BB&T MUTUAL FUNDS GROUP, 497, 1999-05-17

BB&T MUTUAL FUNDS GROUP
497, 1999-05-17

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<PAGE> 1
CROSS REFERENCE SHEET
---------------------

PROSPECTUS FOR BB&T FUNDS
-------------------------

CLASS A AND CLASS B SHARES
--------------------------

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page.................................................... Cover Page

Financial
Highlights................................................. Selected Per Share Data and Ratios;
Performance

Synopsis...................................................... Fee Table

General Description
of Registrant.............................................. BB&T Funds; Investment Objective and
Policies; Investment Restrictions;
General Information - Description of
the BB&T Funds and Its Shares

Management of the
Funds...................................................... Management of BB&T Funds; General
Information - Custodian and Transfer
Agent

Capital Stock and
Other Securities........................................... BB&T Funds; How to Purchase and
Redeem Shares; Dividends and Taxes;
General Information - Description of
the BB&T Funds and Its Shares; General
Information - Miscellaneous

Purchase of Securities
Being Offered.............................................. Valuation of Shares; How to Purchase
and Redeem Shares

Redemption or Repurchase...................................... How to Purchase and Redeem Shares

Legal Proceedings............................................. Inapplicable
</TABLE>
<PAGE> 2

[BB&T MUTUAL FUNDS LOGO]

MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund

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

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

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

CLASS A AND B SHARES

BRANCH BANKING AND TRUST COMPANY
INVESTMENT ADVISER

BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR

PROSPECTUS DATED MAY 17, 1999
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 2

BB&T Funds.................................................. 5

Fee Table................................................... 5

Financial Highlights........................................ 11

Investment Objectives and Policies.......................... 24

Investment Restrictions..................................... 47

Valuation of Shares......................................... 49

How to Purchase and Redeem Shares........................... 50

Dividends and Taxes......................................... 60

Management of BB&T Funds.................................... 64

General Information......................................... 71
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BB&T
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
BB&T FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
i
<PAGE> 4

BB&T FUNDS

<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>

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

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

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

THE BB&T TAX-FREE MONEY MARKET FUND (the "Tax-Free Money Market Fund") seeks
as high a level of current interest income exempt from federal income tax as is
consistent with stability of principal. The Tax-Free Money Market Fund seeks to
achieve this objective by investing substantially all of its assets in
short-term tax-exempt obligations issued by state and local governments.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND, THE U.S. TREASURY FUND, AND THE
TAX-FREE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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

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

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

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

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

THE NORTH CAROLINA FUND, THE SOUTH CAROLINA FUND, AND THE VIRGINIA FUND ARE
NON-DIVERSIFIED FUNDS AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION PER
ISSUER THAN DIVERSIFIED FUNDS.

THE BB&T INTERMEDIATE CORPORATE BOND FUND (the "Intermediate Corporate Bond
Fund") seeks current income consistent with the preservation of capital through
investment of at least 65% of its total assets in a diversified portfolio of
investment grade corporate bonds.

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

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

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

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

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

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

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

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

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

This Prospectus sets forth concisely the information about the BB&T Funds'
Class A and Class B Shares that a prospective investor ought to know before
investing. Investors should read this Prospectus and retain it for future
reference.

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

The date of this Prospectus is May 17, 1999.
<PAGE> 5

PROSPECTUS SUMMARY

BB&T Funds................... The BB&T Funds, a Massachusetts business trust,
is an open-end management investment company
which currently consists of eighteen separately
managed portfolios (each a "Fund"). Three of the
Funds (the "Funds of Funds") offer Shareholders a
professionally-managed investment program by
purchasing shares of other Funds of the BB&T
Funds (the "Underlying Funds"). The remaining
fifteen Funds primarily invest in securities of
issuers unrelated to the BB&T Funds. Each Fund is
authorized to offer three classes of Shares:
Class A, Class B and Trust Class. As of the date
of this prospectus, however, Shares of the
Tax-Free Money Market Fund, the Intermediate
Corporate Bond Fund, and the Equity Index Fund
were not yet being offered and Class B Shares of
the Short-Intermediate Fund, the North Carolina
Fund, the South Carolina Fund, and the Virginia
Fund were not yet being offered. Shareholders
investing directly in Class B Shares of the U.S.
Treasury Fund, the Prime Money Market Fund, or
the Tax-Free Money Market Fund as opposed to
Shareholders obtaining Class B Shares upon an
exchange of Class B Shares of any of the other
Funds, will be requested to participate in the
Auto Exchange Program in such a way that their
Class B Shares will be withdrawn from the
respective Fund within two years of purchase.
This prospectus relates only to Class A and Class
B Shares.

Investment Objective and
Policies..................... THE PRIME MONEY MARKET FUND seeks as high a level
of current interest income as is consistent with
maintaining liquidity and stability of principal.

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

THE TAX-FREE MONEY MARKET FUND seeks as high a
level of current interest income exempt from
federal income tax as is consistent with
stability of principal.

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

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

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.

2
<PAGE> 6

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

THE VIRGINIA FUND seeks to produce a high level
of current interest income which is exempt from
both federal income tax and Virginia personal
income tax. Normally, the Virginia Fund will
invest at least 90% of its total assets in high
grade obligations issued by or on behalf of the
State of Virginia and its political subdivisions.

THE INTERMEDIATE CORPORATE BOND FUND seeks
current income consistent with the preservation
of capital through investment of at least 65% of
its total assets in a diversified portfolio of
investment grade corporate bonds.

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

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

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

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

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

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

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

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

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

3
<PAGE> 7

Money Market Fund may involve special risk
considerations. (See "Foreign Investments.")

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

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

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

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

Investment Adviser........... Branch Banking and Trust Company ("BB&T" or the
"Adviser"), Raleigh, North Carolina.

Sub-Advisers................. BlackRock Institutional Management Corporation
("BIMC" or the "Sub-Adviser"), Wilmington,
Delaware, serves as the Sub-Adviser to the Prime
Money Market Fund and the Tax-Free Money Market
Fund. BlackRock Financial Management, Inc.
("BFMI" or the "Sub-Adviser"), Philadelphia,
Pennsylvania, serves as the Sub-Adviser to the
Small Company Growth Fund. BlackRock
International, Ltd. ("BlackRock International" or
the "Sub-Adviser"), Edinburgh, Scotland, serves
as the Sub-Adviser to the International Equity
Fund.

Dividends.................... The Prime Money Market Fund, the U.S. Treasury
Fund, the Tax-Free Money Market Fund, the
Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, Intermediate Corporate Bond
Fund, the North Carolina Fund, the South Carolina
Fund, and the Virginia Fund declare dividends
daily and pay such dividends monthly. The Growth
and Income Fund and the Balanced Fund declare and
pay dividends monthly. The Large Company Growth
Fund, the Small Company Growth Fund, the
International Equity Fund, the Capital Manager
Conservative Growth Fund, the Capital Manager
Moderate Growth Fund, and the Capital Manager
Growth Fund declare and pay dividends quarterly.

Distributor.................. BISYS Fund Services LP, Columbus, Ohio.

4
<PAGE> 8

BB&T FUNDS

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

FEE TABLE

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

<TABLE>
<CAPTION>
CAPITAL MANAGER CAPITAL MANAGER
CONSERVATIVE MODERATE CAPITAL MANAGER
GROWTH FUND GROWTH FUND GROWTH FUND
----------------- ----------------- ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES(1)
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price)................... 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed
on Reinvested Dividends
(as a percentage of
offering price).......... 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or
redemption proceeds, as
applicable).............. 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)(2)........... 0% 0% 0% 0% 0% 0%
Exchange Fee................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net
assets) Management Fees
(after voluntary fee
reductions)(3)........... 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
12b-1 Fee (after voluntary
fee reductions)(4)....... 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses.............. 0.42% 0.42% 0.41% 0.41% 0.42% 0.42%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses (after voluntary
fee reductions)(5)....... 0.72% 1.47% 0.71% 1.46% 0.72% 1.47%
===== ===== ===== ===== ===== =====
</TABLE>

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

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

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

(3) Branch Banking and Trust Company ("BB&T") has agreed with the BB&T Funds to
voluntarily reduce the amount of its investment advisory fee through
September 30, 1999. Absent the voluntary reduction of investment advisory
fees, Management Fees as a percentage of average daily net assets would be
0.25%.

(4 )BISYS Fund Services has agreed with the BB&T Funds to voluntarily reduce the
amount of its distribution fee for Class A Shares. Absent the voluntary fee
reduction of distribution fees, 12b-1 fees as a percentage of average daily
net assets would be 0.50% for Class A Shares of each Fund. (See "MANAGEMENT
OF BB&T FUNDS -- Distributor.")

(5 )As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of investment advisory, distribution fees
and/or other expenses, total fund operating expenses for Class A Shares and
Class B Shares as a percentage of average daily net assets would be 1.17%
and 1.67%, respectively, for the Capital Manager Conservative Growth Fund,
1.16% and 1.66%, respectively, for the Capital Manager Moderate Growth Fund,
1.17% and 1.67%, respectively, for the Capital Manager Growth Fund.

5
<PAGE> 9

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

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

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
- ----------------------- -------------
<S> <C>
Prime Money Market Fund..................................... 0.65%
U.S. Treasury Fund.......................................... 0.61%
Short-Intermediate Fund..................................... 0.81%
Intermediate U.S. Government Bond Fund...................... 0.84%
Intermediate Corporate Bond Fund............................ 1.06%
Growth and Income Fund...................................... 0.85%
Balanced Fund............................................... 0.92%
Small Company Growth Fund................................... 1.61%
International Equity Fund................................... 1.50%
Large Company Growth Fund................................... 1.06%
Equity Index Fund........................................... 0.46%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (including voluntary fee waivers), the estimated
average weighted expense ratio for the Class A Shares and Class B Shares of the
Capital Manager Conservative Growth Fund is 1.64% and 2.39%, respectively, for
the Capital Manager Moderate Growth Fund is 1.67% and 2.42%, respectively, and
for the Capital Manager Growth Fund is 1.71% and 2.46%, respectively.

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

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
- ----------------------- -------------
<S> <C>
Prime Money Market Fund..................................... 0.91%
U.S. Treasury Fund.......................................... 0.76%
Short-Intermediate Fund..................................... 0.94%
Intermediate U.S. Government Bond Fund...................... 0.94%
Intermediate Corporate Bond Fund............................ 1.21%
Growth and Income Fund...................................... 1.09%
Balanced Fund............................................... 1.16%
Small Company Growth Fund................................... 1.61%
International Equity Fund................................... 1.51%
Large Company Growth Fund................................... 1.30%
Equity Index Fund........................................... 0.66%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds (with no fee waivers), the estimated average
weighted expense ratio for the Class A Shares and Class B Shares of the Capital
Manager Conservative Growth Fund is 2.25% and 2.75%, respectively, for the
Capital Manager Moderate Growth Fund is 2.28% and 2.78%, respectively, and for
the Capital Manager Growth Fund is 2.32% and 2.82%, respectively.

6
<PAGE> 10

EXAMPLE:

On the basis of estimated expenses for the Funds of Funds, including
voluntary fee reductions, set forth on page 11, the following examples
illustrate the expenses you would pay on a $1,000 investment in Class A and
Class B Shares of the Funds of Funds, assuming (1) 5% annual return and (2)
redemption at the end of each time period:

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Manager
Conservative Growth
Fund..................... $52 $67 $ 83 $130 $65 $76 $100 $159
Capital Manager Moderate
Growth Fund.............. $52 $67 $ 83 $129 $65 $76 $100 $160
Capital Manager Growth
Fund..................... $52 $67 $ 83 $130 $65 $76 $100 $160
</TABLE>

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

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Manager
Conservative Growth
Fund..................... $56 $80 $106 $181 $67 $83 $111 $188
Capital Manager Moderate
Growth Fund.............. $56 $80 $106 $180 $67 $82 $110 $189
Capital Manager Growth
Fund..................... $56 $80 $106 $181 $67 883 $111 $190
</TABLE>

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

7
<PAGE> 11

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>
SHORT- INTERMEDIATE
PRIME MONEY U.S. TREASURY TAX-FREE MONEY INTERMEDIATE U.S. GOVERNMENT
MARKET FUND FUND MARKET FUND FUND BOND FUND
----------------- ----------------- ----------------- ------------ -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <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% 2.00% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)...................... 0% 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original
purchase price or redemption
proceeds, as applicable).... 0% 5.00% 0% 5.00% 0% 5.00% 0% 0% 5.00%
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)(2).............. 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee.................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net
assets)
Management Fees (after
voluntary fee reductions)... 0.30%(3) 0.30%(3) 0.30% 0.30% 0.30%(3) 0.30%(3) 0.50%(3) 0.50%(3) 0.50%(3)
12b-1 Fees (after voluntary
fee reductions)............. 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 0.25%(4) 1.00%
Other Expenses (after
voluntary fee reductions)... 0.38%(5) 0.44%(5) 0.31%(5) 0.31%(5) 0.45%(5) 0.45%(5) 0.31%(5) 0.34% 0.34%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee
reductions)................. 0.93%(6) 1.74%(6) 0.86%(6) 1.61%(6) 1.00%(6) 1.75%(6) 1.06%(6) 1.09%(6) 1.84%(6)
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

8
<PAGE> 12

<TABLE>
<CAPTION>
NORTH SOUTH INTERMEDIATE
CAROLINA CAROLINA VIRGINIA CORPORATE GROWTH AND
FUND FUND FUND BOND FUND INCOME FUND
-------- -------- -------- ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................... 2.00% 2.00% 2.00% 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)...... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as
applicable)........................ 0% 0% 0% 0% 5.00% 0% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if
applicable)(2)..................... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reductions)........................ 0.50%(3) 0.30%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3)
12b-1 Fees (after voluntary fee
reductions)........................ 0.15%(4) 0.15%(4) 0.15%(4) 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary fee
reductions)........................ 0.31%(5) 0.59%(5) 0.38%(5) 0.56%(5) 0.56%(5) 0.35% 0.35%
---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (after
voluntary fee reductions).......... 0.96%(6) 1.04%(6) 1.03%(6) 1.31%(6) 2.06%(6) 1.10%(6) 1.85%(6)
==== ==== ==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
BALANCED SMALL COMPANY LARGE COMPANY INTERNATIONAL
FUND GROWTH FUND GROWTH FUND EQUITY FUND
----------------- ----------------- ----------------- -----------------
CLASS A CLASS B 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).................. 4.50% 0% 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% 5.00% 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).................. 0.50%(3) 0.50%(3) 1.00% 1.00% 0.50%(3) 0.50%(3) 1.00% 1.00%
12b-1 Fees (after voluntary fee
reductions)...................... 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 1.00% 0.25%(4) 1.00%
Other Expenses (after voluntary fee
reductions)...................... 0.42% 0.42% 0.61% 0.61% 0.64% 0.64% 0.50%(5) 0.50%(5)
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee
reductions)...................... 1.17%(6) 1.92%(6) 1.86%(6) 2.61% 1.39%(6) 2.14%(6) 1.75%(6) 2.50%(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.")

9
<PAGE> 13

Tax-Free Money Market Fund, 0.60% for the Intermediate U.S. Government Bond
Fund, the Short-Intermediate Fund, the North Carolina Fund, the South
Carolina Fund, the Virginia Fund, and the Intermediate Corporate Bond Fund,
and 0.74% for the Growth and Income Fund, the Balanced Fund, and the Large
Company Growth Fund.

(4) BISYS Fund Services has agreed with the BB&T Funds to voluntarily reduce the
amount of its distribution fee for Class A Shares. Absent the voluntary fee
reduction of distribution fees, 12b-1 Fees as a percentage of average daily
net assets would be 0.50% for Class A Shares for each Fund. (See "MANAGEMENT
OF BB&T FUNDS -- Distributor.")

(5) Absent voluntary fee reductions, "Other Expenses" for Class A Shares,
respectively, as a percentage of average daily net assets, would be 0.53%
for the Prime Money Market Fund; 0.36% for the U.S. Treasury Fund; 0.50% for
the Tax-Free Money Market Fund; 0.34% for the Short-Intermediate Fund; 0.38%
for the North Carolina Fund; 0.87% for the South Carolina Fund; 0.43% for
the Virginia Fund; 0.61% for the Intermediate Corporate Bond Fund; 0.64% for
the Large Company Growth Fund; and 0.51% for the International Equity Fund.
Absent voluntary reduction of fees, "Other Expenses" for Class B Shares,
respectively, as a percentage of average daily net assets would be 0.59% for
the Prime Money Market Fund; 0.36% for the U.S. Treasury Fund; 0.50% for the
Tax-Free Money Market Fund; 0.43% for the Virginia Fund; 0.61% for the
Intermediate Corporate Bond Fund; 0.64% for the Large Company Growth Fund;
and 0.51% for the International Equity Fund. "Other Expenses" for the
Tax-Free Money Market Fund, the Virginia Fund, and the Intermediate
Corporate Bond Fund are based on estimated amounts for the current fiscal
year.

(6) As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of investment advisory, distribution fees
and/or other expenses, Total Fund Operating Expenses for Class A Shares, as
a percentage of average daily net assets would be 1.43% for the Prime Money
Market Fund, 1.26% for the U.S. Treasury Fund, 1.40% for the Tax-Free Money
Market Fund, 1.44% for the Short-Intermediate Fund, 1.44% for the
Intermediate U.S. Government Bond Fund, 1.48% for the North Carolina Fund,
1.97% for the South Carolina Fund, 1.53% for the Virginia Fund, 1.71% for
the Intermediate Corporate Bond Fund, 1.59% for the Growth and Income Fund,
1.66% for the Balanced Fund, 2.11% for the Small Company Growth Fund, 2.01%
for the International Equity Fund, and 1.87% for the Large Company Growth
Fund. Absent the voluntary reduction of investment advisory fees and/or
other expenses, Total Fund Operating Expenses for Class B Shares, as a
percentage of average daily net assets, would be 1.99% for the Prime Money
Market Fund, 1.76% for the U.S. Treasury Money Market Fund, 1.90% for the
Tax-Free Money Market Fund, 1.94% for the Intermediate U.S. Government Bond
Fund, 2.21% for the Intermediate Corporate Bond Fund, 2.09% for the Growth
and Income Fund, 2.16% for the Balanced Fund, 2.51% for the International
Equity Fund, and 2.37% for the Large Company Growth Fund.

