts with respect to Tax-Exempt Obligations
in their portfolios and sell those puts in conjunction with a sale of those
Tax-Exempt Obligations.

2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities, and (b) this limitation shall
not apply to Tax-Exempt Obligations or governmental guarantees of Tax-Exempt
Obligations. For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only
by the assets and revenues of a non-governmental user, such nongovernmental
user.

The following is a non-fundamental investment restriction of the Prime Money
Market Fund and the U.S. Treasury Fund and therefore subject to change without
shareholder vote.

The Prime Money Market Fund and the U.S. Treasury Fund may not:

1. Invest more than 10% of its assets in instruments which are not readily
marketable.

VALUATION OF SHARES

The net asset value of each of the Funds other than the Prime Money Market
Fund and the U.S. Treasury Fund is determined and its Shares are priced as of
the close of regular trading of the New York Stock Exchange (the "NYSE")
(generally 4:00 p.m. Eastern Time) on each Business Day. The net asset value of
the Prime Money Market Fund and the U.S. Treasury Fund is determined and the
Shares are priced as of 12:00 p.m. and as of the close of regular trading of the
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 is open for trading and any other day (other
than a day during which no Shares are tendered for redemption and no orders to
purchase Shares are received) during which there is sufficient trading in a
Fund's portfolio instruments that the Fund's net asset value per share might be
materially affected. Currently, the NYSE is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share for purposes of pricing sales and
redemptions is calculated by determining the value of the class's proportional
interest in the securities and other assets of a Fund, less (i) such class's
proportional share of general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number of relevant class
Shares outstanding.

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<PAGE> 37

The securities in each of the Funds, except the Prime Money Market Fund and
the U.S. Treasury Fund, will be valued at market value. If market quotations are
not available, the securities will be valued by a method which the Board of
Trustees of the Group believes accurately reflects fair value.

The Funds of Funds value investments in mutual fund securities at their
redemption price, which is net asset value.

The assets in the Prime Money Market Fund and the U.S. Treasury Fund are
valued based upon the amortized cost method. This method values a security at
its cost on the date of purchase and thereafter assumes a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. If the Board of Trustees
determines that the extent of any deviation from a $1.00 price per share may
result in material dilution or other unfair results to Shareholders, it will
take such steps as it considers appropriate to eliminate or reduce these
consequences to the extent reasonably practicable. This may include selling
portfolio securities prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity of a Fund, adjusting or withholding
dividends, or utilizing a net asset value per share determined by using
available market quotations. Although the Group seeks to maintain the Prime
Money Market Fund's and the U.S. Treasury Fund's net asset value per Share at
$1.00, there can be no assurance that net asset value will not vary.

Most securities held by the International Equity Fund are priced based on
their market value as determined by reported sales prices or the mean between
their bid and asked prices. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Trustees. The amortized cost method of
valuation will also be used with respect to debt obligations with sixty days or
less remaining to maturity unless the Fund's sub-adviser under the supervision
of the Board of Trustees determines such method does not represent fair value.

For further information about the valuation of investments, see the Statement
of Additional Information.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares are sold on a continuous basis by the Group's Distributor, BISYS Fund
Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.

PURCHASES OF TRUST SHARES

Trust Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency,
custodial and other similar accounts maintained by or on behalf of Customers of
Branch Banking & Trust Company or one of its affiliates (individually a "Bank"
and collectively the "Banks") or other financial service providers approved by
the Distributor.

Shares of the Group sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the Banks to transmit purchase or redemption orders to the
Distributor and to deliver Federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.

Trust Shares of each of the Funds are sold at the net asset value per Trust
Share next determined after receipt by the Distributor of an order in good form
to purchase Trust Shares (see "VALUATION OF SHARES"). There is no sales charge
imposed by the Group in connection with the purchase of the Group's Trust
Shares.

There is no minimum or subsequent investment requirement for Trust Shares.
There is no limit on the amount of Trust Shares that may be purchased.

ADDITIONAL INFORMATION ABOUT PURCHASING SHARES

Purchases of Trust Shares of the Funds will be effected only on a Business Day
(as defined in "VALUATION OF SHARES"). An order for the Prime Money Market Fund
or the U.S. Treasury Fund received prior to a Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the date of receipt.

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<PAGE> 38

An order for the Prime Money Market Fund or the U.S. Treasury Fund received
after the last Valuation Time on any Business Day will be executed at the net
asset value determined as of the next Valuation Time on the next Business Day.
An order for a Variable NAV Fund or the Funds of Funds received prior to the
Valuation Time on any Business Day will be executed at the net asset value
determined as of the Valuation Time on the date of receipt. An order for a
Variable NAV Fund or the Funds of Funds received after the Valuation Time on any
Business Day will be executed at the net asset value determined as of the
Valuation Time on the next Business Day.

An order to purchase Trust Shares of the Prime Money Market Fund or the U.S.
Treasury Fund will be deemed to have been received by the Distributor only when
federal funds with respect thereto are available to the Group's transfer agent
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Shares of the Prime Money
Market Fund or the U.S. Treasury Fund which is transmitted by federal funds wire
will be available the same day for investment by the Group's transfer agent, if
received prior to the last Valuation Time (see "VALUATION OF SHARES"). It is
strongly recommended that investors of substantial amounts use federal funds to
purchase Shares of the Prime Money Market Fund or the U.S. Treasury Fund.

Shares of the Prime Money Market Fund or the U.S. Treasury Fund purchased
before 12:00 noon, Eastern Time, begin earning dividends on the same Business
Day. All Shares of the Prime Money Market Fund or the U.S. Treasury Fund
continue to earn dividends through the day before their redemption.

Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer account fees for services provided in
connection with investment in the Group. Information concerning this Prospectus
should be read in conjunction with any such information received from the
Participating Organizations or Banks.

The Group reserves the right to reject any order for the purchase of its Trust
Shares in whole or in part, including purchases made with foreign and third
party drafts or checks.

EXCHANGE PRIVILEGE

Trust Shares of each Fund and the Funds of Funds may be exchanged for Trust
Shares of the other Funds and the Funds of Funds, provided that the Shareholder
making the exchange is eligible on the date of the exchange to purchase Trust
Shares (with certain exceptions and subject to the terms and conditions
described in this prospectus). Trust Shares of each Fund may also be exchanged
for Class A Shares, if the Shareholder ceases to be eligible to purchase Trust
Shares. Trust Shares of each Fund may not be exchanged for Class B Shares.

The Group does not impose a charge for processing exchanges of its Trust
Shares. However, the exchange of Trust Shares for Class A Shares will require
payment of the sales charge unless the sales charge is waived. Shareholders may
exchange their Trust Shares for Trust Shares of another Fund on the basis of the
relative net asset value of the Shares exchanged.

A Shareholder wishing to exchange Trust Shares purchased through a
Participating Organization or Bank may do so by contacting the Participating
Organization or Bank. If an exchange request in good order is received by the
Distributor or the Transfer Agent by 12:00 noon (Eastern Time) on any Business
Day, the exchange usually will occur on that day. Any Shareholder who wishes to
make an exchange should obtain and review a prospectus describing the Fund and
class of Shares which he or she wishes to acquire before making the exchange.
The exchange privilege may be exercised only in those states where the class of
Shares of such other Fund may legally be sold. The Group reserves the right to
change the terms and conditions of the exchange privilege discussed herein upon
sixty days written notice.

The Group's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive

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<PAGE> 39

exchange redemptions from a Fund during any calendar year.

REDEMPTION OF SHARES

Shareholders may redeem their Trust Shares without charge on any day that net
asset value is calculated (see "VALUATION OF SHARES") and Shares may ordinarily
be redeemed by mail or by telephone. However, all or part of a Customer's Shares
may be required to be redeemed in accordance with instructions and limitations
pertaining to his or her account held by a Participating Organization or Bank.
For example, if a Customer has agreed to maintain a minimum balance in his or
her account, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Participating Organization or Bank may
redeem for and on behalf of the Customer, all or part of the Customer's Shares
to the extent necessary to maintain the required minimum balance.

REDEMPTION BY MAIL

A written request for redemption must be received by the Group in order to
constitute a valid tender for redemption. The signature on the written request
must be guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 if (a) a
redemption check is to be payable to anyone other than the Shareholder(s) of
record or (b) a redemption check is to be mailed to the Shareholder(s) at an
address other than the address of record or other than to a commercial bank
designated on the Account Registration Form of such Shareholder(s). The
Distributor reserves the right to reject any signature guarantee if (1) it has
reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. Proceeds may be
mailed to the address of record or sent electronically or mailed to a previously
designated bank account without a signature guarantee. See "Redemption by
Telephone" for further discussion on sending proceeds to your bank account.

REDEMPTION BY TELEPHONE

Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Registration Form. A Shareholder may have the proceeds mailed to the
address of record or sent electronically or mailed directly to a domestic
commercial bank account previously designated by the Shareholder on the Account
Registration Form. Under most circumstances, such payments will be transmitted
on the next Business Day following receipt of a valid request for redemption.
Such electronic redemption requests may be made by the Shareholder by telephone
to the Transfer Agent. The Transfer Agent may reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
currently being waived. There is no charge for having payment of redemption
requests mailed or sent via the Automated Clearing House to a designated bank
account. For telephone redemptions, call the Group at (800) 228-1872. If not
selected on the Account Registration form, the Shareholder will automatically
receive telephone redemption privileges. None of the Distributor, the Group's
transfer agent, BB&T or the Group will be liable for any losses, damages,
expense or cost arising out of any telephone transaction (including exchanges
and redemptions) effected in accordance with the Group's telephone transaction
procedures, upon instructions reasonably believed to be genuine. The Group will
employ procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
Group may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verifying the account name and a shareholder's account number or
tax identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone transactions, Shareholders
may also mail the redemption request to the Group.

PAYMENTS TO SHAREHOLDERS

37
<PAGE> 40

Time on a Business Day or, if the request for
redemption is received after the last Valuation Time, to honor requests for
payment within two Business Days, unless it would be disadvantageous to the
Group or the Shareholders of the particular Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner. The Prime Money Market Fund and the U.S. Treasury Fund will attempt to
honor requests from its Shareholders for same day payment upon redemption of
Shares if the request for redemption is received by the Transfer Agent before
12:00 noon Eastern Time, on a Business Day or, if the request for redemption is
received after 12:00 noon Eastern Time, to honor requests for payment on the
next Business Day, unless it would be disadvantageous to the Fund or its
Shareholders to sell or liquidate portfolio securities in an amount sufficient
to satisfy requests for payments in that manner.

At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares, which may take up to 10 days or more. To avoid delay in payment
upon redemption shortly after purchasing Shares, investors should purchase
Shares by certified check or by wire transfer. The Group intends to pay cash for
all Shares redeemed, but under abnormal conditions which may make payment in
cash unwise, the Group may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.

See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the Investment Company Act of 1940.

DIVIDENDS AND TAXES

Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified, a Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute substantially all of their income on a timely
basis. Each Fund intends to avoid paying federal income and excise taxes by
timely distributing substantially all its net investment income and net realized
capital gains.

Dividends received by a Shareholder of a Fund that are derived from such
Fund's investments in U.S. Government Securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. Government Securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from a Fund.

Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.

The net investment income of the Shares of the Prime Money Market Fund and the
U.S. Treasury Fund is declared daily as a dividend to Shareholders at the close
of business on the day of declaration. Dividends will generally be paid monthly.
The Prime Money Market Fund and the U.S. Treasury Fund do not expect to realize
any long-term capital gains and, therefore, do not foresee paying any "capital
gain dividends" as described in the Code.

The amount of dividends payable with respect to the Trust Shares will exceed
dividends on Class A Shares, and the amount of dividends on Class A Shares will
exceed dividends on Class B Shares, as a result of the Distribution and
Shareholder Services Plan fee applicable to Class A and Class B Shares.

A dividend on the Shares of the North Carolina, South Carolina,
Short-Intermediate, and Intermediate Bond Funds is declared daily and paid
monthly, and a dividend on the Shares of the Growth and Income and Balanced
Funds is declared and paid monthly. The Large Company Growth Fund, the Small
Company Growth Fund, the International Equity Fund, and the Funds of Funds
declare and pay dividends quarterly. Net realized capital gains, if any, are
distributed at least annually to Shareholders of record.

38
<PAGE> 41

respect to dividends and distributions having record dates after its receipt by
the transfer agent. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Dividends are paid in cash not later than seven Business
Days after a Shareholder's complete redemption of his or her Shares. If you
elect to receive distributions in cash and your checks (1) are returned and
marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.

Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month and paid during the following January are treated for tax
purposes as if they were received by each Shareholder on December 31 of the year
in which the dividends were declared.

Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of the earnings and profits of a Fund
as determined for tax purposes. Certain dividends paid by the Growth and Income,
Balanced, Large Company Growth, Small Company Growth, International Equity and
Funds of Funds, and so designated by the Funds, may qualify for the dividends
received deduction for corporate shareholders. A corporate shareholder will only
be eligible to claim such a dividends received deduction with respect to a
dividend from one of these Funds if the shareholder held its shares on the ex-
dividend date and for at least 45 more days during the 90-day period surrounding
the ex-dividend date. Because all of the net investment income of the remaining
Funds is expected to be interest income, it is anticipated that no distributions
from such Funds will qualify for the dividends received deduction. Distributions
designated by a Fund as deriving from net gains on securities held for more than
one year but not more than 18 months and from net gains on securities held for
more than 18 months 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.

Dividends that are derived from interest on a Fund's investments in U.S.
Government Securities and that are received by a Shareholder who is a North
Carolina or South Carolina resident are currently eligible for exemption from
those states' income taxes. Such dividends may be eligible for exemption from
the state and local taxes of other jurisdictions as well, although state and
local tax authorities may not agree with this view. However, in North Carolina
and South Carolina, as well as in other states, distributions of income derived
from repurchase agreements and securities lending transactions generally will
not qualify for exemption from state and local income taxes.

The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund with
specific reference to their own tax situation.

TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND

Dividends and certain interest income earned by the International Equity Fund
from foreign securities may be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it on securities it has held for at least the
minimum period specified in the Code, including generally any withholding taxes
and other foreign income taxes, as paid by its shareholders. It is possible that
the International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the 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.

39
<PAGE> 42

Fund transactions in foreign currencies and hedging activities may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.

TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA
FUND

The portions of dividends paid for each year that are exempt from federal and
North Carolina or South Carolina income tax, respectively, will be designated
within 60 days after the end of a Fund's taxable year and will be based for each
of the North Carolina Fund and the South Carolina Fund upon the ratio of net
tax-exempt income to total net income earned by the Fund during the entire year.
That ratio may be substantially different from the ratio of net tax-exempt
income to total net income earned during any portion of the year. Thus, a
Shareholder who holds Shares in either Fund for only a part of the year may be
allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net income
actually earned by the Fund while he or she was a Shareholder of the Fund.

Distributions will not be subject to North Carolina income tax if made to
individual Shareholders residing in North Carolina or to trusts or estates
subject to North Carolina income tax to the extent such distributions are either
(i) exempt from federal income tax and attributable to interest on obligations
of North Carolina or its political subdivisions, or Guam, Puerto Rico, or the
United States Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, or (ii) attributable to interest on
direct obligations of the United States.

Distributions will not be subject to South Carolina income tax if made to
individual Shareholders residing in South Carolina or to trusts or estates
subject to South Carolina income tax to the extent such distributions are either
(i) attributable to interest on obligations of South Carolina or its political
subdivisions, including any agencies, instrumentalities and authorities thereof,
or (ii) attributable to interest on direct obligations of the United States.

Distributions designated by the Funds as "exempt-interest dividends" are not
generally subject to federal income tax. However, if the Shareholder receives
Social Security or railroad retirement benefits, the Shareholder should consult
his or her tax adviser to determine what effect, if any, an investment in a Fund
may have on the taxation of such benefits.

Dividends derived from interest income from certain types of securities in
which the North Carolina Fund or the South Carolina Fund may invest may subject
individual and corporate investors to liability under the federal alternative
minimum tax. As a matter of policy, under normal market conditions, not more
than 10% of a Fund's total assets will be invested in securities the interest on
which is treated as a preference item for purposes of the federal alternative
minimum tax for individuals. To the extent the North Carolina Fund or the South
Carolina Fund invests in securities the interest on which is subject to federal
alternative minimum tax, Shareholders, depending on their tax status, may be
subject to alternative minimum tax on that part of the Fund's distributions
derived from those securities. Interest income on all Tax-Exempt Obligations is
included in "adjusted current earnings" for purposes of computing the
alternative minimum tax applicable to corporate Shareholders of the North
Carolina Fund or the South Carolina Fund.

Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina, South
Carolina and federal income tax purposes to the extent of the amount of such
exempt-interest dividend, even though, in the case of North Carolina or South
Carolina, some portion of such dividend actually may have been subject to North
Carolina or South Carolina income tax. Although the Treasury Department is
authorized to issue regulations reducing such period to as short as 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest, no such regulations have been issued as of the date of
this Prospectus.

The North Carolina Fund and the South Carolina Fund may at times purchase
Tax-Exempt Obligations at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of this market
discount will be included in a Fund's ordinary income and will be

40
<PAGE> 43

taxable to shareholders as such when it is distributed to them.

To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund and the South Carolina Fund of net
gains on securities held for more than one year but not more than 18 months and
from net gains on securities held for more than 18 months are taxable to
Shareholders as such, regardless of how long the Shareholder has held Shares in
the North Carolina Fund or the South Carolina Fund, except that distributions
which are directly attributable to gains from certain obligations of the State
of North Carolina and its political subdivisions that were issued before July 1,
1995 are exempt from North Carolina State income tax. Distributions will be
taxable as described above even if the net asset value of a Share in the North
Carolina Fund or the South Carolina Fund is reduced below the Shareholder's cost
of that Share by the distribution of income or gain realized on the sale of
securities and the distribution is, as an economic matter, a return of capital.
If a shareholder purchases mutual fund shares, receives a capital gain dividend
(or is credited with an undistributed capital gain) and then sells the shares at
a loss within 6 months after purchasing the shares, the loss is treated as a
long-term capital loss to the extent of the capital gain dividend (or
undistributed capital gain).

Any distributions that are paid shortly after a purchase of Shares by a
Shareholder prior to the record date will have the effect of reducing the per
Share net asset value of his or her Shares by the amount of the distributions.
All or a portion of such payment, although in effect a return of capital, may be
subject to taxes, which may be at ordinary income tax rates. The Shareholder
should consult his or her own tax adviser for any special advice.

Part or all of the interest on indebtedness incurred by a Shareholder to
purchase or carry Shares of the North Carolina Fund or the South Carolina Fund
is not deductible for federal, North Carolina and South Carolina income tax
purposes. The portion of interest that is not deductible is equal to the total
interest multiplied by the percentage of the Fund's total distributions (not
including distributions from net long-term capital gains) paid to the
Shareholders that are exempt-interest dividends. It is anticipated that none of
the distributions from the North Carolina Fund or the South Carolina Fund will
be eligible for the dividends received deduction for corporations.

Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional Tax Information
Concerning the North Carolina Fund and the South Carolina Fund." However, the
foregoing and the material in the Statement of Additional Information are only
brief summaries of some of the important tax considerations generally affecting
the North Carolina Fund and the South Carolina Fund and their Shareholders.
Accordingly, potential investors in the North Carolina Fund and the South
Carolina Fund are urged to consult their tax advisers with specific reference to
their own tax situation and in particular regard to state and local tax
consequences of investment in the North Carolina Fund and the South Carolina
Fund.

MANAGEMENT OF BB&T MUTUAL FUNDS GROUP

TRUSTEES OF THE GROUP

Overall responsibility for management of the Group rests with the Board of
Trustees of the Group, who are elected by the Shareholders of the Group. There
are currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Group to supervise actively its
day-to-day operations. The Trustees of the Group, their current addresses, and
principal occupations during the past five years are as follows:

41
<PAGE> 44

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
- ---------------------------- ---------------------- ----------------------------------------
<S> <C> <C>
William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to
Fayetteville Street Mall December, 1993, Vice Chairman, Carolina
P.O. Box 109 Power & Light Company
Raleigh, NC 27602
Thomas W. Lambeth Trustee From 1978 to present, Executive
101 Reynolda Village Director, Z. Smith Reynolds Foundation
Winston-Salem,
NC 27106
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
</TABLE>

- ---------

* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.

The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the Group for acting as
a Trustee. The officers of the Group (see the Statement of Additional
Information) receive no compensation directly from the Group for performing the
duties of their offices. BISYS Fund Services receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from
the Group for acting as Transfer Agent and for providing fund accounting
services to the Group. Walter B. Grimm is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.

INVESTMENT ADVISER

BB&T is the investment adviser of each Fund. BB&T is the oldest bank in North
Carolina and is the principal bank affiliate of BB&T Corporation, a bank holding
company that is a North Carolina corporation, headquartered in Winston-Salem,
North Carolina. As of December 31, 1996, BB&T Corporation had assets of
approximately $25 billion. Through its subsidiaries, BB&T Corporation operates
over 425 banking offices in North Carolina, South Carolina and Virginia,
providing a broad range of financial services to individuals and businesses.

In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.

Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Small Company Growth Fund, PNC Bank and, with respect to the
International Equity Fund, CastleInternational) manages the Funds, makes
decisions with respect to, and places orders for, all purchases and sales of its
investment securities, and maintains its records relating to such purchases and
sales.

42
<PAGE> 45

net assets; seventy-four one-hundredths of one
percent (.74%) of the Large Company Growth Fund's, Growth and Income Fund's and
Balanced Fund's average daily net assets; (1.00%) of the Small Company Growth
Fund's and International Equity Fund's average daily net assets; and twenty-five
one-hundredths of one percent (.25%) of each Funds of the Funds' average daily
net assets, or (b) such fee as may from time to time be agreed upon in writing
by the Group and BB&T. A fee agreed to in writing from time to time by the Group
and BB&T may be significantly lower than the fee calculated at the annual rate
and the effect of such lower fee would be to lower a Fund's expenses and
increase the net income of the fund during the period when such lower fee is in
effect.

For the fiscal year ended September 30, 1997, the Funds paid the following
investment advisory fees for Funds that had operated for that entire year: the
U.S. Treasury Fund paid .40% of its average daily net assets; each of the
Short-Intermediate, Intermediate Bond, North Carolina, Growth and Income, and
Balanced Funds, after voluntary fee reductions, paid .50% of its average daily
net assets; and the Small Company Growth Fund paid 1.00% of its average daily
net assets. The International Equity Fund had operations of less than a full
fiscal year. The Prime Money Market Fund, the Funds of Funds, the South Carolina
Fund and the Large Company Growth Fund had not commenced operations as of
September 30, 1997.

