BB&T MUTUAL FUNDS GROUP, 497, 2000-09-15

BB&T MUTUAL FUNDS GROUP
497, 2000-09-15

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<PAGE> 1

LOGO

PROSPECTUS

EQUITY INDEX FUND

CLASS A SHARES

CLASS B SHARES

PROSPECTUS

SEPTEMBER 11, 2000

QUESTIONS?

Call 1-800-228-1872
or your investment representative

The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
<PAGE> 2

BB&T FUNDS TABLE OF CONTENTS

<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES

[LOGO]
Carefully review this important 3 Overview
section which summarizes the 4 Equity Index Fund
Fund's investments, risks, past
performance, and fees.

ADDITIONAL INVESTMENT STRATEGIES AND RISKS

[LOGO]
Review this section for 8 Investment Practices
information on investment 9 Investment Risks
strategies and their risks.

FUND MANAGEMENT

[LOGO]
Review this section for details on 10 The Investment Adviser
the people and organizations who 11 The Distributor and Administrator
oversee the Funds.

SHAREHOLDER INFORMATION

[LOGO]
Review this section for details on 12 Choosing a Share Class
how shares are valued, how to 13 Pricing of Fund Shares
purchase, sell and exchange 14 Purchasing and Adding to Your Shares
shares, related charges and 17 Selling Your Shares
payments of dividends and 19 General Policies on Selling Shares
distributions. 20 Distribution Arrangements/Sales Charges
23 Distribution and Service (12b-1) Fees
24 Exchanging Your Shares
25 Dividends, Distributions and Taxes

BACK COVER

[LOGO]
Where to learn more about this Fund
</TABLE>

2
<PAGE> 3

[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW

THE FUNDS BB&T Funds is a mutual fund family that offers different
classes of shares in separate investment portfolios
("Funds"). The Funds have individual investment goals and
strategies. This prospectus gives you important information
about the Class A Shares and the Class B Shares of the BB&T
Equity Index Fund that you should know before investing.
Please read this prospectus and keep it for future
reference.

The Equity Index Fund described in this prospectus is a
mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in
securities like stocks and bonds. Before you look at the
Fund, you should know a few general basics about investing
in mutual funds.

The value of your investment in the Fund is based on the
market prices of the securities the Fund holds. These prices
change daily due to economic and other events that affect
securities markets generally, as well as those that affect
particular companies or government units. These price
movements, sometimes called volatility, will vary depending
on the types of securities the Fund owns and the markets
where these securities trade.

LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE FUND. YOUR INVESTMENT IN THE FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH BANKING AND TRUST
COMPANY, BB&T CORPORATION, THEIR AFFILIATES, OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.

Each BB&T Fund has its own investment goal and strategies
for reaching that goal. However, it cannot be guaranteed
that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.

The portfolio manager invests the Fund's assets in a way
that the manager believes will help the Fund achieve its
goal. The manager's judgments and other factors may cause
the Fund to underperform other funds with similar
objectives.
</TABLE>

3
<PAGE> 4

RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW

EQUITY INDEX FUND

<TABLE>
<S> <C>
This Fund seeks to provide investment results that
correspond to the total return of the broad range of common
stocks represented in the S&P 500(R) Index.

WHO MAY WANT TO INVEST Consider investing in this Fund if you are:

- seeking a long-term goal such as retirement

- looking to add a growth component to your portfolio

- willing to accept the risks of investing in the stock
markets

This Fund may not be appropriate if you are:

- pursuing a short-term goal or investing emergency reserves

- uncomfortable with an investment that will fluctuate in
value
</TABLE>

4
<PAGE> 5

RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INDEX FUND

RISK/RETURN SUMMARY

<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide investment results that correspond
as closely as practicable, before fees and expenses, to the
total return of the broad range of stocks represented in the
S&P 500(R) Index.(1)

PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund presently invests all of its
assets in a separate mutual fund, called the S&P 500(R)
Index Master Portfolio ("Master Portfolio") of the Master
Investment Portfolio, that has a substantially similar
investment objective. For simplicity's sake, all discussion
of the Fund's investment objective, strategies, and risks
refer also to the Master Portfolio's objectives, strategies,
and risks, unless otherwise indicated.