10
<PAGE> 14

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 $ 30 $ 51 $114
U.S. Treasury Fund........................... $ 9 $ 27 $ 48 $106
Tax-Free Money Market Fund................... $10 $ 32 N/A N/A
Short-Intermediate Fund...................... $31 $ 53 $ 77 $147
Intermediate U.S. Government Bond Fund....... $56 $ 78 $102 $172
North Carolina Fund.......................... $30 $ 50 $ 72 $135
South Carolina Fund.......................... $30 $ 52 $ 76 $145
Virginia Fund................................ $30 $ 52 N/A N/A
Intermediate Corporate Bond Fund............. $58 $ 85 N/A N/A
Growth and Income Fund....................... $56 $ 78 $103 $173
Balanced Fund................................ $56 $ 80 $106 $181
Small Company Growth Fund.................... $63 $101 $141 $253
Large Company Growth Fund.................... $59 $ 87 $118 $204
International Equity Fund.................... $62 $ 98 $136 $242
</TABLE>

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.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund Assuming a complete
redemption at end of period................ $68 $ 85 $114 $184
Assuming no redemption..................... $19 $ 55 $ 94 $184
U.S. Treasury Fund
Assuming a complete redemption at end of
period................................... $66 $ 81 $108 $171
Assuming no redemption..................... $16 $ 51 $ 88 $171
Tax-Free Money Market Fund
Assuming a complete redemption at end of
period................................... $68 $ 85 N/A N/A
Assuming no redemption..................... $18 $ 55 N/A N/A
Intermediate U.S. Government Bond Fund
Assuming a complete redemption at end of
period................................... $69 $ 88 $120 $196
Assuming no redemption..................... $19 $ 58 $100 $196
Intermediate Corporate Bond Fund
Assuming a complete redemption at end of
period................................... $71 $ 95 N/A N/A
Assuming no redemption..................... $21 $ 65 N/A N/A
Growth and Income Fund
Assuming a complete redemption at end of
period................................... $69 $ 88 $120 $197
Assuming no redemption..................... $19 $ 58 $100 $197
Balanced Fund
Assuming a complete redemption at end of
period................................... $69 $ 90 $124 $205
Assuming no redemption..................... $19 $ 60 $104 $205
Small Company Growth Fund
Assuming a complete redemption at end of
period................................... $76 $111 $159 $276
Assuming no redemption..................... $26 $ 81 $139 $276
Large Company Growth Fund
Assuming a complete redemption at end of
period................................... $72 $ 97 $135 $228
Assuming no redemption..................... $22 $ 67 $115 $228
International Equity Fund
Assuming a complete redemption at end of
period................................... $75 $108 $153 $265
Assuming no redemption..................... $25 $ 78 $133 $265
</TABLE>

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

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

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

11
<PAGE> 15

FINANCIAL HIGHLIGHTS

The tables below sets forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information through
the year ended September 30, 1998 has been audited by KPMG LLP, independent
auditors for the BB&T Funds, whose report thereon, insofar as it relates to each
of the most recent five years or periods indicated herein is included in the
Statement of Additional Information. The Tax-Free Money Market Fund, the
Virginia Fund, and the Intermediate Corporate Bond Fund had not commenced
operations as of September 30, 1998.

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

<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
OCTOBER 1, 1997 TO
SEPTEMBER 30, 1998(a)
-----------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.048
Total from Investment Activities...................... 0.048
-------
DISTRIBUTIONS
Net investment income..................................... (0.048)
Total Distributions................................... (0.048)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return................................................ 4.93%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 3,262
Ratio of expenses to average net assets................... 0.83%(c)
Ratio of net investment income to average net assets...... 4.83%(c)
Ratio of expenses to average net assets*.................. 1.43%(c)
Ratio of net investment income to average net assets*..... 4.23%(c)
</TABLE>

<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
SEPTEMBER 2, 1998 TO
SEPTEMBER 30, 1998(a)
-----------------------
CLASS B
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.003
Total from Investment Activities...................... 0.003
-------
DISTRIBUTIONS
Net investment income..................................... (0.003)
Total Distributions................................... (0.003)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return (excludes redemption charge)................. 0.32%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 300
Ratio of expenses to average net assets................... 1.64%(c)
Ratio of net investment income to average net assets...... 3.98%(c)
Ratio of expenses to average net assets*.................. 1.99%(c)
Ratio of net investment income to average net assets*..... 3.63%(c)
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

12
<PAGE> 16
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.046 0.044 0.044 0.047
------- ------- ------- -------
Total from
Investment
Activities........ 0.046 0.044 0.044 0.047
------- ------- ------- -------
DISTRIBUTIONS
Net investment
income.............. (0.046) (0.044) (0.044) (0.047)
------- ------- ------- -------
Total
Distributions..... (0.046) (0.044) (0.044) (0.047)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return............ 4.75% 4.50% 4.49% 4.81%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $41,478 $32,541 $27,931 $13,948
Ratio of expenses to
average net
assets.............. 0.86% 0.95% 0.99% 0.98%
Ratio of net
investment income to
average net
assets.............. 4.65% 4.41% 4.37% 4.81%
Ratio of expenses to
average net
assets*............. 1.26% 1.25% 1.25% 1.24%
Ratio of net
investment income to
average net
assets*............. 4.25% 4.11% 4.11% 4.55%

<CAPTION>
U.S. TREASURY MONEY MARKET FUND
------------------------------------------
FOR THE YEAR OCTOBER 5, 1992
ENDED TO
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 1.00 $ 1.00
------- --------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.027 0.026
------- --------
Total from
Investment
Activities........ 0.027 0.026
------- --------
DISTRIBUTIONS
Net investment
income.............. (0.027) (0.026)
------- --------
Total
Distributions..... (0.027) (0.026)
------- --------
NET ASSET VALUE, END OF
PERIOD................ $ 1.00 $ 1.00
======= ========
Total Return............ 2.76% 2.60%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $ 1,486 $ 279
Ratio of expenses to
average net
assets.............. 0.94% 0.51%(c)
Ratio of net
investment income to
average net
assets.............. 2.89% 2.58%(c)
Ratio of expenses to
average net
assets*............. 1.32% 1.32%(c)
Ratio of net
investment income to
average net
assets*............. 2.51% 1.77%(c)
</TABLE>

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
-----------------------------------------------------------------
FOR THE YEAR FOR THE YEAR JANUARY 1, 1996
ENDED ENDED TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.039 0.036 0.025
------- ------- -------
Total from Investment Activities........................ 0.039 0.036 0.025
------- ------- -------
DISTRIBUTIONS
Net investment income..................................... (0.039) (0.036) (0.025)
------- ------- -------
Total Distributions..................................... (0.039) (0.036) (0.025)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return (excludes redemption charge)................... 3.97% 3.67% 2.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 1,255 $ 1,502 $ 1,305
Ratio of expenses to average net assets................... 1.61% 1.75% 1.75%(c)
Ratio of net investment income to average net assets...... 3.90% 3.61% 3.55%(c)
Ratio of expenses to average net assets*.................. 1.76% -- --
Ratio of net investment income to average net assets*..... 3.75% -- --
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

13
<PAGE> 17

<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR NOVEMBER 30,
ENDED ENDED ENDED ENDED ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.76 $ 9.73 $ 9.88 $ 9.60 $ 10.29 $ 10.00
------ ------ ------ ------ ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.51 0.54 0.55 0.53 0.50 0.47
Net realized and unrealized
gains (losses) on
investments................... 0.30 0.03 (0.15) 0.29 (0.68) 0.30
------ ------ ------ ------ ------- -------
Total from Investment
Activities................ 0.81 0.57 0.40 0.82 (0.18) 0.77
------ ------ ------ ------ ------- -------
DISTRIBUTIONS
Net investment income........... (0.51) (0.54) (0.55) (0.54) (0.50) (0.48)
Net realized gains.............. -- -- -- -- (0.01) --
------ ------ ------ ------ ------- -------
Total Distributions......... (0.51) (0.54) (0.55) (0.54) (0.51) (0.48)
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD.... $10.06 $ 9.76 $ 9.73 $ 9.88 $ 9.60 $ 10.29
====== ====== ====== ====== ======= =======
Total Return (excludes sales
charge)......................... 8.50% 6.07% 4.09% 8.74% (1.86%) 7.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $4,476 $5,151 $6,356 $7,102 $10,345 $14,915
Ratio of expenses to average net
assets........................ 1.06% 1.11% 1.19% 1.17% 0.89% 0.56%(c)
Ratio of net investment income
to average net assets......... 5.15% 5.60% 5.55% 5.50% 5.01% 5.43%(c)
Ratio of expenses to average net
assets*....................... 1.44% 1.46% 1.54% 1.58% 1.58% 1.56%(c)
Ratio of net investment income
to average net assets*........ 4.77% 5.25% 5.20% 5.09% 4.32% 4.42%(c)
Portfolio turnover(d)........... 53.74% 87.99% 54.82% 106.81% 7.06% 14.06%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

14
<PAGE> 18

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 30, 30, 30, 30, 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.84 $ 9.63 $ 9.88 $ 9.33 $10.39 $ 10.00
------ ------ ------ ------ ------ -------
INVESTMENT ACTIVITIES
Net investment income........... 0.51 0.53 0.56 0.59 0.59 0.63
Net realized and unrealized
gains (losses) on
investments................... 0.74 0.21 (0.25) 0.55 (1.04) 0.39
------ ------ ------ ------ ------ -------
Total from Investment
Activities................ 1.25 0.74 0.31 1.14 (0.45) 1.02
------ ------ ------ ------ ------ -------
DISTRIBUTIONS
Net investment income........... (0.52) (0.53) (0.56) (0.59) (0.59) (0.63)
Net realized gains.............. -- -- -- -- (0.02) --
------ ------ ------ ------ ------ -------
Total Distributions......... (0.52) (0.53) (0.56) (0.59) (0.61) (0.63)
------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD.... $10.57 $ 9.84 $ 9.63 $ 9.88 $ 9.33 $ 10.39
====== ====== ====== ====== ====== =======
Total Return (excludes sales
charge)......................... 13.07% 7.93% 3.17% 12.63% (4.48)% 10.53%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $4,562 $4,211 $3,659 $5,173 $6,772 $ 5,238
Ratio of expenses to average net
assets........................ 1.09% 1.12% 1.13% 1.09% 0.96% 0.59%(c)
Ratio of net investment income
to average net assets......... 5.10% 5.49% 5.68% 6.22% 6.03% 6.26%(c)
Ratio of expenses to average net
assets*....................... 1.44% 1.47% 1.48% 1.50% 1.56% 1.55%(c)
Ratio of net investment income
to average net assets*........ 4.75% 5.14% 5.33% 5.81% 5.43% 5.30%(c)
Portfolio turnover(d)........... 60.98% 62.45% 76.29% 68.91% 0.38% 15.27%
</TABLE>

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ------------------ ----------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.81 $ 9.60 $ 10.17
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income...................................... 0.43 0.46 0.31
Net realized and unrealized gains (losses) on
investments.............................................. 0.74 0.21 (0.57)
------- ------- -------
Total from Investment Activities....................... 1.17 0.67 (0.26)
------- ------- -------
DISTRIBUTIONS
Net investment income...................................... (0.44) (0.46) (0.31)
------- ------- -------
Total Distributions.................................... (0.44) (0.46) (0.31)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.54 $ 9.81 $ 9.60
======= ======= =======
Total Return (excludes redemption charge)................... 12.26% 7.14% (2.48)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................ $ 1,314 $ 623 $ 353
Ratio of expenses to average net assets.................... 1.84% 1.87% 1.85%(c)
Ratio of net investment income to average net assets....... 4.35% 4.74% 5.01%(c)
Ratio of expenses to average net assets*................... 1.94% 1.97% 1.95%(c)
Ratio of net investment income to average net assets*...... 4.25% 4.64% 4.91%(c)
Portfolio turnover(d)...................................... 60.98% 62.45% 76.29%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

15
<PAGE> 19
<TABLE>
<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
---------------------------------------------------------------------------------

FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 10.27 $10.05 $10.15 $ 9.78
------- ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income........... 0.42 0.40 0.36 0.36
Net realized and unrealized
gains (losses) on
investments................... 0.25 0.22 (0.10) 0.37
------- ------ ------ ------
Total from Investment
Activities.................. 0.67 0.62 0.26 0.73
------- ------ ------ ------
DISTRIBUTIONS
Net investment income........... (0.42) (0.40) (0.36) (0.36)
Net realized gains.............. -- -- -- --
------- ------ ------ ------
Total Distributions........... (0.42) (0.40) (0.36) (0.36)
------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD... $ 10.52 $10.27 $10.05 $10.15
======= ====== ====== ======
Total Return (excludes sales
charge)......................... 6.63% 6.28% 2.61% 7.61%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $11,592 $9,419 $9,261 $8,717
Ratio of expenses to average net
assets........................ 0.96% 1.00% 1.11% 1.05%
Ratio of net investment income
to average net assets......... 4.03% 3.94% 3.58% 3.63%
Ratio of expenses to average net
assets*....................... 1.48% 1.50% 1.61% 1.63%
Ratio of net investment income
to average net assets*........ 3.51% 3.44% 3.08% 3.05%
Portfolio turnover(d)........... 32.63% 16.98% 20.90% 9.38%

<CAPTION>
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
------------------------------------------
OCTOBER 16, 1992
FOR THE YEAR ENDED TO
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 10.29 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.36 0.36
Net realized and unrealized
gains (losses) on
investments................... (0.50) 0.29
------- -------
Total from Investment
Activities.................. (0.14) 0.65
------- -------
DISTRIBUTIONS
Net investment income........... (0.36) (0.36)
Net realized gains.............. (0.01) --
------- -------
Total Distributions........... (0.37) (0.36)
------- -------
NET ASSET VALUE, END OF PERIOD... $ 9.78 $ 10.29
======= =======
Total Return (excludes sales
charge)......................... (1.33)% 6.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $11,083 $13,695
Ratio of expenses to average net
assets........................ 0.75% 0.43%(c)
Ratio of net investment income
to average net assets......... 3.63% 3.80%(c)
Ratio of expenses to average net
assets*....................... 1.66% 1.77%(c)
Ratio of net investment income
to average net assets*........ 2.72% 2.45%(c)
Portfolio turnover(d)........... 0.56% 5.92%
</TABLE>

<TABLE>
<CAPTION>
SOUTH CAROLINA
INTERMEDIATE TAX-FREE FUND
--------------------------
OCTOBER 20, 1997 TO
SEPTEMBER 30, 1998(a)
--------------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.31
Net realized and unrealized gains (losses) on
investments............................................. 0.47
------
Total from Investment Activities...................... 0.78
------
DISTRIBUTIONS
Net investment income..................................... (0.31)
------
Total Distributions................................... (0.31)
NET ASSET VALUE, END OF PERIOD.............................. $10.47
======
Total Return (excludes sales charge)........................ 7.91%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 297
Ratio of expenses to average net assets................... 1.04%(c)
Ratio of net investment income to average net assets...... 3.71%(c)
Ratio of expenses to average net assets*.................. 1.97%(c)
Ratio of net investment income to average net assets*..... 2.78%(c)
Portfolio turnover(d)..................................... 58.80%
</TABLE>

- ---------
* During the period, certain fees were voluntarily reduced and reimbursed. If
such voluntary fee reductions and reimbursements had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.

16
<PAGE> 20
<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 19.98 $ 15.31 $ 12.97 $ 11.26
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........ 0.23 0.26 0.26 0.25
Net realized and unrealized
gains (losses) on
investments................ (0.17) 5.30 2.43 1.98
------- ------- ------- -------
Total from Investment
Activities............. 0.06 5.56 2.69 2.23
------- ------- ------- -------
DISTRIBUTIONS
Net investment income........ (0.23) (0.26) (0.26) (0.25)
Net realized gains........... (1.33) (0.63) (0.09) (0.12)
In excess of net realized
gains...................... -- -- -- (0.15)
------- ------- ------- -------
Total Distributions...... (1.56) (0.89) (0.35) (0.52)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 18.48 $ 19.98 $ 15.31 $ 12.97
======= ======= ======= =======
Total Return (excludes sales
charge)...................... 0.10% 37.80% 20.97% 20.62%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)...................... $39,817 $34,679 $18,949 $10,842
Ratio of expenses to average
net assets................. 1.10% 1.09% 1.11% 1.07%
Ratio of net investment
income to average net
assets..................... 1.18% 1.52% 1.82% 2.15%
Ratio of expenses to average
net assets*................ 1.59% 1.58% 1.60% 1.60%
Ratio of net investment
income to average net
assets*.................... 0.69% 1.03% 1.33% 1.62%
Portfolio turnover(d)........ 13.17% 22.66% 19.82% 8.73%

<CAPTION>
GROWTH AND INCOME STOCK FUND
------------------------------------------
FOR THE YEAR ENDED OCTOBER 9, 1992 TO
SEPTEMBER 30, 1994 September 30, 1993(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $11.26 $10.00
------ ------
INVESTMENT ACTIVITIES
Net investment income........ 0.25 0.28
Net realized and unrealized
gains (losses) on
investments................ 0.12 1.27
------ ------
Total from Investment
Activities............. 0.37 1.55
------ ------
DISTRIBUTIONS
Net investment income........ (0.26) (0.29)
Net realized gains........... (0.11) --
In excess of net realized
gains...................... -- --
------ ------
Total Distributions...... (0.37) (0.29)
------ ------
NET ASSET VALUE, END OF
PERIOD....................... $11.26 $11.26
====== ======
Total Return (excludes sales
charge)...................... 3.33% 15.72%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)...................... $7,973 $6,009
Ratio of expenses to average
net assets................. 0.92% 0.63%(c)
Ratio of net investment
income to average net
assets..................... 2.26% 2.85%(c)
Ratio of expenses to average
net assets*................ 1.65% 1.68%(c)
Ratio of net investment
income to average net
assets*.................... 1.52% 1.81%(c)
Portfolio turnover(d)........ 21.30% 27.17%
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 September 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.93 $ 15.29 $13.78
------- ------- ------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.09 0.13 0.13
Net realized and unrealized gains (losses) on
investments............................................. (0.18) 5.28 1.52
------- ------- ------
Total from Investment Activities...................... (0.09) 5.41 1.65
------- ------- ------
DISTRIBUTIONS
Net investment income..................................... (0.09) (0.14) (0.14)
Net realized gains........................................ (1.33) (0.63) --
------- ------- ------
Total Distributions................................... (1.42) (0.77) (0.14)
------- ------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 18.42 $ 19.93 $15.29
======= ======= ======
Total Return (excludes redemption charge)................... (0.67%) 36.70% 12.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $32,455 $16,690 $3,880
Ratio of expenses to average net assets................... 1.85% 1.84% 1.85%(c)
Ratio of net investment income to average net assets...... 0.43% 0.77% 1.13%(c)
Ratio of expenses to average net assets*.................. 2.09% 2.08% 2.09%(c)
Ratio of net investment income to average net assets*..... 0.19% 0.53% 0.89%(c)
Portfolio turnover(d)....................................... 13.17% 22.66% 19.82%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

17
<PAGE> 21
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------ ------------------ ------------------ ------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 13.63 $ 11.96 $ 11.04 $ 9.76 $10.20
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.39 0.45 0.43 0.44 0.38
Net realized and
unrealized gains
(losses) on
investments......... 0.54 2.04 0.92 1.27 (0.44)
------- ------- ------- ------ ------
Total from
Investment
Activities...... 0.93 2.49 1.35 1.71 (0.06)
------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment
income.............. (0.39) (0.45) (0.43) (0.43) (0.38)
Net realized gains.... (0.35) (0.37) -- -- --
------- ------- ------- ------ ------
Total
Distributions... (0.74) (0.82) (0.43) (0.43) (0.38)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD................ $ 13.82 $ 13.63 $ 11.96 $11.04 $ 9.76
======= ======= ======= ====== ======
Total Return (excludes
sales charge)......... 6.89% 21.76% 12.43% 18.00% (0.64)%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $21,948 $17,234 $12,456 $9,257 $8,560
Ratio of expenses to
average net
assets.............. 1.17% 1.18% 1.20% 1.17% 0.98%
Ratio of net
investment income to
average net
assets.............. 2.75% 3.63% 3.78% 4.27% 4.02%
Ratio of expenses to
average net
assets*............. 1.66% 1.67% 1.69% 1.71% 1.75%
Ratio of net
investment income to
average net
assets*............. 2.26% 3.14% 3.29% 3.73% 3.25%
Portfolio
turnover(d)......... 31.85% 27.07% 19.87% 23.68% 12.91%