The persons primarily responsible for the management of each of the Variable
NAV Funds of the Group (other than the Small Company Growth and International
Equity Funds which are managed by sub-advisers, described below), and the Funds
of Funds as well as their previous business experience, are as follows:

<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
- ------------------------- ------------------------------------------------------------------
<S> <C>
Keith F. Karlawish....... Manager of the Intermediate Bond Fund and Short-Intermediate Fund
since September, 1994. From June, 1993 to September, 1994, Mr.
Karlawish was Assistant Manager of the Intermediate Bond Fund and
the Short-Intermediate Fund. From September, 1991 to June, 1993,
he was a Financial Analyst Team Leader for Branch Banking and
Trust Co. Mr. Karlawish earned a B.S. in Business Administration
from the University of Richmond, an MBA from the University of
North Carolina at Chapel Hill and is a Chartered Financial
Analyst.
Richard B. Jones......... Manager of the Growth and Income Fund since February 1, 1993.
Since 1987, Mr. Jones has been a portfolio manager in the BB&T
Trust Division. He is a Chartered Financial Analyst, and holds a
B.S. in Business Administration from Miami (Ohio) University and
an MBA from Ohio State University.
David R. Ellis........... Manager of the Balanced Fund since its inception and Manager of
the Funds of Funds since inception. Since 1986, Mr. Ellis has been
a portfolio manager in the BB&T Trust Division. He holds a B.S.
degree in Business Administration from the University of North
Carolina at Chapel Hill. Mr. Ellis will serve as the Manager of
the Funds of Funds.
C. Steven Brennaman...... Manager of the North Carolina Fund since January, 1998 and manager
of the South Carolina Fund since its inception. Mr. Brennaman
joined BB&T after its merger with United Carolina Bank in July,
1997. He has been a Senior Portfolio Manager with UCB since June,
1995. Mr. Brennaman holds a B.A. degree in Political Science from
Mercer University and a M.S. degree in Management from Troy State
University.
Daniel J. Rivera......... Manager of the Large Company Growth Fund since its inception, Mr.
Rivera joined the BB&T staff in July, 1997, after BB&T's merger
with United Carolina Bank. He had been Director of Investments at
UCB since January, 1994. Mr. Rivera received a Bachelors degree in
Languages from the Virginia Military Institute, and is a Chartered
Financial Analyst.
</TABLE>

INVESTMENT SUB-ADVISERS

43
<PAGE> 46

Fund's securities, subject to the general supervision of the Group's Board of
Trustees and BB&T and in accordance with the Prime Money Market Fund's
investment objective, policies and restrictions.

PIMC is a wholly-owned subsidiary of PNC Asset Management Group, Inc.
("PAMG"). PAMG was organized in 1994 to perform advisory services for investment
companies, and has its principal offices at 1600 Market Street, 29th Floor,
Philadelphia, Pennsylvania 19103. PAMG is an indirect wholly-owned subsidiary of
PNC Bank Corp., a multi-bank holding company. PIMC's principal business address
is 400 Bellevue Parkway, 4th Floor, Wilmington, Delaware 19809.

As sub-adviser, PIMC is responsible for the day-to-day management of the Prime
Money Market Fund, and generally makes all purchase and sale investment
decisions for the Fund. PIMC also provides research and credit analysis.
Portfolio transactions for the Fund may be directed through broker/ dealers who
sell Fund shares, subject to the requirements of best execution.

For its services and expenses incurred under the Sub-Advisory Agreement, PIMC
is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the annual rate of nine one-hundredths of one percent (.09%) or such
lower fee as may be agreed upon in writing by BB&T and PIMC.

PEAC serves as the Investment Sub-Adviser to the Small Company Growth Fund
pursuant to a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory
Agreement, PEAC manages the Fund, selects investments and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of the Group's Board of Trustees and BB&T and in accordance with the Small
Company Growth Fund's investment objective, policies and restrictions.

The person primarily responsible for the management of the Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the
Small Company Growth Fund since its inception. Mr. Wykle has been an investment
manager with PEAC since 1995 and has been the portfolio manager of the Compass
Capital Funds(SM) Small Cap Growth Equity Portfolio since its inception. He has
also been Vice President and Small Cap Growth Equity Fund portfolio manager for
PNC Bank since 1992. He has been a portfolio manager at PNC Bank and its
predecessor, Provident National Bank, since 1986.

PEAC is an indirect wholly-owned subsidiary of PNC Bank, National Association
("PNC Bank"), the former Sub-Adviser to the Small Company Growth Fund, with
offices located at 1600 Market Street, Philadelphia, Pennsylvania 19103. At
September 30, 1997, PEAC had approximately $3.2 billion in discretionary assets
under management, including $1.8 billion in mutual fund portfolios and $1.2
billion in bank common trust funds. PNC Bank is a wholly owned indirect
subsidiary of PNC Bank Corp. PNC Bank Corp., a bank holding company
headquartered in Pittsburgh, Pennsylvania, was the 13th largest bank holding
company in the United States based on total assets at September 30, 1997. PNC
Bank Corp. operates banking subsidiaries in Pennsylvania, Delaware, Florida,
Indiana, Kentucky, Massachusetts, New Jersey and Ohio and conducts certain
non-banking operations throughout the United States. Its major businesses
include consumer banking, corporate banking, real estate banking, mortgage
banking and asset management. With $129.6 billion in managed assets and $388.2
billion of assets under administration at September 30, 1997, PNC Bank Corp. is
one of the largest bank money managers as well as one of the largest
institutional mutual fund managers in the United States. Of such amounts at
September 30, 1997, PNC Bank had $115.2 billion in managed assets $163.9 billion
in assets under administration. In addition to asset management and trust
services, PNC Bank also provides a wide range of domestic and international
commercial banking and consumer banking services. PNC Bank's origins, and in
particular its trust administration services, date back to the mid-to-late
1800s.

For its services and expenses incurred under the Sub-Advisory Agreement, PEAC
is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the Small Company
Growth Fund's average daily net assets), which vary according to the level of
Fund assets:

<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ---------------------------------- ----------
<S> <C>
Up to $50 million................. .50%
Next $50 million.................. .45%
Over $100 million................. .40%
</TABLE>

44
<PAGE> 47

International Equity Fund's securities, subject to the general supervision of
the Group's Board of Trustees and BB&T and in accordance with the International
Equity Fund's investment objective, policies and restrictions.

CastleInternational, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect wholly-owned subsidiary of
PNC Bank Corp. As of September 30, 1997, CastleInternational had approximately
$2.1 billion in discretionary assets under management, including five mutual
fund portfolios, one bank common trust fund and two tax exempt institutional
portfolios.

For its services and expenses incurred under the Sub-Advisory Agreement,
CastleInternational 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:

The person primarily responsible for the management of the International
Equity Fund is Gordon Anderson. Mr. Anderson has served as Managing and
Investment Director of CastleInternational Asset Management Limited since 1996.
Prior to joining CastleInternational, Mr. Anderson was the Investment Director
of Dunedin Fund Managers Ltd. Mr. Anderson has served as the Portfolio Manager
for the Compass Capital Funds(SM) International Equity Portfolio since 1996.

ADMINISTRATOR AND DISTRIBUTOR

BISYS Fund Services is the administrator for each Fund and also acts as the
Group's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates) under agreements approved by the
Group's Board of Trustees. BISYS Fund Services is wholly owned by The BISYS
Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.

The Administrator generally assists in all aspects of a Fund's administration
and operation. Under a management and administration agreement between the Group
and the Administrator, the fee payable by a Fund to the Administrator for
management administration services is the lesser of (a) a fee computed at the
annual rate of twenty one-hundredths of one percent (.20%) of a Fund's average
daily net assets or (b) such fee as may from time to time be agreed upon in
writing by the Group and the Administrator. A fee agreed to in writing from time
to time by the Group and the Administrator may be significantly lower than the
fee calculated at the annual rate and the effect of such lower fee would be to
lower a Fund's expenses and increase the net income of the Fund during the
period when such lower fee is in effect.

For the fiscal year ended September 30, 1997, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
.20% for each of the U.S. Treasury, the Short-Intermediate, the Intermediate
Bond, the Growth and Income, the Balanced and the Small Company Growth Funds and
.15% for the North Carolina Fund. No Administration fees were paid by the Prime
Money Market Fund, the Funds of Funds, the South Carolina Fund or the Large
Company Growth Fund for that period, as they had not commenced operations as of
September 30, 1997. The International Equity Fund had operations of less than a
full fiscal year.

EXPENSES

BB&T and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the Group, Securities
and Exchange Commission fees, state securities qualification and renewal fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and
out-of-pocket expenses for fund accounting services, expenses incurred for
pricing securities owned by a Fund, certain insurance premiums, costs of
maintenance of a Fund's existence, costs and expenses of Shareholders' and
Trustees' reports and meetings, and any extraordinary expenses incurred in its
operation. As a general matter, expenses are allocated to the Class A, Class B
and Trust Class of a Fund on the basis of the relative net asset value of each
class. At present,

45
<PAGE> 48

the only expenses that will be borne solely by
Class A and Class B Shares, other than in accordance with the relative net asset
value of the class, are expenses under the Group's Distribution and Shareholder
Services Plan ("Distribution Plan") which relate only to the Class A and Class B
Shares.

For the fiscal year ended September 30, 1997, each Fund's total operating
expenses for Trust Shares were as follows (as a percentage of average daily net
assets of each Fund): U.S. Treasury Fund: .75% Short-Intermediate Fund: .86%;
Intermediate Bond Fund: .87%; North Carolina Fund: .85%; Growth and Income Fund:
.84%; Balanced Fund: .93%; and 1.64%; for the Small Company Growth Fund. Absent
fee waivers by the Adviser and Administrator, these operating expenses would
have been: U.S. Treasury Fund: .75%; Short-Intermediate Fund: .96%; Intermediate
Bond Fund: .97%; North Carolina Fund: 1.00%; Growth and Income Fund: 1.08%; and
Balanced Fund: 1.17%.

The organizational expenses of the Prime Money Market Fund, the South Carolina
Fund, the Large Company Growth Fund, the Funds of Funds and the International
Equity Fund have been capitalized and are being amortized in the first two years
of each such Funds' operations. Such amortization will reduce the amount of
income available for payment as dividends.

BANKING LAWS

BB&T, PIMC, PEAC, and CastleInternational each believes that it possesses the
legal authority to perform the investment advisory and sub-advisory services for
the Group contemplated by its investment advisory agreement with the Group and
investment and sub-advisory agreement with BB&T and described in this Prospectus
without violation of applicable banking laws and regulations, and has so
represented to the Group. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which BB&T, PIMC, PEAC, and
CastleInternational could continue to perform such services for the Group. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass Steagall Act" in the Statement of
Additional Information for further discussion of applicable banking laws and
regulations.

DISTRIBUTION PLAN

The Distribution Plan contains a so-called "defensive" provision applicable to
all classes of Shares. Under this defensive provision to the extent that any
payment made to the Administrator, including payment of administration fees,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of Shares issued by the Group's Funds within the context of
Rule 12b-1 under the 1940 Act, such payment shall be deemed to be authorized by
the Distribution Plan.

GENERAL INFORMATION

DESCRIPTION OF THE GROUP AND ITS SHARES

The Group was organized as a Massachusetts business trust on October 1, 1987
and commenced active operation on September 24, 1992. The Group has an unlimited
number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into fourteen series of Shares, one for
each of the following Funds: the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T North Carolina Intermediate Tax-Free Fund, the BB&T
South Carolina Intermediate Tax-Free Fund, the BB&T Prime Money Market Fund, the
BB&T U.S. Treasury Money Market Fund, the BB&T Balanced Fund, the BB&T Large
Company Growth Fund, the BB&T Small Company Growth Fund, the BB&T International
Equity Fund, the BB&T Capital Manager Conservative Growth Fund, the BB&T Capital
Manager Moderate Growth Fund, and the BB&T Capital Manager Growth Fund. Each
Fund is authorized to issue three classes of shares: Class A, Class B and Trust
Shares. Currently, the Prime Money Market, Short-Intermediate, North Carolina
and South Carolina Funds, and the Funds of Funds are not offering Class B
Shares. Each Share represents an equal proportionate interest in a Fund with
other Shares of the same series and class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees (see "Miscellaneous" below).

Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.

46
<PAGE> 49

Shareholders vote in the aggregate and not by series
or class on all matters except (i) when required by the Investment Company Act
of 1940, Shares shall be voted by individual series, and (ii) when the Trustees
have determined that the matter affects only the interests of a particular
series or class.

As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Group or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Group or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.

Overall responsibility for the management of the Group is vested in the Board
of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Trustees of the Group."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.

Although the Group is not required to hold annual meetings of Shareholders,
Shareholders holding at least 10% of the Group's outstanding Shares have the
right to call a meeting to elect or remove one or more of the Trustees of the
Group. Shareholder inquiries should be directed to the Secretary of the Group at
3435 Stelzer Road, Columbus, Ohio 43219.

As of January 22, 1998, BB&T owned of record substantially all of the Trust
Shares of each of the Funds and held voting or investment power with respect to
over 95% of the Trust Shares of each of the Prime Money Market, U.S. Treasury
Money Market, Short-Intermediate U.S. Government Income, Intermediate U.S.
Government Bond, North Carolina Intermediate Tax-Free, South Carolina
Intermediate Tax-Free, Growth and Income Stock, Balanced, Large Company Growth,
Small Company Growth, International Equity, Capital Manager Conservative Growth,
Capital Manager Moderate Growth, and Capital Manager Growth Funds. BB&T may
therefore be deemed to be a "controlling person" of the Trust Shares of each of
the Funds within the meaning of the Investment Company Act of 1940.

CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT

Bank of New York serves as the Custodian for the International Equity Fund.
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for all other Funds of the Group.

BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Group.

OTHER CLASSES OF SHARES

In addition to Trust Shares, the Group also offers Class A and Class B Shares
of each Fund. Class A Shares are offered to the general public at net asset
value plus an applicable sales charge. Class B shares are offered to the general
public at net asset value without a sales charge when purchased, but are subject
to a sales charge if a Shareholder redeems them prior to the sixth anniversary
of purchase. Class A and Class B Shares are also subject to a Distribution and
Shareholder Services Plan fee. As of the date of this Prospectus, however, Class
B Shares were not yet being offered in the Prime Money Market Fund, the
Short-Intermediate Fund, the North Carolina Fund, the South Carolina Fund, and
the Funds of Funds.

PERFORMANCE INFORMATION

From time to time, the Prime Money Market Fund's and the U.S. Treasury Fund's
annualized "yield" and "effective yield" and total return for Trust Shares may
be presented in advertisements, sales literature and Shareholder reports. The
"yield" of the Prime Money Market Fund and the U.S. Treasury Fund is based upon
the income earned by the Fund over a seven-day period and then annualized, i.e.,
the income earned in the period is assumed to be earned every seven days over a
52-week period and is stated as a percentage of the investment. The "effective
yield" of a Money Market Fund is calculated similarly but when annualized, the
income earned by the investment is assumed to be reinvested in Shares of the
Group and thus compounded in the course of a 52-week period. The effective yield
will be higher than the yield because of the compounding effect of this assumed
reinvestment.

47
<PAGE> 50

period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.

From time to time performance information of a Variable NAV Fund and the Funds
of Funds showing its average annual total return, aggregate total return, and/or
yield may be presented in advertisements, sales literature and shareholder
reports. Such performance figures are based on historical earnings and are not
intended to indicate future performance. In addition, tax equivalent yield may
be presented in advertisements, sales literature and shareholder reports of the
North Carolina Fund and the South Carolina Fund. Average annual total return
will be calculated for the period since the establishment of a Fund and will,
unless otherwise noted, reflect the imposition of the maximum sales charge.
Average annual total return is measured by comparing the value of an investment
in a Fund at the beginning of the relevant period to the redemption value of an
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for a Variable NAV Fund
or for a Fund of Funds earned during a recent 30-day period by the Fund's per
Share maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last day of the period and annualizing
the results.

The North Carolina Fund and the South Carolina Fund may also advertise their
tax equivalent yield, which reflects the amount of income subject to federal
income taxation that a taxpayer would have to earn in order to obtain the same
after-tax income as that derived from the yield of the Funds. The tax equivalent
yield will be significantly higher than the yield of the North Carolina Fund or
the South Carolina Fund.

Each Fund may also present its average annual total return, aggregate total
return, yield and/or tax equivalent yield, as the case may be, excluding the
effect of a sales charge, if any.

The Variable NAV Funds and the Funds of Funds may also calculate a
distribution rate. Distribution rates will be computed by dividing the
distribution per Share of a class made by a Fund over a twelve-month period by
the maximum offering price per Share. The distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses. The
calculation of income in the distribution rate includes both income and capital
gain dividends and does not reflect unrealized gains or losses, although a Fund
may also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital items
which are often non-recurring in nature, and may include returns of principal,
whereas yield does not include such items. Each of the Funds do not intend to
publish distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.

Yield, effective yield, total return and distribution rate will be calculated
separately for each Class of Shares. Because Trust Shares are not subject to
Distribution and Shareholder Services Plan fees, the yield and total return for
Trust Shares will be higher than that of the Class A or Class B Shares for the
same period.

Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC MONEY FUND
AVERAGE REPORT and Ibbotson Associates, Inc. References may also be made to
indices or data published in Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, Ibbotson Associates, Inc., Morningstar, Inc.,
CDA/Weisenberger, Pension and Investments, U.S.A. Today and local newspapers. In
addition to performance information, general information about the Funds that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to Shareholders.

Information about the performance of a Fund is based on a Fund's record up to
a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.

48
<PAGE> 51

Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.

MISCELLANEOUS

Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.

Inquiries regarding the Group may be directed in writing to the Group at the
following address--the BB&T Mutual Funds Group, P.O. Box 182533, Columbus, OH
43218-2533 or by calling toll free (800) 228-1872.

49
<PAGE> 52

INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601

ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219

LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005

TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219

AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215
<PAGE> 53

BB&T Mutual Funds LOGO

MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund

BOND FUNDS
Short-Intermediate U.S. Government Income Fund
Intermediate U.S. Government Bond Fund
North Carolina Intermediate Tax-Free Fund
South Carolina Intermediate Tax-Free Fund

STOCK FUNDS
Growth and Income Stock Fund
Balanced Fund
Large Company Growth Fund
Small Company Growth Fund
International Equity Fund

FUNDS OF FUNDS
Capital Manager Conservative Growth Fund
Capital Manager Moderate Growth Fund
Capital Manager Growth Fund

CLASS A AND B SHARES

BRANCH BANKING & TRUST COMPANY
INVESTMENT ADVISER

BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR

PROSPECTUS DATED FEBRUARY 1, 1998
<PAGE> 54

TABLE OF CONTENTS

The Group............................................................................. 4

Fee Table............................................................................. 4

Financial Highlights.................................................................. 9

Investment Objectives and Policies.................................................... 17

Investment Restrictions............................................................... 36

Valuation of Shares................................................................... 38

How to Purchase and Redeem Shares..................................................... 39

Dividends and Taxes................................................................... 49

Management of BB&T Mutual Funds Group................................................. 52

General Information................................................................... 58
</TABLE>

i
<PAGE> 55

BB&T MUTUAL FUNDS GROUP

<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
Investment Adviser: Branch Banking call (800) 228-1872
and Trust Company ("BB&T") TDD/TTY call (800) 300-8893
</TABLE>

THE BB&T MUTUAL FUNDS GROUP (the "Group") is an open-end management
investment company offering to the public fourteen separate investment funds
(each a "Fund"). Each Fund of the Group offers multiple classes of units of
beneficial interest ("Shares"). Three of the Funds (the "Funds of Funds"), offer
Shareholders a professionally-managed investment program by purchasing shares of
other Funds of the Group (the "Underlying Funds"). The remaining eleven Funds
primarily invest in the securities of issuers unrelated to the Group.

THE BB&T PRIME MONEY MARKET FUND (the "Prime Money Market Fund") seeks as
high a level of current income as is consistent with maintaining liquidity and
stability of principal. The Prime Money Market Fund seeks to maintain a constant
net asset value of $1.00 per share.

THE BB&T INTERMEDIATE U.S. GOVERNMENT BOND FUND (the "Intermediate Bond
Fund") seeks current income consistent with the preservation of capital through
investment of at least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, some of which may be
subject to repurchase agreements.

THE BB&T NORTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "North Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and North Carolina personal income tax. Normally,
the North Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of North Carolina and its
political subdivisions.

THE BB&T SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND (the "South Carolina
Fund") seeks to produce a high level of current interest income which is exempt
from both federal income tax and South Carolina personal income tax. Normally,
the South Carolina Fund will invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the State of South Carolina and its
political subdivisions.

THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND ARE NON-DIVERSIFIED
FUNDS AND THEREFORE THE PROPORTION OF THE FUNDS' ASSETS THAT MAY BE INVESTED IN
THE SECURITIES OF A SINGLE ISSUER IS NOT LIMITED BY THE 1940 ACT.

THE BB&T GROWTH AND INCOME STOCK FUND (the "Growth and Income Fund") seeks
capital growth, current income or both, through investment in stocks.

THE BB&T BALANCED FUND (the "Balanced Fund") seeks to obtain long-term
capital growth and produce current income through investment in a broadly
diversified portfolio of securities, including common stocks, preferred stocks
and bonds.

THE BB&T INTERNATIONAL EQUITY FUND (the "International Equity Fund") seeks
long-term capital appreciation through investment primarily in equity securities
of foreign issuers.

THE BB&T CAPITAL MANAGER GROWTH FUND (the "Capital Manager Growth Fund")
seeks capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.

This Prospectus relates to the Class A Shares of the Group (formerly the
Investor Shares) and Class B Shares of the Group, which are offered to the
general public. Through a separate prospectus, the Group also offers Trust
Shares to BB&T and its affiliates and other financial service providers approved
by the Distributor for the investment of funds for which they act in a
fiduciary, advisory, agency, custodial (other than for retirement accounts) or
similar capacity. Additional information about each of the Funds contained in a
Statement of Additional Information, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information and the prospectus
relating to the Trust Shares are available upon request without charge by
writing to the Group or by calling the Group at the telephone number shown
above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.

This Prospectus sets forth concisely the information about the Group's Class
A and Class B Shares that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.