<CAPTION>
BALANCED FUND
---------------------
OCTOBER 5, 1992 TO
SEPTEMBER 30, 1993(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $10.00
------
INVESTMENT ACTIVITIES
Net investment
income.............. 0.08
Net realized and
unrealized gains
(losses) on
investments......... 0.21
------
Total from
Investment
Activities...... 0.29
------
DISTRIBUTIONS
Net investment
income.............. (0.09)
Net realized gains.... --
------
Total
Distributions... (0.09)
------
NET ASSET VALUE, END OF
PERIOD................ $10.20
======
Total Return (excludes
sales charge)......... 2.88%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)........ $2,569
Ratio of expenses to
average net
assets.............. 0.50%(c)
Ratio of net
investment income to
average net
assets.............. 4.39%(c)
Ratio of expenses to
average net
assets*............. 2.00%(c)
Ratio of net
investment income to
average net
assets*............. 2.89%(c)
Portfolio
turnover(d)......... 8.32%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

18
<PAGE> 22

<TABLE>
<CAPTION>
BALANCED FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 September 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 13.57 $11.91 $11.54
------- ------ ------
INVESTMENT ACTIVITIES
Net investment income................... 0.28 0.36 0.27
Net realized and unrealized gains
(losses) on investments.............. 0.55 2.04 0.37
------- ------ ------
Total from Investment Activities... 0.83 2.40 0.64
------- ------ ------
DISTRIBUTIONS
Net investment income................... (0.29) (0.37) (0.27)
Net realized gains...................... (0.35) (0.37) --
------- ------ ------
Total Distributions................ (0.64) (0.74) (0.27)
------- ------ ------
NET ASSET VALUE, END OF PERIOD............ $ 13.76 $13.57 $11.91
======= ====== ======
Total Return (excludes redemption
charge)................................. 6.16% 20.90% 5.67%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......... $15,183 $6,360 $2,339
Ratio of expenses to average net
assets............................... 1.92% 1.93% 1.95%(c)
Ratio of net investment income to
average net assets................... 1.98% 2.88% 3.13%(c)
Ratio of expenses to average net
assets*.............................. 2.16% 2.17% 2.18%(c)
Ratio of net investment income to
average net assets*.................. 1.74% 2.64% 2.90%(c)
Portfolio turnover(d)................... 31.85% 27.07% 19.87%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

19
<PAGE> 23

<TABLE>
<CAPTION>
LARGE COMPANY
GROWTH FUND
---------------------
OCTOBER 3, 1997 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment Income (loss).............................. --
Net realized and unrealized gains (losses) on
investments............................................. (0.25)
------
Total from Investment Activities...................... (0.25)
------
DISTRIBUTIONS
Net investment income..................................... (0.03)
Net realized gains........................................ (0.10)
------
Total Distributions................................... (0.13)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.62
======
Total Return (excludes sales charge)...................... (2.54)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $1,938
Ratio of expenses to average net assets................... 1.39%(c)
Ratio of net investment income to average net assets...... (0.04)%(c)
Ratio of expenses to average net assets*.................. 1.87%(c)
Ratio of net investment income (loss) to average net
assets*................................................. (0.52)%(c)
Portfolio turnover(d)..................................... 108.36%
</TABLE>

<TABLE>
<CAPTION>
LARGE COMPANY
GROWTH FUND
---------------------
OCTOBER 3, 1997 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS B
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.02)
Net realized and unrealized gains (losses) on
investments............................................. (0.29)
------
Total from Investment Activities........................ (0.31)
------
DISTRIBUTIONS
Net investment income..................................... (0.01)
Net realized gains........................................ (0.10)
------
Total Distributions..................................... (0.11)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.58
======
Total Return (excludes redemption charge)................... (3.13)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $3,985
Ratio of expenses to average net assets................... 2.14%(c)
Ratio of net investment income to average net assets...... (0.78)%(c)
Ratio of expenses to average net assets*.................. 2.37%(c)
Ratio of net investment income (loss) to average net
assets*................................................. (1.01)%(c)
Portfolio turnover(d)..................................... 108.36%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not annualized.

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

20
<PAGE> 24

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 7, 1994 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 September 30, 1995(a)
------------------ ------------------ ------------------ ---------------------
CLASS A CLASS A CLASS A CLASS A
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 23.33 $ 21.06 $14.53 $10.00
-------- ------- ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss)............. (0.29) (0.15) (0.20) (0.08)
Net realized and unrealized gains
(losses) on investments................ (5.23) 2.44 6.73 4.61
-------- ------- ------ ------
Total from Investment Activities......... (5.52) 2.29 6.53 4.53
-------- ------- ------ ------
DISTRIBUTIONS
In excess of net realized gains.......... (0.31) (0.02) -- --
-------- ------- ------ ------
Total Distributions...................... (0.31) (0.02) -- --
-------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD............. $ 17.50 $ 23.33 $21.06 $14.53
======== ======= ====== ======
Total Return (excludes sales charge)..... (23.81)% 10.90% 44.94% 45.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).......... $ 9,456 $12,676 $7,413 $1,096
Ratio of expenses to average net
assets................................. 1.86% 1.89% 2.01% 2.50%(c)
Ratio of net investment income (loss) to
average net assets..................... (1.36)% (1.29)% (1.26)% (1.56)%(c)
Ratio of expenses to average net
assets*................................ 2.11% 2.14% 2.26% 2.84%(c)
Ratio of net investment income (loss) to
average net assets*.................... (1.61)% (1.54)% (1.51)% (1.90)%(c)
Portfolio turnover(d).................... 157.44% 80.66% 71.62% 46.97%
</TABLE>

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED JANUARY 1, 1996 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996(a)
------------------ ------------------ ---------------------
CLASS B CLASS B CLASS B
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 23.02 $20.92 $15.24
------- ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.39) (0.20) (0.21)
Net realized and unrealized gains (losses) on
investments............................................. (5.19) 2.32 5.89
------- ------ ------
Total from Investment Activities........................ (5.58) 2.12 5.68
------- ------ ------
DISTRIBUTIONS
In excess of net realized gains........................... (0.31) (0.02) --
Total Distributions..................................... (0.31) (0.02) --
------- ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 17.13 $23.02 $20.92
======= ====== ======
Total Return (excludes redemption charge)............... (24.40)% 10.16% 37.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 8,609 $8,869 $3,200
Ratio of expenses to average net assets................... 2.61% 2.64% 2.72%(c)
Ratio of net investment income (loss) to average net
assets.................................................. (2.11)% (2.04)% (2.01)%(c)
Portfolio Turnover(d)..................................... 157.44% 80.66% 71.62%
</TABLE>

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

* 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.

21
<PAGE> 25

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------
FOR THE YEAR ENDED JANUARY 2, 1997 TO
SEPTEMBER 30, 1998 September 30, 1997(a)
------------------ ---------------------
CLASS A CLASS A
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.24 $10.00
INVESTMENT ACTIVITIES
Net investment income..................................... 0.03 0.03
Net realized and unrealized gains (losses) on investments
and foreign currency transactions....................... (1.09) 1.25
------ ------
Total from Investment Activities........................ (1.06) 1.28
------ ------
DISTRIBUTIONS
Net investment income..................................... (0.03) (0.02)
In excess of net investment income........................ (0.01) (0.02)
Net realized gains........................................ (0.23) --
------ ------
Total Distributions..................................... (0.27) (0.04)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.91 $11.24
====== ======
Total Return (excludes sales charge)........................ (9.60)% 12.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $1,314 $ 833
Ratio of expenses to average net assets................... 1.75% 1.97%(c)
Ratio of net investment income (loss) to average net
assets.................................................. 0.26% 0.14%(c)
Ratio of expenses to average net assets*.................. 2.01% 2.24%(c)
Ratio of net investment income (loss) to average net
assets*................................................. 0.00% (0.13)%(c)
Portfolio turnover(d)..................................... 53.27% 41.45%
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------
FOR THE YEAR ENDED JANUARY 2, 1997 TO
SEPTEMBER 30, 1998 September 30, 1997(a)
------------------ ---------------------
CLASS B CLASS B
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.23 $10.00
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.04) (0.01)
Net realized and unrealized gains (losses) on
investments............................................. (1.10) 1.26
------ ------
Total from Investment Activities........................ (1.14) 1.25
DISTRIBUTIONS
In excess of net Investment income........................ (0.01) (0.02)
Net Realized Gains........................................ (0.23) --
------ ------
Total Distributions..................................... (0.24) (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85 $11.23
====== ======
Total Return (excludes redemption charge)............... (10.29)% 12.51%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $1,923 $1,179
Ratio of expenses to average net assets................... 2.50% 2.69%(c)
Ratio of net investment income (loss) to average net
assets.................................................. (0.50)% (0.62)%(c)
Ratio of expenses to average net assets*.................. 2.51% 2.74%(c)
Ratio of net investment income (loss) to average net
assets*................................................. (0.51)% (0.66)%(c)
Portfolio Turnover(d)..................................... 53.27% 41.45%
</TABLE>

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

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

(a) Period from commencement of operations.

(b) Not annualized.

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

22
<PAGE> 26

<TABLE>
<CAPTION>
CAPITAL MANAGER
CONSERVATIVE GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
------------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.09
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.19
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.01)
------
Total from Investment Activities........................ 0.18
------
DISTRIBUTIONS
Net investment income..................................... (0.22)
Total Distributions..................................... (0.22)
------
NET ASSET VALUE, END OF PERIOD.............................. $10.05
======
Total Return (excludes sales charge)........................ 1.89%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 119
Ratio of expenses to average net assets................... 0.83%(c)
Ratio of net investment income to average net assets...... 2.91%(c)
Ratio of expenses to average net assets*.................. 1.33%(c)
Ratio of net investment income to average net assets*..... 2.41%(c)
Portfolio turnover(d)..................................... 4.28%
</TABLE>

<TABLE>
<CAPTION>
CAPITAL MANAGER
MODERATE GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.01
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.15
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.15)
-------
Total from Investment Activities.......................... --
-------
DISTRIBUTIONS
Net investment income..................................... (0.16)
Total Distributions..................................... (0.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85
=======
Total Return (excludes sales charge)........................ 0.10%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 1,146
Ratio of expenses to average net assets................... 0.93%(c)
Ratio of net investment income to average net assets...... 1.93%(c)
Ratio of expenses to average net assets*.................. 1.39%(c)
Ratio of net investment income to average net assets*..... 1.47%(c)
Portfolio turnover(d)..................................... 4.85%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

23
<PAGE> 27

<TABLE>
<CAPTION>
CAPITAL MANAGER
GROWTH FUND
JANUARY 29, 1998 TO
SEPTEMBER 30, 1998(a)
---------------------
CLASS A
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.93
------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.10
Net realized and unrealized gains (losses) on investments
with affiliates......................................... (0.26)
------
Total from Investment Activities........................ (0.16)
------
DISTRIBUTIONS
Net investment income..................................... (0.10)
Total Distributions..................................... (0.10)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.67
======
Total Return (excludes sales charge)........................ (1.45)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $ 276
Ratio of expenses to average net assets................... 0.90%(c)
Ratio of net investment income to average net assets...... 1.16%(c)
Ratio of expenses to average net assets*.................. 1.38%(c)
Ratio of net investment income to average net assets*..... 0.68%(c)
Portfolio turnover(d)..................................... 7.69%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

24
<PAGE> 28

INVESTMENT OBJECTIVES AND POLICIES

MONEY MARKET FUNDS

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

All securities acquired by the Money Market Funds will be determined at the
time of purchase by the BB&T Funds' Adviser or Sub-Adviser, under guidelines
established by the BB&T Funds' Board of Trustees, to present minimal credit
risks.

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

PRIME MONEY MARKET FUND

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

The Prime Money Market Fund will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by at least
two Rating Agencies (e.g., "A-1" by Standard's & Poor's Corporation ("S&P") and
"P-1" by Moody's Investors Services, Inc. ("Moody's")); or (2) are single rated
and have received the highest short-term rating by a Rating Agency; or (3) are
unrated, but are determined to be of comparable quality by the Adviser or BIMC
pursuant to guidelines approved by the Board of Trustees. See the Statement of
Additional Information for explanations of the rating systems.

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

(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.

25
<PAGE> 29

tions, 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.

TAX-FREE MONEY MARKET FUND

The investment objective of the Tax-Free Money Market Fund is to seek as high
a level of current interest income exempt from federal income tax as is
consistent with stability of principal.

The Tax-Free Money Market Fund invests substantially all of its assets in a
diversified portfolio of short-term tax-exempt obligations issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions and tax-exempt derivative
securities such as tender option bonds, participations, beneficial interests in
trusts and partnership interests ("Municipal Obligations"). As a fundamental
policy, except during periods of unusual market conditions or during temporary
defensive periods, the Tax-Free Money Market Fund will invest substantially all,
but in no event less than 80%, of its total assets in Municipal Obligations with
remaining maturities of 397 days (thirteen months) or less as determined in
accordance with the rules of the SEC. The Tax-Free Money Market Fund may hold
uninvested cash reserves pending investment, during temporary defensive periods
or if, in the opinion of the Adviser or BIMC, suitable tax-exempt obligations
are unavailable. There is no percentage limitation on the amount of assets which
may be held uninvested. Uninvested cash reserves will not earn income.

Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the Funds
from tax-exempt derivative securities are rendered by counsel to the respective
sponsors of such securities. The Tax-Free Money Market Fund and the Adviser or
BIMC will rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.

The Tax-Free Money Market Fund will purchase only Municipal Obligations which
are "Eligible Securities" (as defined by the SEC) and which present minimal
credit risks as determined by the Adviser or BIMC pursuant to guidelines
approved by BB&T Funds' Board of Trustees. Eligible Securities consist of the
following types of securities: (i) securities that have short-term debt ratings
at the time of purchase in the two highest rating categories by at least two
unaffiliated Rating Agencies (or one Rating Agency if the security was rated by
only one Rating Agency); (ii) securities that are issued by an issuer (or, in
certain cases guaranteed by an issuer) with such ratings; or (iii) securities
without such short-term ratings that have been determined to be of comparable
quality by the Adviser or BIMC pursuant to guidelines approved by BB&T Funds'
Board of Trustees. The Appendix to the Statement of Additional Information
includes a description of applicable ratings by Rating Agencies.

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

26
<PAGE> 30

THE FIXED INCOME FUNDS

The investment objective of the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the Intermediate Corporate Bond Fund (collectively the
"Fixed Income Funds") is to seek current income consistent with the preservation
of capital. The Short-Intermediate Fund will invest primarily in securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
("U.S. Government Securities"), some of which may be subject to repurchase
agreements, or in high grade collateralized mortgage obligations ("CMOs"). At
least 65% of the Short-Intermediate Fund's assets will be invested in U.S.
Government Securities. The dollar-weighted average portfolio maturity of the
Short-Intermediate Fund will be from two to five years. The Intermediate U.S.
Government Bond Fund will also invest primarily in U.S. Government Securities,
and at least 65% of its total assets will be invested in bonds. Bonds for this
purpose will include both bonds (maturities of ten years or more) and notes
(maturities of one to ten years) of the U.S. Government. The dollar-weighted
average portfolio maturity of the Intermediate U.S. Government Bond Fund will be
from five to ten years. The Intermediate Corporate Bond Fund will invest in a
diversified portfolio of corporate and Government bonds. At least 65% of the
Intermediate Corporate Bond Fund's total assets will be invested in corporate
bonds rated in one of the top four rating categories by a Rating Agency, such as
Moody's or S&P, at the time of purchase or that are determined by the Adviser to
be of comparable quality. Additionally, at least 80% of the Intermediate
Corporate Bond Fund's assets will normally be invested in a combination of
investment grade corporate bonds and U.S. Government Securities. The
dollar-weighted average maturity of the Intermediate Corporate Bond Fund is
expected to be from three to ten years. CMOs will be considered bonds for this
purpose if their expected average life is comparable to the maturity of other
bonds eligible for purchase by the Fixed Income Funds. The Fixed Income Funds
may also invest in short-term obligations, commercial bonds and the shares of
other investment companies.

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

THE NORTH CAROLINA FUND

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

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

27
<PAGE> 31

obligations in which the Fund invests will have remaining maturities in excess
of 25 years.

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

THE VIRGINIA FUND

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

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

THE GROWTH AND INCOME FUND

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

Equity securities purchased by the Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the Growth and Income
Fund's investment objective for income, most stocks will be purchased by the
Growth and Income Fund primarily in 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.

28
<PAGE> 32

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

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

THE LARGE COMPANY GROWTH FUND

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

THE SMALL COMPANY GROWTH FUND

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

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

INTERNATIONAL EQUITY FUND

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

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

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

29
<PAGE> 33

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

THE FUNDS OF FUNDS

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

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

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

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

CAPITAL MANAGER CONSERVATIVE GROWTH FUND

The Capital Manager Conservative Growth Fund will invest 25% to 55% of its
assets in Underlying Funds which invest primarily in equity securities including
the equity portion of the Balanced Fund, 45% to 75% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 20% of its assets in Underlying
Funds which are money market funds.

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

CAPITAL MANAGER MODERATE GROWTH FUND

The Capital Manager Moderate Growth Fund will invest 45% to 75% of its assets
in Underlying Funds which invest primarily in equity securities including the
equity portion of the Balanced Fund, 25% to 55% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 15% of its assets in Underlying
Funds which are money market funds.

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

CAPITAL MANAGER GROWTH FUND

The Capital Manager Growth Fund will invest 60% to 90% of its assets in
Underlying Funds which invest primarily in equity securities including the
equity portion of the Balanced Fund, 10% to 40% of its assets in Underlying
Funds which invest primarily in fixed income securities including the fixed
income portion of the Balanced Fund and up to 10% of its

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<PAGE> 34

assets in Underlying Funds which are money market funds.

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

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

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

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

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

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

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

ALL FUNDS

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

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

SPECIFIC INVESTMENT POLICIES

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

REPURCHASE AGREEMENTS

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<PAGE> 35

crued interest). If the seller under a repurchase agreement were to default on
its repurchase obligation or become insolvent, a Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by a Fund were delayed pending court action.
Additionally, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund could incur delays and costs in selling the underlying
security or could suffer a loss of principal and interest if such Fund were
treated as an unsecured creditor and required to return the underlying security
to the seller's estate. A Fund will enter into repurchase agreements with
financial institutions or registered broker-dealers deemed creditworthy by BB&T
or by BFMI (formerly PNC Equity Advisors Company) for the Small Company Growth
Fund, or by BlackRock International (formerly CastleInternational Asset
Management Limited) for the International Equity Fund, or by BIMC (formerly PNC
Institutional Management Corporation) for the Prime Money Market Fund or the
Tax-Free Money Market Fund. Except as described in the Statement of Additional
Information, there is no aggregate limitation on the amount of a Fund's total
assets that may be invested in instruments which are subject to repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.

REVERSE REPURCHASE AGREEMENTS

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

WHEN-ISSUED SECURITIES

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

SHORT-TERM OBLIGATIONS

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<PAGE> 36

at the time of purchase, (i) possess one of the two highest short-term ratings
from at least two Rating Agencies (for example, commercial paper rated "A-1" or
"A-2" by S&P and "P-1" or "P-2" by Moody's), or (ii) do not possess a rating
(i.e., are unrated) but are determined by BB&T (or BFMI, with respect to the
Small Company Growth Fund, or BlackRock International, with respect to the
International Equity Fund) to be of comparable quality to rated instruments
eligible for purchase. Under normal market conditions, each of the Fixed Income
Funds, the Growth and Income Fund, the Large Company Growth Fund, and the Small
Company Growth Fund will limit its investment in short-term obligations to 35%
of its total assets.

Each of the Fixed Income Funds, the Growth and Income Fund, the Large Company
Growth Fund and the Small Company Growth Fund may invest in short-term
obligations in order to acquire interest income combined with liquidity. Pending
investment or to meet anticipated redemption requests, the International Equity
Fund may also invest without limitation in short-term obligations. For temporary
defensive purposes, as determined by BB&T (or, in the case of the Small Company
Growth Fund, BFMI or, in the case of the International Equity Fund, BlackRock
International), these investments may constitute 100% of such Funds' portfolio
and, in such circumstances, will constitute a temporary suspension of such
Funds' attempts to achieve their investment objectives.

U.S. GOVERNMENT SECURITIES

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

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

The Short-Intermediate, the Intermediate U.S. Government Bond, the
Intermediate Corporate Bond, the Growth and Income, the Balanced, the Large
Company Growth, and the Small Company Growth

33
<PAGE> 37

Funds may also invest in "zero coupon" U.S. Government Securities. These
securities tend to be more volatile than other types of U.S. Government
Securities. Zero coupon securities are debt instruments that do not pay current
interest and are typically sold at prices greatly discounted from par value. The
return on a zero coupon obligation, when held to maturity, equals the difference
between the par value and the original purchase price. Even though such
securities do not pay current interest in cash, a Fund nonetheless is required
to accrue interest income on these investments and to distribute the interest
income on a current basis. Thus, a Fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.

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

COLLATERALIZED MORTGAGE OBLIGATIONS

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

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

Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not fully developed. Stripped mortgage securities issued or
guaranteed by the U.S. Government and held by a Fund may be considered liquid
securities pursuant to guidelines established by the BB&T Funds' Board of
Trustees. The Funds will not purchase a stripped mortgage security that is
illiquid if, as a result thereof, more than 15% (10% in the case of the Prime
Money Market Fund) of the value of the Fund's net assets would be invested in
such securities and other illiquid securities.

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

ASSET-BACKED SECURITIES

The Prime Money Market Fund and the Intermediate Corporate Bond Fund may
invest in asset-backed securities which are securities created by the grouping
of certain private loans, receivables, and other lender assets, such as
automobile receivables and credit-card receivables, into pools.

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<PAGE> 38

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

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

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

DETERMINING THE MATURITY OF CERTAIN DEBT SECURITIES

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

COMMERCIAL BONDS

The Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, the
Growth and Income Fund, the Large Company Growth Fund, and the Small Company
Growth Fund may invest up to 35% of their total assets, and the Balanced Fund
also may invest in bonds, notes and debentures of a wide range of U.S. corporate
issuers. The Intermediate Corporate Bond Fund will invest at least 65% of its
total assets in investment grade corporate bonds. Debentures represent unsecured
promises to pay, while notes and bonds may be secured by mortgages on real
property or security interests in personal property.

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

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<PAGE> 39

rate Bond Fund will invest at least 65% of its total assets in corporate bonds,
notes, and debentures which are rated at the time of purchase within one of the
four highest rating groups assigned by a Rating Agency (for example Baa by
Moody's or BBB by S&P) or that are unrated but determined by the Adviser to be
of comparable quality.

The applicable ratings are described in the Appendix to the Statement of
Additional Information. In the event that the rating of any debt securities
falls below the third highest rating category (or fourth rating category with
respect to the Intermediate Corporate Bond Fund), these Funds will not be
obligated to dispose of such obligations and may continue to hold such
obligations if, in the opinion of BB&T (or BFMI, with respect to the Small
Company Growth Fund), such investment is considered appropriate under the
circumstances.

The Intermediate Corporate Bond Fund may invest up to 15% of its net assets in
corporate debt obligations that are not investment grade, but are rated in any
category below BBB or Baa or are of comparable quality in the judgment of the
Adviser (i.e. "junk bonds") and may include bonds in default. To the extent
consistent with SEC rules, the Intermediate Corporate Bond Fund may invest in
noninvestment grade securities by investing in other investment companies that
primarily invest in such securities. Corporate debt obligations that are below
investment grade are high yield, high-risk securities, typically subject to
greater market fluctuations and greater risk of loss of income and principal due
to an issuer's default. To a greater extent than investment grade securities,
lower rated securities tend to reflect short-term corporate, economic, and
market developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower rated securities may be more difficult to dispose of
or to value than higher rated, lower-yielding securities. Changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments with respect to these securities than
for higher rated securities.

OPTIONS AND FUTURES CONTRACTS

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

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

To the extent consistent with its investment objective, each Fund of the BB&T
Funds (other than the

36
<PAGE> 40

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

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

Each Fund of the BB&T Funds (other than the U.S. Treasury Money Market Fund,
the Prime Money Market Fund, and the Tax-Free Money Market Fund) may purchase
and sell call and put options on futures contracts traded on an exchange or
board of trade. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or a seller of a futures contract
at a specified exercise price during the option period. When a Fund sells an
option on a futures contract, it becomes obligated to sell or buy a futures
contract if the option is exercised. In connection with a Fund's position in a
futures contract or related option, a Fund will create a segregated account of
liquid assets or will otherwise cover its position in accordance with applicable
SEC requirements.

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

FOREIGN INVESTMENTS

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

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

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

Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may subject
the Prime Money Market Fund and the Intermediate Corporate Bond Fund to
investment risks that differ in some respects from those related to investments
in obligations of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of foreign
withholding taxes on interest income, possible seizure, currency blockage,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely effect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and record keeping standards than
those applicable to domestic branches of U.S. banks. The Prime Money Market Fund
will acquire securities issued by foreign branches of U.S. banks, foreign banks,
or other foreign issuers only when the Adviser or Sub-Adviser believes that the
risks associated with such instruments are minimal and only when such
instruments are denominated and payable in United States dollars. The
Intermediate Corporate Bond Fund may invest in debt obligations of foreign
issuers that are denominated either in U.S. dollars or foreign currency. The
Intermediate Corporate Bond Fund will not invest more than 25% of its total
assets in the debt obligations of foreign issuers.

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

During normal market conditions, the International Equity Fund will invest at
least 90% and, in any event, at least 65%, of its total assets in securities of
foreign issuers. The International Equity Fund invests primarily in equity
securities of issuers located in countries included in EAFE and may invest in
equity securities of issuers located in emerging markets. EAFE is an index
composed of a sample of companies representative of the market structure of 21
European and Pacific Basin countries. The Index represents the evolution of an
unmanaged portfolio consisting of securities listed on the stock exchanges of
such countries. Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom are
currently included in EAFE.

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

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and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer.

Investing in foreign securities involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of a Fund that invests in
foreign securities as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. A Fund's investments in foreign
securities may also be adversely affected by changes in foreign political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
adversely affect a Fund's operations. Special tax considerations apply to
foreign securities.

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

On January 1, 1999, the European Monetary Market Union ("EMU") introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. Those countries are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. A new European Central Bank ("ECB") will be created to manage the
monetary policy of the new unified region. National currencies will continue to
circulate until they are replaced by coins and bank notes by the middle of 2002.

The introduction of the euro presents some uncertainties and possible risks,
including whether the payment and operational systems of banks and other
financial institutions are adequate; whether exchange rates for existing
currencies and the euro are adequately established; and whether suitable
clearing and settlement systems for the euro are in operation. These and other
factors may cause market disruptions and could adversely affect the value of
certain foreign securities held by a Fund.

The introduction of the euro is expected to impact European capital markets in
ways that are impossible to quantify at this time. For example, investors may
begin to view EMU countries as a single market, and that may impact future
investment decisions for a Fund. As the euro is implemented, there may be
changes in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro transition by
EMU countries -- present and future -- may impact the fiscal and monetary
policies of those participating countries. There may be increased levels of
price competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in increased
volatility for all financial markets.

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

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

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

In order to generate additional income, each Fund except the North Carolina
Fund, the South Carolina Fund, and the Virginia Fund may, from time to time,
lend its portfolio securities to broker-dealers, banks or institutional
borrowers of securities which BB&T and/or a Fund's respective Sub-Adviser has
determined are creditworthy under guidelines established by the BB&T Funds'
Board of Trustees. The BB&T Funds will employ one or more securities lending
agents to initiate and affect securities lending transactions for the BB&T
Funds. While the lending of securities may be subject a Fund to certain risks,
such as delays or the inability to regain the securities in the event the
borrower was to default on its lending agreement or enter into bankruptcy, the
Fund will lend only on a fully collateralized basis in order to reduce such
risk. During the time portfolio securities are on loan, the Fund is entitled to
receive any dividends or interest paid on such securities. Additionally, cash
collateral received will be invested on behalf of the Fund exclusively in money
market instruments. While a Fund will not have the right to

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vote securities on loan, the Funds intend to terminate the loan and retain the
right to vote if that is considered important with respect to the investment.
Each Fund will restrict its securities lending to 33 1/3% of its total assets.

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

CORPORATE AND BANK OBLIGATIONS

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

RESTRICTED SECURITIES

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

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

GUARANTEED INVESTMENT CONTRACTS

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

MUNICIPAL OBLIGATIONS

The Tax-Free Money Market Fund invests primarily in Municipal Obligations. The
Prime Money Market Fund may, when deemed appropriate by its Sub-Adviser, invest
in high quality short-term obligations issued by state and local governmental
issuers.

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money to make the lease obligation payments. However, under certain lease
obligations, the state or governmental body has no obligation to make these
payments in future years unless money is appropriated on a yearly basis.
Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities represent a relatively new type of financing that is
not yet marketable as more conventional securities. Certain investments in lease
obligations may be illiquid. Under guidelines established by the Board of
Trustees, the following factors will be considered when determining the
liquidity of a lease obligation: (1) the frequency of trades and quotes for the
obligation; (2) the number of dealers willing to purchase or sell the obligation
and the number of potential buyers; (3) the willingness of dealers to undertake
to make a market in the obligation; and (4) the nature of the marketplace
trades.

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

The Tax-Free Money Market Fund's portfolio may also include "moral obligation"
bonds, which are normally issued by special purpose public authorities. If the
issuer of moral obligation bonds is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.

Although the Tax-Free Money Market Fund may invest more than 25% of its net
assets in (i) Municipal Obligations whose issuers are in the same state and (ii)
Municipal Obligations the interest on which is paid solely from revenues of
similar projects, it does not presently intend to do so on a regular basis. To
the extent the Tax-Free Money Market Fund's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Tax-Free Money Market Fund will be
subject to the peculiar risks presented by such projects and by the laws and
economic conditions relating to such states to a greater extent than it would be
if its assets were not so concentrated.

TAXABLE MUNICIPAL OBLIGATIONS

The Intermediate Corporate Bond Fund may invest in taxable municipal
obligations. Taxable municipal obligations are typically issued by
municipalities or their agencies for purposes which do not qualify for federal
tax exemption, but do qualify for state and local tax exemption ("Taxable
Municipal Obligations"). These debt obligations are issued to finance the cost
of buying, building or improving various projects, such as sporting facilities,
health care facilities, housing projects, electric, water and sewer utilities,
and colleges or universities. Generally, payments on these debt obligations
depend on the revenues generated by the projects, excise taxes or state
appropriations, or the debt obligations can be backed by the government's taxing
power. Due to federal taxation, Taxable municipal obligations offer yields more
comparable to other taxable sectors such as corporate bonds or agency bonds than
to other municipal obligations. These debt obligations are federally taxable to
individuals but may be exempt from state and local taxes.

PRIVATE ACTIVITY BONDS

The Tax-Free Money Market Fund may invest its net assets in private activity
bonds ("industrial development bonds" under prior law). While interest paid on
private activity bonds will be exempt from regular federal income tax, it may be
treated as a specific tax preference item under the federal alternative minimum
tax. (See "Dividends and Taxes".) Investors should also be aware of the
possibility of state and local alternative minimum income tax or minimum income
tax liability on interest from private activity bonds.

VARIABLE AND FLOATING RATE INSTRUMENTS

The Prime Money Market Fund and the Tax-Free Money Market Fund may purchase
rated and unrated variable and floating rate instruments, which may

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have a stated maturity in excess of 13 months but will, in any event, permit the
Fund to demand payment of the principal of the instrument at least once every 13
months upon not more than 30 days' notice (unless the instrument is guaranteed
by the U.S. Government or any agency or instrumentality thereof).

Variable and floating rate instruments may include variable rate demand notes,
which are unsecured demand notes that permit the indebtedness thereunder to
vary, and that provide for periodic adjustments in the interest rate according
to the terms of the instrument. Such notes are frequently not rated by credit
rating agencies, but unrated notes purchased by a Fund will be determined by the
Adviser or BIMC to be of comparable quality at the time of purchase to rated
instruments purchasable by the Fund. While the notes are not typically rated,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial, and other business concerns) must satisfy the
same criteria as to quality as set forth above for commercial paper. BIMC will
consider the earning power, cash flow, and other liquidity ratios of the issuers
of such notes and will continuously monitor their financial status and ability
to meet payment on demand. Where necessary to ensure that a note is an Eligible
Security, the Tax-Free Money Market Fund will require that the issuer's
obligation to pay the principal of the note be backed by a guarantee in
accordance with SEC Rule 2a-7. While there may be no active secondary market
with respect to a particular variable rate demand note purchased by a Fund, a
Fund may, upon the notice specified in the note, demand payment of the principal
of the note at any time or during specified periods not exceeding thirteen
months, depending upon the instrument involved, and may resell the note at any
time to a third party. The absence of such an active secondary market, however,
could make it difficult for the Fund to dispose of a variable rate demand note
if the issuer were to default on its payment obligation or during periods that
the Fund is not entitled to exercise its demand rights, and the Fund could, for
this or other reasons, suffer a loss to the extent of the default. These notes
will be considered liquid only if the period of time remaining until the
principal amount can be recovered under a variable master demand note may not
exceed seven days.

MONEY MARKET FUNDS

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

INVESTMENT COMPANIES

The Balanced Fund may invest in closed-end investment companies that invest a
significant portion of their assets in convertible securities. The Intermediate
Corporate Bond Fund may invest in investment companies that invest primarily in
debt securities. Securities of other investment companies will be acquired by a
Fund within the limits prescribed by the 1940 Act and in accordance with its
investment objective, policies and restrictions. As a shareholder of an
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory fees and other
expenses the Fund bears directly in connection with its own operations.

CONVERTIBLE SECURITIES

The Intermediate Corporate Bond Fund, the Balanced Fund, the Growth and Income
Fund, the Large Company Growth Fund, the Small Company Growth Fund and the
Equity Index Fund may invest in convertible securities. Convertible securities
are fixed income-securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. See the Statement of Additional Information for
further discussion of convertible securities.

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STANDARD & POOR'S DEPOSITORY RECEIPTS

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

UNINVESTED CASH RESERVES

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

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

TAX-EXEMPT OBLIGATIONS

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

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

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

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in calculation of the general obligation debt limit. In Virginia, such
obligations are not included in the calculation of applicable debt limits,
provided such obligations are properly structured.

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

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

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

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

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

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

PUTS

The Tax-Free Money Market Fund, North Carolina Fund, the South Carolina Fund,
and the Virginia Fund may acquire "puts" with respect to securities held in
their portfolios. Under a put, the Funds would have the right to sell a
specified security within a specified period of time at a specified price. A put
would be sold, transferred, or assigned only with the underlying security. The
Tax-Free Money Market Fund, North Carolina Fund, the South Carolina Fund, and
the Virginia Fund expect that they will generally acquire puts only where the
puts are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Funds may pay for a put either
separately in cash or by paying a

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<PAGE> 49

higher price for Fund securities which are acquired subject to the puts (thus
reducing the yield to maturity otherwise available for the same securities). The
Tax-Free Money Market Fund, North Carolina Fund, the South Carolina Fund, and
the Virginia Fund will acquire puts solely to facilitate Fund liquidity, shorten
the maturity of the underlying security, or permit the investment of their funds
at a more favorable rate of return.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE NORTH CAROLINA FUND

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

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE SOUTH CAROLINA FUND

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

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE VIRGINIA FUND

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

DIVERSIFICATION AND CONCENTRATION

The North Carolina Fund, the South Carolina Fund, and the Virginia Fund are
non-diversified funds under the 1940 Act. This means they may concentrate their
investments in the securities of a limited number of issuers. Under the Internal
Revenue Code of 1986, as amended, at the end of each fiscal quarter each of the
North Carolina Fund, the South Carolina Fund, and the Virginia Fund must
nevertheless diversify its portfolio such that, with respect to 50% of its total
assets, not more than 25% of its assets is invested in the securities of any one
issuer (other than U.S. Government Securities or securities of other regulated
investment companies), and with respect to the remainder of its total assets, no
more than 5% of its assets is invested in the securities of any one issuer
(other than U.S. Government Securities or securities of other regulated
investment companies). Because of the relatively small number of issuers of
North Carolina Tax-Exempt Obligations, South Carolina Tax-Exempt Obligations,
and Virginia Tax-Exempt Obligations, the North Carolina Fund, the South Carolina
Fund, and the Virginia Fund are more likely to invest a higher percentage of
their assets in the securities of a single issuer than is an investment company
that invests in a broad range of tax-exempt securities. This

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<PAGE> 50

concentration involves an increased risk of loss to the North Carolina Fund, the
South Carolina Fund, and the Virginia Fund if the issuer is unable to make
interest or principal payments or if the market value of such securities
declines, and consequently may cause greater fluctuation in the net asset value
of the North Carolina, the South Carolina, and the Virginia Funds' Shares.

VARIABLE AND FLOATING RATE SECURITIES

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

STAND-BY COMMITMENTS

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

PORTFOLIO TURNOVER

For the fiscal year ended September 30, 1998, the Portfolio turnover rate for
each of the Funds with a full year of operations (other than Money Market Funds)
was as follows: Short-Intermediate Fund 53.74%, Intermediate U.S. Government
Bond Fund 60.98%, North Carolina Fund 32.63%, Growth and Income Fund 13.17%,
Small Company Growth Fund 157.44%, equity portion of the Balanced Fund 11.88%
and fixed income portion of the Balanced Fund 61.41% and the International
Equity Fund 53.27%. The portfolio turnover of each of the Funds (except the
Money Market Funds) may vary greatly from year to year as well as within a
particular year. It is presently anticipated that the annual portfolio turnover
rates of the Funds of Funds will not exceed 50%, the annual portfolio turnover
rate of the South Carolina Fund will not exceed 75% and the annual portfolio
turnover rate of the Large Company Growth Fund will not exceed 150%.
Additionally, it is presently anticipated that the portfolio turnover rate of
the Virginia Fund will not exceed 50% and the portfolio turnover rate of the
Intermediate Corporate Bond Fund will not exceed 75%. High turnover rates will
generally result in higher transaction costs to a Fund and may result in higher
levels of taxable realized gains (including short-term capital gains which are
generally taxed at ordinary income tax rates) to a Fund's shareholders. See
"DIVIDENDS AND TAXES."