The date of this Prospectus is February 1, 1998.
<PAGE> 56

PROSPECTUS SUMMARY

<TABLE>
<S> <C>
The Group..................... BB&T Mutual Funds Group, (the "Group") a Massachusetts
business trust, is an open-end management investment company
which currently consists of fourteen separately managed
portfolios (each a "Fund"). Three of the Funds (the "Funds
of Funds") offer Shareholders a professionally-managed
investment program by purchasing shares of other Funds of
the Group (the "Underlying Funds"). The remaining eleven
Funds primarily invest in securities of issuers unrelated to
the Group. Each Fund is authorized to offer three classes of
Shares: Class A, Class B and Trust Class. As of the date of
this prospectus, however, Class B Shares were not yet being
offered in the Funds of Funds, Prime Money Market,
Short-Intermediate, North Carolina or South Carolina Funds.
Shareholders investing directly in Class B Shares of the
U.S. Treasury Fund as opposed to Shareholders obtaining
Class B Shares upon an exchange of Class B Shares of any of
the other Funds, will be requested to participate in the
Auto Exchange Program in such a way that their Class B
Shares have been withdrawn from the U.S. Treasury Fund
within two years of purchase. This prospectus relates only
to Class A and Class B Shares.
Investment Objective and
Policies.................... THE PRIME MONEY MARKET FUND seeks as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.

THE U.S. TREASURY FUND seeks current income with liquidity
and stability of principal through investing exclusively in
short-term obligations issued or guaranteed by the U.S.
Treasury, some of which may be subject to repurchase
agreements.

THE SHORT-INTERMEDIATE FUND seeks current income consistent
with the preservation of capital through investment in
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and high grade
collateralized mortgage obligations, some of which may be
subject to repurchase agreements.

THE INTERMEDIATE BOND FUND seeks current income consistent
with the preservation of capital through investment of at
least 65% of its assets in bonds issued or guaranteed by the
U.S. Government or its agencies or its instrumentalities,
some of which may be subject to repurchase agreements.

THE NORTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and North Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of North
Carolina and its political subdivisions.

THE SOUTH CAROLINA FUND seeks to produce a high level of
current interest income which is exempt from both federal
income tax and South Carolina personal income tax, normally
by investing at least 90% of its total assets in high grade
obligations issued by or on behalf of the State of South
Carolina and its political subdivisions.

THE GROWTH AND INCOME FUND seeks capital growth, current
income or both, primarily through investment in stocks.

THE BALANCED FUND seeks to obtain long-term capital growth
and to produce current income through investment in a
broadly diversified portfolio of securities, including
common stocks, preferred stocks and bonds.
</TABLE>

2
<PAGE> 57

<TABLE>
<S> <C>
THE LARGE COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of large
capitalization growth companies.

THE SMALL COMPANY GROWTH FUND seeks long-term capital
appreciation through investment primarily in a diversified
portfolio of equity and equity-related securities of small
capitalization growth companies.

THE INTERNATIONAL EQUITY FUND seeks long-term capital
appreciation through investment primarily in equity
securities of foreign issuers.

THE CAPITAL MANAGER CONSERVATIVE GROWTH FUND seeks capital
appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in
equity and fixed income securities.

THE CAPITAL MANAGER MODERATE GROWTH FUND seeks capital
appreciation and, secondarily, income by investing primarily
in a group of diversified BB&T mutual funds which invest
primarily in equity and fixed income securities.

THE CAPITAL MANAGER GROWTH FUND seeks capital appreciation
by investing primarily in a group of diversified BB&T mutual
funds which invest primarily in equity securities.

Investment Risks.............. Each Fund's performance may change daily based on many
factors including interest rate levels, the quality of the
obligations in each Fund's portfolio, and market conditions.
An investment in the North Carolina and South Carolina Funds
may involve special risk considerations. (See "Other
Investment Policies of the North Carolina Fund and the South
Carolina Fund.") An investment in the International Equity
Fund and the Prime Money Market Fund may involve special
risk considerations. (See "Foreign Investments.")

Offering Price................ The public offering price of the Class A Shares of the Prime
Money Market Fund and the U.S. Treasury Fund is equal to
that Fund's net asset value per Share, which each Money
Market Fund will seek to maintain at $1.00.

The public offering price of the Class A Shares of the
Short-Intermediate, Intermediate Bond, North Carolina, South
Carolina, Growth and Income, Balanced, Large Company Growth,
Small Company Growth, and International Equity Funds is
equal to that Fund's net asset value per Share plus the
applicable sales charge. The public offering price of the
Class B Shares is equal to the Fund's net asset value per
share. (See "HOW TO PURCHASE AND REDEEM SHARES -- Sales
Charge".)

Maximum Purchase.............. For Class A Shares there is no maximum purchase. For Class B
Shares the maximum purchase is $250,000. (See "HOW TO
PURCHASE AND REDEEM SHARES -- Purchases of Class A and
Class B Shares.")

Minimum Purchase.............. For Class A and Class B Shares, there is a $1000 minimum
initial purchase with no minimum investment for subsequent
purchases. (See "HOW TO PURCHASE AND REDEEM
SHARES -- Purchases of Class A and Class B Shares.")

Investment Adviser............ Branch Banking and Trust Company, Raleigh, North Carolina.

Dividends..................... The Prime Money Market, U.S. Treasury, North Carolina, South
Carolina, Short-Intermediate and Intermediate Bond Funds
declare dividends daily and pay such dividends monthly. The
Growth and Income and Balanced Funds declare and pay
dividends monthly. The Large Company Growth Fund, Small
Company Growth Fund and the International Equity Fund
declare and pay dividends quarterly.

Distributor................... BISYS Fund Services, Columbus, Ohio.
</TABLE>

3
<PAGE> 58

THE GROUP

BB&T Mutual Funds Group (the "Group") is an open-end management investment
company. The Group consists of fourteen series of units of beneficial interest
("Shares") offered to the public, each representing interests in one of fourteen
separate investment funds (each a "Fund"). Three of the Funds (the "Funds of
Funds") offer Shareholders a professionally-managed investment program by
purchasing shares of other Funds of the Group (the "Underlying Funds"). The
remaining eleven Funds primarily invest in securities of issuers unrelated to
the Group. Each Fund is authorized to offer three classes of Shares: Class A,
Class B and Trust Class. However, as of the date of this prospectus, Class B
Shares were not yet being offered in the Funds of Funds, Prime Money Market,
Short-Intermediate, North Carolina and South Carolina Funds.

FEE TABLE

The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A Shares of the Funds of Funds will bear,
either directly or indirectly.

<TABLE>
<CAPTION>
CAPITAL MANAGER CAPITAL MANAGER
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
--------------- --------------- ---------------
CLASS A CLASS A CLASS A
--------------- --------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)............... 4.50% 4.50% 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)...................................... 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable).................... 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)................. 0% 0% 0%
Exchange Fee................................... $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees(3) (after voluntary fee
reductions)................................. .05% .05% .05%
12b-1 Fee(4) (after voluntary fee
reductions)................................. .25% .25% .25%
Other Expenses(5) (after voluntary fee
reductions)................................. .43% .43% .43%
---- ---- ----
Total Fund Operating Expenses(6) (after
voluntary fee reductions)................... .73% .73% .73%
==== ==== ====
</TABLE>

- ---------------

(4) BISYS Fund Services has agreed with the Group to voluntarily reduce the
amount of its distribution fee for Class A Shares. Absent the voluntary fee
reduction of distribution fees, 12b-1 fees as a percentage of average daily
net assets would be .50% for Class A Shares of each Fund. (See "MANAGEMENT
OF BB&T MUTUAL FUNDS GROUP -- Distributor.")

(5) "Other Expenses" are based on estimated amounts for the current fiscal year.
Absent voluntary fee reductions, "Other Expenses" as a percentage of average
daily net assets would be .58%

4
<PAGE> 59

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
--------------------------------------------------------------- -------------
<S> <C>
Prime Money Market Fund........................................ .65%
U.S. Treasury Fund............................................. .75%
Short-Intermediate Fund........................................ .86%
Intermediate Bond Fund......................................... .87%
Growth and Income Fund......................................... .84%
Balanced Fund.................................................. .93%
Small Company Growth Fund...................................... 1.64%
International Equity Fund...................................... 1.79%
Large Company Growth Fund...................................... .99%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (including voluntary fee waivers), the estimated
average weighted expense ratio for the Trust Class Shares of the Capital Manager
Conservative Growth Fund is 1.77%, for the Capital Manager Moderate Growth Fund
is 1.80%, and for the Capital Manager Growth Fund is 1.85%.

The chart below provides the expense ratios for each of the Underlying
Funds, absent any voluntary reductions in fees.

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
--------------------------------------------------------------- -------------
<S> <C>
U.S. Treasury Fund............................................. .75%
Prime Money Market Fund........................................ .85%
Short-Intermediate Fund........................................ .96%
Intermediate Bond Fund......................................... .97%
Growth and Income Fund......................................... 1.08%
Balanced Fund.................................................. 1.17%
Small Company Growth Fund...................................... 1.64%
International Equity Fund...................................... 1.81%
Large Company Growth Fund...................................... 1.23%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (with no fee waivers), the estimated average
weighted expense ratio for the Class A Shares of the Capital Manager
Conservative Growth Fund is 2.02%, for the Capital Manager Moderate Growth Fund
is 2.05% and for the Capital Manager Growth Fund is 2.10%.

EXAMPLE:

On the basis of estimated expenses for the Funds of Funds, including
voluntary fee reductions, set forth on page 4 the following examples illustrate
the expenses you would pay on a $1,000 investment in Class A Shares of the Funds
of Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ --------
<S> <C> <C>
Capital Manager Conservative Growth Fund..................... $ 52 $ 67
Capital Manager Moderate Growth Fund......................... $ 52 $ 67
Capital Manager Growth Fund.................................. $ 52 $ 67
</TABLE>

Absent voluntary fee reductions, the dollar amounts in the above example
would be as follows:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ --------
<S> <C> <C>
Capital Manager Conservative Growth Fund..................... $ 58 $ 87
Capital Manager Moderate Growth Fund......................... $ 58 $ 87
Capital Manager Growth Fund.................................. $ 58 $ 87
</TABLE>

The purpose of the tables above is to assist a potential investor in the
Funds of Funds in understanding the various costs and expenses that an investor
in the Class A Shares of each Fund of Funds will bear directly or indirectly.
See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete discussion of
annual operating expenses of each Fund. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.

5
<PAGE> 60

FEE TABLE

The following Fee Table and example summarize the various costs and
expenses that a Shareholder of Class A and Class B Shares of the Funds will
bear, either directly or indirectly.

<TABLE>
<CAPTION>
PRIME
MONEY SHORT-
MARKET INTERMEDIATE
FUND U.S. TREASURY FUND FUND INTERMEDIATE BOND FUND
-------- --------------------- ------------ -----------------------
CLASS A CLASS A CLASS B CLASS A CLASS A CLASS B
-------- -------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 0% 0% 0% 2.00% 4.50% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price).................................. 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)................ 0% 0% 5.00% 0% 0% 5.00%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)............. 0% 0% 0% 0% 0% 0%
Exchange Fee.............................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions)............................. .30%(3) .40% .40% .50%(3) .50%(3) .50%(3)
12b-1 Fees (after voluntary fee
reductions)............................. .25%(4) .25%(4) 1.00% .25%(4) .25%(4) 1.00%
Other Expenses (after voluntary fee
reductions)............................. .35%(5) .35% .35% .36% .37% .37%
--- --- --- ----- ----- ---
Total Fund Operating Expenses (after
voluntary fee reductions)............... .90%(6) 1.00%(6) 1.75% 1.11%(6) 1.12%(6) 1.87%(6)
=== === === ===== ===== ===
</TABLE>

<TABLE>
<CAPTION>
NORTH SOUTH
CAROLINA CAROLINA GROWTH AND SMALL COMPANY
FUND FUND INCOME FUND BALANCED FUND GROWTH FUND
-------- -------- ------------------- ------------------- -------------------
CLASS A CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)............... 2.00% 2.00% 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)........................ 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or redemption
proceeds, as applicable)...... 0% 0% 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(2)................ 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee.................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
fee reductions)............... .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) .50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)................... .15%(4) .15%(4) .25%(4) 1.00% .25%(4) 1.00% .25%(4) 1.00%
Other Expenses (after voluntary
fee reductions)............... .35%(5) .49%(5) .34% .34% .43% .43% .64% .64%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee
reductions)................... 1.00%(6) 1.14%(6) 1.09%(6) 1.84%(6) 1.18%(6) 1.93%(6) 1.89%(6) 2.64%(6)
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

6
<PAGE> 61

<TABLE>
<CAPTION>
LARGE COMPANY INTERNATIONAL
GROWTH FUND EQUITY FUND
------------------- -------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).............................................. 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price)................................ 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)....................... 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(2)............................................... 0% 0% 0% 0%
Exchange Fee................................................... $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee reductions)............... .50%(3) .50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee reductions).................... .25%(4) 1.00% .24%(4) 1.00%
Other Expenses (after voluntary fee reductions)................ .49%(5) .49%(5) .79%(5) .79%(5)
------- ------- ------- -------
Total Fund Operating Expenses (after voluntary fee
reductions).................................................. 1.24%(6) 1.99%(6) 2.03%(6) 2.79%(6)
======== ======== ======== ========
</TABLE>

- ---------------

(1) A Participating Organization or Bank (both terms used as defined in this
Prospectus) may charge a Customer's (as defined in the Prospectus) account
fees for automatic investment, exchanges, and other investment management
services provided in connection with investment in Class A Shares or Class B
Shares, respectively, of a Fund. (See "HOW TO PURCHASE AND REDEEM SHARES --
Purchases of Class A and Class B Shares" and "HOW TO PURCHASE AND REDEEM
SHARES --Exchange Privilege.")

(3) Branch Banking and Trust Company ("BB&T") has agreed with the Group to
voluntarily reduce the amount of its investment advisory fee through
September 30, 1998. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets for Class
A and Class B Shares would be .40% for the Prime Money Market Fund, .60% for
the Intermediate Bond, Short-Intermediate, North Carolina and South Carolina
Funds and .74% for the Growth and Income, Balanced and Large Company Growth
Funds.

(4) BISYS Fund Services has agreed with the Group to voluntarily reduce the
amount of its distribution fee for Class A Shares. Absent the voluntary fee
reduction of distribution fees, 12b-1 Fees as a percentage of average daily
net assets would be .50% for Class A Shares for each Fund. (See "MANAGEMENT
OF BB&T MUTUAL FUNDS GROUP --Distributor.")

(5) With respect to the Prime Money Market Fund, the International Equity Fund,
the South Carolina Fund, and the Large Company Growth Fund, "Other Expenses"
are based on estimated amounts for the current fiscal year. Absent voluntary
fee reductions, "Other Expenses" as a percentage of average daily net assets
for Class A Shares would be .45% for the Prime Money Market Fund, .40% for
the North Carolina Fund and .81% for the International Equity Fund.

(6) As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of investment advisory, distribution fees
and/or other expenses, Total Fund Operating Expenses for Class A Shares, as
a percentage of average daily net assets would be 1.35% for the Prime Money
Market Fund, 1.25% for the U.S. Treasury Fund, 1.46% for the
Short-Intermediate Fund, 1.47% for the Intermediate Bond Fund, 1.50% for the
North Carolina Fund, 1.59% for the South Carolina Fund, 1.58% for the Growth
and Income Fund, 1.67% for the Balanced Fund, 2.14% for the Small Company
Growth Fund, 2.31% for the International Equity Fund, and 1.73% for the
Large Company Growth Fund. Absent the voluntary reduction of investment
advisory fees and/or other expenses, Total Fund Operating Expenses for Class
B Shares, as a percentage of average daily net assets, would be 1.97% for
the Intermediate Bond Fund, 2.08% for the Growth and Income Fund, 2.17% for
the Balanced Fund, 2.81% for the International Equity Fund, and 2.23% for
the Large Company Growth Fund.

7
<PAGE> 62

EXAMPLE:

You would pay the following expenses on a $1,000 investment in Class A
Shares of the Funds, assuming (1) 5% annual return and (2) redemption at
the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund.................. $ 9 $ 29 N/A N/A
U.S. Treasury Fund....................... $ 10 $ 32 $ 55 $122
Short-Intermediate Fund.................. $ 31 $ 55 $ 80 $115
Intermediate Bond Fund................... $ 56 $ 79 $ 104 $175
North Carolina Fund...................... $ 30 $ 51 $ 74 $140
South Carolina Fund...................... $ 31 $ 55 N/A N/A
Growth and Income Fund................... $ 56 $ 78 $ 102 $172
Balanced Fund............................ $ 56 $ 81 $ 107 $182
Small Company Growth Fund................ $ 63 $ 102 $ 143 $256
Large Company Growth Fund................ $ 57 $ 83 N/A N/A
International Equity Fund................ $ 65 $ 106 N/A N/A
</TABLE>

EXAMPLE:

You would pay the following expenses on a $1,000 investment in Class B
Shares of the Funds, assuming (1) deduction of the applicable Contingent
Deferred Sales Charge; and (2) 5% annual return.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund
Assuming a complete redemption at end
of period............................ $ 68 $ 85 $ 115 $206
Assuming no redemption................. $ 18 $ 55 $ 95 $206
Intermediate Bond Fund
Assuming a complete redemption at end
of period............................ $ 69 $ 89 $ 121 $219
Assuming no redemption................. $ 19 $ 59 $ 101 $219
Growth and Income Fund
Assuming a complete redemption at end
of period............................ $ 69 $ 88 $ 120 $216
Assuming no redemption................. $ 19 $ 58 $ 100 $216
Balanced Fund
Assuming a complete redemption at end
of period............................ $ 70 $ 91 $ 124 $225
Assuming no redemption................. $ 20 $ 61 $ 104 $225
Small Company Growth Fund
Assuming a complete redemption at end
of period............................ $ 77 $ 112 $ 160 $297
Assuming no redemption................. $ 27 $ 82 $ 140 $297
Large Company Growth Fund
Assuming a complete redemption at end
of period............................ $ 70 $ 92 N/A N/A
Assuming no redemption................. $ 20 $ 62 N/A N/A
International Equity Fund
Assuming a complete redemption at end
of period............................ $ 78 $ 117 N/A N/A
Assuming no redemption................. $ 28 $ 87 N/A N/A
</TABLE>

The purpose of the tables above is to assist a potential investor in the
Funds in understanding the various costs and expenses that an investor in the
Class A Shares or Class B Shares of each Fund will bear directly or indirectly.
See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" for a more complete discussion of
annual operating expenses of each Fund. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.

Long-term shareholders of Class Shares and Class B Shares may pay more than
the equivalent of the maximum front-end sales charges otherwise permitted by
NASD Rules.

The information set forth in the foregoing tables and examples relates only
to Class A and Class B Shares. The Group also offers Trust Shares of each Fund
which are subject to the same expenses except that there are no sales charges
nor distribution costs charged to Trust Shares. (See "MANAGEMENT OF BB&T MUTUAL
FUNDS" --"Investment Adviser" and "Administrator and Distributor.")

8
<PAGE> 63

FINANCIAL HIGHLIGHTS

The tables below sets forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information through
the year ended September 30, 1997 has been audited by KPMG Peat Marwick LLP,
independent auditors for the Group, whose report thereon, insofar as it relates
to each of the years or periods indicated herein is included in the Statement of
Additional Information. The Prime Money Market Fund, the South Carolina Fund,
the Large Company Growth Fund and the Funds of Funds had not commenced
operations as of September 30, 1997.

The Class A Shares (formerly the Investor Shares) and Trust Shares of each
of the U.S. Treasury Money Market Fund, the Short-Intermediate U.S. Government
Income Fund, the Intermediate U.S. Government Bond Fund, the North Carolina
Intermediate Tax-Free Fund, and the Growth and Income Stock Fund effectively
were operated as a single class of shares from the commencement of operations of
each of these Funds until January 31, 1993. On February 1, 1993, each of these
Funds commenced operating as multiple class funds and assessed Rule 12b-1 fees
to Class A Shares (and not to Trust Shares) pursuant to an exemptive order
received from the Securities and Exchange Commission on January 19, 1993.
Information regarding the Trust Shares can be obtained in a separate prospectus
by writing to the Group at 3435 Stelzer Road, Columbus, Ohio 43219 or by calling
(800) 228-1872.

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.044 0.044 0.047 0.027 0.026
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.044 0.044 0.047 0.027 0.026
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.044) (0.044) (0.047) (0.027) (0.026)
-------- -------- -------- -------- -------
Total
Distributions... (0.044) (0.044) (0.047) (0.027) (0.026)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total Return........... 4.50% 4.49% 4.81% 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 32,541 $ 27,931 $ 13,948 $ 1,486 $ 279
Ratio of expenses to
average net
assets............. 0.95% 0.99% 0.98% 0.94% 0.51%(c)
Ratio of net
investment income
to average net
assets............. 4.41% 4.37% 4.81% 2.89% 2.58%(c)
Ratio of expenses to
average net
assets*............ 1.25% 1.25% 1.24% 1.32% 1.32%(c)
Ratio of net
investment income
to average net
assets*............ 4.11% 4.11% 4.55% 2.51% 1.77%(c)
</TABLE>

- ---------

* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not annualized.