YEAR 2000

The investment services industry is evaluating the capability of existing
application software programs and operating systems to accommodate the date
value for the year 2000. Many existing application software products in the
marketplace were designed to accommodate only a two-digit date position, which
represents the year (e.g., "95" is stored on the system and represents the year
1995). If the year 1999 is the maximum date value these systems are able to
accurately process, the improper identification of the year 2000 could result in
a computer system failure or miscalculations causing a disruption of operations.
The BB&T Funds' principal service providers are taking steps the BB&T Funds
believe are reasonably designed to address the year 2000 issues with respect to
the computer systems those providers operate. However, this is an ongoing
process and testing and other steps are scheduled to be completed in 1999.
Nevertheless, the inability of service providers to successfully address year
2000 issues could result in

47
<PAGE> 51

interruptions in the BB&T Funds' business and have a material adverse impact on
the BB&T Funds' operations. In addition, year 2000 issues could have a negative
effect on the portfolio securities in which the Funds invest, thereby affecting
the performance of the Funds.

INVESTMENT RESTRICTIONS

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

The Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free Money
Market Fund may not:

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

Each Fixed Income Fund may not:

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

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

Each of the Funds of Funds may not:

1. Purchase any securities that would cause 25% or more of the value of such
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities or securities issued by
"regulated investment companies" as defined in the Internal Revenue Code of
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

48
<PAGE> 52

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:

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.

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<PAGE> 53

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

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

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

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

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

The Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free Money
Market Fund may not invest more than 10% of its assets in instruments which are
not readily marketable.

VALUATION OF SHARES

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

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

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<PAGE> 54

selling portfolio securities prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity of a Fund, adjusting or
withholding dividends, or utilizing a net asset value per share determined by
using available market quotations. Although the BB&T Funds seek to maintain the
Prime Money Market Fund's, the U.S. Treasury Fund's, and the Tax-Free Money
Market Fund's net asset value per Share at $1.00, there can be no assurance that
net asset value will not vary.

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

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

HOW TO PURCHASE AND REDEEM SHARES

DISTRIBUTOR

Shares are sold on a continuous basis by the BB&T Funds' Distributor, BISYS
Fund Services LP. The principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, contact the BB&T Funds at
(800) 228-1872.

PURCHASES OF CLASS A AND CLASS B SHARES

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

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

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

Investors may purchase Class A and Class B Shares of a Fund by completing and
signing an Account Registration Form and mailing it, together with a check (or
other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the BB&T Funds, P.O. Box 182533, Columbus, OH
43218-2533. Investors may obtain an Account Registration Form and additional

51
<PAGE> 55

information regarding the BB&T Funds by contacting their local BB&T office.
Subsequent purchases of Class A and Class B Shares of a Fund may be made at any
time by mailing a check (or other negotiable bank draft or money order) to the
above address.

If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A and Class B Shares by
telephone. Telephone orders may be placed by calling the BB&T Funds at (800)
228-1872. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by sending funds electronically to the BB&T Funds' transfer
agent. To make payments electronically, investors must call the BB&T Funds at
(800) 228-1872 to obtain instructions regarding the bank account number into
which the funds should be wired and other pertinent information.

Class A or Class B Shares of the Variable NAV Funds are sold at the net asset
value per Share next determined after receipt by the Distributor of an order in
good form to purchase Shares, plus a sales charge at the time of purchase in the
case of Class A Shares (see "VALUATION OF SHARES"). In the case of orders for
the purchase of Shares placed through a broker-dealer, the public offering price
will be the net asset value as so determined plus any applicable sales charge,
but only if the broker-dealer receives the order prior to the Valuation Time for
that day and transmits to the BB&T Funds by the Valuation Time. The
broker-dealer is responsible for transmitting such orders promptly. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer. If the broker-dealer
receives the order after the Valuation Time for that day, the price will be
based on the net asset value determined as of the Valuation Time for the next
Business Day.

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

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

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

SALES CHARGE -- CLASS A

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

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

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

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

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

52
<PAGE> 56

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

Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, the Distributor pays broker-dealers out of its own assets, a
fee of up to 1% of the offering price of such shares up to $2.5 million, 0.5% of
the offering price from $2.5 million to $5 million, and 0.25% of the offering
price over $5 million. If these shares are redeemed within 12 months, the
redemption proceeds will be reduced by 1.00%. For additional information, see
"How to Purchase and Redeem Shares -- Contingent Deferred Sales Charge."

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

The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Class A Shares of any of the Funds of the
BB&T Funds. The maximum cash compensation payable by the Distributor is 4.50% of
the public offering price of Class A Shares. Compensation will also include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to dealers whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by any Fund or its shareholders.

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

SALES CHARGE WAIVERS

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

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

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

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

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

(5) Investors who beneficially hold Trust Shares of any Fund of the BB&T
Funds;

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

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

In addition, the Distributor may waive the sales charge for the purchase of a
Fund's shares with the

53
<PAGE> 57

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

LETTER OF INTENT

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

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

54
<PAGE> 58

such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. Class B Shares convert automatically to Class A Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted under the circumstances and subject to the qualifications described
in this Prospectus.

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

CONTINGENT DEFERRED SALES CHARGE

CLASS A SHARES

Each Fund imposes a Contingent Deferred Sales Charge on Class A shares in
certain circumstances. Under the Contingent Deferred Sales Charge arrangement,
for sales of shares of $1,000,000 or more (including right of accumulation and
Letters of Intent (see "How to Purchase and Redeem Shares")), the front-end
sales charge will not be imposed (although the Distributor intends to pay its
registered representatives and other dealers that sell Fund shares, out of its
own assets, a fee of up to 1% of the offering price of such sales except on
purchases exempt from the front end sales charge. However, if such shares are
redeemed within twelve months after their purchase date, the redemption proceeds
will be reduced by the 1.00% Contingent Deferred Sales Charge.

CLASS B SHARES

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

The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.

<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- -------- -----------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>

In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Class A
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distributions, and finally of other Shares held by the Shareholder for the
longest period of time. This method should result in the lowest possible sales
charge.

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

The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or

55
<PAGE> 59

disability (as defined in the Code) of a Shareholder or a participant or
beneficiary of a qualifying retirement plan if redemption is made within one
year of such death or disability; (ii) to the extent that the redemption
represents a minimum required distribution from an Individual Retirement Account
or other qualifying retirement plan to a Shareholder who has attained the age of
70 1/2; (iii) provided that the Shareholder withdraws no more than 12% of the
account value annually using the Auto Withdrawal Plan Feature; (iv) for
Investors who purchased Class B Shares of the Prime Money Market Fund, Class B
Shares of the U.S. Treasury Fund, or Class B Shares of the Tax-Free Money Market
Fund through the Cash Sweep Program at BB&T Treasury Services Division; and (v)
for Investors who purchased through a participant directed defined contribution
plan. A Shareholder or his or her representative should contact the Transfer
Agent to determine whether a retirement plan qualifies for a waiver and must
notify the Transfer Agent prior to the time of redemption if such circumstances
exist and the Shareholder is eligible for this waiver. In addition, the
following circumstances are not deemed to result in a "redemption" of Class B
Shares for purposes of the assessment of a Contingent Deferred Sales Charge,
which is therefore waived: (i) plans of reorganization of the Fund, such as
mergers, asset acquisitions and exchange offers to which the Fund is a party;
and (ii) exchanges for Class B Shares of other Funds of the BB&T Funds as
described under "Exchange Privilege."

CONVERSION FEATURE

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

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

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

AUTO INVEST PLAN

BB&T Funds Auto Invest Plan enables Shareholders to make regular purchases of
Class A and Class B Shares through automatic deduction from their bank accounts.
With Shareholder authorization, the BB&T Funds' transfer agent will deduct the
amount specified (subject to the applicable minimums) from the Shareholder's
bank account and will automatically invest that amount in Class A or Class B
Shares at the public offering price on the date of such deduction. The required
minimum initial investment when opening an account using the Auto Invest Plan is
$25 per Fund; the minimum amount for subsequent automatic investments in a Fund
is $25. To participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the Account Registration Form or supplemental sign-up
form that can be acquired by calling the Distributor and attach a voided check
and (for new Shareholders only) send a check for the initial $25 Fund Share
purchase. For a Shareholder to change the Auto Invest instructions or to
discontinue the feature, the request must be made in writing to the BB&T Funds,
P.O. Box 182533, Columbus, OH 43218-2533. The Auto Invest Plan may be amended or
terminated without notice at any time by the Distributor.

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

A BB&T Funds IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program by
purchasing Class A or Class B Shares for an IRA. BB&T Funds IRA contributions
may be tax-deductible and earnings are tax deferred. Under the Tax Reform Act of
1986 and Taxpayer Relief Act of 1997, the tax deductibility of IRA contributions
is

56
<PAGE> 60

restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRAs and
future contributions up to the IRA maximums, whether deductible or not, still
earn income on a tax-deferred basis.

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

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

ADDITIONAL INFORMATION ABOUT PURCHASING SHARES

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

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

An order to purchase Class A Shares of the Prime Money Market Fund, the U.S.
Treasury Fund, or the Tax-Free Money Market Fund will be deemed to have been
received by the Distributor only when federal funds with respect thereto are
available to the BB&T Funds' custodian for investment. Federal funds are monies
credited to a bank's account within a Federal Reserve Bank. Payment for an order
to purchase Shares of the Prime Money Market Fund, the U.S. Treasury Fund, or
the Tax-Free Money Market Fund which is transmitted by federal funds wire will
be available the same day for investment by the BB&T Funds' custodian, if
received prior to the last Valuation Time (see "VALUATION OF SHARES"). It is
strongly recommended that investors of substantial amounts use federal funds to
purchase Shares of the Prime Money Market Fund, the U.S. Treasury Fund, or the
Tax-Free Money Market Fund.

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

Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in the BB&T Funds. Information concerning this
Prospectus should be read in conjunction with any such information received from
the Participating Organizations or Banks.

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

EXCHANGE PRIVILEGE

CLASS A

Class A Shares of each Fund may be exchanged for Class A Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Class A Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Class A Shares may
not be exchanged for Class B Shares of the other Funds, and may be exchanged for
Trust Shares of the other Funds only if the Shareholder becomes eligible to
purchase Trust Shares. Only residents of North Carolina may exchange their Class
A Shares of the other Funds for Class A Shares of the North Carolina Fund. Only
residents of South Carolina may exchange their Class A Shares of the other Funds
for Class A Shares of the South Carolina Fund. Only residents of Virginia may
exchange their Class A Shares of the other Funds for Class A Shares of the
Virginia Fund. Shareholders may exchange

57
<PAGE> 61

their Class A Shares for Class A Shares of a Fund with the same or lower sales
charge on the basis of the relative net asset value of the Class A Shares
exchanged. Shareholders may exchange their Class A Shares for Class A Shares of
a Fund with a higher sales charge by paying the difference between the two sales
charges. Shareholders may also exchange Class A Shares of the Prime Money Market
Fund, the U.S. Treasury Fund, or the Tax-Free Money Market Fund, for which no
sales load was paid, for Class A Shares of a Variable NAV Fund. Under such
circumstances, the cost of the acquired Class A Shares will be the net asset
value per share plus the appropriate sales load. If Class A Shares of the Prime
Money Market Fund, the U.S. Treasury Fund, or the Tax-Free Money Market Fund
were acquired in a previous exchange involving Shares of a Variable NAV Fund,
then such Shares of the Prime Money Market Fund, the U.S. Treasury Fund, or the
Tax-Free Money Market Fund may be exchanged for Shares of a Variable NAV Fund
without payment of any additional sales load within a twelve month period. Under
such circumstances, the Shareholder must notify the Distributor that a sales
load was originally paid. Depending upon the terms of a particular Customer
account, a Participating Organization may charge a fee with regard to such an
exchange. Information about such charges will be supplied by the Participating
Organization.

CLASS B

Class B Shares of each Fund may be exchanged for Class B Shares of the other
Funds on the basis of relative net asset value per Class B Share, without the
payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
as of the date of this prospectus, Class B Shares were not yet being offered in
the Short-Intermediate Fund, the North Carolina Fund, the South Carolina Fund,
or the Virginia Fund, and thus, as of the date of this prospectus, no exchanges
could be effected for Class B Shares of these three Funds. For purposes of
computing the Contingent Deferred Sales Charge that may be payable upon a
disposition of the newly acquired Class B Shares, the holding period for
outstanding Class B Shares of the Fund from which the exchange was made is
"tacked" to the holding period of the newly acquired Class B Shares. For
purposes of calculating the holding period applicable to the newly acquired
Class B Shares, the newly acquired Class B Shares shall be deemed to have been
issued on the date of receipt of the Shareholder's order to purchase the
outstanding Class B Shares of the Fund from which the exchange was made.

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

ADDITIONAL INFORMATION ABOUT EXCHANGES

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

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

58
<PAGE> 62

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

AUTO EXCHANGE PLAN (CLASS B SHARES ONLY)

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

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

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

REDEMPTION OF SHARES

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

REDEMPTION BY MAIL

A written request for redemption must be received by the BB&T Funds in order
to constitute a valid tender for redemption. The signature on the written
request must be guaranteed by a bank, broker, dealer, credit union, securities
exchange, securities association, clearing agency or savings association, as
those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 if (a) a redemption check is to be payable to anyone other than the
Shareholder(s) of record or (b) a redemption check is to be mailed to the
Shareholder(s) at an address other than the address of record or other than to a
commercial bank designated on the Account Registration Form of such
Shareholder(s). The Distributor reserves the right to reject any signature
guarantee if (1) it has reason to believe 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

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<PAGE> 63

further discussion on sending proceeds to your bank account.

REDEMPTION BY TELEPHONE

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

CHECK WRITING SERVICE

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

AUTO WITHDRAWAL PLAN

BB&T Funds Auto Withdrawal Plan enables Shareholders to make regular
redemptions of Class A Shares and Class B Shares of a Fund. With Shareholder
authorization, the BB&T Funds' transfer agent will automatically redeem Class A
Shares and Class B Shares at the net asset value of the applicable Fund on the
dates of withdrawal and have the amount specified transferred according to the
instructions of the Shareholder. In certain cases, Class B Shareholders may
redeem using the Auto Withdrawal Plan without paying a contingent deferred sales
charge as described in "How to Purchase and Redeem Shares -- Contingent Deferred
Sales Charge." Shareholders participating in the Auto Withdrawal Plan must
maintain a minimum account balance of $1,000 in the Fund from which Class A
Shares or Class B Shares are being redeemed. Purchase of additional Class A
Shares concurrent with withdrawals may be disadvantageous to certain
Shareholders because of tax liabilities.

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

PAYMENTS TO SHAREHOLDERS

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<PAGE> 64

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

At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the BB&T Funds may delay
the forwarding of proceeds only until payment has been collected for the
purchase of such Shares, which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing Shares, investors should
purchase Shares by certified check or by wire transfer. The BB&T Funds intend to
pay cash for all Shares redeemed, but under abnormal conditions which may make
payment in cash unwise, the BB&T Funds may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.

Due to the relatively high cost of handling small investments, the BB&T Funds
reserve the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder, the
account of such Shareholder in a Fund has a value of less than $1,000.
Accordingly, an investor purchasing Shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before the BB&T Funds exercise
their right to redeem such Shares and sends proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Shares of a Fund in his
or her account is less than the minimum amount and will be allowed 60 days to
make an additional investment in an amount which will increase the value of the
account to at least $1,000.

See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the BB&T Funds may suspend the right
of redemption or redeem Shares involuntarily if it appears appropriate to do so
in light of the BB&T Funds' responsibilities under the 1940 Act.

DIVIDENDS AND TAXES

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

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

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

The net investment income of the Shares of the Prime Money Market Fund, the
U.S. Treasury Fund, and the Tax-Free Money Market Fund is declared daily as a
dividend to Shareholders at the close of

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<PAGE> 65

business on the day of declaration. Dividends will generally be paid monthly.
The Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free Money
Market Fund do not expect to realize any long-term capital gains and, therefore,
do not foresee paying any "capital gain dividends" as described in the Code.

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

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

If you elect to receive distributions in cash and your checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.

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

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

Distributions are taxable to a Shareholder of a Fund even if they are paid
from income or gains earned by the Fund prior to the Shareholder's investment
(and thus were included in the price paid by the Shareholder).

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

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<PAGE> 66

transactions generally will not qualify for exemption from state and local
income taxes.

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

TAX CONSIDERATIONS RELATING TO THE TAX-FREE MONEY MARKET FUND

The Tax-Exempt Money Market Fund can only pay its Shareholders exempt-interest
dividends if, at the close of every quarter of the Fund's taxable year, at least
50% of the total value of the Tax-Exempt Money Market Fund's assets consist of
obligations, the interest on which is exempt from federal income tax.
Distributions designated as exempt-interest dividends by the Tax-Exempt Money
Market Fund generally are not subject to federal income tax. Any loss on the
sale or exchange of shares in the Tax-Exempt Money Market Fund held for six
months or less will be disallowed to the extent of any exempt-interest dividend
received by the shareholders with respect to such shares. In addition, an
investment in the Fund may result in liability for federal alternative minimum
tax, both for individual and corporate shareholders.

TAX CONSIDERATIONS RELATING TO THE INTERNATIONAL EQUITY FUND

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

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

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

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

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

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ing the governments thereof and their agencies, instrumentalities and
authorities, or (ii) attributable to interest on direct obligations of the
United States.

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

Distributions will not be subject to Virginia income tax if the Virginia Fund
pays distributions to Shareholders that it derived from interest on debt
obligations of Virginia or its political subdivisions, debt obligations of the
United States excludable from Virginia income tax under the laws of the United
States, or debt obligations of Puerto Rico, Guam, or the Virgin Islands, which
debt obligations are backed by the full faith and credit of the borrowing
government.

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

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

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

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

To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit, market discount,
securities lending transactions or repurchase agreements), or from long-term or
short-term capital gains, such dividends will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Shares.
Distributions by the North Carolina Fund, the South Carolina Fund, and the
Virginia Fund of net gains on securities held for more than one year are taxable
to Shareholders as such, regardless of how long the Shareholder has held Shares
in the North Carolina Fund, the South Carolina Fund or the Virginia Fund, except
that distributions which are directly attributable to gains from certain
obligations of the State of North Carolina and its political subdivisions that
were issued before July 1, 1995 are exempt from North Carolina State income tax.
Distributions will be taxable as described above even if the net asset value of
a Share in the North Carolina Fund, the South Carolina Fund or the Virginia Fund
is reduced below the Shareholder's cost of that Share by the distribution of
income or gain realized on the sale of securities and the distribution is, as an
economic matter, a return of capital. If a shareholder purchases mutual fund
shares, receives a capital gain dividend (or is credited with an undistributed
capital gain) and

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then sells the shares at a loss within 6 months after purchasing the shares, the
loss is treated as a long-term capital loss to the extent of the capital gain
dividend (or undistributed capital gain).

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

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

TAX CONSIDERATIONS RELATING TO THE FUNDS OF FUNDS

The use of the fund-of-funds structure could affect the amount, timing and
character of distributions to Shareholders. See "Taxation" in the Statement of
Additional Information.

MANAGEMENT OF BB&T FUNDS

TRUSTEES OF THE BB&T FUNDS

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

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
---------------- ------------------- ---------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, OH 43219
Age: 53
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
Age: 69
Thomas W. Lambeth Trustee From 1978 to present, Executive Director,
101 Reynolda Village Z. Smith Reynolds Foundation.
Winston-Salem, NC 27106
Age: 64
*W. Ray Long Trustee Retired; Executive Vice President, Branch
605 Blenheim Drive Banking and Trust Company.
Raleigh, NC 27612
Age: 64
</TABLE>

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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
---------------- ------------------- ---------------------------
<S> <C> <C>
Robert W. Stewart Trustee Retired; Chairman and Chief Executive
201 Huntington Road Officer of Engineered Custom Plastics
Greenville, SC 29615 Corporation from 1969 to 1990.
Age: 66
</TABLE>

- ---------

* Indicates an "interested person" of the BB&T Funds as defined in the 1940 Act.

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

INVESTMENT ADVISER

BB&T is the Investment Adviser of each Fund. BB&T is the oldest bank in North
Carolina and is the principal bank affiliate of BB&T Corporation, a bank holding
company that is a North Carolina corporation, headquartered in Winston-Salem,
North Carolina. As of December 31, 1997, BB&T Corporation had assets of
approximately $29.2 billion. Through its subsidiaries, BB&T Corporation operates
over 540 banking offices in Maryland, North Carolina, South Carolina, Virginia
and Washington, D.C., providing a broad range of financial services to
individuals and businesses.

In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Funds, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the BB&T Funds. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds for
its fiduciary accounts for more than 16 years and currently manages assets of
more than $3.37 billion.

Subject to the general supervision of the BB&T Funds' Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the Small Company Growth Fund, BFMI, with respect to the
International Equity Fund, BlackRock International, and, with respect to the
Prime Money Market Fund and the Tax-Free Money Market Fund, BIMC) manages the
Funds, makes decisions with respect to, and places orders for, all purchases and
sales of its investment securities, and maintains its records relating to such
purchases and sales.

Under an investment advisory agreement between the BB&T Funds and BB&T, the
fee payable to BB&T by the Prime Money Market Fund, the U.S. Treasury Fund, and
the Tax-Free Money Market Fund, for investment advisory services is the lesser
of: (a) a fee computed daily and paid monthly at the annual rate of forty one
hundredths of one percent (0.40%) of each Fund's average daily net assets; sixty
one-hundredths of one percent (0.60%) of each Fixed Income Funds' and the North
Carolina, South Carolina , and Virginia Funds' average daily net assets; and
seventy-four one-hundredths of one percent (0.74%) of the Large Company Growth
Fund's, the Growth and Income Fund's and the Balanced Fund's average daily net
assets; one percent (1.00%) of the Small Company Growth and International Equity
Funds' average daily net assets; and twenty-five one-hundredths of one percent
(0.25%) of each Funds of Funds' average daily net assets; or (b) such fee as may
from time to time be agreed upon in writing by the BB&T Funds and BB&T. A fee
agreed to in writing from time to time by the BB&T Funds and BB&T may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a Fund's expenses and increase

66
<PAGE> 70

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

For the fiscal year ended September 30, 1998, the Funds paid the following
investment advisory fees for Funds that had operated for that entire year: the
Prime Money Market Fund paid 0.30% of its average daily net assets; the U.S.
Treasury Fund paid 0.40% of its average daily net assets; each of the Short-
Intermediate, Intermediate U.S. Government Bond, North Carolina, Growth and
Income, and Balanced Funds, after voluntary fee reductions, paid 0.50% of its
average daily net assets; and each of the Small Company Growth and International
Equity Funds paid 1.00% of its average daily net assets. The South Carolina
Fund, the Funds of Funds, and the Large Company Growth Fund had operations for
less than a full fiscal year. The Tax-Free Money Market Fund, Intermediate
Corporate Bond Fund and Virginia Fund had not commenced operations as of
September 30, 1998.

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

<TABLE>
<CAPTION>
PORTFOLIO MANAGER BUSINESS EXPERIENCE
----------------- -------------------
<S> <C>
Keith F. Karlawish............. Manager of the Intermediate U.S. Government Bond Fund and
Short-Intermediate Fund since September, 1994 and the
Intermediate Corporate Bond Fund since its inception. From
June, 1993 to September, 1994, Mr. Karlawish was Assistant
Manager of the Intermediate U.S. Government Bond Fund and
the Short-Intermediate Fund. From September, 1991 to June,
1993, he was a Financial Analyst Team Leader for Branch
Banking and Trust Co. Mr. Karlawish earned a B.S. in
Business Administration from the University of Richmond, an
MBA from the University of North Carolina at Chapel Hill and
is a Chartered Financial Analyst.
Richard B. Jones............... Manager of the Growth and Income Fund since February 1,
1993. Since 1987, Mr. Jones has been a portfolio manager in
the BB&T Trust Division. He is a Chartered Financial
Analyst, and holds a B.S. in Business Administration from
Miami (Ohio) University and an MBA from Ohio State
University.
David R. Ellis................. Manager of the Balanced Fund since its inception and Manager
of the Funds of Funds since inception. Since 1986, Mr. Ellis
has been a portfolio manager in the BB&T Trust Division. He
holds a B.S. degree in Business Administration from the
University of North Carolina at Chapel Hill.
C. Steven Brennaman............ Manager of the North Carolina Fund since January, 1988 and
manager of the South Carolina Fund and the Virginia Fund
since each Fund's inception. Mr. Brennaman joined BB&T after
its merger with United Carolina Bank in July, 1997. He has
been a Senior Portfolio Manager with UCB since June, 1995.
Mr. Brennaman holds a B.A. degree in Political Science from
Mercer University and a M.S. degree in Management from Troy
State University.
Daniel J. Rivera............... Manager of the Large Company Growth Fund since its
inception, Mr. Rivera joined the BB&T staff in July, 1997,
after BB&T's merger with United Carolina Bank. He had been
Director of Investments at UCB since January, 1994. Mr.
Rivera received a Bachelors degree in Languages from the
Virginia Military Institute, and is a Chartered Financial
Analyst.
</TABLE>

SUB-ADVISERS

BlackRock Institutional Management Corporation ("BIMC") (formerly PNC
Institutional Management Corporation) serves as the Sub-Adviser to the Prime
Money Market Fund and the Tax-Free Money Market Fund pursuant to a Sub-Advisory
Agreement with BB&T. Under the Sub-Advisory Agreement, BIMC manages each Fund,
selects its investments and places all orders for purchases and sales of each
Fund's securities, subject to the general supervision of the BB&T Funds' Board
of Trustees and BB&T and in accordance with the Prime Money Market Fund's and
the Tax-Free Money Market Fund's re-

67
<PAGE> 71

spective investment objective, policies and restrictions.

BIMC is a wholly owned subsidiary of BlackRock Advisors, Inc. ("BAI")
(formerly PNC Asset Management Group, Inc.). BAI was organized in 1994 to
perform advisory services for investment companies, and has its principal
offices at 345 Park Avenue, 29th Floor, New York, New York 10154. BAI is an
indirect majority-owned subsidiary of PNC Bank Corp., a diversified financial
services company. BIMC's principal business address is 400 Bellevue Parkway, 4th
Floor, Wilmington, Delaware 19809.

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

For its services and expenses incurred under the Sub-Advisory Agreement, BIMC
is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the annual rate of nine one-hundredths of one percent (0.09%) of the
Prime Money Market Fund's average daily net assets and eleven one-hundredths of
one percent (0.11%) of the Tax-Free Money Market Fund's average daily net assets
or such lower fee as may be agreed upon in writing by BB&T and BIMC.

BlackRock Financial Management, Inc. ("BFMI") (formerly PNC Equity Advisors
Company) serves as the Sub-Adviser to the Small Company Growth Fund pursuant to
a Sub-Advisory Agreement with BB&T. Under the Sub-Advisory Agreement, BFMI
manages the Fund, selects investments and places all orders for purchases and
sales of the Fund's securities, subject to the general supervision of the BB&T
Funds' Board of Trustees and BB&T and in accordance with the Small Company
Growth Fund's investment objective, policies and restrictions.

The person primarily responsible for the management of the Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the
Small Company Growth Fund since its inception. Mr. Wykle has been an investment
manager with BFMI since 1995 and has been the portfolio manager of the BlackRock
FundsSM Small Cap Growth Equity Portfolio since its inception. From 1986 to
1992, he was an investment manager at PNC Bank and its predecessor, Provident
National Bank.

BFMI is an indirect majority-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), the former Sub-Adviser to the Small Company Growth
Fund, with offices located at 1600 Market Street, Philadelphia, Pennsylvania
19103. At September 30, 1998, BFMI had approximately $70 billion in
discretionary assets under management, including $24 billion in mutual fund
portfolios. PNC Bank is a wholly-owned indirect subsidiary of PNC Bank Corp. PNC
Bank Corp., a bank holding company headquartered in Pittsburgh, Pennsylvania, is
one of the largest diversified financial services companies in the United States
and operates eight lines of business; regional community banking, corporate
banking, national consumer banking, private banking, mortgage banking, secured
lending, asset management and mutual fund servicing. Financial products and
services are offered nationally and in PNC Bank's primary geographic markets in
Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC Bank's origins, and
in particular its trust administration services, date back to the mid-to-late
1800s. During the first nine months of 1998, PNC Bank's fixed income, equity and
liquidity businesses were consolidated under BlackRock, Inc., BFMI's indirect
parent. This combination created one of the largest asset managers in the United
States with $122 billion in assets under management as of September 30, 1998.

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

<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
- ----------- ----------
<S> <C>
Up to $50 million........................... 0.50%
Next $50 million............................ 0.45%
Over $100 million........................... 0.40%
</TABLE>

BlackRock International, Ltd. ("BlackRock International") (formerly
CastleInternational Asset Management Limited) serves as the Sub-Adviser to the
International Equity Fund pursuant to a Sub-Advisory Agreement with BB&T. Under
the Sub-Advisory Agreement, BlackRock International manages the Fund, selects
investments and places all orders for purchases and sales of the International
Equity Fund's securities, subject to the general supervision

68
<PAGE> 72

of the BB&T Funds' Board of Trustees and BB&T and in accordance with the
International Equity Fund's investment objective, policies, and restrictions.

BlackRock International, formed in 1996, with its primary office at 7 Castle
Street, Edinburgh, Scotland, EH2 3AH, is an indirect majority-owned subsidiary
of PNC Bank Corp. As of September 30, 1998, BlackRock International had
approximately $1.8 billion in discretionary assets under management, including
five mutual fund portfolios and three tax exempt institutional portfolios.

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

<TABLE>
<CAPTION>
FUND ASSETS ANNUAL FEE
----------- ----------
<S> <C>
Up to $50 million.......................... 0.50%
Next $50 million........................... 0.45%
Over $100 million.......................... 0.40%
</TABLE>

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

ADMINISTRATOR AND DISTRIBUTOR

BISYS Fund Services, Inc. is the administrator for each Fund. BISYS Fund
Services LP acts as the BB&T Funds' principal underwriter and distributor (the
"Administrator" or the "Distributor," as the context indicates) under agreements
approved by the BB&T Funds' Board of Trustees. BISYS Fund Services is wholly
owned by The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424,
a publicly owned company engaged in information processing, loan servicing and
401(k) administration and recordkeeping services to and through banking and
other financial organizations.

The Administrator generally assists in all aspects of a Fund's administration
and operation. Under a management and administration agreement between the BB&T
Funds and the Administrator, the fee payable by a Fund to the Administrator for
management administration services is the lesser of (a) a fee computed at the
annual rate of twenty one-hundredths of one percent (0.20%) of a Fund's average
daily net assets or (b) such fee as may from time to time be agreed upon in
writing by the BB&T Funds and the Administrator. A fee agreed to in writing from
time to time by the BB&T Funds and the Administrator may be significantly lower
than the fee calculated at the annual rate and the effect of such lower fee
would be to lower a Fund's expenses and increase the net income of the Fund
during the period when such lower fee is in effect.

For the fiscal year ended September 30, 1998, the Funds paid the following
Administration fees (as a percentage of each Fund's average daily net assets):
0.20% for each of the Intermediate U.S. Government Bond Fund, the Growth and
Income Fund, the Balanced Fund, the International Equity Fund, and the Small
Company Growth Fund; 0.17% for the Short-Intermediate Fund; 0.15% for the U.S.
Treasury Fund and the North Carolina Fund; and 0.11% for the Prime Money Market
Fund. The Funds of Funds, the South Carolina Fund, and the Large Company Growth
Fund had operations of less than a full fiscal year.

EXPENSES

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

69
<PAGE> 73

Fund on the basis of the relative net asset value of each class. At present, the
only expenses that will be borne solely by Class A and Class B Shares, other
than in accordance with the relative net asset value of the class, are expenses
under the BB&T Funds' Distribution and Shareholder Services Plan ("Distribution
Plan") which relate only to the Class A and Class B Shares.

For the periods ended September 30, 1998, each Fund's total operating expenses
for Class A Shares were as follows (as a percentage of average daily net assets
of each Fund): Prime Money Market Fund: 0.83%; U.S. Treasury Fund: 0.86%;
Short-Intermediate Fund: 1.06%; Intermediate U.S. Government Bond Fund: 1.09%;
South Carolina Fund: 1.04%; North Carolina Fund: 0.96%; Growth and Income Fund:
1.10%; Balanced Fund: 1.17%; Large Company Growth Fund: 1.39%; Small Company
Growth Fund: 1.86%; and International Equity Fund: 1.75%. Absent fee waivers,
these operating expenses would have been: Prime Money Market Fund: 1.43%; U.S.
Treasury Fund: 1.26%; Short-Intermediate Fund: 1.44%; Intermediate U.S.
Government Bond Fund: 1.44%; South Carolina Fund: 1.97%; North Carolina Fund:
1.48%; Growth and Income Fund: 1.59%; Balanced Fund: 1.66%; Large Company Growth
Fund: 1.87%; Small Company Growth Fund: 2.11%; and International Equity Fund:
2.01%.

For the fiscal year ended September 30, 1998, each Fund's total operating
expenses for Class B Shares were as follows (as a percentage of average daily
net assets of each Fund): Prime Money Market Fund: 1.64%; U.S. Treasury Fund:
1.61%; Intermediate U.S. Government Bond Fund: 1.84%; Growth and Income Fund:
1.85%; Balanced Fund: 1.92%; Large Company Growth Fund: 2.14%; Small Company
Growth Fund: 2.61%; and International Equity Fund: 2.50%. Absent fee waivers,
these operating expenses would have been: Prime Money Market Fund: 1.99%; U.S.
Treasury Fund: 1.76%; Intermediate U.S. Government Bond Fund: 1.94%; Growth and
Income Fund: 2.09%; Balanced Fund: 2.16%; Large Company Growth Fund: 2.37%; and
International Equity Fund: 2.51%.

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

BANKING LAWS

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

DISTRIBUTION PLAN

The BB&T Funds' Class A and Class B Shares are sold on a continuous basis by
the Distributor. Under the BB&T Funds' Distribution and Shareholder Services
Plan (the "Distribution Plan"), a Fund will pay a monthly distribution fee to
the Distributor as compensation for its services in connection with the
Distribution Plan at an annual rate equal to fifty one-hundredths of one percent
(0.50%) of the average daily net assets of Class A Shares of each Fund and one
percent (1.00%) of the average daily net assets of Class B Shares of each Fund.
The Distributor may periodically waive all or a portion of the fee with respect
to a Fund in order to increase the net investment income of the Fund available
for distribution as dividends. The Distributor has agreed with the BB&T Funds to
reduce its fee under the Distribution Plan to an amount not to exceed
twenty-five one-hundredths of one percent (0.25%) of the average daily net
assets of Class A Shares of each Fund (in the case of the North Carolina Fund,
the South Carolina Fund, the Virginia Fund, and the Funds of Funds, 0.15% of the
average daily net assets of the Class A Shares of each Fund). The Distributor
may use the distribution fee to provide distribution assistance with respect to
a Fund's Class A and Class B Shares or to provide

70
<PAGE> 74

shareholder services to the holders of such Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and intermediaries (such
as insurance companies and investment counselors but not including banks),
broker-dealers, and the Distributor's affiliates and subsidiaries compensation
for services or reimbursement of expenses incurred in connection with
distribution assistance or (ii) to pay banks, other financial institutions and
intermediaries, broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with the provision of shareholder services. All payments by the
Distributor for distribution assistance or shareholder services under the
Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of a Fund's Class A and Class B Shares to the
Participating Organization's customers on whose behalf the investment in such
Shares is made and/or to the provision of shareholder services to the
Participating Organization's customers owning a Fund's Class A and Class B
Shares. Under the Distribution Plan, a Participating Organization may include
Southern National Corporation or a subsidiary bank or nonbank affiliates, or the
subsidiaries or affiliates of those banks. A Servicing Agreement entered into
with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.

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

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

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

Portfolio Brokerage. When placing orders for the BB&T Funds' securities
transactions, BB&T or a Fund's respective Sub-Adviser will use its judgment to
obtain best price and execution. The full range and quality of brokerage
services available are considered in making these determinations. BB&T or a
Fund's respective Sub-Adviser may use a qualified affiliated broker or dealer of
BB&T to execute the BB&T Funds' transactions when it reasonably believes that
commissions (or prices) charged and transaction quality will be at least
comparable to those available from other qualified brokers or dealers.

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<PAGE> 75

GENERAL INFORMATION

DESCRIPTION OF THE BB&T FUNDS AND ITS SHARES

The BB&T Funds were organized as a Massachusetts business trust on October 1,
1987 and commenced active operation on September 24, 1992. The BB&T Funds have
an unlimited number of authorized Shares of beneficial interest which may,
without Shareholder approval, be divided into an unlimited number of series of
such Shares, and which are presently divided into eighteen series of Shares, one
for each of the following Funds: the BB&T Short-Intermediate U.S. Government
Income Fund, the BB&T Intermediate U.S. Government Bond Fund, the BB&T
Intermediate Corporate Bond Fund, the BB&T Growth and Income Stock Fund, the
BB&T South Carolina Intermediate Tax-Free Fund, the BB&T North Carolina
Intermediate Tax-Free Fund, the BB&T Virginia Intermediate Tax-Free Fund, the
BB&T Prime Money Market Fund, the BB&T U.S. Treasury Money Market Fund, the BB&T
Tax-Free Money Market Fund, the BB&T Balanced Fund, the BB&T Large Company
Growth Fund, the BB&T Small Company Growth Fund, the BB&T International Equity
Fund, the BB&T Equity Index Fund, the BB&T Capital Manager Conservative Growth
Fund, the BB&T Capital Manager Moderate Growth Fund, and the BB&T Capital
Manager Growth Fund. Each Fund is authorized to issue three classes of shares:
Class A, Class B and Trust Shares. As of the date of this Prospectus, Shares of
the Tax-Free Money Market Fund, the Intermediate Corporate Bond Fund, and the
Equity Index Fund were not yet being offered, and Class B Shares of the Short-
Intermediate Fund, the North Carolina Fund, the South Carolina Fund, and the
Virginia Fund were not yet being offered. Shareholders investing directly in
Class B Shares of the U.S. Treasury Fund, Prime Money Market Fund or Tax-Free
Money Market Fund, as opposed to Shareholders obtaining Class B Shares of the
U.S. Treasury Fund, Prime Money Market Fund, or Tax-Free Money Market Fund upon
an exchange of Class B Shares of any other Fund, will be requested to
participate in the Auto Exchange Program in such a way that their Class B Shares
have been withdrawn from the U.S. Treasury Fund, Prime Money Market Fund, or
Tax-Free Money Market Fund within two years of purchase. Each Share represents
an equal proportionate interest in a Fund with other Shares of the same series
and class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that Fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below).

Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, Shares shall be voted by individual
series, (ii) when the Trustees have determined that the matter affects only the
interests of a particular series or class, and (iii) only the holders of Class A
and Class B Shares will be entitled to vote on matters submitted to Shareholder
vote with regard to the Distribution Plan applicable to such classes.