9
<PAGE> 64

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------
FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------- ---------------------
CLASS B SHARES CLASS B SHARES
------------------- ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 1.00 $ 1.00
------- -------
INVESTMENT ACTIVITIES
Net investment income................................................ 0.036 0.025
------- -------
Total from Investment Activities................................. 0.036 0.025
------- -------
DISTRIBUTIONS
Net investment income................................................ (0.036) (0.025)
------- -------
Total Distributions.............................................. (0.036) (0.025)
------- -------
NET ASSET VALUE, END OF PERIOD......................................... $ 1.00 $ 1.00
======= =======
Total Return (excludes redemption charge).............................. 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................................... $ 1,502 $ 1,305
Ratio of expenses to average net assets.............................. 1.75% 1.75%(c)
Ratio of net investment income to average net assets................. 3.61% 3.55%(c)
</TABLE>

<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
-----------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED NOVEMBER 30, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 9.73 $ 9.88 $ 9.60 $ 10.29 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.54 0.55 0.53 0.50 0.47
Net realized and
unrealized gains
(losses) on
investments......... 0.03 (0.15) 0.29 (0.68) 0.30
-------- -------- -------- -------- -------
Total from
Investment
Activities...... 0.57 0.40 0.82 (0.18) 0.77
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income.............. (0.54) (0.55) (0.54) (0.50) (0.48)
Net realized gains.... -- -- -- (0.01) --
-------- -------- -------- -------- -------
Total
Distributions..... (0.54) (0.55) (0.54) (0.51) (0.48)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD................ $ 9.76 $ 9.73 $ 9.88 $ 9.60 $ 10.29
======== ======== ======== ======== =======
Total Return (excludes
sales charge)......... 6.07% 4.09% 8.74% (1.86)% 7.80%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $ 5,151 $ 6,356 $ 7,102 $ 10,345 $14,915
Ratio of expenses to
average net
assets.............. 1.11% 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net
investment income to
average net
assets.............. 5.60% 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to
average net
assets*............. 1.46% 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net
investment income to
average net
assets*............. 5.25% 5.20% 5.09% 4.32% 4.42%(c)
Portfolio
turnover(d)......... 87.99% 54.82% 106.81% 7.06% 14.06%
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

10
<PAGE> 65

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 9.63 $ 9.88 $ 9.33 $ 10.39 $ 10.00
INVESTMENT ACTIVITIES
Net investment
income............. 0.53 0.56 0.59 0.59 0.63
Net realized and
unrealized gains
(losses) on
investments........ 0.21 (0.25) 0.55 (1.04) 0.39
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.74 0.31 1.14 (0.45) 1.02
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.53) (0.56) (0.59) (0.59) (0.63)
Net realized gains... -- -- -- (0.02) --
-------- -------- -------- -------- -------
Total
Distributions... (0.53) (0.56) (0.59) (0.61) (0.63)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 9.84 $ 9.63 $ 9.88 $ 9.33 $ 10.39
======== ======== ======== ======== =======
Total Return (excludes
sales charge)........ 7.93% 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 4,211 $ 3,659 $ 5,173 $ 6,772 $ 5,238
Ratio of expenses to
average net
assets............. 1.12% 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net
investment income
to average net
assets............. 5.49% 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to
average net
assets*............ 1.47% 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net
investment income
to average net
assets*............ 5.14% 5.33% 5.81% 5.43% 5.30%(c)
Portfolio
turnover(d)........ 62.45% 76.29% 68.91% 0.38% 15.27%
</TABLE>

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
--------------------------------------------
FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ---------------------
CLASS B CLASS B
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.60 $ 10.17
-------- -------
INVESTMENT ACTIVITIES
Net investment income................................................... 0.46 0.31
Net realized and unrealized loss on investments......................... 0.21 (0.57)
-------- -------
Total from Investment Activities.................................... 0.67 (0.26)
-------- -------
DISTRIBUTIONS
Net investment income................................................... (0.46) (0.31)
-------- -------
Total Distributions................................................. (0.46) (0.31)
-------- -------
NET ASSET VALUE, END OF PERIOD............................................ $ 9.81 $ 9.60
-------- -------
Total Return (excludes redemption charge)................................. 7.14% (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................................... $ 623 $ 353
Ratio of expenses to average net assets................................. 1.87% 1.85%(c)
Ratio of net investment income to average net assets.................... 4.74% 5.01%(c)
Ratio of expenses to average net assets*................................ 1.97% 1.95%(c)
Ratio of net investment income to average net assets*................... 4.64% 4.91%(c)
Portfolio turnover(d)................................................... 62.45% 76.29%
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

11
<PAGE> 66

<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 16, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.40 0.36 0.36 0.36 0.36
Net realized and
unrealized losses
on investments..... 0.22 (0.10) 0.37 (0.50) 0.29
-------- -------- -------- -------- -------
Total from
Investment
Activities..... 0.62 0.26 0.73 (0.14) 0.65
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment
income............. (0.40) (0.36) (0.36) (0.36) (0.36)
Net realized gains... -- -- -- (0.01) --
-------- -------- -------- -------- -------
Total
Distributions... (0.40) (0.36) (0.36) (0.37) (0.36)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29
======== ======== ======== ======== =======
Total Return (excludes
sales charge)........ 6.28% 2.61% 7.61% (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 9,419 $ 9,261 $ 8,717 $ 11,083 $13,695
Ratio of expenses to
average net
assets............. 1.00% 1.11% 1.05% 0.75% 0.43%(c)
Ratio of net
investment income
to average net
assets............. 3.94% 3.58% 3.63% 3.63% 3.80%(c)
Ratio of expenses to
average net
assets*............ 1.50% 1.61% 1.63% 1.66% 1.77%(c)
Ratio of net
investment income
to average net
assets*............ 3.44% 3.08% 3.05% 2.72% 2.45%(c)
Portfolio
turnover(d)........ 16.98% 20.90% 9.38% 0.56% 5.92%
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

12
<PAGE> 67

<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 15.31 $ 12.97 $ 11.26 $11.26 $ 10.00
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment
income............. 0.26 0.26 0.25 0.25 0.28
Net realized and
unrealized gains on
investments........ 5.30 2.43 1.98 0.12 1.27
------- ------- ------- ------ ------
Total from
Investment
Activities..... 5.56 2.69 2.23 0.37 1.55
------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment
income............. (0.26) (0.26) (0.25) (0.26) (0.29)
Net realized gains... (0.63) (0.09) (0.12) (0.11) --
In excess of net
realized gains..... -- -- (0.15) -- --
------- ------- ------- ------ ------
Total
Distributions... (0.89) (0.35) (0.52) (0.37) (0.29)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD............... $ 19.98 $ 15.31 $ 12.97 $11.26 $ 11.26
======= ======= ======= ====== ======
Total Return (excludes
sales charge)........ 37.80% 20.97% 20.62% 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)....... $ 34,679 $ 18,949 $ 10,842 $7,973 $ 6,009
Ratio of expenses to
average net
assets............. 1.09% 1.11% 1.07% 0.92% 0.63%(c)
Ratio of net
investment income
to average net
assets............. 1.52% 1.82% 2.15% 2.26% 2.85%(c)
Ratio of expenses to
average net
assets*............ 1.58% 1.60% 1.60% 1.65% 1.68%(c)
Ratio of net
investment income
to average net
assets*............ 1.03% 1.33% 1.62% 1.52% 1.81%(c)
Portfolio
turnover(d)........ 22.66% 19.82% 8.73% 21.30% 27.17%
Average commission
rate(e)............ $ 0.0637 $ 0.0721 -- -- --
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
--------------------------------------------
FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ---------------------
CLASS B CLASS B
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 15.29 $ 13.78
-------- -------
Investment Activities
Net investment income................................................. 0.13 0.13
Net realized and unrealized gains on investments...................... 5.28 1.52
-------- -------
Total from Investment Activities.................................. 5.41 1.65
-------- -------
DISTRIBUTIONS
Net investment income................................................. (0.14) (0.14)
Net realized gains.................................................... (0.63) --
-------- -------
Total Distributions............................................... (0.77) (0.14)
-------- -------
NET ASSET VALUE, END OF PERIOD.......................................... $ 19.93 $ 15.29
======== =======
Total Return (excludes redemption charge)............................... 36.70% 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....................................... $ 16,690 $ 3,880
Ratio of expenses to average net assets............................... 1.84% 1.85%(c)
Ratio of net investment income to average net assets.................. 0.77% 1.13%(c)
Ratio of expenses to average net assets*.............................. 2.08% 2.09%(c)
Ratio of net investment income to average net assets*................. 0.53% 0.89%(c)
Portfolio turnover(d)................................................. 22.66% 19.82%
Average commission(e)................................................. $ 0.0637 $0.0721
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

13
<PAGE> 68

<TABLE>
<CAPTION>
BALANCED FUND
-----------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED OCTOBER 5, 1992 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------------------ ------------------ ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 11.96 $ 11.04 $ 9.76 $ 10.20 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net investment income.... 0.45 0.43 0.44 0.38 0.08
Net realized and
unrealized gains
(losses) on
investments............ 2.04 0.92 1.27 (0.44) 0.21
-------- -------- -------- -------- -------
Total from Investment
Activities......... 2.49 1.35 1.71 (0.06) 0.29
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment income.... (0.45) (0.43) (0.43) (0.38) (0.09)
Net realized gains....... (0.37) -- -- -- --
-------- -------- -------- -------- -------
Total
Distributions...... (0.82) (0.43) (0.43) (0.38) (0.09)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD................... $ 13.63 $ 11.96 $ 11.04 $ 9.76 $ 10.20
======== ======== ======== ======== =======
Total Return (excludes
sales charge)............ 21.76% 12.43% 18.00% (0.64)% 2.88%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000).................. $ 17,234 $ 12,456 $ 9,257 $ 8,560 $ 2,569
Ratio of expenses to
average net assets..... 1.18% 1.20% 1.17% 0.98% 0.50%(c)
Ratio of net investment
income to average net
assets................. 3.63% 3.78% 4.27% 4.02% 4.39%(c)
Ratio of expenses to
average net assets*.... 1.67% 1.69% 1.71% 1.75% 2.00%(c)
Ratio of net investment
income to average net
assets*................ 3.14% 3.29% 3.73% 3.25% 2.89%(c)
Portfolio turnover(d).... 27.07% 19.87% 23.68% 12.91% 8.32%
Average commission
rate(e)................ $ 0.0658 $ 0.0749 -- -- --
</TABLE>

<TABLE>
<CAPTION>
BALANCED FUND
---------------------------------------------
FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ----------------------
CLASS B CLASS B
------------------ ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................................. $ 11.91 $ 11.54
-------- -------
INVESTMENT ACTIVITIES
Net investment income........................................................... 0.36 0.27
Net realized and unrealized gains on investments................................ 2.04 0.37
-------- -------
Total from Investment Activities................................................ 2.40 0.64
-------- -------
DISTRIBUTIONS
Net investment income........................................................... (0.37) (0.27)
Net realized gains.............................................................. (0.37) --
-------- -------
Total Distributions......................................................... (0.74) (0.27)
-------- -------
NET ASSET VALUE, END OF PERIOD.................................................... $ 13.57 $ 11.91
======== =======
Total Return (excludes redemption charge)......................................... 20.90% 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................................................. $ 6,360 $ 2,339
Ratio of expenses to average net assets......................................... 1.93% 1.95%(c)
Ratio of net investment income to average net assets............................ 2.88% 3.13%(c)
Ratio of expenses to average net assets*........................................ 2.17% 2.18%(c)
Ratio of net investment income to average net assets*........................... 2.64% 2.90%(c)
Portfolio turnover(d)........................................................... 27.07% 19.87%
Average commission rate(e)...................................................... $ 0.0658 $ 0.0749
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

14
<PAGE> 69

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------
DECEMBER 7, 1994 TO
FOR THE YEAR ENDED FOR THE YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 1995(a)
------------------ ------------------ -------------------
CLASS A CLASS A CLASS A
------------------ ------------------ -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 21.06 $ 14.53 $ 10.00
-------- -------- -------
INVESTMENT ACTIVITIES
Net investment loss.................................. (0.15) (0.20) (0.08)
Net realized and unrealized gains on investments..... 2.44 6.73 4.61
-------- -------- -------
Total from Investment Activities................. 2.29 6.53 4.53
-------- -------- -------
DISTRIBUTIONS
Net realized gains................................... (0.02) -- --
-------- -------- -------
Total Distributions.............................. (0.02) -- --
-------- -------- -------
NET ASSET VALUE, END OF PERIOD......................... $ 23.33 $ 21.06 $ 14.53
======== ======== =======
Total Return (excludes sales charge)................... 10.90% 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................... $ 12,676 $ 7,413 $ 1,096
Ratio of expenses to average net assets.............. 1.89% 2.01% 2.50%(c)
Ratio of net investment loss to average net assets... (1.29)% (1.26)% (1.56)%(c)
Ratio of expenses to average net assets*............. 2.14% 2.26% 2.84%(c)
Ratio of net investment loss to average net
assets*............................................ (1.54)% (1.51)% (1.90%)(c)
Portfolio turnover(d)................................ 80.66% 71.62% 46.97%
Average commission rate(e)........................... $ 0.0570 $ 0.0562
</TABLE>

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
-------------------------------------------
FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ---------------------
CLASS B CLASS B
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 20.92 $ 15.24
-------- --------
INVESTMENT ACTIVITIES
Net investment loss.................................................... (0.20) (0.21)
Net realized and unrealized gains on investments....................... 2.32 5.89
-------- --------
Total from Investment Activities................................... 2.12 5.68
-------- --------
DISTRIBUTIONS
Net realized gains..................................................... (0.02) --
-------- --------
Total Distributions................................................ (0.02) --
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 23.02 $ 20.92
======== ========
Total Return (excludes redemption charge)................................ 10.16% 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................................ $ 8,869 $ 3,200
Ratio of expenses to average net assets................................ 2.64% 2.72%(c)
Ratio of net investment loss to average net assets..................... (2.04)% (2.01)%(c)
Portfolio Turnover(d).................................................. 80.66% 71.62%
Average Commission rate(e)............................................. $ 0.0570 $0.0562
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

15
<PAGE> 70

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------
FOR THE PERIOD
JANUARY 2, 1997 TO
SEPTEMBER 30, 1997(a)
-------------------------
CLASS A
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................................... $ 10.00
INVESTMENT ACTIVITIES
Net investment income.................................................................. 0.03
Net realized and unrealized gains on investments....................................... 1.25
-------
Total from Investment Activities................................................... 1.28
-------
DISTRIBUTIONS
Net investment income.................................................................. (0.02)
In excess of net investment income..................................................... (0.02)
-------
Total Distributions...................................................................... (0.04)
-------
NET ASSET VALUE, END OF PERIOD........................................................... $ 11.24
=======
Total Return (excludes sales charge)..................................................... 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................................................ $ 833
Ratio of expenses to average net assets................................................ 1.97% (c)
Ratio of net investment income to average net assets................................... 0.14% (c)
Ratio of expenses to average net assets*............................................... 2.24% (c)
Ratio of net investment loss to average net assets..................................... (0.13)%(c)
Portfolio turnover(d).................................................................. 41.45%
Average commission rate(e)............................................................. $0.0457
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------
FOR THE PERIOD
JANUARY 2, 1997 TO
SEPTEMBER 30, 1997(a)
-------------------------
CLASS B
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................................... $ 10.00
INVESTMENT ACTIVITIES
Net investment income.................................................................. (0.01)
Net realized and unrealized gains on investments....................................... 1.26
-------
Total from Investment Activities................................................... 1.25
DISTRIBUTIONS
Net investment income.................................................................. (0.01)
In excess of net investment income..................................................... (0.01)
-------
Total Distributions................................................................ (0.02)
-------
NET ASSET VALUE, END OF PERIOD........................................................... $ 11.23
=======
Total Return (excludes redemption charge).......................................... 12.51%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................................................... $ 1,179
Ratio of expenses to average net assets.............................................. 2.69%(c)
Ratio of net investment loss to average net assets................................... (0.62)%(c)
Ratio of expenses to average net assets*............................................. 2.74% (c)
Ratio of net investment loss to average net assets*.................................. (0.66%)(c)
Portfolio Turnover(d)................................................................ 41.45%
Average commission rate(e)........................................................... $0.0457
</TABLE>

- ---------

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations.

(b) Not Annualized.

(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

(e) Represents the total dollar amount of commissions paid on security
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.

16
<PAGE> 71

INVESTMENT OBJECTIVES AND POLICIES

MONEY MARKET FUNDS

All instruments in which the Money Market Funds invest are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). All instruments in which the
Money Market Funds invest will have remaining maturities of 397 days or less,
although instruments subject to repurchase agreements and certain variable or
floating rate obligations may bear longer maturities. The average dollar
weighted maturity of the securities in each Money Market Fund will not exceed 90
days. See "VALUATION OF SHARES" and the Statement of Additional Information for
further explanation of the amortized cost valuation method.

Under the guidelines adopted by the Trustees and in accordance with Rule
2a-7 under the 1940 Act, the Adviser or the Sub-Adviser may be required prompted
to dispose of an obligation held in a Fund's portfolio in the event of certain
developments that indicate a diminishment of the instrument's credit quality,
such as where an NRSRO downgrades an obligation below the second highest rating
category or in the event of a default relating to the financial condition of the
issuer.

PRIME MONEY MARKET FUND

The investment objective of the Prime Money Market Fund is to provide as
high a level of current interest income as is consistent with maintaining
liquidity and stability of principal.

(B) high quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers;

(C) asset-backed securities (including interests in pools of assets
such as mortgages, installment purchase obligations and credit
card receivables);

(D) securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies or instrumentalities and
related custodial receipts;

(E) dollar-denominated securities issued or guaranteed by foreign
governments or their political subdivisions, agencies or
instrumentalities;

(F) guaranteed investment contracts issued by highly-rated U.S.
insurance companies;

(G) securities issued or guaranteed by state or local governmental
bodies; and

(H) repurchase agreements relating to the above instruments.

17
<PAGE> 72

acceptances, demand and time deposits, and bank notes. These money market
obligations are issued by domestic or foreign banks, savings and loan
associations, consumer and industrial finance companies, securities brokerage
companies and a variety of firms in the insurance field. Financial service
companies offering money market issues must have total assets of $1 billion or
more before their issues can be considered for investment. Because the Fund
concentrates more than 25% of its total assets in the financial services
industry, it will be exposed to greater risks associated with that industry,
such as adverse interest rate trends, increased credit defaults, potentially
burdensome government regulation, the availability and cost of capital funds,
and general economic conditions. The Fund will not purchase securities issued by
PNC Bank or BB&T or any of their affiliates.

U.S. TREASURY FUND

The investment objective of the U.S. Treasury Fund is to seek current
income with liquidity and stability of principal through investing exclusively
in short-term United States dollar-denominated obligations issued or guaranteed
by the U.S. Treasury, some of which may be subject to repurchase agreements.

Obligations purchased by the U.S. Treasury Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.

THE FIXED INCOME FUNDS

The investment objective of both the Short-Intermediate Fund and the
Intermediate Bond Fund (collectively the "Fixed Income Funds") is to seek
current income consistent with the preservation of capital. The
Short-Intermediate Fund will invest primarily in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase agreements, or in high
grade collateralized mortgage obligations ("CMOs"). At least 65% of the
Short-Intermediate Fund's assets will be invested in U.S. Government Securities.
The dollar-weighted average portfolio maturity of the Short-Intermediate Fund
will be from two to five years. The Intermediate Bond Fund will also invest
primarily in U.S. Government Securities, and at least 65% of its total assets
will be invested in bonds. Bonds for this purpose will include both bonds
(maturities of ten years or more) and notes (maturities of one to ten years) of
the U.S. Government. The dollar-weighted average portfolio maturity of the
Intermediate Bond Fund will be from five to ten years. CMOs will be considered
bonds for this purpose if their expected average life is comparable to the
maturity of other bonds eligible for purchase by the Fixed Income Funds. The
Fixed Income Funds may also invest in short-term obligations, commercial bonds
and the shares of other investment companies.

THE NORTH CAROLINA FUND

The North Carolina Fund's investment objective is to produce a high level
of current interest income that is exempt from both federal income tax and North
Carolina personal income tax. Under normal market conditions, the North Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of North Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and North
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("North Carolina
Tax-Exempt Obligations"). The North Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.

18
<PAGE> 73

financial adviser to determine whether investment in the North Carolina Fund
would be suitable for them.

THE SOUTH CAROLINA FUND

The South Carolina Fund's investment objective is to produce a high level
of current interest income that is exempt from both federal income tax and South
Carolina personal income tax. Under normal market conditions, the South Carolina
Fund will invest at least 90% of its total assets in high grade obligations
issued by or on behalf of the State of South Carolina and its political
subdivisions, the interest on which, in the opinion of the issuer's bond counsel
at the time of issuance, is exempt both from federal income tax and South
Carolina personal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("South Carolina
Tax-Exempt Obligations"). The South Carolina Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, and
no obligations in which the Fund invests will have remaining maturities in
excess of 25 years.

THE GROWTH AND INCOME FUND

The Growth and Income Fund's investment objective is to seek capital
growth, current income or both, primarily through investment in stocks. Under
normal market conditions, the Growth and Income Fund will invest at least 65% of
its total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.

Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in furtherance of its investment objective for
growth. The Growth and Income Fund will favor stocks of issuers which over a
five year period have achieved cumulative income in excess of the cumulative
dividends paid to shareholders.

Stocks such as those in which the Growth and Income Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the Growth and Income Fund's investments, the net asset
value per Share of the Fund may decrease instead of increase.

THE BALANCED FUND

The Balanced Fund's investment objective is to seek long-term capital
growth and to produce current income. The Balanced Fund seeks to achieve this
objective by investing in a broadly diversified portfolio of securities,
including common stocks, preferred stocks and bonds.

The Balanced Fund's equity securities will generally consist of common
stocks but may also consist of other equity-type securities such as warrants,
preferred stocks and convertible debt instruments. The Fund's equity investments
will be in companies with a favorable outlook and which are believed by BB&T to
be undervalued.

The Balanced Fund's debt securities will consist of securities such as
bonds, notes, debentures and money market instruments. The Balanced Fund may
also invest in CMOs. The average dollar-weighted maturity of debt securities
held by the Balanced Fund will vary according to market conditions and interest
rate cycles and will range between 1 year and 30 years under normal market
conditions.

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<PAGE> 74

It is a fundamental policy of the Balanced Fund that it will invest at
least 25% of its total assets in fixed-income senior securities. For this
purpose, fixed-income senior securities include debt securities, preferred stock
and that portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those securities.

THE LARGE COMPANY GROWTH FUND

THE SMALL COMPANY GROWTH FUND

Smaller, less seasoned companies may be subject to greater business risk
than larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by the Fund may be volatile and the
net asset value of a share of the Fund may fluctuate more than that of a share
of a fund that invests in larger established companies.

THE FUNDS OF FUNDS

The investment objective of the Capital Manager Conservative Growth Fund is
to seek capital appreciation and income by investing primarily in a group of
diversified BB&T mutual funds which invest primarily in equity and fixed income
securities.

The investment objective of the Capital Manager Growth Fund is to seek
capital appreciation by investing primarily in a group of diversified BB&T
mutual funds which invest primarily in equity securities.

Under normal market conditions, each Fund of Funds will invest at least 65%
of its total assets in up to nine Underlying Funds of the Group. These assets
will be allocated within the ranges indicated below.

- ---------------

(1)"Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the Fund.

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<PAGE> 75

20% of its total assets in Underlying Funds which are
money market funds.

CAPITAL MANAGER CONSERVATIVE GROWTH FUND

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
- -------------------------------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund................ 0%-55%
Balanced Fund......................... 0%-30%
Small Company Growth Fund............. 0%-30%
International Equity Fund............. 0%-30%
Large Company Growth Fund............. 0%-55%
Fixed Income Funds
Short-Intermediate Fund............... 0%-75%
Intermediate Bond Fund................ 0%-75%
Money Market Funds
U.S. Treasury Fund.................... 0%-20%
Prime Money Market Fund............... 0%-20%
</TABLE>

CAPITAL MANAGER MODERATE GROWTH FUND

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
- -------------------------------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund................ 0%-75%
Balanced Fund......................... 0%-50%
Small Company Growth Fund............. 0%-50%
International Equity Fund............. 0%-50%
Large Company Growth Fund............. 0%-75%
Fixed Income Funds
Short-Intermediate Fund............... 0%-55%
Intermediate Bond Fund................ 0%-55%
Money Market Funds
U.S. Treasury Fund.................... 0%-15%
Prime Money Market Fund............... 0%-15%
</TABLE>

The Growth 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.