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

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

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

72
<PAGE> 76

As of February 18, 1999 the following persons owned beneficially more than 25%
of Class A Shares or Class B Shares of the following Funds:

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
South Carolina Fund -- Class A Shares
- --------------------------------------------------------------
<S> <C> <C>
Cheryl K. Boone.................. 16,572.497 25.27%
George O. Boone
1901 Martin Road
Chapin, SC 29036
</TABLE>

Accordingly, Cheryl K. Boone and George O. Boone may be deemed to be
"controlling persons" of the Class A Shares of the South Carolina Fund.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
Capital Manager Conservative Growth Fund -- Class A Shares
- --------------------------------------------------------------
<S> <C> <C>
Lorraine K. Cauthen.............. 6,369.791 30.79%
108 Strawberry Lane
Clemson, SC 29631
Cheryl B. Cobb and............... 6,737.523 32.57%
Linda Z. Greer
STWRO5
214 Park Road
Lexington, SC 29072
</TABLE>

Accordingly, Lorraine K. Cauthen, Cheryl B. Cobb and Linda Z. Greer may be
deemed to be "controlling persons" of the Class A Shares of the Capital Manager
Conservative Growth Fund.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
Capital Manager Conservative Growth Fund -- Class B Shares
- --------------------------------------------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc.... 94.977 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Conservative Growth Fund.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
Capital Manager Moderate Growth Fund -- Class A Shares
- --------------------------------------------------------------
<S> <C> <C>
William H. Peeler................ 92,394.294 61.62%
and Betty P. Peeler
3802 Old Sptg Hwy
Moore, SC 29369
</TABLE>

Accordingly, William H. Peeler and Betty P. Peeler may be deemed to be
"controlling persons" of the Class A Shares of the Capital Manager Moderate
Growth Fund.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
Capital Manager Moderate Growth Fund -- Class B Shares
- --------------------------------------------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc.... 93.985 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Moderate Growth Fund.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
NAME AND ADDRESS TOTAL SHARES OWNED
---------------- ------------ ------------
Capital Manager Growth Fund -- Class B Shares
- --------------------------------------------------------------
<S> <C> <C>
BISYS Fund Services Ohio, Inc.... 93.545 100%
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

Accordingly, BISYS Fund Services may be deemed to be a "controlling person" of
the Class B Shares of the Capital Manager Growth Fund.

CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT

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

BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the BB&T Funds.

OTHER CLASSES OF SHARES

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

73
<PAGE> 77

PERFORMANCE INFORMATION

From time to time, the Prime Money Market Fund's, the U.S. Treasury Fund's,
and the Tax-Free Money Market Fund's annualized "yield" and "effective yield"
and total return for Class A and Class B Shares may be presented in
advertisements, sales literature and Shareholder reports. The "yield" of the
Prime Money Market Fund and the U.S. Treasury Fund is based upon the income
earned by the Fund over a seven-day period and then annualized, i.e. the income
earned in the period is assumed to be earned every seven days over a 52-week
period and is stated as a percentage of the investment. The "effective yield" of
a Money Market Fund is calculated similarly but when annualized, the income
earned by the investment is assumed to be reinvested in Shares of the BB&T Funds
and thus compounded in the course of a 52-week period. The effective yield will
be higher than the yield because of the compounding effect of this assumed
reinvestment.

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

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

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

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

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

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

74
<PAGE> 78

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

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

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

Further information about the performance of each Fund of the BB&T Funds is
contained in the BB&T Funds' annual report to Shareholders, which may be
obtained without charge by calling (800) 228-1872.

MISCELLANEOUS

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

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

75
<PAGE> 79

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

ADMINISTRATOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219

DISTRIBUTOR
BISYS Fund Services LP
3435 Stelzer Road
Columbus, OH 43219

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

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

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

BB1P051799
<PAGE> 80
CROSS REFERENCE SHEET
---------------------

PROSPECTUS FOR BB&T FUNDS
-------------------------

TRUST SHARES
------------

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page.................................................... Cover Page

Financial
Highlights................................................. Selected Per Share Data and Ratios;
Performance

Synopsis...................................................... Fee Table

Management of the
Funds....................................................... Management of BB&T Funds; General
Information - Custodian and Transfer
Agent

Purchase of Securities
Being Offered.............................................. Valuation of Shares; How to Purchase
and Redeem Shares

Redemption or Repurchase...................................... How to Purchase and Redeem Shares

Legal Proceedings............................................. Inapplicable
</TABLE>
<PAGE> 81

[BB&T MUTUAL FUNDS LOGO]

MONEY MARKET FUNDS
Prime Money Market Fund
U.S. Treasury Money Market Fund
Tax-Free Money Market Fund

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

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

TRUST SHARES

BRANCH BANKING AND TRUST COMPANY
INVESTMENT ADVISER

BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR

PROSPECTUS DATED MAY 17, 1999
<PAGE> 82

TABLE OF CONTENTS

Prospectus Summary.......................................... 2

BB&T Funds.................................................. 5

Fee Table................................................... 8

Financial Highlights........................................ 10

Investment Objectives and Policies.......................... 18

Investment Restrictions..................................... 42

Valuation of Shares......................................... 44

How to Purchase and Redeem Shares........................... 45

Dividends and Taxes......................................... 48

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

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

BB&T FUNDS

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

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

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

THE BB&T TAX-FREE MONEY MARKET FUND (the "Tax-Free Money Market Fund") seeks
as high a level of current interest income exempt from federal income tax as is
consistent with stability of principal. The Tax-Free Money Market Fund seeks to
achieve this objective by investing substantially all of its assets in short-
term tax-exempt obligations issued by state and local governments.
AN INVESTMENT IN THE PRIME MONEY MARKET FUND, THE U.S. TREASURY FUND, AND THE
TAX-FREE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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, THE SOUTH CAROLINA FUND, AND THE VIRGINIA FUND ARE
NON-DIVERSIFIED FUNDS AND THEREFORE MAY EACH HAVE LESS DIVERSIFICATION PER
ISSUER THAN DIVERSIFIED FUNDS.

THE BB&T 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 EQUITY INDEX FUND (the "Equity Index Fund") seeks a total return
which corresponds to that of the Standard & Poor's 500 Composite Stock Price
Index(1) (the "S&P 500 Index").

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

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

This Prospectus sets forth concisely the information about the BB&T Funds'
Trust Shares that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.

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

The date of this Prospectus is May 17, 1999.
- ---------

(1) The "S&P 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Fund.
<PAGE> 84

PROSPECTUS SUMMARY

BB&T Funds................. BB&T Funds, a Massachusetts business trust, is an
open-end management investment company which
currently consists of eighteen separately managed
portfolios (each a "Fund"). Three of the Funds (the
"Funds of Funds") offer Shareholders a
professionally-managed investment program by
purchasing shares of other Funds of the BB&T Funds
(the "Underlying Funds"). The remaining fifteen
Funds primarily invest in securities of issuers
unrelated to the BB&T Funds. Each Fund is
authorized to offer three classes of Shares: Class
A, Class B and Trust Class. As of the date of this
prospectus, Shares of the Tax-Free Money Market
Fund, the Intermediate Corporate Bond Fund, and the
Equity Index Fund were not yet being offered, and
Class B Shares of the Short-Intermediate Fund, the
North Carolina Fund, the South Carolina Fund, and
the Virginia Fund were not yet being offered. This
prospectus relates to only the Trust Shares.

Investment Objective
and Policies............. THE PRIME MONEY MARKET FUND seeks as high a level
of current interest income as is consistent with
maintaining liquidity and stability of principal.

THE TAX-FREE MONEY MARKET FUND seeks as high a
level of current interest income exempt from
federal income tax as is consistent with stability
of principal.

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

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

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

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

THE VIRGINIA FUND seeks to produce a high level of
current income which is exempt from both federal
income tax and Virginia personal income tax.
Normally, the Virginia Fund will invest at least
90% of its total assets in

2
<PAGE> 85

high grade obligations issued by or on behalf of
the State of Virginia and its political
subdivisions.

THE INTERMEDIATE CORPORATE BOND FUND seeks current
income consistent with the preservation of capital
through investment of at least 65% of its total
assets in a diversified portfolio of investment
grade corporate bonds.

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

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

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

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

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

THE EQUITY INDEX FUND seeks a total return which
corresponds to that of the S&P 500.

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

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

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

Funds of Funds............. Capital Manager Conservative Growth, Capital
Manager Moderate Growth and Capital Manager Growth
Funds intend to primarily invest in the shares of
other BB&T Funds.

Investment Risks........... Each Fund's performance may change daily based on
many factors including interest rate levels, the
quality of the obligations in each Fund's
portfolio, and market conditions. An investment in
the North Carolina Fund, the South Carolina Fund,
or the Virginia Fund involves special risk
considerations. (See "Other Investment Policies of
the North Carolina Fund, the South Carolina Fund,
and the Virginia Fund.") An investment in the
International Equity Fund and the Prime Money
Market Fund may involve special risk
considerations. (See "Foreign Investments.") The
net asset value of the Funds of Funds will
fluctuate with changes in the equity markets and
the value of the Underlying Funds in which they
invest. For a complete 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."

3
<PAGE> 86

Offering Price............. The public offering price of the Prime Money Market
Fund, the U.S. Treasury Fund, and the Tax-Free
Money Market Fund is equal to the net asset value
per Trust Share, which each Money Market Fund will
seek to maintain at $1.00.

The public offering price of the Short-Intermediate
Fund, the Intermediate U.S. Government Bond Fund,
the North Carolina Fund, the South Carolina Fund,
the Virginia Fund, the Intermediate Corporate Bond
Fund, the Growth and Income Fund, the Balanced
Fund, the Large Company Growth Fund, the Small
Company Growth Fund, the International Equity Fund,
the Equity Index Fund, the Capital Manager
Conservative Growth Fund, the Capital Manager
Moderate Growth Fund, and the Capital Manager
Growth Fund is equal to that Fund's net asset value
per Trust Share. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Trust Shares.")

Minimum Purchase........... No minimum purchase applies to purchases of Trust
Shares.

Investment Adviser......... Branch Banking and Trust Company ("BB&T" or the
"Adviser"), Raleigh, North Carolina.

Sub-Advisers............... BlackRock Institutional Management Corporation
("BIMC" or the "Sub-Adviser"), Wilmington,
Delaware, serves as the Sub-Adviser to the Prime
Money Market Fund and the Tax-Free Money Market
Fund. BlackRock Financial Management, Inc. ("BFMI"
or the "Sub-Adviser"), Philadelphia, Pennsylvania,
serves as the Sub-Adviser to the Small Company
Growth Fund. BlackRock International, Ltd.
("BlackRock International" or the "Sub-Adviser"),
Edinburgh, Scotland, serves as the Sub-Adviser to
the International Equity Fund.

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

Distributor................ BISYS Fund Services LP, Columbus, Ohio.

4
<PAGE> 87

BB&T FUNDS

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

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 TAX-FREE
MONEY U.S. MONEY SHORT- INTERMEDIATE U.S.
MARKET TREASURY MARKET INTERMEDIATE GOVERNMENT BOND
FUND FUND FUND FUND FUND
----------- ----------- ----------- ------------ -----------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)......................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable)................. 0% 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(2)................. 0% 0% 0% 0% 0%
Exchange Fee...................... $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
fee reductions)................ 0.30%(3) 0.30%(3) 0.30%(3) 0.50%(3) 0.50%(3)
12b-1 Fee......................... 0% 0% 0% 0% 0%
Other Expenses (after voluntary
fee reductions)................ 0.35%(4) 0.31%(4) 0.45%(4) 0.31%(4) 0.34%
----- ----- ----- ----- -----
Total Fund Operating Expenses
(after voluntary fee
reductions).................... 0.65%(5) 0.61%(5) 0.75%(5) 0.81%(5) 0.84%(5)
===== ===== ===== ===== =====
</TABLE>

5
<PAGE> 88
<TABLE>
<CAPTION>
INTERMEDIATE GROWTH LARGE SMALL
NORTH SOUTH CORPORATE AND COMPANY COMPANY INTERNATIONAL
CAROLINA CAROLINA VIRGINIA BOND INCOME BALANCED GROWTH GROWTH EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
-------- -------- -------- ------------ ------ -------- ------- ------- -------------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <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% 0% 0%
Maximum Sales Load
Imposed on
Reinvested Dividends
(as a percentage of
offering price)..... 0% 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% 0% 0% 0% 0% 0% 0%
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)(2)...... 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee.......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
net assets)
Management Fees (after
voluntary fee
reductions)......... 0.50%(3) 0.30%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3) 1.00% 1.00%
12b-1 Fees............ 0% 0% 0% 0% 0% 0% 0% 0% 0%
Other Expenses (after
voluntary fee
reductions)......... 0.31%(4) 0.58%(4) 0.38%(4) 0.56%(4) 0.35% 0.42% 0.56% 0.61% 0.50%(4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses (after
voluntary fee
reductions)......... 0.81%(5) 0.88%(5) 0.88%(5) 1.06%(5) 0.85%(5) 0.92%(5) 1.06%(5) 1.61% 1.50%
===== ===== ===== ===== ===== ===== ===== ===== =====

EQUITY
INDEX
FUND
------
TRUST
CLASS
-----
<S> <C>
SHAREHOLDER TRANSACTION
EXPENSES(1)
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price)..... 0%
Maximum Sales Load
Imposed on
Reinvested Dividends
(as a percentage of
offering price)..... 0%
Deferred Sales Load
(as a percentage of
original purchase
price or redemption
proceeds, as
applicable)......... 0%
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)(2)...... 0%
Exchange Fee.......... $ 0
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
net assets)
Management Fees (after
voluntary fee
reductions)......... 0.10%(3)
12b-1 Fees............ 0%
Other Expenses (after
voluntary fee
reductions)......... 0.36%(4)
-----
Total Fund Operating
Expenses (after
voluntary fee
reductions)......... 0.46%(5)
=====
</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.")

(3) Branch Banking and Trust Company ("BB&T") has agreed with the BB&T Funds to
voluntarily reduce the amount of its investment advisory fee. Absent the
voluntary reduction of investment advisory fees, Management Fees as a
percentage of average daily net assets for Trust Shares would be 0.40% for
the Prime Money Market Fund, the U.S. Treasury Fund, and the Tax-Free Money
Market Fund; 0.60% for the Short-Intermediate Fund, the Intermediate U.S.
Government Bond Fund, the Intermediate Corporate Bond Fund, the North
Carolina Fund, the South Carolina Fund and the Virginia Fund; and 0.74% for
the Growth and Income Fund, the Balanced Fund and the Large Company Growth
Fund, and 0.25% for the Equity Index Fund.

(4) Absent voluntary reduction of fees, "Other Expenses" for Trust Shares, as a
percentage of average daily net assets, would be 0.51% for the Prime Money
Market Fund, 0.36% for the U.S. Treasury Fund, 0.50% for the Tax-Free Money
Market Fund, 0.34% for the Short-Intermediate Fund, 0.61% for the
Intermediate Corporate Bond Fund, 0.38% for the North Carolina Fund, 0.79%
for the South Carolina Fund, 0.43% for the Virginia Fund, 0.51% for the
International Equity Fund and 0.41% for the Equity Index Fund. "Other
Expenses" for the Tax-Free Money Market Fund, the Virginia Fund, the
Intermediate Corporate Bond Fund, and the Equity Index Fund are based on
estimated amounts for the current fiscal year.

(5) As indicated in preceding notes, voluntary fee reductions have lowered this
amount. Lower total fund operating expenses will result in higher yields.
Absent the voluntary reduction of fees, Total Fund Operating Expenses for
Trust Shares, as a percentage of average daily net assets, would be 0.91%
for the Prime Money Market Fund, 0.76% for the U.S. Treasury Fund, 0.90% for
the Tax-Free Money Market Fund, 0.94% for the Short-Intermediate Fund, 0.94%
for the Intermediate U.S. Government Bond Fund, 1.21% for the Intermediate
Corporate Bond Fund, 0.98% for the North Carolina Fund, 1.39% for the South
Carolina Fund, 1.03% for the Virginia Fund, 1.09% for the Growth and Income
Fund, 1.16% for the Balanced Fund, 1.30% for the Large Company Growth Fund,
1.51% for the International Equity Fund, and 0.66% for the Equity Index
Fund.

6
<PAGE> 89

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 $36 $ 81
U.S. Treasury Fund........................ $ 6 $20 $34 $ 76
Tax-Free Money Market Fund................ $ 8 $24 N/A N/A
Short-Intermediate Fund................... $ 8 $26 $45 $100
Intermediate U.S. Government Bond Fund.... $ 9 $27 $47 $104
North Carolina Fund....................... $ 8 $26 $45 $100
South Carolina Fund....................... $ 9 $28 $49 $108
Virginia Fund............................. $ 9 $28 N/A N/A
Intermediate Corporate Bond Fund.......... $11 $34 N/A N/A
Growth and Income Fund.................... $ 9 $27 $47 $105
Balanced Fund............................. $ 9 $29 $51 $113
Large Company Growth Fund................. $11 $34 $58 $129
Small Company Growth Fund................. $16 $51 $88 $191
International Equity Fund................. $15 $47 $82 $179
Equity Index Fund......................... $ 5 $15 N/A N/A
</TABLE>

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

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

7
<PAGE> 90

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 CAPITAL
MANAGER MANAGER CAPITAL
CONSERVATIVE MODERATE MANAGER
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ----------- -----------
TRUST CLASS TRUST CLASS TRUST CLASS
------------ ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)..................................... 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).......................... 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)........... 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(2)......................................... 0% 0% 0%
Exchange Fee.............................................. $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee reductions)(3)....... 0.05% 0.05% 0.05%
12b-1 Fee................................................. 0% 0% 0%
Other Expenses............................................ 0.42% 0.41% 0.42%
---- ---- ----
Total Fund Operating Expenses (after voluntary fee
reductions)(4)......................................... 0.47% 0.46% 0.47%
==== ==== ====
</TABLE>

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

(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.")

(4) As indicated in the preceding notes, voluntary fee reductions have lowered
this amount. However, total fund operating expenses will result in higher
yields. Absent voluntary reduction of investment advisory and/or other
expenses, total fund operating expenses for Trust Shares as a percentage of
average daily net assets would be 0.67% for the Capital Manager Conservative
Growth Fund and Capital Manager Growth Fund and 0.66% for the Capital
Manager Moderate Growth Fund.

8
<PAGE> 91

NAME OF UNDERLYING FUND EXPENSE RATIO
- ----------------------- -------------
<S> <C>
Prime Money Market Fund.................................... 0.65%
U.S. Treasury Fund......................................... 0.61%
Short-Intermediate Fund.................................... 0.81%
Intermediate U.S. Government Bond Fund..................... 0.84%
Intermediate Corporate Bond Fund........................... 1.06%
Growth and Income Fund..................................... 0.85%
Balanced Fund.............................................. 0.92%
Small Company Growth Fund.................................. 1.61%
International Equity Fund.................................. 1.50%
Large Company Growth Fund.................................. 1.06%
Equity Index Fund.......................................... 0.46%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Shares of the Capital Manager Conservative Growth Fund is 1.39%, for
the Capital Manager Moderate Growth Fund is 1.42% and for the Capital Manager
Growth Fund is 1.46%.