CAPITAL MANAGER GROWTH FUND

<TABLE>
<CAPTION>
INVESTMENT RANGE
UNDERLYING FUND (PERCENT OF FUND ASSETS)
- -------------------------------------- ------------------------
<S> <C>
Equity Funds
Growth and Income Fund................ 0%-90%
Balanced Fund......................... 0%-65%
Small Company Growth Fund............. 0%-65%
International Equity Fund............. 0%-65%
Large Company Growth Fund............. 0%-90%
Fixed Income Funds
Short-Intermediate Fund............... 0%-40%
Intermediate Bond Fund................ 0%-40%
Money Market Funds
U.S. Treasury Fund.................... 0%-10%
Prime Money Market Fund............... 0%-10%
</TABLE>

The allocation of each Fund of Funds' assets among the Underlying Funds
will be made by BB&T under the supervision of the Group's Board of Trustees
within the percentage ranges set forth in the table above. BB&T will make
allocation decisions according to its outlook for the economy, financial
markets, and relative market valuation of the Underlying Funds. BB&T may vary
the allocation within the above ranges. There is no assurance that the Funds of
Funds will achieve their stated objectives.

The Funds of Funds' net asset value will fluctuate with changes in the
equity markets and the value of the Underlying Funds in which they invest. Each
Fund of Funds' investment return is diversified by its investment in the
Underlying Funds, which invest in growth and income stocks, foreign securities,
debt securities, and cash and cash equivalents.

With their remaining assets, the Funds of Funds may make direct investments
in any domestic and foreign securities and other instruments which the
Underlying Funds may purchase, as described in this prospectus.

To the extent the Funds of Funds or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.

The investments of the Funds of Funds are concentrated in the Underlying
Funds, so each Fund

21
<PAGE> 76

of Funds' performance is directly related to the performance of the Underlying
Funds. In addition, as a matter of fundamental policy, each Fund of Funds must
allocate its investments among the Underlying Funds within certain ranges. As a
result, the Funds of Funds do not have the same flexibility to invest as mutual
funds without such constraints.

INTERNATIONAL EQUITY FUND

During normal market conditions, the International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. The Fund will pursue
investments in non-dollar denominated stocks primarily within countries included
in the Morgan Stanley Capital International Europe, Australia and the Far East
Index ("EAFE"). The Fund may also invest its assets in countries with emerging
economies or securities markets. The Fund will be diversified across countries,
industry groups and companies with investment at all times in at least three
foreign countries.

When choosing securities, a value investment style is employed so that the
investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub- adviser will emphasize stocks with
price/earnings ratios below average for a security's home market or stock
exchange. A security's earnings trend and its price momentum will also be
factors considered in security selection. The investment sub-adviser will also
consider macroeconomic factors such as the prospects for relative economic
growth among certain foreign countries, expected levels of inflation, government
policies influencing business conditions, and the outlook for currency
relationships.

ALL FUNDS

The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous.") There can be, of course, no
assurance that a Fund will achieve its investment objective.

SPECIFIC INVESTMENT POLICIES

REPURCHASE AGREEMENTS

Securities held by each Fund may be subject to repurchase agreements. A
Fund will enter into repurchase agreements for the purposes of maintaining
liquidity and obtaining favorable yields. Under the terms of a repurchase
agreement, a Fund acquires securities from financial institutions or registered
broker-dealers, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of the collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller under a repurchase
agreement were to default on its repurchase obligation or become insolvent, a
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by a Fund
were delayed pending court action. Additionally, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund could incur delays and
costs in selling the underlying security or could suffer a loss of principal and
interest if such Fund were treated as an unsecured creditor and required to
return the underlying security to the seller's estate. A Fund will enter into
repurchase agreements with financial institutions or registered broker-dealers
deemed creditworthy by BB&T (or PNC Equity Advisors Company ("PEAC"), the Small
Company Growth Fund's investment sub-adviser, CastleInternational Asset
Management Limited ("CastleInternational"), the International Equity Fund's
investment sub-ad-

22
<PAGE> 77

viser or PNC Institutional Management Corporation ("PIMC"), the Prime Money
Market Fund's investment sub-adviser). Except as described in the Statement of
Additional Information, there is no aggregate limitation on the amount of a
Fund's total assets that may be invested in instruments which are subject to
repurchase agreements. Repurchase agreements are considered to be loans by a
Fund under the Investment Company Act of 1940.

REVERSE REPURCHASE AGREEMENTS

In accordance with the investment restrictions described below, each Fund
may borrow funds for temporary purposes by entering into reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements for the purpose
of meeting liquidity needs. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements include the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act of 1940.

WHEN-ISSUED SECURITIES

Each of the Funds except the U.S. Treasury Fund may purchase securities on
a when-issued or delayed-delivery basis. In addition, the Prime Money Market
Fund, the Large Company Growth Fund, the Small Company Growth Fund and the
International Equity Fund may purchase and sell securities on a "forward
commitment" basis. These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time. When a Fund
agrees to purchase securities on a when-issued basis, the Fund's custodian must
set aside cash or liquid Fund securities equal to the amount of that commitment
in a separate account and may be required to subsequently place additional
assets in the separate account to maintain equivalence with the Fund's
commitment. The ability to purchase when-issued securities will provide a Fund
with the flexibility of participating in new issues of government securities,
particularly mortgage-related securities. Prior to delivery of when-issued
securities, the securities are subject to fluctuations in value, and no income
accrues until their receipt. A Fund engages in when-issued and delayed-delivery
transactions only with the intent of acquiring Fund securities consistent with
its investment objective and policies, and not for investment leverage. In
when-issued and delayed-delivery transactions, the Funds rely on the seller to
complete the transaction; its failure to do so may cause a Fund to miss a price
or yield considered to be advantageous. A Fund expects that commitments by a
Fund to purchase when-issued securities will not exceed 25% of the value of its
total assets under normal market conditions. The Prime Money Market Fund's, the
Large Company Growth Fund's, the Small Company Growth Fund's and the
International Equity Fund's when-issued purchases and forward commitments are
not expected to exceed 25% of the value of their respective total assets absent
unusual market conditions.

SHORT-TERM OBLIGATIONS

The Fixed Income Funds, the North Carolina Fund, the South Carolina Fund,
the Growth and Income Fund, the Balanced Fund, the Large Company Growth Fund,
the Small Company Growth Fund and the International Equity Fund may invest in
high quality, short-term obligations (with maturities of 12 months or less) such
as domestic and foreign commercial paper (including variable-amount master
demand notes), bankers' acceptances, certificates of deposit and demand and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase agreements. Such investments will be limited to those obligations
which, at the time of purchase, (i) possess one of the two highest short-term
ratings from at least two nationally recognized statistical rating organizations
("NRSROs") (for example, commercial paper rated "A-1" or "A-2" by S&P and "P-1"
or "P-2" by Moody's), or (ii) do not possess a rating (i.e., are unrated) but
are determined by BB&T (or PEAC, with respect to the Small Company Growth Fund,
or CastleInternational, with respect to the International Equity Fund) to be of
comparable quality to rated instruments eligible for purchase. Under normal
market conditions, each of the Fixed Income Funds, the Growth and Income Fund,
the Large Company Growth Fund, and the Small Company Growth Fund will limit its
investment in short-term obligations to 35% of its total assets.

23
<PAGE> 78

national Equity Fund may also invest without limitation short-term obligations.
For temporary defensive purposes, as determined by BB&T (or, in the case of the
Small Company Growth Fund, PEAC or, in the case of the International Equity
Fund, CastleInternational), these investments may constitute 100% of such Funds'
portfolio and, in such circumstances, will constitute a temporary suspension of
such Funds' attempts to achieve their investment objectives.

U.S. GOVERNMENT SECURITIES

U.S. Government Securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate, and
the Funds would be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal prepayment features,
mortgage-backed pass-through securities are generally more volatile investments
than other U.S. Government Securities. Although under normal market conditions,
the Prime Money Market Fund does not expect to do so, except in connection with
repurchase agreements, it may invest in such mortgage-backed pass-through
securities.

The Short-Intermediate, Intermediate Bond, Growth and Income, Balanced,
Large Company Growth, and 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.

The U.S. Treasury Fund may invest in U.S. Government Securities to the
extent that they are obligations issued or guaranteed by the U.S. Treasury. In
addition, the North Carolina Fund and the South Carolina Fund may invest in U.S.
Government Securities in connection with the purchase of taxable obligations (as
described below).

COLLATERALIZED MORTGAGE OBLIGATIONS

Each of the Fixed Income Funds, the Growth and Income Fund, the Balanced
Fund, the Large Company Growth Fund, and the Small Company Growth Fund may also
invest in collateralized mortgage obligations ("CMOs"). Although under normal
market conditions it does not expect to do so, except

24
<PAGE> 79

in connection with repurchase agreements, the Prime Money Market Fund may also
invest in CMOs. CMOs are mortgage-related securities which are structured pools
of mortgage pass-through certificates or mortgage loans. CMOs are issued with a
number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.

Certain debt securities such as, but not limited to, mortgage backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.

CMOs may include stripped mortgage securities. Such securities are
derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage security will have one class receiving all of the interest
from the mortgage assets (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
securities' yield to maturity. Generally, the market value of the PO class is
unusually volatile in response to changes in interest rates. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is rated in the highest rating category.

Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not fully developed. Stripped mortgage
securities issued or guaranteed by the U.S. Government and held by a Fund may be
considered liquid securities pursuant to guidelines established by the Group's
Board of Trustees. The Funds will not purchase a stripped mortgage security that
is illiquid if, as a result thereof, more than 15% of the value of the Fund's
net assets would be invested in such securities and other illiquid securities.

Unless stated otherwise, each Fund will limit its investment in CMOs to 25%
of the value of its total assets.

COMMERCIAL BONDS

The Growth and Income Fund, the Large Company Growth Fund, the Small
Company Growth Fund, and the Fixed Income Funds may invest up to 35% of their
total assets, and the Balanced Fund also may invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on
real property or security interests in personal property.

Bonds, notes and debentures in which the Growth and Income Fund, the
Balanced Fund, the Large Company Growth Fund and the Small Company Growth Fund
may invest may differ in interest rates, maturities and times of issuance and
may include CMOs (which are described above).

25
<PAGE> 80

securities falls below the third highest rating category, these Funds will not
be obligated to dispose of such obligations and may continue to hold such
obligations if, in the opinion of BB&T (or PEAC, with respect to the Small
Company Growth Fund), such investment is considered appropriate under the
circumstances.

OPTIONS AND FUTURES CONTRACTS

To the extent consistent with its investment objective, the Large Company
Growth, Small Company Growth, International Equity, Growth and Income Fund and
the Balanced Funds may engage in writing call options. Options are written
solely as covered call options (options on securities owned by a Fund). Such
options must be listed on a national securities exchange and issued by the
Options Clearing Corporation. In order to close out an option position, a Fund
will enter into a "closing purchase transaction" -- the purchase of a call
option on the same security with the same exercise price and expiration date as
any call option which it may previously have written. Upon the sale of a
portfolio security upon which it has written a covered call option, a Fund must
effect a closing purchase transaction so as to avoid converting a covered call
into a "naked call," i.e., a call option on a security not owned by the Fund. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise. When writing a covered call option, a
Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price but retains
the risk of loss should the price of the security decline.

To the extent consistent with its investment objective, the Large Company
Growth Fund, the Small Company Growth Fund and the International Equity Fund may
buy put options, buy call options, and write secured put options for the purpose
of hedging or earning additional income, which may be deemed speculative or,
with respect to the International Equity Fund, cross-hedging. These options may
relate to particular securities, financial instruments, foreign currencies,
stock or bond indices or the yield differential between two securities, and may
or may not be listed on a securities exchange and may or may not be issued by
the Options Clearing Corporation. A Fund will not purchase put and call options
when the aggregate premiums on outstanding options exceed 5% of its net assets
at the time of purchase, and will not write options on more than 25% of the
value of its net assets (measured at the time an option is written). Options
trading is a highly specialized activity that entails greater than ordinary
investment risks. In addition, unlisted options are not subject to the
protections afforded purchasers of listed options issued by the Options Clearing
Corporation, which performs the obligations of its members if they default.
Cross-hedging is the use of options or forward contracts in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency based on a belief that there is a pattern of correlation between the
two currencies.

To the extent consistent with its investment objective, each Fund of the
Group (other than the U.S. Treasury Money Market Fund and the Prime Money Market
Fund) may also invest in futures contracts and options on futures contracts to
commit funds awaiting investment to maintain cash liquidity or, for other
hedging purposes. The value of a Fund's contracts may equal or exceed 100% of
the Fund's total assets, although a Fund will not purchase or sell a futures
contract unless immediately afterwards the aggregate amount of margin deposits
on its existing futures positions plus the amount of premiums paid for related
futures options entered into for other than bona fide hedging purposes is 5% or
less of its net assets.

26
<PAGE> 81

becomes obligated to sell or buy a futures contract if the option is exercised.
In connection with a Fund's position in a futures contract or related option, a
Fund will create a segregated account of liquid assets or will otherwise cover
its position in accordance with applicable SEC requirements.

The risks related to the use of futures contracts include: (i) the
correlation between movements in the market price of the portfolio investments
(held or intended for purchase) being hedged and in the price of the futures
contract may be imperfect; (ii) possible lack of a liquid secondary market for
closing out futures positions; (iii) the need for additional portfolio
management skills and techniques; (iv) losses due to unanticipated market
movements; and (v) a purchaser's inability to predict correctly the direction of
securities prices, interest rates, currency exchange rates, and other economic
factors. Successful use of futures is subject to the ability correctly to
predict movements in the direction of the market. For example, if a Fund uses
futures contracts as a hedge against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased value of
its securities that it has hedged because the Fund will have approximately equal
offsetting losses in its future positions. The risk of loss in trading futures
contracts in some strategies can be substantial, due both to the low margin
deposits required, and the extremely high degree of leverage involved in future
pricing. As a result, a relatively small price movement in a futures contract
may result in immediate and substantial loss or gain to the investor. Thus, a
purchase or sale of a futures contract may result in losses or gains in excess
of the amount invested in the contract.

A Fund's ability to engage in options and futures transactions and to sell
related securities may be limited by tax considerations.

FOREIGN INVESTMENTS

The Prime Money Market Fund will not invest in excess of 10% of its net
assets in time deposits, including ETDs and CTDs but not including certificates
of deposit, with maturities in excess of seven days which are subject to
penalties upon early withdrawal.

The Prime Money Market Fund may invest in commercial paper (including
variable amount master demand notes) issued by U.S. or foreign corporations. The
Prime Money Market Fund may also invest in Canadian Commercial Paper ("CCP"),
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.

The Balanced Fund, the Growth and Income Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may invest in foreign securities through
the purchase of American Depository Receipts ("ADRs") or the purchase of
securities

27
<PAGE> 82

on the New York Stock Exchange. However, the Balanced Fund, the Growth and
Income Fund and the Large Company Growth Fund will not do so if immediately
after a purchase and as a result of the purchase the total value of such foreign
securities owned by such Fund would exceed 25% of the value of the total assets
of the Fund. A Fund may also invest in securities issued by foreign branches of
U.S. banks and foreign banks and in CCP and Europaper.

During normal market conditions, the International Equity Fund will invest
at least 90% and, in any event, at least 65%, of its total assets in securities
of foreign issuers. The International Equity Fund invests primarily in equity
securities of issuers located in countries included in EAFE and may invest in
equity securities of issuers located in emerging markets. EAFE is an index
composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of securities listed on the stock exchanges of
such countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Singapore,
Malaysia, Spain, Sweden, Switzerland, and the United Kingdom are currently
included in EAFE.

From time to time the International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in countries such as
France, Germany, Japan, and the United Kingdom. Investments of 25% or more of
the Fund's total assets in those or any other countries will make the Fund's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. For example, in the past events in the Japanese
economy as well as social developments and natural disasters have affected
Japanese securities and currency markets, and have periodically disrupted the
relationship of the Japanese yen with other currencies and with the U.S. dollar.

In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly, a
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.

The expense ratio of the International Equity Fund is expected to be higher
than that of Funds of the Group investing primarily in domestic securities.

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<PAGE> 83

The costs attributable to investing abroad are usually higher for several
reasons, such as the higher cost of investment research, higher cost of custody
of foreign securities, higher commissions paid on comparable transactions on
foreign markets, foreign income taxes withheld at the source and additional
costs arising from delays in settlements of transactions involving foreign
securities.

The International Equity Fund may invest its assets in countries with
emerging economies or securities markets. These countries may include Argentina,
Brazil, Bulgaria, Chile, China, Colombia, The Czech Republic, Ecuador, Egypt,
Greece, Hungary, India, Indonesia, Israel, Lebanon, Malaysia, Mexico, Morocco,
Peru, The Philippines, Poland, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Some of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the Fund of additional investments in emerging market
countries. The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries. There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult as a result to access
the value or prospects of an investment in such issuers. The International
Equity Fund intends to limit its investment in countries with emerging economies
or securities markets to 20% of its total assets.

The International Equity Fund may (but is not required to) use forward
foreign currency exchange contracts to hedge against movements in the value of
foreign currencies (including the European Currency Unit (ECU)) relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Foreign currency exchange contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time.

OTHER INVESTMENT PRACTICES

For liquidity purposes, each Fund except the Prime Money Market Fund and
the U.S. Treasury Fund may invest up to 5% of the value of its total assets in
the securities of any one money market mutual fund (including Shares of the
Prime Money Market Fund and the U.S. Treasury Fund, pursuant to exemptive relief
granted by the Securities and Exchange Commission) and up to 10% of its total
assets in more than one money market mutual fund. In order to avoid the
imposition of additional fees as a result of investments in Shares of the Prime
Money Market Fund or the U.S. Treasury Fund, BB&T and BISYS Fund Services (the
"Administrator") (see "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP" -- "Investment
Adviser" and "Administrator and Distributor") will reduce that portion of their
usual asset-based service fees from each investing Fund by an amount equal to
their service fees from the Prime Money Market Fund or the U.S. Treasury Fund
that are attributable to those Fund investments. BB&T and the Administrator will
promptly forward such fees to the investing Funds. The Funds will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of other unaffiliated money market mutual funds. Additional
restrictions on the Funds' investments in the securities of an unaffiliated
money market fund and/or the Prime Money Market Fund or the U.S. Treasury Fund
are contained in the Statement of Additional Information.

In addition, the International Equity Fund may purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting exclusively
of securities of issuers located in one country.

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agreement or enter into bankruptcy, the Fund will receive 100% collateral in the
form of cash or U.S. Government Securities. This collateral will be valued daily
by BB&T (or PEAC with respect to the Small Company Growth Fund,
CastleInternational with respect to the International Equity Fund, or PIMC with
respect to the Prime Money Market Fund) and should the market value of the
loaned securities increase, the borrower will furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower will
pay the Fund any dividends or interest paid on such securities. Loans are
subject to termination by a Fund or the borrower at any time. While a Fund will
not have the right to vote securities on loan, the Funds intend to terminate the
loan and regain the right to vote if that is considered important with respect
to the investment. The Funds will only enter into loan arrangements with
broker-dealers, banks or other institutions which BB&T (or PEAC with respect to
the Small Company Growth Fund, CastleInternational with respect to the
International Equity Fund, or PIMC with respect to the Prime Money Market Fund)
has determined are creditworthy under guidelines established by the Group's
Board of Trustees. Each Fund will restrict its securities lending to 30%
(33 1/3% with respect to the Prime Money Market Fund and the International
Equity Fund) of its total assets.

In order to generate income, the Short-Intermediate, Intermediate Bond,
Growth and Income, Balanced, Large Company Growth, Small Company Growth, and
International Equity Funds may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/or income of the Funds in
order to take advantage of what BB&T (or PEAC, with respect to the Small Company
Growth Fund or CastleInternational, with respect to the International Equity
Fund) believes are changes in market, industry or individual company conditions
or outlook. Any such trading would increase the portfolio turnover rate of the
Funds and their transaction costs.

CORPORATE AND BANK OBLIGATIONS

To the extent consistent with its investment objective, the Prime Money
Market Fund may invest in debt obligations of domestic corporations and banks.
Bank obligations may include certificates of deposit, notes, bankers'
acceptances and fixed time deposits. These obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government regulation.
The Prime Money Market Fund may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total assets.

PRIVATE PLACEMENT INVESTMENTS

Each Fund of the Group (other than the U.S. Treasury Money Market Fund) may
purchase securities which are not registered under the 1933 Act but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. These securities will not be considered illiquid so long as the
adviser or sub-adviser determines that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Fund during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities.

GUARANTEED INVESTMENT CONTRACTS

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ASSET-BACKED SECURITIES

The Prime Money Market Fund may invest in securities backed by automobile
receivables and credit-card receivables and other securities backed by other
types of receivables.

Offerings of Certificates for Automobile Receivables ("CARS") are
structured either as flow-through grantor trusts or as pay-through notes. CARS
structured as flow-through instruments represent ownership interests in a fixed
pool of receivables. CARS structured as pay-through notes are debt instruments
supported by the cash flows from the underlying assets. CARS may also be
structured as securities with fixed payment schedules which are generally issued
in multiple-classes. Cash-flow from the underlying receivables is directed first
to paying interest and then to retiring principal via paying down the two
respective classes of notes sequentially. Cash-flows on fixed-payment CARS are
certain, while cash-flows on other types of CARS issues depends on the
prepayment rate of the underlying automobile loans. Prepayments of automobile
loans are triggered mainly by automobile sales and trade-ins. Many people buy
new cars every two or three years, leading to rising prepayment rates as a pool
becomes more seasoned.

Certificates for Amortizing Revolving Debt ("CARDS") represent
participation in a fixed pool of credit card accounts. CARDS pay "interest only"
for a specified period. The CARDS principal balance remains constant during this
period, while any cardholder repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.

MUNICIPAL OBLIGATIONS

The Prime Money Market Fund may, when deemed appropriate by its
sub-adviser, invest in high quality short-term obligations issued by state and
local governmental issuers.

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VARIABLE AND FLOATING RATE INSTRUMENTS

VARIABLE AMOUNT DEMAND NOTES

Variable amount master demand notes in which the Prime Money Market Fund
may invest are unsecured demand notes that permit the indebtedness thereunder to
vary, and that provide for periodic adjustments in the interest rate according
to the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Money Market Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Money Market Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as to quality as set forth above for commercial paper. PIMC will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note may not exceed seven
days.

MONEY MARKET FUNDS

In connection with the management of its daily cash positions, the Prime
Money Market Fund may invest in securities issued by other investment companies
which invest in short-term, high quality debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method of valuation. Securities of other investment companies will be acquired
by the Fund within the limits prescribed by the 1940 Act. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory fees and
other expenses the Fund bear directly in connection with its own operations.