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

<TABLE>
<CAPTION>
NAME OF UNDERLYING FUND EXPENSE RATIO
- ----------------------- -------------
<S> <C>
Prime Money Market Fund.................................... 0.91%
U.S. Treasury Fund......................................... 0.76%
Short-Intermediate Fund.................................... 0.94%
Intermediate U.S. Government Bond Fund..................... 0.94%
Intermediate Corporate Bond Fund........................... 1.21%
Growth and Income Fund..................................... 1.09%
Balanced Fund.............................................. 1.16%
Small Company Growth Fund.................................. 1.61%
International Equity Fund.................................. 1.51%
Large Company Growth Fund.................................. 1.30%
Equity Index Fund.......................................... 0.66%
</TABLE>

After combining the total operating expenses of each Fund of Funds with
those of the Underlying Funds, the estimated average weighted expense ratio for
the Trust Shares of the Capital Manager Conservative Growth Fund is 1.75%, for
the Capital Manager Moderate Growth Fund is 1.78%, and for the Capital Manager
Growth Fund is 1.82%.

EXAMPLE:

On the basis of estimated expenses for the Funds of Funds, including
voluntary fee reductions, set forth on page 12, the following examples
illustrate the expenses you would pay on a $1,000 investment in Trust Shares of
the Funds of Funds, assuming (1) 5% annual return and (2) redemption at the end
of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Manager Conservative Growth Fund.................... $5 $15 $26 $59
Capital Manager Moderate Growth Fund........................ $5 $15 $26 $59
Capital Manager Growth Fund................................. $5 $15 $26 $59
</TABLE>

9
<PAGE> 92

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Manager Conservative Growth Fund.................... $7 $21 $37 $83
Capital Manager Moderate Growth Fund........................ $7 $21 $37 $82
Capital Manager Growth Fund................................. $7 $21 $37 $83
</TABLE>

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

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

FINANCIAL HIGHLIGHTS

The tables below set forth financial highlights concerning the investment
results for each of the Funds for the periods indicated. The information through
the year ended September 30, 1998 has been audited by KPMG LLP, independent
auditors for the BB&T Funds, whose report thereon, insofar as it relates to each
of the most recent five years or periods indicated herein is included in the
Statement of Additional Information. The Tax-Free Money Market Fund, the
Virginia Fund, the Intermediate Corporate Bond Fund and the Equity Index Fund
had not commenced operations as of September 30, 1998.

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

10
<PAGE> 93

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 05,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
Total from Investment
Activities.............. 0.049 0.046 0.046 0.050 0.030 0.027
-------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
Total Distributions....... (0.049) (0.046) (0.046) (0.050) (0.030) (0.027)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= =======
Total Return...................... 5.01% 4.71% 4.74% 5.07% 3.01% 2.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $235,796 $266,840 $205,974 $120,083 $77,464 $74,962
Ratio of expenses to average net
assets........................ 0.61% 0.75% 0.75% 0.72% 0.67% 0.38%(c)
Ratio of net investment income
to average net assets......... 4.90% 4.61% 4.63% 4.97% 2.97% 2.71%(c)
Ratio of expenses to average net
assets*....................... 0.76% 0.75% 0.75% 0.75% 0.83% 0.81%(c)
Ratio of net investment income
to average net assets*........ 4.75% 4.61% 4.63% 4.95% 2.82% 2.27%(c)
</TABLE>

<TABLE>
<CAPTION>
PRIME MONEY
MARKET FUND
---------------------
OCTOBER 1, 1997 TO
SEPTEMBER 30, 1998(a)
---------------------
TRUST CLASS
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.051
-------
Total from Investment Activities.................... 0.051
-------
DISTRIBUTIONS
Net investment income..................................... (0.051)
-------
Total Distributions................................. (0.051)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000
=======
Total Return................................................ 5.23%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $37,769
Ratio of expenses to average net assets................... 0.55%(c)
Ratio of net investment income to average net assets...... 5.11%(c)
Ratio of expenses to average net assets*.................. 0.91%(c)
Ratio of net investment income to average net assets*..... 4.75%(c)
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

11
<PAGE> 94

<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE NOVEMBER 30,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.77 $ 9.74 $ 9.89 $ 9.61 $ 10.30 $ 10.00
-------- -------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.53 0.57 0.57 0.56 0.52 0.49
Net realized and unrealized
gains (losses) on
investments................... 0.30 0.03 (0.15) 0.28 (0.68) 0.30
-------- -------- ------- ------- ------- -------
Total from Investment
Activities.............. 0.83 0.60 0.42 0.84 (0.16) 0.79
-------- -------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.53) (0.57) (0.57) (0.56) (0.52) (0.49)
Net realized gains.............. -- -- -- -- (0.01) --
-------- -------- ------- ------- ------- -------
Total Distributions....... (0.53) (0.57) (0.57) (0.56) (0.53) (0.49)
-------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 10.07 $ 9.77 $ 9.74 $ 9.89 $ 9.61 $ 10.30
======== ======== ======= ======= ======= =======
Total Return...................... 8.77% 6.33% 4.36% 9.01% (1.66)% 8.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $157,329 $103,523 $62,621 $45,005 $38,208 $34,646
Ratio of expenses to average net
assets........................ 0.81% 0.86% 0.93% 0.93% 0.71% 0.39%(c)
Ratio of net investment income
to average net assets......... 5.40% 5.85% 5.81% 5.78% 5.20% 5.60%(c)
Ratio of expenses to average net
assets*....................... 0.94% 0.96% 1.03% 1.08% 1.08% 1.05%(c)
Ratio of net investment income
to average net assets*........ 5.27% 5.75% 5.71% 5.64% 4.83% 4.94%(c)
Portfolio turnover(d)........... 53.74% 87.99% 54.82% 106.81% 7.06% 14.06%
</TABLE>

<TABLE>
<CAPTION>
INTERMEDIATE U.S. GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- -------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 9.85 $ 9.64 $ 9.89 $ 9.34 $ 10.40 $ 10.00
-------- -------- -------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........... 0.54 0.56 0.58 0.61 0.62 0.64
Net realized and unrealized
gains (losses) on
investments................... 0.75 0.21 (0.25) 0.55 (1.04) 0.40
-------- -------- -------- ------- ------- -------
Total from Investment
Activities.............. 1.29 0.77 0.33 1.16 (0.42) 1.04
-------- -------- -------- ------- ------- -------
DISTRIBUTIONS
Net investment income........... (0.55) (0.56) (0.58) (0.61) (0.62) (0.64)
Net realized gains.............. -- -- -- -- (0.02) --
-------- -------- -------- ------- ------- -------
Total Distributions....... (0.55) (0.56) (0.58) (0.61) (0.64) (0.64)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 10.59 $ 9.85 $ 9.64 $ 9.89 $ 9.34 $ 10.40
======== ======== ======== ======= ======= =======
Total Return...................... 13.46% 8.20% 3.43% 12.91% (4.23)% 10.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $186,256 $142,545 $119,633 $78,578 $68,451 $59,816
Ratio of expenses to average net
assets........................ 0.84% 0.87% 0.87% 0.85% 0.70% 0.39%(c)
Ratio of net investment income
to average net assets......... 5.35% 5.74% 5.94% 6.43% 6.27% 6.45%(c)
Ratio of expenses to average net
assets*....................... 0.94% 0.97% 0.97% 1.00% 1.06% 1.03%(c)
Ratio of net investment income
to average net assets*........ 5.25% 5.64% 5.84% 6.28% 5.91% 5.82%(c)
Portfolio turnover(d)........... 60.98% 62.45% 76.29% 68.91% 0.38% 15.27%
</TABLE>

- ---------

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

(a) Period from commencement of operations.

(b) Not annualized.

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

12
<PAGE> 95

<TABLE>
<CAPTION>
North Carolina Intermediate Tax-Free Fund
-------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 16, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ----------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29 $ 10.00
------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income....... 0.43 0.41 0.38 0.37 0.38 0.36
Net realized and unrealized
gains (losses) on
investments............... 0.26 0.22 (0.10) 0.37 (0.50) 0.29
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.69 0.63 0.28 0.74 (0.12) 0.65
------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income....... (0.43) (0.41) (0.38) (0.37) (0.38) (0.36)
Net realized gains.......... -- -- -- -- (0.01) --
------- ------- ------- ------- ------- -------
Total Distributions..... (0.43) (0.41) (0.38) (0.37) (0.39) (0.36)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 10.53 $ 10.27 $ 10.05 $ 10.15 $ 9.78 $ 10.29
======= ======= ======= ======= ======= =======
Total Return.................. 6.90% 6.43% 2.77% 7.77% (1.18)% 6.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)..................... $73,454 $61,120 $28,443 $28,091 $27,770 $20,128
Ratio of expenses to average
net assets................ 0.81% 0.85% 0.96% 0.91% 0.63% 0.42%(c)
Ratio of net investment
income to average net
assets.................... 4.18% 4.13% 3.72% 3.78% 3.77% 3.80%(c)
Ratio of expenses to average
net assets*............... 0.98% 1.00% 1.11% 1.13% 1.17% 1.30%(c)
Ratio of net investment
income to average net
assets*................... 4.01% 3.98% 3.57% 3.55% 3.24% 2.92%(c)
Portfolio turnover(d)....... 32.63% 16.98% 20.90% 9.38% 0.56% 5.92%
</TABLE>

<TABLE>
<CAPTION>
South Carolina
Intermediate Tax-Free
Fund
---------------------
OCTOBER 20, 1997 TO
SEPTEMBER 30,
1998(a)
-------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.38
Net realized and unrealized gains (losses) on
investments............................................. 0.41
-------
Total from Investment Activities...................... 0.79
-------
DISTRIBUTIONS
Net investment income..................................... (0.38)
-------
Total Distributions................................... (0.38)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.41
Total Return (excludes sales charge)........................ 8.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $18,242
Ratio of expenses to average net assets................... 0.88%(c)
Ratio of net investment income to average net assets...... 3.88%(c)
Ratio of expenses to average net assets*.................. 1.39%(c)
Ratio of net investment income to average net assets*..... 3.37%(c)
Portfolio turnover(d)..................................... 58.80%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not Annualized.

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

13
<PAGE> 96

<TABLE>
<CAPTION>
GROWTH AND INCOME STOCK FUND
-----------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 20.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28 $ 10.00
-------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......... 0.28 0.30 0.29 0.28 0.28 0.30
Net realized and unrealized
gains (losses) on
investments.................. (0.17) 5.31 2.44 1.98 0.11 1.28
-------- -------- -------- -------- ------- -------
Total from Investment
Activities............... 0.11 5.61 2.73 2.26 0.39 1.58
-------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income.......... (0.28) (0.30) (0.29) (0.28) (0.28) (0.30)
Net realized gains............. (1.33) (0.63) (0.09) (0.12) (0.11) --
In excess of net realized
gains........................ -- -- -- (0.15) -- --
-------- -------- -------- -------- ------- -------
Total Distributions........ (1.61) (0.93) (0.38) (0.55) (0.39) (0.30)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD... $ 18.52 $ 20.02 $ 15.34 $ 12.99 $ 11.28 $ 11.28
======== ======== ======== ======== ======= =======
Total Return..................... 0.35% 38.13% 21.31% 20.88% 3.58% 16.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)........................ $348,613 $308,984 $206,659 $145,603 $89,355 $82,358
Ratio of expenses to average
net assets................... 0.85% 0.84% 0.86% 0.82% 0.66% 0.40%(c)
Ratio of net investment income
to average net assets........ 1.43% 1.77% 2.07% 2.40% 2.51% 3.08%(c)
Ratio of expenses to average
net assets*.................. 1.09% 1.08% 1.10% 1.10% 1.15% 1.17%(c)
Ratio of net investment income
to average net assets*....... 1.19% 1.53% 1.83% 2.11% 2.02% 2.31%(c)
Portfolio turnover(d).......... 13.17% 22.66% 19.82% 8.73% 21.30% 27.17%
</TABLE>

<TABLE>
<CAPTION>
Balanced Fund
-----------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE OCTOBER 9, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995 1994 1993(a)
------------- ------------- ------------- ------------- ------------- ---------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 13.60 $ 11.93 $ 11.01 $ 9.74 $ 10.18 $ 10.00
-------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......... 0.42 0.49 0.46 0.46 0.40 0.09
Net realized and unrealized
gains (losses) on
investments.................. 0.54 2.04 0.92 1.27 (0.44) 0.18
-------- ------- ------- ------- ------- -------
Total from Investment
Activities............... 0.96 2.53 1.38 1.73 (0.04) 0.27
-------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income.......... (0.42) (0.49) (0.46) (0.46) (0.40) (0.09)
Net realized gains............. (0.35) (0.37) -- -- -- --
-------- ------- ------- ------- ------- -------
Total Distributions........ (0.77) (0.86) (0.46) (0.46) (0.40) (0.09)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD... $ 13.79 $ 13.60 $ 11.93 $ 11.01 $ 9.74 $ 10.18
======== ======= ======= ======= ======= =======
Total Return..................... 7.18% 22.11% 12.74% 18.23% (0.42)% 2.74%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)........................ $108,943 $88,524 $69,374 $49,794 $39,715 $20,374
Ratio of expenses to average
net assets................... 0.92% 0.93% 0.95% 0.92% 0.73% 0.44%(c)
Ratio of net investment income
to average net assets........ 3.00% 3.88% 4.03% 4.51% 4.22% 4.44%(c)
Ratio of expenses to average
net assets*.................. 1.16% 1.17% 1.19% 1.21% 1.25% 1.47%(c)
Ratio of net investment income
to average net assets*....... 2.76% 3.64% 3.79% 4.22% 3.70% 3.42%(c)
Portfolio turnover(d).......... 31.85% 27.07% 19.87% 23.68% 12.91% 8.32%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not annualized.

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

14
<PAGE> 97

<TABLE>
<CAPTION>
Large Company Growth
Fund
--------------------
OCTOBER 3, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.04
Net realized and unrealized gains (losses) on
investments............................................. (0.27)
-------
Total from Investment Activities...................... (0.23)
-------
DISTRIBUTIONS
Net investment income..................................... (0.04)
Net realized gains........................................ (0.10)
-------
Total Distributions................................... (0.14)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.63
=======
Total Return (excludes sales charge)........................ (2.33%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $50,975
Ratio of expenses to average net assets................... 1.06%(c)
Ratio of net investment loss to average net assets........ 0.41%(c)
Ratio of expenses to average net assets*.................. 1.30%(c)
Ratio of net investment income to average net assets*..... 0.17%(c)
Portfolio turnover(d)..................................... 108.36%
</TABLE>

<TABLE>
<CAPTION>
Small Company Growth Fund
-------------------------------------------------------------------
FOR THE FOR THE FOR THE DECEMBER 7, 1994
YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995(a)
------------- ------------- ------------- ----------------
TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 23.52 $ 21.18 $ 14.57 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment loss................................. (0.20) (0.11) (0.17) (0.07)
Net realized and unrealized gains (losses) on
investments....................................... (5.32) 2.47 6.78 4.64
------- ------- ------- -------
Total from Investment Activities................ (5.52) 2.36 6.61 4.57
------- ------- ------- -------
DISTRIBUTIONS
In excess of net realized gains..................... (0.31) (0.02) -- --
------- ------- ------- -------
Total Distributions............................. (0.31) (0.02) -- --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................ $ 17.69 $ 23.52 $ 21.18 $ 14.57
======= ======= ======= =======
Total Return.......................................... (23.62%) 11.17% 45.37% 45.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................... $65,180 $58,660 $36,373 $16,962
Ratio of expenses to average net assets............. 1.61% 1.64% 1.79% 2.33%(c)
Ratio of net investment loss to average net
assets............................................ (1.11%) (1.04)% (1.00)% (1.34)%(c)
Ratio of expenses to average net assets*............ 1.61% 1.64% 1.79% 2.42%(c)
Ratio of net investment loss to average net
assets*........................................... (1.11%) (1.04)% (1.00)% (1.43)%(c)
Portfolio Turnover(d)............................... 157.44% 80.66% 71.62% 46.97%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not annualized.

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

15
<PAGE> 98

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
---------------------------------
FOR THE JANUARY 2, 1997
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997(a)
------------- ----------------
TRUST CLASS TRUST CLASS
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 11.28 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.06 0.03
Net realized and unrealized gains on investments.......... (1.10) 1.30
------- -------
Total from Investment Activities...................... (1.04) 1.33
------- -------
DISTRIBUTIONS
Net investment income..................................... (0.06) (0.02)
Net realized gains........................................ (0.23) --
In excess of net realized gains........................... -- (0.03)
------- -------
Total Distributions................................... (0.29) (0.05)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.95 $ 11.28
======= =======
Total Return................................................ (9.45%) 13.34%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $70,356 $52,373
Ratio of expenses to average net assets................... 1.50% 1.79%(c)
Ratio of net investment income to average net assets...... 0.50% 0.32%(c)
Ratio of expenses to average net assets*.................. 1.51% 1.81%(c)
Ratio of net investment income to average net assets*..... 0.49% 0.30%(c)
Portfolio Turnover(d)..................................... 53.27% 41.45%
</TABLE>

<TABLE>
<CAPTION>
CAPITAL MANAGER
CONSERVATIVE FUND
------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.32
Net realized and unrealized gains (losses) on
investments............................................. 0.08
-------
Total from Investment Activities...................... 0.40
-------
DISTRIBUTIONS
Net investment income..................................... (0.32)
-------
Total Distributions................................... (0.32)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.08
=======
Total Return................................................ 3.95%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $23,773
Ratio of expenses to average net assets................... 0.47%(c)
Ratio of net investment income to average net assets...... 3.12%(c)
Ratio of expenses to average net assets*.................. 0.67%(c)
Ratio of net investment income to average net assets*..... 2.92%(c)
Portfolio turnover(d)..................................... 4.28%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not annualized.

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

16
<PAGE> 99

<TABLE>
<CAPTION>
CAPITAL MANAGER
MODERATE FUND
------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.23
Net realized and unrealized gains (losses) on
investments............................................. (0.16)
-------
Total from Investment Activities...................... 0.07
-------
DISTRIBUTIONS
Net investment income..................................... (0.22)
-------
Total Distributions................................... (0.22)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.85
=======
Total Return................................................ 0.68%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $21,682
Ratio of expenses to average net assets................... 0.46%(c)
Ratio of net investment income to average net assets...... 2.21%(c)
Ratio of expenses to average net assets*.................. 0.66%(c)
Ratio of net investment income to average net assets*..... 2.01%(c)
Portfolio turnover(d)..................................... 4.85%
</TABLE>

<TABLE>
<CAPTION>
CAPITAL MANAGER
GROWTH FUND
------------------
OCTOBER 2, 1997 TO
SEPTEMBER 30,
1998(a)
------------------
TRUST CLASS
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income..................................... 0.16
Net realized and unrealized gains (losses) on
investments............................................. (0.32)
-------
Total from Investment Activities...................... (0.16)
-------
DISTRIBUTIONS
Net investment income..................................... (0.16)
-------
Total Distributions................................... (0.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.68
=======
Total Return................................................ (1.72%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................... $21,370
Ratio of expenses to average net assets................... 0.47%(c)
Ratio of net investment income to average net assets...... 1.53%(c)
Ratio of expenses to average net assets*.................. 0.67%(c)
Ratio of net investment income to average net assets*..... 1.33%(c)
Portfolio turnover(d)..................................... 7.69%
</TABLE>

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

(a) Period from commencement of operations.

(b) Not annualized.

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

17
<PAGE> 100