CLOSED-END INVESTMENT COMPANIES

The Balanced Fund may invest in closed-end investment companies that invest
a significant portion of their assets in convertible securities. Convertible
securities are fixed income-securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. As a shareholder of a closed-end investment company
holding such convertible securities, the Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
fees and other expenses the Fund bear directly in connection with its own
operations.

STANDARD & POOR'S DEPOSITORY RECEIPTS

Each of the Growth and Income Stock Fund, Balanced Fund, Large Company
Growth Fund, and Small Company Growth Fund may invest in Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs represent interests in trust sponsored by a
subsidiary of the American Stock Exchange, Inc. and structured to provide
investors proportionate undivided interests in a securities portfolio consisting
of substantially all of the common stocks (in substantially the same weighting)
as the component common stocks of a particular Standard & Poor's Index, e.g.,
the S&P 500 Index. SPDRs are generally not redeemable, but are exchange traded.
SPDRs are issued by a trust that is a unit investment trust, a type of
registered investment company. SPDRs, therefore, will be acquired by a fund only
within the limits prescribed under the 1940 Act.

UNINVESTED CASH RESERVES

The Prime Money Market Fund may hold uninvested cash reserves pending
investment during

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temporary defensive periods or if, in the opinion of the Fund's sub-adviser,
suitable obligations are unavailable. During normal market periods, no more than
20% of the Fund's total assets will be held uninvested. Uninvested cash reserves
will not earn income.

OTHER INVESTMENT POLICIES OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND

TAX-EXEMPT OBLIGATIONS

In addition to their respective investments in North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations Fund, the North Carolina
Fund and the South Carolina Fund may invest in tax-exempt obligations issued by
or on behalf of states other than North Carolina or South Carolina, as the case
may be, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities, and
political subdivisions the interest on which, in the opinion of the issuer's
counsel at the time of issuance, is exempt from federal income tax and is not
treated as a preference item for individuals for purposes of the federal
alternative minimum tax. Such securities, together with North Carolina Tax-
Exempt Obligations and South Carolina Tax-Exempt Obligations, are hereinafter
collectively referred to as "Tax-Exempt Obligations."

Up to 10% of the North Carolina Fund's total assets may be invested in
Tax-Exempt Obligations other than North Carolina Tax-Exempt Obligations. Up to
10% of the South Carolina Fund's total assets may be invested in Tax-Exempt
Obligations other than South Carolina Tax-Exempt Obligations. If deemed
appropriate for temporary defensive periods, as determined by BB&T, the North
Carolina Fund or South Carolina Fund may suspend attempts to achieve its
investment objective and may increase its holdings in Tax-Exempt Obligations
other than North Carolina Tax-Exempt Obligations and South Carolina Tax-Exempt
Obligations, respectively to over 10% of its total assets. Investments made for
temporary defensive purposes will not be intended to achieve either Fund's
investment objective with respect to North Carolina or South Carolina taxation,
as the case may be, but rather will be intended to preserve the value of the
Funds' Shares.

The two principal classifications of Tax-Exempt Obligations which may be
held by the North Carolina Fund and the South Carolina Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by the Funds are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the private user of the facility involved.

Among other types of Tax-Exempt Obligations, the North Carolina Fund and
the South Carolina Fund may purchase Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper and other forms
of short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.

The North Carolina Fund and the South Carolina Fund may also invest in
"moral obligation" securities, which are normally issued by special purpose
public authorities. However, such investments are expected to be limited by the
fact that North Carolina issuers are currently precluded by North Carolina State
law from issuing such securities, and issuers in South Carolina also currently
do not have authority to issue moral obligation securities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.

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<PAGE> 88

NRSRO in the case of notes; rated "SP-1" or higher by S&P or "MIG-2" or higher
by Moody's or rated at a comparable level of quality by another NRSRO in the
case of tax-exempt commercial paper; or rated "VMIG-1" or higher by Moody's or
rated at a comparable level of quality by another NRSRO in the case of variable
rate demand obligations. The North Carolina Fund and the South Carolina Fund may
also purchase Tax-Exempt Obligations which are unrated at the time of purchase
but are determined to be of comparable quality by BB&T pursuant to guidelines
approved by the Group's Board of Trustees. The applicable ratings are described
in the Appendix to the Statement of Additional Information.

TAXABLE OBLIGATIONS OF THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA FUND

The North Carolina Fund and the South Carolina Fund may each invest up to
10% of its net assets in taxable obligations or debt securities, the interest
income from which may be subject to the federal alternative minimum tax for both
individual and corporate shareholders. There is no limit on the amount of
taxable obligations that may be held for temporary defensive purposes. Taxable
obligations may include U.S. Government Securities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
domestic banks and domestic branches of foreign banks, commercial paper meeting
each Fund's quality standards (as described above) for tax-exempt commercial
paper, and shares issued by other open-end registered investment companies
issuing taxable dividends (as described above). The North Carolina Fund and the
South Carolina Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of BB&T, suitable North
Carolina Tax-Exempt Obligations or South Carolina Tax- Exempt Obligations Fund,
respectively, are unavailable.

PUTS

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND

Because the North Carolina Fund will invest at least 90% of the value of
its total assets in North Carolina Tax-Exempt Obligations and because it seeks
to maximize income derived from North Carolina Tax-Exempt Obligations, it is
more susceptible to factors adversely affecting issuers of North Carolina
Tax-Exempt Obligations than is a comparable municipal bond mutual fund that is
not concentrated in these issuers to this degree. North Carolina experienced a
positive General Fund balance for each of its last five fiscal years. See
"SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA TAX-EXEMPT
OBLIGATIONS" in the Statement of Additional Information for further discussion
of investment considerations associated with North Carolina Tax-Exempt
Obligations.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE SOUTH CAROLINA FUND

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lina's economy has been dominated since the early 1920's by the textile
industry, with over one-third of the manufacturing workers directly or
indirectly related to the textile industry. The economic base of the state is
gradually becoming more diversified as the trade and service sectors and durable
goods manufacturing industries have developed. Currently, Moody's rates South
Carolina general obligation bonds "Aaa" and S&P rates such bonds "AA+." There
can be no assurance that the economic conditions on which the above ratings for
a specific state are based will continue or that particular bond issues may not
be adversely affected by changes in economic or political conditions. See
"SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN SOUTH CAROLINA TAX-EXEMPT
OBLIGATIONS" in the Statement of Additional Information for further discussion
of investment considerations associated with South Carolina Tax-Exempt
Obligations.

DIVERSIFICATION AND CONCENTRATION

The North Carolina Fund and the South Carolina Fund are non-diversified
funds under the Investment Company Act of 1940. This means they may concentrate
their investments in the securities of a limited number of issuers. Under the
Internal Revenue Code of 1986, as amended, at the end of each fiscal quarter
each of the North Carolina Fund and the South Carolina Fund must nevertheless
diversify its portfolio such that, with respect to 50% of its total assets, not
more than 25% is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies),
and with respect to the remainder of its total assets, no more than 5% of its
assets is invested in the securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies).
Because of the relatively small number of issuers of North Carolina Tax-Exempt
Obligations and South Carolina Tax-Exempt Obligations, the North Carolina Fund
and the South Carolina Fund are more likely to invest a higher percentage of
their assets in the securities of a single issuer than is an investment company
that invests in a broad range of tax-exempt securities. This concentration
involves an increased risk of loss to the North Carolina Fund and the South
Carolina Fund if the issuer is unable to make interest or principal payments or
if the market value of such securities declines, and consequently may cause
greater fluctuation in the net asset value of the North Carolina and the South
Carolina Funds' Shares.

VARIABLE AND FLOATING RATE SECURITIES

North Carolina Tax-Exempt Obligations purchased by the North Carolina Fund
and South Carolina Tax-Exempt Obligations purchased by the South Carolina Fund
may include variable and floating rate tax-exempt notes with ratings that are
similar to those described above. There may be no active secondary market with
respect to a particular variable or floating rate note. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the North Carolina Fund and the South Carolina Fund will approximate their
par value. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other
securities which are not readily marketable, exceeds 15% of the North Carolina
Fund's or South Carolina Fund's total assets only if such notes are subject to a
demand feature that will permit the Fund to receive payment of the principal
within seven days after demand by the Fund.

STAND-BY COMMITMENTS

In addition, the North Carolina Fund and the South Carolina Fund may
acquire "stand-by commitments" with respect to Tax-Exempt Obligations held in
either Fund. Under a stand-by commitment, a dealer would agree to purchase at
the Fund's option specified Tax-Exempt Obligations at a specified price. The
Funds will acquire stand-by commitments solely to facilitate Fund liquidity and
do not intend to exercise their rights thereunder for trading purposes. Stand-by
commitments acquired by the North Carolina Fund and the South Carolina Fund may
also be referred to as "put" options.

PORTFOLIO TURNOVER

For the fiscal year ended September 30, 1997, the Portfolio turnover rate
for each of the Funds with a full year of operations (other than Money Market
Funds) was as follows: Short-Intermediate Fund 87.99%, Intermediate Bond Fund
62.45%, North Carolina Fund 16.98%, Growth and Income Fund 22.66%, Small Company
Growth Fund 80.66%, equity portion of the Balanced Fund 26.57% and fixed income
portion of the Balanced Fund 27.59% and the International Equity Fund 41.48%.
The portfolio turnover of each of the Funds (except the Money Market Funds) may
vary greatly from year to year as well as within a particular year. It is
presently anticipated that the portfolio turnover rate of the South Carolina
Fund and the Funds of Funds will not

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<PAGE> 90

exceed 50% and the portfolio turnover rate of the Large Company Growth Fund will
not exceed 100%. High turnover rates will generally result in higher transaction
costs to a Fund and may result in higher levels of taxable realized gains to a
Fund's shareholders.

INVESTMENT RESTRICTIONS

The Prime Money Market Fund and the U.S. Treasury Fund may not:

Each Fixed Income Fund may not:

2. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.

Each of the Funds of Funds may not:

1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities or securities issued by
"regulated investment companies" as defined in the Internal Revenue Code of
1986, as amended (the "Code"); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry.

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obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

The Growth and Income Fund, the Balanced Fund, the Large Company Growth
Fund, and the Small Company Growth Fund may not:

1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.

2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations. There
is no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.

The International Equity Fund may not:

1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value
of the Fund's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may (taken at current value) be invested without
regard to these limitations. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and revenues
back the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantors when the value of all securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.

2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to (i)
instruments issued (as defined in Investment Limitation No. 1 above) or
guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivision, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents;
and (c) utilities will be divided according to their services; for example,
gas, gas transmission, electric and gas, electric and telephone will each be
considered a separate industry.

Each of the Funds may not:

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<PAGE> 92

The North Carolina Fund and the South Carolina Fund may not:

The following is a non-fundamental investment restriction of the Prime
Money Market Fund and the U.S. Treasury Fund and therefore subject to change
without shareholder vote.

The Prime Money Market Fund and the U.S. Treasury Fund may not:

1. Invest more than 10% of its assets in instruments which are not readily
marketable.

VALUATION OF SHARES

The net asset value of each of the Funds other than the Prime Money Market
Fund and the U.S. Treasury Fund is determined and the Shares are priced as of
the close of regular trading of the New York Stock Exchange (the "NYSE")
(generally 4:00 p.m. Eastern Time) on each Business Day. The net asset value of
the Prime Money Market Fund and the U.S. Treasury Fund is determined and the
Shares are priced as of 12:00 p.m. and as of the close of regular trading of the
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 is open for trading, and any other day (other
than a day during which no Shares are tendered for redemption and no orders to
purchase Shares are received) during which there is sufficient trading in a
Fund's portfolio instruments that the Fund's net asset value per share might be
materially affected. Currently, the NYSE is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share for purposes of pricing sales and
redemptions is calculated by determining the value of the class's proportional
interest in the securities and other assets of a Fund, less (i) such class's
proportional share of general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number of relevant class
Shares outstanding.

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<PAGE> 93

per share determined by using available market
quotations. Although the Group seeks to maintain the Prime Money Market Fund's
and the U.S. Treasury Fund's net asset value per Share at $1.00, there can be no
assurance that net asset value will not vary.

For further information about the valuation of investments, see the
Statement of Additional Information.

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares are sold on a continuous basis by the Group's Distributor, BISYS
Fund Services. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the Group at (800)
228-1872.

PURCHASES OF CLASS A AND CLASS B SHARES

Class A and Class B Shares may be purchased through procedures established
by the Distributor in connection with the requirements of qualified accounts
maintained by or on behalf of certain persons ("Customers") by Participating
Organizations under the Group's Distribution and Shareholder Services Plan (see
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP -- Distribution Plan").

As of the date of this Prospectus, however, Class B Shares were not yet
being offered in the Prime Money Market Fund, the Short-Intermediate Fund, the
North Carolina Fund, the South Carolina Fund, or the Funds of Funds. Investors
purchasing Shares of the U.S. Treasury 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, as opposed to
Shareholders obtaining Class B Shares of the U.S. Treasury Money Market Fund
upon an exchange of Class B Shares of any of the other Funds, will be requested
to participate in the Auto Exchange and to set the time and amount of their
regular, automatic withdrawals in such a way that all of their Class B Shares
will be withdrawn from the U.S. Treasury Money Market Fund within two years of
purchase. Such Class B shares may be exchanged for Class B Shares of any other
Fund through the Auto Exchange (see "Auto Exchange Plan").

Shares of the Group sold to Participating Organizations acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of Customers
will normally be held of record by the Participating Organizations. With respect
to Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers.

Investors may purchase Class A and Class B Shares of a Fund by completing
and signing an Account Registration Form and mailing it, together with a check
(or other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the Group, to BB&T Mutual Funds Group, P.O. Box
182533, Columbus, OH 43218-2533. Investors may obtain an Account Registration
Form and additional information regarding the Group by contacting their local
BB&T office. Subsequent purchases of Class A and Class B Shares of a Fund may be
made at any time by mailing a check (or other negotiable bank draft or money
order) to the above address.

If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the Group

39
<PAGE> 94

at (800) 228-1872. Payment for Class A and Class B Shares ordered by telephone
may be made by check or by sending funds electronically to the Group's transfer
agent. To make payments electronically, investors must call the Group at (800)
228-1872 to obtain instructions regarding the bank account number into which the
funds should be wired and other pertinent information.

Class A or Class B Shares of the Variable NAV Funds are sold at the net
asset value per Share next determined after receipt by the Distributor of an
order in good form to purchase Shares, plus a sales charge at the time of
purchase in the case of Class A Shares (see "VALUATION OF SHARES"). In the case
of orders for the purchase of Shares placed through a broker-dealer, the public
offering price will be the net asset value as so determined plus any applicable
sales charge, but only if the broker-dealer receives the order prior to the
Valuation Time for that day and transmits to the Group by the Valuation Time.
The broker-dealer is responsible for transmitting such orders promptly. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer. If the broker-dealer
receives the order after the Valuation Time for that day, the price will be
based on the net asset value determined as of the Valuation Time for the next
Business Day.

The minimum investment is $1,000 for the initial purchase of Class A and
Class B Shares of a Fund. There is no minimum investment for subsequent
purchases. The minimum initial investment amount may be waived if purchases are
made in connection with qualified retirement plans, automatic investment plans
or payroll deduction plans.

The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Class A Shares that may be purchased.

Every Shareholder will be mailed a confirmation of each new transaction in
the Shareholder's account. In the case of Class A and Class B Shares held of
record by a Participating Organization but beneficially owned by a Customer,
confirmations of purchases, exchanges and redemptions of Class A and Class B
Shares by a Participating Organization will be sent to the Customer by the
Participating Organization. Certificates representing Shares will not be issued.

SALES CHARGE -- CLASS A

The public offering price of a Class A Share of each of the North Carolina,
South Carolina and Short-Intermediate Funds equals its net asset value plus a
sales charge in accordance with the table below.

<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- -------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000........ 2.04% 2.00% 2.00%
$100,000 but less than
$250,000................. 1.52% 1.50% 1.50%
$250,000 but less than
$500,000................. 1.01% 1.00% 1.00%
$500,000 but less than
$1,000,000............... 0.50% 0.50% 0.50%
$1,000,000 or more........ 0.00% 0.00% 0.00%
</TABLE>

The public offering price of a Class A Share of each of the Intermediate
Bond, Growth and Income, Balanced, Large Company Growth, Small Company Growth,
and International Equity Funds and the Funds of Funds equals its net asset value
plus a sales charge in accordance with the table below.

<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE ALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF PUBLIC OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- -------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000........ 4.71% 4.50% 4.50%
$100,000 but less than
$250,000................. 3.63% 3.50% 3.50%
$250,000 but less than
$500,000................. 2.56% 2.50% 2.50%
$500,000 but less than
$1,000,000............... 1.52% 1.50% 1.50%
$1,000,000 or more........ 0.00% 0.00% 0.00%
</TABLE>

BISYS Fund Services (the "Distributor") receives this sales charge as
Distributor and reallows a portion of it as dealer discounts and brokerage
commissions. However, the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it receives. A broker or
dealer who receives a reallowance in excess of 90% of the sales charge may be
deemed to be an "underwriter" for purposes of the Securities Act of 1933.

Class A Shares of the Prime Money Market Fund and the U.S. Treasury Fund
are sold at net asset value without imposition of a sales charge.

From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers.

40
<PAGE> 95

The Distributor, at its expense, will also provide additional compensation
to dealers in connection with sales of Class A Shares of any of the Funds of the
Group. The maximum cash compensation payable by the Distributor is 4.50% of the
public offering price of Class A Shares. Compensation will also include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to dealers whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1) vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at exotic locations, (2) tickets for entertainment
events (such as concerts, cruises and sporting events) and (3) merchandise (such
as clothing, trophies, clocks and pens). Dealers may not use sales of a Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by any Fund or its shareholders.

The sales charges set forth in the table above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which includes: (i) an
individual, his or her spouse and children under the age of 21; (ii) a trustee
or other fiduciary of a single trust estate or single fiduciary account; or
(iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.

SALES CHARGE WAIVERS

The following classes of investors may purchase Class A Shares of the Funds
with no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):

(1) Existing Shareholders of a Fund upon the reinvestment of dividend
and capital gain distributions;

(2) Officers, trustees, directors, advisory board members, employees
and retired employees of the Group, BB&T and its affiliates, the
Distributor and its affiliates, and employees of the Investment
Sub-Adviser (and spouses, children and parents of each of the
foregoing);

(3) Investors for whom a BB&T correspondent bank or other financial
institution acts in a fiduciary, advisory, custodial, agency, or
similar capacity;

(4) BB&T Fund shares purchased with the proceeds from a distribution
from BB&T or an affiliate trust or agency account (this waiver
applies only to the initial purchase of a BB&T Fund subject to a
sales load);

(5) Investors who beneficially hold Trust Shares of any Fund of the
Group;

(6) Investors who purchase Shares of a Fund through a payroll
deduction plan, a 401(k) plan or a 403(b) plan which by its terms
permits purchases of Shares;

(7) Investors whose shares are held of record by, and purchases made
on behalf of, other investment companies distributed by the
Distributor or its affiliated companies; and

In addition, the Distributor may waive the sales charge for the purchase of
a Fund's shares with the proceeds from the recent redemption of shares of
another non-money market mutual fund that imposes a sales charge. The purchase
must be made within 60 days of the redemption, and the Distributor must be
notified in writing by the investor or by his or her financial institution at
the time the purchase is made. A copy of the investor's account statement
showing such redemption must accompany such notice. The

41
<PAGE> 96

Distributor may also periodically waive the sales charge for all investors with
respect to a Fund.

LETTER OF INTENT

Any Purchaser may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such Purchaser to invest a
certain amount in Class A Shares of any of the Variable NAV Funds, i.e., those
Funds which charge a sales charge, within a period of 13 months. Each purchase
of Shares under a Letter of Intent will be made at the public offering price
plus the sales charge applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the Letter of Intent. A
Letter of Intent may include purchases of Class A Shares made not more than 90
days prior to the date such Purchaser signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included. When a purchaser enters into a
Letter of Intent which includes shares purchased prior to the date of the Letter
of Intent, the sales charge will be adjusted and used to purchase additional
Shares of the Fund at the then current public offering price at the end of the
13 month period. This program may be modified or eliminated at any time or from
time to time by the Group without notice.

A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Class A Shares purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the investor) to secure payment of the higher sales charge applicable to the
Class A Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Class A Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on escrowed Class A Shares,
whether paid in cash or reinvested in additional Class A Shares are not subject
to escrow. The escrowed Class A Shares will not be available for disposal by the
investor until all purchases pursuant to the Letter of Intent have been made or
the higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an investor purchases
more than the dollar amount indicated on the Letter of Intent and qualifies for
a further reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales
charges will be used to purchase additional Class A Shares subject to the rate
of sales charge applicable to the actual amount of the aggregate purchases at
the net asset value next calculated.

For further information, interested investors should contact the
Distributor. Letter of Intent privileges may be amended or terminated without
notice at any time by the Distributor.

CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION

A Purchaser (as defined under "HOW TO PURCHASE AND REDEEM SHARES -- Sales
Charge -- Class A") may qualify for a reduced sales charge by combining
concurrent purchases of Class A Shares of one or more of the Variable NAV Funds
or by combining a current purchase of Class A Shares of a Variable NAV Fund with
prior purchases of Shares of any Variable NAV Fund. The applicable sales charge
is based on the sum of (i) the Purchaser's current purchase of Class A Shares of
any Variable NAV Fund sold with a sales charge plus (ii) the then current net
asset value of all Class A Shares held by the Purchaser in any Variable NAV
Fund. To receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must at the time of purchase provide the Transfer
Agent or the Distributor with sufficient information to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Distributor.

CLASS B SHARES

Class B Shares are not subject to a sales charge when they are purchased,
but are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and Shareholder service fee at an annual rate of 1.00% of
such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. Class B Shares convert automatically to Class A Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted

42
<PAGE> 97
under the circumstances and subject to the qualifications described in this
Prospectus.

Proceeds from the Contingent Deferred Sales Charge and the distribution and
Shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.30% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission at its sole
discretion.

CONTINGENT DEFERRED SALES CHARGE

If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.

The amount of the Contingent Deferred Sales Charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such Shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of Shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEAR(S) DOLLAR AMOUNT
SINCE SUBJECT TO
PURCHASE CHARGE
- ------------ ------------------
<S> <C>
0-1 5.00 %
1-2 4.00 %
2-3 3.00 %
3-4 3.00 %
4-5 2.00 %
5-6 1.00 %
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Class A
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distributions, and finally of other Shares held by the Shareholder for the
longest period of time. This method should result in the lowest possible sales
charge.

To provide an example, assume you purchased 100 Shares at $10 per share (a
total cost of $1,000) and prior to the second anniversary after purchase, the
net asset value per share is $12 and during such time you have acquired 10
additional Shares through dividends paid in Shares. If you then make your first
redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to
charge because you received them as dividends. With respect to the remaining 40
Shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate
of 4.00% (the applicable rate prior to the second anniversary after purchase).

The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or disability (as defined in the Code) of a Shareholder or a
participant or beneficiary of a qualifying retirement plan if redemption is made
within one year of such death or disability; or (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. 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;
or (ii) exchanges for Class B Shares of other Funds of the Group as described
under "Exchange Privilege."

43
<PAGE> 98

CONVERSION FEATURE

Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Class A Shares and will be subject to the lower distribution and Shareholder
service fees charged to Class A Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.

For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in a Shareholder's Fund account
will be considered to be held in a separate sub-account. Each time any Class B
Shares in a Shareholder's Fund account (other than those in the sub-account)
convert to Class A Shares, a pro-rata portion of the Class B Shares in the
sub-account will also convert to Class A Shares.

If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Group during the eight-year period, the Group will aggregate the
holding periods for the shares of each Fund of the Group for purposes of
calculating that eight-year period. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same.

AUTO INVEST PLAN

BB&T Mutual Funds Group Auto Invest Plan enables Shareholders to make
regular purchases of Class A and Class B Shares through automatic deduction from
their bank accounts. With Shareholder authorization, the Group's transfer agent
will deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $50 per Fund; the minimum amount for subsequent automatic
investments in a Fund is $50. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or a supplemental sign-up form that can be acquired by calling the
Distributor. For a Shareholder to change the Auto Invest instructions or to
discontinue the feature, the request must be made in writing to the BB&T Mutual
Funds Group, P.O. Box 182533, Columbus, OH 43218-2533. The Auto Invest Plan may
be amended or terminated without notice at any time by the Distributor.

BB&T MUTUAL FUNDS GROUP INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

A BB&T Mutual Funds Group IRA enables individuals, even if they participate
in an employer-sponsored retirement plan, to establish their own retirement
program by purchasing Class A or Class B Shares for an IRA. BB&T Mutual Funds
Group IRA contributions may be tax-deductible and earnings are tax deferred.
Under the Tax Reform Act of 1986 and Taxpayer Relief Act of 1997, the tax
deductibility of IRA contributions is restricted or eliminated for individuals
who participate in certain employer pension plans and whose annual income
exceeds certain limits. Existing IRAs and future contributions up to the IRA
maximums, whether deductible or not, still earn income on a tax-deferred basis.

All BB&T Mutual Funds Group IRA distribution requests must be made in
writing to BISYS Fund Services. Any additional deposits to a BB&T Mutual Funds
Group IRA must distinguish the type and year of the contribution.

For more information on a BB&T Mutual Funds Group IRA call the Group at
(800) 228-1872. Investment in Shares of the North Carolina Fund and the South
Carolina Fund would not be appropriate for any IRA. Shareholders are advised to
consult a tax adviser on BB&T Mutual Funds Group IRA contribution and withdrawal
requirements and restrictions.

ADDITIONAL INFORMATION ABOUT PURCHASING SHARES

Purchases of Class A or Class B Shares of the Funds will be effected only
on a Business Day (as defined in "VALUATION OF SHARES"). An order for the Prime
Money Market Fund or the U.S. Treasury Fund received prior to a Valuation Time
on any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the date of receipt.

An order for the Prime Money Market Fund or the U.S. Treasury Fund received
after the last Valua-

44
<PAGE> 99

tion Time on any Business Day will be executed at net asset value determined as
of the next Valuation Time on the next Business Day. An order for a Variable NAV
Fund received prior to the Valuation Time on any Business Day will be executed
at the net asset value determined as of the Valuation Time on the date of
receipt. An order for a Variable NAV Fund received after the Valuation Time on
any Business Day will be executed at the net asset value determined as of the
Valuation Time on the next Business Day.

An order to purchase Class A Shares of the Prime Money Market Fund or the
U.S. Treasury Fund will be deemed to have been received by the Distributor only
when federal funds with respect thereto are available to the Group's custodian
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Shares of the Prime Money
Market Fund or the U.S. Treasury Fund which is transmitted by federal funds wire
will be available the same day for investment by the Group's custodian, if
received prior to the last Valuation Time (see "VALUATION OF SHARES"). It is
strongly recommended that investors of substantial amounts use federal funds to
purchase Shares of the Prime Money Market Fund or the U.S. Treasury Fund.

The Group reserves the right to reject any order for the purchase of its
Class A or Class B Shares in whole or in part, including purchases made with
foreign and third party drafts or checks.

EXCHANGE PRIVILEGE

CLASS A

Class A Shares of each Fund may be exchanged for Class A Shares of the
other Funds, provided that the Shareholder making the exchange is eligible on
the date of the exchange to purchase Class A Shares (with certain exceptions and
subject to the terms and conditions described in this prospectus). Class A
Shares may not be exchanged for Class B Shares of the other Funds, and may be
exchanged for Trust Shares of the other Funds only if the Shareholder becomes
eligible to purchase Trust Shares. Only residents of North Carolina may exchange
their Class A Shares of the other Funds for Class A Shares of the North Carolina
Fund. Only residents of South Carolina may exchange their Class A Shares of the
other Funds for Class A Shares of the South Carolina Fund. Shareholders may
exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of the Prime
Money Market Fund or the U.S. Treasury Fund, for which no sales load was paid,
for Class A Shares of a Variable NAV Fund. Under such circumstances, the cost of
the acquired Class A Shares will be the net asset value per share plus the
appropriate sales load. If Class A Shares of the Prime Money Market Fund or the
U.S. Treasury Fund were acquired in a previous exchange involving Shares of a
Variable NAV Fund, then such Shares of the Prime Money Market Fund or the U.S.
Treasury Fund may be exchanged for Shares of a Variable NAV Fund without payment
of any additional sales load within a twelve month period. Under such
circumstances, the Shareholder must notify the Distributor that a sales load was
originally paid. Depending upon the terms of a particular Customer account, a
Participating Organization may charge a fee with regard to such an exchange.
Information about such charges will be supplied by the Participating
Organization.

CLASS B

Class B Shares of each Fund may be exchanged for Class B Shares of the
other Funds on the basis of relative net asset value per Class B Share, without
the payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
as of the date of this prospectus, Class B Shares were not yet being offered in
the Prime Money Market Fund, the Short-Intermediate Fund, the North Carolina
Fund, or the South Carolina Fund, and thus, as of the date of this prospectus,
no exchanges could

45
<PAGE> 100

be effected for Class B Shares of these four Funds. For purposes of computing
the Contingent Deferred Sales Charge that may be payable upon a disposition of
the newly acquired Class B Shares, the holding period for outstanding Class B
Shares of the Fund from which the exchange was made is "tacked" to the holding
period of the newly acquired Class B Shares. For purposes of calculating the
holding period applicable to the newly acquired Class B Shares, the newly
acquired Class B Shares shall be deemed to have been issued on the date of
receipt of the Shareholder's order to purchase the outstanding Class B Shares of
the Fund from which the exchange was made.

Class B Shares may not be exchanged for Class A Shares of the other Funds,
and may be exchanged for Trust Shares of the other Funds only if the Shareholder
becomes eligible to purchase Trust Shares. A Contingent Deferred Sales Charge
will apply as described in "How To Purchase and Redeem Shares" --"Class B
Shares" to exchanges of Class B Shares for Trust Shares.

ADDITIONAL INFORMATION ABOUT EXCHANGES

An exchange is considered a sale of Shares and will result in a capital
gain or loss for federal income tax purposes, which, in general, is calculated
by netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange. If a Shareholder exchanges
Class A Shares within 90 days of acquiring them and if a sales charge is waived
on the exchange, for purposes of measuring the capital gain or loss on the
exchange, the Shareholder's basis in the surrendered Shares is reduced by the
lesser of (i) the sales charge paid for the surrendered shares or (ii) the
amount of the sales charge that is waived on the exchange.

A Shareholder wishing to exchange Class A or Class B Shares purchased
directly from the Group may do so by contacting the Group at (800) 228-1872 or
by providing instructions to the Transfer Agent. If not selected on the Account
Registration form, the Shareholder will automatically receive Exchange
privileges. A Shareholder wishing to exchange Class A or Class B Shares
purchased through a Participating Organization or Bank may do so by contacting
the Participating Organization or Bank. If an exchange request in good order is
received by the Distributor or the Transfer Agent by 12:00 noon (Eastern Time)
on any Business Day, the exchange usually will occur on that day. Any
Shareholder who wishes to make an exchange should obtain and review a prospectus
describing the Fund and class of Shares which he or she wishes to acquire before
making the exchange. The exchange privilege may be exercised only in those
states where the class of Shares of such other Fund may legally be sold. The
Group reserves the right to change the terms and conditions of the exchange
privilege discussed herein upon sixty days written notice.

The Group's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.

AUTO EXCHANGE PLAN

BB&T Mutual Funds Group Auto Exchange Plan enables Shareholders to make
regular, automatic withdrawals from Class A Shares and Class B Shares of a BB&T
Mutual Fund and use those proceeds to benefit from dollar-cost-averaging by
automatically making purchases of shares of another BB&T Mutual Fund. With
shareholder authorization, the Group's transfer agent will withdraw the amount
specified (subject to the applicable minimums) from the shareholder's account
and will automatically invest that amount in Class A Shares or Class B Shares of
the BB&T Fund designated by the Shareholder at the public offering price on the
date of such deduction. The Auto Exchange feature can only be used within the
same class of Shares. In order to participate in the Auto Exchange, Shareholders
must have a minimum initial purchase of $10,000 in their BB&T Mutual Fund
accounts.

Shareholders investing directly in Class B Shares of the U.S. Treasury
Fund, as opposed to Shareholders obtaining Class B Shares of the U.S. Treasury
Fund upon an exchange of Class B Shares of any of the other Funds, will be
requested to participate in the Auto Exchange and to set the time and amount of
their regular, automatic withdrawals in such a way that all of their Class B
Shares have been withdrawn from the U.S. Treasury Fund within two years of
purchase.

To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the

46
<PAGE> 101

Account Registration Form, which can be acquired by calling the Distributor. To
change the Auto Exchange instructions or to discontinue the feature, a
Shareholder must send a written request to the BB&T Mutual Funds Group, P.O. Box
182533, Columbus, OH 43218-2533. The Auto Exchange may be amended or terminated
without notice at any time by the Distributor.

REDEMPTION OF SHARES

Shareholders may redeem their Class A Shares without charge, and their
Class B Shares subject to the applicable Contingent Deferred Sales Charge, on
any day that net asset value is calculated (see "VALUATION OF SHARES") and
Shares may ordinarily be redeemed by mail or by telephone. However, all or part
of a Customer's Shares may be required to be redeemed in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization or Bank. For example, if a Customer has agreed to
maintain a minimum balance in his or her account, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Participating Organization or Bank may redeem for and on behalf of the Customer,
all or part of the Customer's Shares to the extent necessary to maintain the
required minimum balance.

REDEMPTION BY MAIL

REDEMPTION BY TELEPHONE

Shares may be redeemed by telephone if the Shareholder selected that option
on the Account Registration Form. A Shareholder may have the proceeds mailed to
the address of record or sent electronically or mailed directly to a domestic
commercial bank account previously designated by the Shareholder on the Account
Registration Form. Under most circumstances, such payments will be transmitted
on the next Business Day following receipt of a valid request for redemption.
Such electronic redemption requests may be made by the Shareholder by telephone
to the Transfer Agent. The Transfer Agent may reduce the amount of a wire
redemption payment by its then-current wire redemption charge. Such charge is
currently being waived. There is no charge for having payment of redemption
requests mailed or sent via the Automated Clearing House to a designated bank
account. For telephone redemptions, call the Group at (800) 228-1872. If not
selected on the Account Registration form, the Shareholder will automatically
receive telephone redemption privileges. None of the Distributor, the Group's
transfer agent, BB&T or the Group will be liable for any losses, damages,
expense or cost arising out of any telephone transaction (including exchanges
and redemptions) effected in accordance with the Group's telephone transaction
procedures, upon instructions reasonably believed to be genuine. The Group will
employ procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are not followed, the
Group may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verifying the account name and a shareholder's account number or
tax identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone transactions, Shareholders
may also mail the redemption request to the Group.

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<PAGE> 102

CHECK WRITING SERVICE

Shareholders of Class A Shares of the Prime Money Market Fund and the U.S.
Treasury Fund may write checks on Fund accounts for $100 or more. Once a
Shareholder has signed and returned a signature card, he or she will receive a
supply of checks. A check may be made payable to any person, and the
Shareholder's account will continue to earn dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. The
Shareholder's account may be charged a fee for stopping payment of a check upon
the Shareholder's request or if the check cannot be honored because of
insufficient funds or other valid reasons.

AUTO WITHDRAWAL PLAN

BB&T Mutual Funds Group Auto Withdrawal Plan enables Shareholders to make
regular redemptions of Class A Shares of a Fund. With Shareholder authorization,
the Group's transfer agent will automatically redeem Class A 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.
Shareholders participating in the Auto Withdrawal Plan must maintain a minimum
account balance of $1,000 in the Fund from which Class A Shares are being
redeemed. Purchase of additional Class A Shares concurrent with withdrawals may
be disadvantageous to certain Shareholders because of tax liabilities.

To participate in the Auto Withdrawal Plan, Shareholders should complete a
supplemental sign-up form that can be acquired by calling the Distributor. For a
Shareholder to change the Auto Withdrawal instructions or to discontinue the
feature, the request must be made in writing to the BB&T Mutual Funds Group,
P.O. Box 182533, Columbus, OH 43218-2533. The Auto Withdrawal Plan may be
amended or terminated without notice at any time by the Distributor.

PAYMENTS TO SHAREHOLDERS

Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Group will attempt to honor requests from
Shareholders for next Business Day payments upon redemptions of Shares if the
request for redemption is received by the Transfer Agent before the last
Valuation Time on a Business Day or, if the request for redemption is received
after the last Valuation Time, to honor requests for payment within two Business
Days, unless it would be disadvantageous to the Group or the Shareholders of the
particular Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. The Prime Money
Market Fund and the U.S. Treasury Fund will attempt to honor requests from its
Shareholders for same day payment upon redemption of Shares if the request for
redemption is received by the Transfer Agent before 12:00 noon Eastern Time, on
a Business Day or, if the request for redemption is received after 12:00 noon
Eastern Time, to honor requests for payment on the next Business Day, unless it
would be disadvantageous to the Fund or its Shareholders to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.

Due to the relatively high cost of handling small investments, the Group
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder, the
account of such Shareholder in a Fund has a value of less than $1,000.
Accordingly, an investor purchasing Shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before the Group exercises its
right to redeem such Shares and sends proceeds to the Shareholder, the
Shareholder will be

48
<PAGE> 103

given notice that the value of the Shares of a Fund in
his or her account is less than the minimum amount and will be allowed 60 days
to make an additional investment in an amount which will increase the value of
the account to at least $1,000.

DIVIDENDS AND TAXES

Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.

The net investment income of the Shares of the Prime Money Market Fund and
the U.S. Treasury Fund is declared daily as a dividend to Shareholders at the
close of business on the day of declaration. Dividends will generally be paid
monthly. The Prime Money Market Fund and the U.S. Treasury Fund do not expect to
realize any long-term capital gains and, therefore, do not foresee paying any
"capital gain dividends" as described in the Code.

The amount of dividends payable with respect to the Trust Shares will
exceed dividends on Class A Shares, and the amount of dividends on Class A
Shares will exceed the dividends on Class B Shares, as a result of the
Distribution and Shareholder Services Plan fee applicable to Class A and Class B
Shares.

A dividend on the Shares of the North Carolina, South Carolina,
Short-Intermediate and Intermediate Bond Funds is declared daily and paid
monthly, and a dividend on the Shares of the Growth and Income and Balanced
Funds is declared and paid monthly. The Large Company Growth, Small Company
Growth, International Equity and Fund of Funds declare and pay dividends
quarterly. Net realized capital gains, if any, are distributed at least annually
to Shareholders of record.

A Shareholder will automatically receive all income dividends and capital
gain distributions in additional full and fractional Shares at net asset value
as of the date of declaration unless the Shareholder elects to receive such
dividends or distributions in cash. Such election, or any revocation thereof,
must be made in writing to the BB&T Mutual Funds Group, P.O. Box 182533,
Columbus, OH 43218-2533, and will become effective with respect to dividends and
distributions having record dates after its receipt by the transfer agent.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Dividends are paid in cash not later than seven Business Days after a
Shareholder's complete redemption of his or her Shares. If you elect to receive
distributions in cash and your checks (1) are returned and marked as
"undeliverable" or (2) remain uncashed for six months, your cash election will
be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.

Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of re-

49
<PAGE> 104

cord 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 but not more than 18 months and from net gains on
securities held for more than 18 months 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.

TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND

Dividends and certain interest income earned by the International Equity
Fund from foreign securities may be subject to foreign withholding taxes or
other taxes. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it on securities it has held for at least the
minimum period specified in the Code, including generally any withholding taxes
and other foreign income taxes, as paid by its shareholders. It is possible that
the International Equity Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If the Fund
makes the election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's U.S. Federal income tax liabilities, so long as the shareholder
held the Fund shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 other days during the 30-day period surrounding the
ex-dividend date, or (b) if a shareholder itemizes deductions, to deduct such
proportionate amounts from U.S. Federal taxable income.

Fund transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.

TAX CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND AND THE SOUTH CAROLINA
FUND

The portions of dividends paid for each year that are exempt from federal,
and North Carolina or South Carolina income tax, respectively, will be
designated within 60 days after the end of a Fund's taxable year

50
<PAGE> 105

and will be based for each of the North Carolina and South Carolina Funds upon
the ratio of net tax-exempt income to total net income earned by the Fund during
the entire year. That ratio may be substantially different from the ratio of net
tax-exempt income to total net income earned during any portion of the year.
Thus, a Shareholder who holds Shares in either Fund for only a part of the year
may be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net income
actually earned by the Fund while he or she was a Shareholder.

Distributions 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.

Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed for North Carolina, South
Carolina, and federal income tax purposes to the extent of the amount of such
exempt-interest dividend, even though, in the case of North Carolina or South
Carolina, some portion of such dividend actually may have been subject to North
Carolina or South Carolina income tax. Although the Treasury Department is
authorized to issue regulations reducing such period to as short as 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest, no such regulations have been issued as of the date of
this Prospectus.

The North Carolina Fund or the South Carolina Fund may at times purchase
Tax-Exempt Obligations at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of this market
discount will be included in a Fund's ordinary income and will be taxable to
shareholders as such when it is distributed to them.

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<PAGE> 106

political subdivisions that were issued before July 1, 1995 are exempt from
North Carolina State income tax. Distributions will be taxable as described
above even if the net asset value of a Share in the North Carolina Fund or the
South Carolina Fund is reduced below the Shareholder's cost of that Share by the
distribution of income or gain realized on the sale of securities and the
distribution is, as an economic matter, a return of capital. If a shareholder
purchases mutual fund shares, receives a capital gain dividend (or is credited
with an undistributed capital gain) and then sells the shares at a loss within 6
months after purchasing the shares, the loss is treated as a long-term capital
loss to the extent of the capital gain dividend (or undistributed capital gain).

Part or all of the interest on indebtedness incurred by a Shareholder to
purchase or carry Shares of the North Carolina Fund or the South Carolina Fund
is not deductible for federal, North Carolina and South Carolina income tax
purposes. The portion of interest that is not deductible is equal to the total
interest multiplied by the percentage of the Fund's total distributions (not
including distributions from net long-term capital gains) paid to the
Shareholder that are exempt-interest dividends. It is anticipated that none of
the distributions from the North Carolina Fund or the South Carolina Fund will
be eligible for the dividends received deduction for corporations.

Additional information regarding federal taxes is contained in the
Statement of Additional Information under the heading "Additional Tax
Information Concerning the North Carolina Fund and the South Carolina Fund."
However, the foregoing and the material in the Statement of Additional
Information are only brief summaries of some of the important tax considerations
generally affecting the North Carolina Fund and the South Carolina Fund and
their Shareholders. Accordingly, potential investors in the North Carolina Fund
and the South Carolina Fund are urged to consult their tax advisers with
specific reference to their own tax situation and in particular regard to state
and local tax consequences of investment in the North Carolina Fund and the
South Carolina Fund.

MANAGEMENT OF BB&T MUTUAL FUNDS GROUP

TRUSTEES OF THE GROUP

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
- ---------------------------- ---------------------- -----------------------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June, 1992 to present, employee of
3435 Stelzer Road BISYS Fund Services; from 1987 to June,
Columbus, OH 43219 1992, President of Leigh
Consulting/Investments (investment firm).

William E. Graham, Jr. Trustee From January 1994 to present, Counsel,
1 Hannover Square Hunton & Williams; from 1985 to December,
Fayetteville Street Mall 1993, Vice Chairman, Carolina Power &
P.O. Box 109 Light Company
Raleigh, NC 27602

Thomas W. Lambeth Trustee From 1978 to present, Executive Director,
101 Reynolda Village Z. Smith Reynolds Foundation
Winston-Salem,
NC 27106
</TABLE>

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<PAGE> 107

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE GROUP THE PAST 5 YEARS
- ---------------------------- ---------------------- -----------------------------------------
<S> <C> <C>
*W. Ray Long Trustee Executive Vice President, Branch Banking
434 Fayetteville Street Mall and Trust Company
Raleigh, NC 27601

Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990
</TABLE>

- ---------

* Indicates an "interested person" of the Group as defined in the Investment
Company Act of 1940.

The Trustees receive fees and are reimbursed for expenses in connection
with each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the Group for acting as
a Trustee. The officers of the Group (see the Statement of Additional
Information) receive no compensation directly from the Group for performing the
duties of their offices. BISYS Fund Services receives fees from the Group for
acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from
the Group for acting as Transfer Agent and for providing fund accounting
services to the Group. Walter B. Grimm is an employee of BISYS Fund Services and
W. Ray Long is an employee of the investment adviser, BB&T.

INVESTMENT ADVISER

BB&T is the investment adviser of each Fund. BB&T is the oldest bank in
North Carolina and is the principal bank affiliate of BB&T Corporation, a bank
holding company that is a North Carolina corporation, headquartered in
Winston-Salem, North Carolina. As of December 31, 1996, BB&T Corporation had
assets of approximately $25 billion. Through its subsidiaries, BB&T Corporation
operates over 425 banking offices in North Carolina, South Carolina and
Virginia, providing a broad range of financial services to individuals and
businesses.

In addition to general commercial, mortgage and retail banking services,
BB&T also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the Group. BB&T employs an experienced
staff of professional portfolio managers and traders who use a disciplined
investment process that focuses on maximization of risk-adjusted investment
returns. BB&T has managed common and collective investment funds for its
fiduciary accounts for more than 15 years and currently manages assets of more
than $4.5 billion.

Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T by the Prime Money Market Fund and the U.S. Treasury Fund for
investment advisory services is the lesser of: (a) a fee computed daily and paid
monthly at the annual rate of forty one hundredths of one percent (.40%) of each
Fund's average daily net assets; sixty one-hundredths of one percent (.60%) of
each Fixed Income Funds' and the North Carolina and South Carolina Funds'
average daily net assets; and seventy-four one-hundredths of one percent (.74%)
of the Large Company Growth Fund's, the Growth and Income Fund's and the
Balanced Fund's average daily net assets; one percent (1.00%) of the Small
Company Growth and International Equity Funds' average daily net assets; and
twenty-five one-hundredths of one percent (.25%) of each Fund of Funds' average
daily net assets, or (b) such fee as may from time to time be agreed upon in
writing by the Group and BB&T. A fee agreed to in writing from time to time by
the Group and BB&T may be significantly lower than the fee calculated at the
annual rate and the effect of such lower fee would be to lower a Fund's expenses
and increase the net

53
<PAGE> 108

income of the fund during the period when such
lower fee is in effect.

For the fiscal year ended September 30, 1997, the Funds paid the following
investment advisory fees for Funds that had operated for that entire year: the
U.S. Treasury Fund paid .40% of its average daily net assets; each of the
Short-Intermediate, Intermediate Bond, North Carolina, Growth and Income, and
Balanced Funds, after voluntary fee reductions, paid .50% of its average daily
net assets; and the Small Company Growth paid 1.00% of its average daily net
assets. The International Equity Fund had operations for less than a full fiscal
year. The Prime Money Market Fund, the South Carolina Fund, the Funds of Funds
and the Large Company Growth Fund had not commenced operations as of September
30, 1997.

The persons primarily responsible for the management of each of the
Variable NAV Funds of the Group other than the Small Company Growth and
International Equity Funds (which are managed by sub-advisers, described below),
as well as their previous business experience, are as follows:

Richard B. Jones......... Manager of the Growth and Income Fund since February 1, 1993.
Since 1987, Mr. Jones has been a portfolio manager in the BB&T
Trust Division. He is a Chartered Financial Analyst, and holds a
B.S. in Business Administration from Miami (Ohio) University and
an MBA from Ohio State University.

David R. Ellis........... Manager of the Balanced Fund since its inception and Manager of
the Funds of Funds since inception. Since 1986, Mr. Ellis has been
a portfolio manager in the BB&T Trust Division. He holds a B.S.
degree in Business Administration from the University of North
Carolina at Chapel Hill.

C. Steven Brennaman...... Manager of the North Carolina Fund since January, 1998 and manager
of the South Carolina Fund since its inception. Mr. Brennaman
joined BB&T after its merger with United Carolina Bank in July,
1997. He has been a Senior Portfolio Manager with UCB since June,
1995. Mr. Brennaman holds a B.A. degree in Political Science from
Mercer University and a M.S. degree in Management from Troy State
University.

Daniel J. Rivera......... Manager of the Large Company Growth Fund since its inception, Mr.
Rivera joined the BB&T staff in July, 1997, after BB&T's merger
with United Carolina Bank. He had been Director of Investments at
UCB since January, 1994. Mr. Rivera received a Bachelors degree in
Languages from the Virginia Military Institute, and is a Chartered
Financial Analyst.
</TABLE>

INVESTMENT SUB-ADVISERS

PNC Institutional Management Corporation ("PIMC") serves as the Investment
Sub-Adviser to the Prime Money Market Fund pursuant to a Sub-Advisory Agreement
with BB&T. Under the Sub-Advisory Agreement, PIMC manages the Fund, selects
investments and places all orders for purchases and sales of the Prime Money
Market Fund's securities, subject to the general supervision of the Group's
Board of Trustees and BB&T and in accordance with the Prime Money Market Fund's
investment objective, policies and restrictions.

54
<PAGE> 109

owned subsidiary of PNC Bank Corp., a multi-bank holding company. PIMC's
principal business address is 400 Bellevue Parkway, 4th Floor, Wilmington,
Delaware 19809.

As sub-adviser, PIMC is responsible for the day-to-day management of the
Prime Money Market Fund, and generally makes all purchase and sale investment
decisions for the Fund. PIMC also provides research and credit analysis.
Portfolio transactions for the Fund may be directed through broker/dealers who
sell Fund shares, subject to the requirements of best execution.

For its services and expenses incurred under the Sub-Advisory Agreement,
PIMC is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the annual rate of nine one-hundredths of one percent (.09%) or such
lower fee as may be agreed upon in writing by BB&T and PIMC.

PEAC is an indirect wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), the former Sub-Adviser to the Small Company Growth
Fund, with offices located at 1600 Market Street, Philadelphia, Pennsylvania
19103. At September 30, 1997, PEAC had approximately $3.2 billion in
discretionary assets under management, including $1.8 billion in mutual fund
portfolios and $1.2 billion in bank common trust funds. PNC Bank is a wholly
owned indirect subsidiary of PNC Bank Corp. PNC Bank Corp., a bank holding
company headquartered in Pittsburgh, Pennsylvania, was the 13th largest bank
holding company in the United States based on total assets at September 30,
1997. PNC Bank Corp. operates banking subsidiaries in Pennsylvania, Delaware,
Florida, Indiana, Kentucky, Massachusetts, New Jersey and Ohio and conducts
certain non-banking operations throughout the United States. Its major
businesses include consumer banking, corporate banking, real estate banking,
mortgage banking and asset management. With $129.6 billion in managed assets and
$388.2 billion of assets under administration at September 30, 1997, PNC Bank
Corp. is one of the largest bank money managers as well as one of the largest
institutional mutual fund managers in the United States. Of such amounts at
September 30, 1997, PNC Bank had $115.2 billion in managed assets $163.9 billion
in assets under administration. In addition to asset management and trust
services, PNC Bank also provides a wide range of domestic and international
commercial banking and consumer banking services. PNC Bank's origins, and in
particular its trust administration services, date back to the mid-to-late
1800s.

For its services and expenses incurred under the Sub-Advisory Agreement,
PEAC 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:

CastleInternational Asset Management Limited ("CastleInternational") serves
as the Investment Sub-Adviser to the International Equity Fund pursuant to a
Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement,
CastleInternational manages the Fund, selects investments and places all orders
for purchases and sales of the International Equity Fund's securities, subject
to the general supervision of the Group's Board of Trustees and BB&T and in
accordance with the International Equity Fund's investment objective, policies,
and restrictions.

CastleInternational, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scot-

55
<PAGE> 110

land, EH2 3AH, is an indirect wholly-owned
subsidiary of PNC Bank Corp. As of September 30, 1997, CastleInternational had
approximately $2.1 billion in discretionary assets under management, including
five mutual fund portfolios, one bank common trust fund and two tax exempt
institutional portfolios.

The person primarily responsible for the management of the International
Equity Fund is Gordon Anderson. Mr. Anderson has served as Managing and
Investment Director of CastleInternational Asset Management Limited since 1996.
Prior to joining CastleInternational, Mr. Anderson was the Investment Director
of Dunedin Fund Managers Ltd. Mr. Anderson has been the Portfolio Manager for
the Compass Capital Funds(SM) International Equity Portfolio since 1996.

ADMINISTRATOR AND DISTRIBUTOR

The Administrator generally assists in all aspects of a Fund's
administration and operation. Under a management and administration agreement
between the Group and the Administrator, the fee payable by a Fund to the
Administrator for management administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (.20%) of a
Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon in writing by the Group and the Administrator. A fee agreed to in
writing from time to time by the Group and the Administrator may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase the net income
of the Fund during the period when such lower fee is in effect.

For the fiscal year ended September 30, 1997, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
.20% for each of the U.S. Treasury Fund, the Short-Intermediate Fund, the
Intermediate Bond Fund, the Growth and Income Fund, the Balanced Fund, and the
Small Company Growth Fund and .15% for the North Carolina Fund. The
International Equity Fund had operations of less than a full fiscal year. No
Administration fees were paid by the Prime Money Market Fund, the South Carolina
Fund, the Funds of Funds or the Large Company Growth Fund for that period as
they had not commenced operations as of September 30, 1997.

EXPENSES

BB&T and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees of the Group, Securities
and Exchange Commission fees, state securities qualification and renewal fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and out-of-
pocket expenses for fund accounting services, expenses incurred for pricing
securities owned by a Fund, certain insurance premiums, costs of maintenance of
a Fund's existence, costs and expenses of Shareholders' and Trustees' reports
and meetings, and any extraordinary expenses incurred in its operation. As a
general matter, expenses are allocated to the Class A, Class B and Trust Class
of a Fund on the basis of the relative net asset value of each class. At
present, the only expenses that will be borne solely by Class A and Class B
Shares, other than in accor-

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dance with the relative net asset value of the class, are expenses under the
Group's Distribution and Shareholder Services Plan ("Distribution Plan") which
relate only to the Class A and Class B Shares.

For the periods ended September 30, 1997, each Fund's total operating
expenses for Class A Shares were as follows (as a percentage of average daily
net assets of each Fund): U.S. Treasury Fund: .95%; Short-Intermediate Fund:
1.11%; Intermediate Bond Fund: 1.12%; North Carolina Fund: 1.00%; Growth and
Income Fund: 1.09%; Balanced Fund: 1.18%; and Small Company Growth Fund: 1.89%.
Absent fee waivers, these operating expenses would have been: U.S. Treasury
Fund: 1.25%; Short-Intermediate Fund: 1.46%; Intermediate Bond Fund: 1.47%;
North Carolina Fund: 1.50%; Growth and Income Fund: 1.58%; Balanced Fund: 1.67%;
Small Company Growth Fund: 2.14%.

For the fiscal year ended September 30, 1997, each Fund's total operating
expenses for Class B Shares were as follows (as a percentage of average daily
net assets of each Fund): U.S. Treasury Fund: 1.75%; Intermediate Bond Fund:
1.87%; Growth and Income Fund: 1.84%; Balanced Fund: 1.93% and Small Company
Growth Fund: 2.64%. Absent fee waivers, these operating expenses would have
been: Intermediate Bond Fund: 1.97%; Growth and Income Fund: 2.08%; and Balanced
Fund: 2.17%.

The organizational expenses of the Prime Money Market Fund, the South
Carolina Fund, the Large Company Growth Fund, the Funds of Funds, and the
International Equity Fund have been capitalized and are being amortized in the
first two years of the Fund's operations. Such amortization will reduce the
amount of income available for payment as dividends.

BANKING LAWS

BB&T, PIMC, PEAC, and CastleInternational each believes that it possesses
the legal authority to perform the investment advisory and sub-advisory services
for the Group contemplated by its investment advisory agreement with the Group
and investment and sub-advisory agreement with BB&T and described in this
Prospectus without violation of applicable banking laws and regulations, and has
so represented to the Group. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which BB&T, PIMC, PEAC, and
CastleInternational could continue to perform such services for the Group. See
"MANAGEMENT OF BB&T MUTUAL FUNDS GROUP--Glass Steagall Act" in the Statement of
Additional Information for further discussion of applicable banking laws and
regulations.

DISTRIBUTION PLAN

The Group's Class A and Class B Shares are sold on a continuous basis by
the Distributor. Under the Group's Distribution and Shareholder Services Plan
(the "Distribution Plan"), a Fund will pay a monthly distribution fee to the
Distributor as compensation for its services in connection with the Distribution
Plan at an annual rate equal to fifty one-hundredths of one percent (.50%) of
the average daily net assets of Class A Shares of each Fund and one percent
(1.00%) of the average daily net assets of Class B Shares of each Fund. The
Distributor may periodically waive all or a portion of the fee with respect to a
Fund in order to increase the net investment income of the Fund available for
distribution as dividends. The Distributor has agreed with the Group to reduce
its fee under the Distribution Plan to an amount not to exceed twenty-five
one-hundredths of one percent (.25%) of the average daily net assets of Class A
Shares of each Fund. The Distributor may use the distribution fee to provide
distribution assistance with respect to a Fund's Class A and Class B Shares or
to provide shareholder services to the holders of such Shares. The Distributor
may also use the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment counselors but not
including banks), broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with distribution assistance or (ii) to pay banks, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
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

57
<PAGE> 112

relate to the provision of distribution assistance in connection with the
distribution of a Fund's Class A and Class B Shares to the Participating
Organization's customers on whose behalf the investment in such Shares is made
and/or to the provision of shareholder services to the Participating
Organization's customers owning a Fund's Class A and Class B Shares. Under the
Distribution Plan, a Participating Organization may include Southern National
Corporation or a subsidiary bank or nonbank affiliates, or the subsidiaries or
affiliates of those banks. A Servicing Agreement entered into with a bank (or
any of its subsidiaries or affiliates) will contain a representation that the
bank (or subsidiary or affiliate) believes that it possesses the legal authority
to perform the services contemplated by the Servicing Agreement without
violation of applicable banking laws (including the Glass-Steagall Act) and
regulations.

The distribution fee will be payable without regard to whether the amount
of the fee is more or less than the actual expenses incurred in a particular
year by the Distributor in connection with distribution assistance or
shareholder services rendered by the Distributor itself or incurred by the
Distributor pursuant to the Servicing Agreements entered into under the
Distribution Plan. If the amount of the distribution fee is greater than the
Distributor's actual expenses incurred in a particular year (and the Distributor
does not waive that portion of the distribution fee), the Distributor will
realize a profit in that year from the distribution fee. If the amount of the
distribution fee is less than the Distributor's actual expenses incurred in a
particular year, the Distributor will realize a loss in that year under the
Distribution Plan and will not recover from a Fund the excess of expenses for
the year over the distribution fee, unless actual expenses incurred in a later
year in which the Distribution Plan remains in effect were less than the
distribution fee paid in that later year.

The Distribution Plan also contains a so-called "defensive" provision
applicable to all classes of Shares. Under this defensive provision to the
extent that any payment made to the Administrator, including payment of
administration fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of Shares issued by the Group's Funds
within the context of Rule 12b-1 under the 1940 Act, such payment shall be
deemed to be authorized by the Distribution Plan.

The Glass-Steagall Act and other applicable laws prohibit banks generally
from engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Group will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Group to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.

GENERAL INFORMATION

DESCRIPTION OF THE GROUP AND ITS SHARES

The Group was organized as a Massachusetts business trust on October 1,
1987 and commenced active operation on September 24, 1992. The Group has an
unlimited number of authorized Shares of beneficial interest which may, without
Shareholder approval, be divided into an unlimited number of series of such
Shares, and which are presently divided into fourteen series of Shares, one for
each of the following Funds: the BB&T Short-Intermediate U.S. Government Income
Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T Growth and
Income Stock Fund, the BB&T South Carolina Intermediate Tax-Free Fund, the BB&T
North Carolina Intermediate Tax-Free Fund, the BB&T Prime Money Market Fund, the
BB&T U.S. Treasury Money Market Fund, the BB&T Balanced Fund, the BB&T Large
Company Growth Fund, the BB&T Small Company Growth Fund, the BB&T International
Equity Fund, the BB&T Capital Manager Conservative Growth Fund, the BB&T Capital
Manager Moderate Growth Fund, and the BB&T Capital Manager Growth Fund. Each
Fund is authorized to issue three classes of shares: Class A, Class B and Trust
Shares. Currently, the Prime Money Market Fund, the Short-Intermediate Fund, the
North Carolina Fund, the South Carolina Fund and the Funds of Funds are not
offering Class B Shares. Shareholders investing directly in Class B Shares of

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<PAGE> 113

the U.S. Treasury Fund, as opposed to Shareholders obtaining Class B Shares of
the U.S. Treasury Fund upon an exchange of Class B Shares of any other Fund,
will be requested to participate in the Auto Exchange Program in such a way that
their Class B Shares have been withdrawn from the U.S. Treasury Fund within two
years of purchase. Each Share represents an equal proportionate interest in a
Fund with other Shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per Share (with proportional voting
for fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the Investment Company Act of 1940, Shares shall be
voted by individual series, (ii) when the Trustees have determined that the
matter affects only the interests of a particular series or class, and (iii)
only the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such classes.

As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Group or a particular
Fund means the affirmative vote, at a meeting of Shareholders duly called, of
the lesser of (a) 67% or more of the votes of Shareholders of the Group or such
Fund present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Group or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Group or such Fund.

Overall responsibility for the management of the Group is vested in the
Board of Trustees. See "MANAGEMENT OF BB&T MUTUAL FUNDS GROUP -- Trustees of the
Group." Individual Trustees are elected by the Shareholders and may be removed
by the Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Group and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in
the Statement of Additional Information for further information.

As of January 22, 1998 the following person owned of record or beneficially
more than 25% of the Class A Shares (formerly Investor Shares) of the U.S.
Treasury Money Market Fund:

<TABLE>
<CAPTION>
PERCENT OWNED
-----------------------
RECORD
NAME AND ADDRESS TOTAL SHARES ONLY BENEFICIALLY
- ----------------------------- -------------- ------- -------------
<S> <C> <C> <C>
U.S. Treasury Money Market Fund - Class A Shares
- -----------------------------------------------------------------------
National Financial Services
Corp.
For the Exclusive Benefit of
Our Customers
P.O. Box 3752
Church Street Station
New York, NY 10008-3752..... 26,026,719,390 66.42%
</TABLE>

Accordingly, National Financial Services Corp. may be deemed to be a
"controlling person" of the Class A Shares of the U.S. Treasury Money Market
Fund.

CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT

Bank of New York serves as the Custodian for the International Equity Fund.
Star Bank N.A., 425 Walnut Street, Cincinnati, Ohio 45201, serves as Custodian
for all other Funds of the Group.

BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) serves as transfer agent for and provides fund accounting services
to the Group.

OTHER CLASSES OF SHARES

In addition to Class A and Class B Shares, the Group also offers Trust
Shares of each Fund. Trust Shares are offered to BB&T and its affiliates and
other financial service providers approved by the Distributor for the investment
of funds for which they act in a fiduciary, advisory, agency, custodial or
similar capacity. Trust Shares are sold at net asset value and are not subject
to a sales charge or a Distribution Plan fee. A salesperson or other person
entitled to receive compensation for selling or servicing the shares may receive
different compensation with respect to one particular class of shares over
another in the Fund. For further details regarding eligibility requirements for
the purchase of Trust Shares, call the Distributor at (800) 228-1872.

59
<PAGE> 114

PERFORMANCE INFORMATION

From time to time, the Prime Money Market Fund's and the U.S. Treasury
Fund's annualized "yield" and "effective yield" and total return for Class A and
Class B Shares may be presented in advertisements, sales literature and
Shareholder reports. The "yield" of the Prime Money Market Fund and the U.S.
Treasury Fund is based upon the income earned by the Fund over a seven-day
period and then annualized, i.e. the income earned in the period is assumed to
be earned every seven days over a 52-week period and is stated as a percentage
of the investment. The "effective yield" of a Money Market Fund is calculated
similarly but when annualized, the income earned by the investment is assumed to
be reinvested in Shares of the Group and thus compounded in the course of a
52-week period. The effective yield will be higher than the yield because of the
compounding effect of this assumed reinvestment.

Total return is calculated for the past year and the period since the
establishment of each Money Market Fund. Average annual total return is measured
by comparing the value of an investment in a Money Market Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.

From time to time performance information of a Variable NAV Fund showing
its average annual total return, aggregate total return, and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. In addition, tax equivalent yield may be presented
in advertisements, sales literature and shareholder reports of the North
Carolina Fund and the South Carolina Fund. Average annual total return will be
calculated for the period since the establishment of a Fund and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. Average
annual total return is measured by comparing the value of an investment in a
Fund at the beginning of the relevant period to the redemption value of an
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for a Variable NAV Fund
earned during a recent 30-day period by the Fund's per Share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the results.

The North Carolina Fund and the South Carolina Fund may also advertise
their tax equivalent yield, which reflects the amount of income subject to
federal income taxation that a taxpayer would have to earn in order to obtain
the same after-tax income as that derived from the yield of the Fund. The tax
equivalent yield will be significantly higher than the yield of the North
Carolina Fund or the South Carolina Fund.

Each Fund may also present its average annual total return, aggregate total
return, yield and/or tax equivalent yield, as the case may be, excluding the
effect of a sales charge, if any.

The Variable NAV Funds may also calculate a distribution rate. Distribution
rates will be computed by dividing the distribution per Share of a class made by
a Fund over a twelve-month period by the maximum offering price per Share. The
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses. The calculation of income in the
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, and may include returns of principal, whereas yield
does not include such items. Each of the Funds do not intend to publish
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.

Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Class A Shares are
subject to lower Distribution Plan fees than Class B Shares, the yield and total
return for Class A Shares will be higher than that of the Class B Shares for the
same period. Because Trust Shares are not subject to Distribution Plan fees, the
yield and total return for Trust

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<PAGE> 115

Shares will be higher than that of the Class A and Class B Shares for the same
period.

Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/MONEY FUND
AVERAGES REPORT and Ibbotson Associates, Inc. References may also be made to
indices or data published in Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, Ibbotson Associates, Inc., Morningstar, Inc.,
CDA/Weisenberger, Pension and Investments, U.S.A. Today and local newspapers. In
addition to performance information, general information about the Funds that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to Shareholders.

Information about the performance of a Fund is based on a Fund's record up
to a certain date and is not intended to indicate future performance. Yield and
total return of any investment are generally functions of portfolio quality and
maturity, type of investments and operating expenses. Yields and total returns
of a Fund will fluctuate. Any fees charged by the Participating Organizations to
their customers in connection with investment in a Fund are not reflected in the
Group's performance information.

Further information about the performance of each Fund of the Group is
contained in the Group's annual report to Shareholders, which may be obtained
without charge by calling (800) 228-1872.

MISCELLANEOUS

Shareholders will receive unaudited semi-annual reports describing the
investment operations of each of the Funds and annual financial statements
audited by independent public accountants.

Inquiries regarding the Group may be directed in writing to the Group at
the following address: the BB&T Mutual Funds Group, P.O. Box 182533, Columbus,
OH 43218-2533 or by calling toll free (800) 228-1872.

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<PAGE> 117

INVESTMENT ADVISER
Branch Banking and Trust Company
434 Fayetteville Street Mall
Raleigh, NC 27601

ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219

LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005

TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219

AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza, Suite 1600
Columbus, OH 43215