The Master Portfolio holds each of the stocks that make up
the Standard & Poor's 500(R) COMPOSITE STOCK PRICE INDEX
("S&P 500(R) Index"), which is a widely used measure of
large U.S. company stock performance. The S&P 500(R) Index
consists of the common stocks of 500 major corporations
selected accordingly to:

- Size

- Frequency and ease of stock trading, and

- Representation of the size and diversity of the American
economy.

The S&P 500(R) Index is capitalization weighted. This means
that if all the shares of company A are worth twice as much
as all the shares of company B, A's return will count twice
as much as B's in calculating the S&P 500 Index's overall
return. Consequently, the Fund, through its investment in
the Master Portfolio, is invested in all the securities that
make up the S&P 500(R) Index and holds those securities in
amounts that match their weighting in the S&P 500(R) Index.

PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:

INDEX INVESTING: The Fund attempts to track the performance
of the S&P 500(R) Index. Therefore, securities may be
purchased, retained and sold by the Fund at times when an
actively managed fund would not do so. If the value of
securities that are heavily weighted in the index changes,
you can expect a greater risk of loss than would be the case
if the Fund were not fully invested in such securities.

MARKET RISK: The possibility that the fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.

INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- stocks in the S&P
500(R) -- will underperform other kinds of investments or
market averages.

If the Fund invests in securities with additional risks, its
share price volatility accordingly could be greater and its
performance lower. For more information about these risks,
please see the Additional Investment Strategies and Risks on
pages 8-9.
</TABLE>

(1) "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 or Master
Portfolio.

5
<PAGE> 6

RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INDEX FUND

PERFORMANCE BAR CHART AND TABLE*

YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR THE MASTER PORTFOLIO(1)

* The Master Portfolio commenced
operations on July 2, 1993.

The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.

Best quarter: 21.33% 12/31/98

Worst quarter: -9.89% 9/30/98

AVERAGE ANNUAL TOTAL RETURNS

(for the periods ended

December 31, 1999)(1)

The chart and table on this page illustrate the risks and volatility of an
investment in the Fund. Because the Fund is new, these returns reflect the
performance of the Master Portfolio. The Fund will have annual returns
substantially similar to those of the Master Portfolio because the Fund is fully
invested in the Master Portfolio. Its annual returns will differ only to the
extent that it does not have the same expenses. The bar chart, which has not
been adjusted to reflect sales charges or expenses applicable to the Fund, gives
some indication of risk by showing changes in the Master Portfolio's yearly
performance over 6 years to demonstrate that the Master Portfolio's value varied
at different times. The table below it, which has been adjusted to reflect
applicable sales charges and expenses of each class of the Fund, compares the
Master Portfolio's adjusted performance, over time to that of the S&P 500(R)
Index, a widely recognized, unmanaged index of common stocks. Of course, past
performance does not indicate how the Fund will perform in the future.

The returns for the Master Portfolio shown in the bar chart will differ from
Class A Share and Class B Share returns of the Fund because of differences in
expenses of each class. The table below assumes that Class B shareholders redeem
all of their fund shares at the end of the period indicated.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
------ ------- ----------------
<S> <C> <C> <C>
FUND CLASS A SHARES (7/02/93)
MASTER PORTFOLIO(2) 14.71% 26.53% 21.11%
S&P 500(R) INDEX 21.03% 28.54% 22.87%
FUND CLASS B SHARES
MASTER PORTFOLIO(3) 14.23% 25.68% 21.08%
S&P 500(R) INDEX 21.03% 28.54% 22.87%
</TABLE>

(1) Both charts assume reinvestment of dividends and distributions.

(2) Adjusted to reflect the 4.50% sales charge, Rule 12b-1 fees and other
expenses applicable to Class A Shares of the Fund.

(3) Adjusted to reflect the contingent deferred sales charge for the period
shown, Rule 12b-1 fees and other expenses applicable to Class B Shares of the
Fund.

6
<PAGE> 7

RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INDEX FUND

FEES AND EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES
------- -------
Maximum Sales Charge (load) on
Purchases 4.50%(2) None
----------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3)
----------------------------------------------------------------------
Redemption Fee(4) 0% 0%

ANNUAL FUND OPERATING EXPENSES(5) CLASS A CLASS B
(FEES PAID FROM FUND ASSETS) SHARES SHARES
------- -------
Management Fee 0.05% 0.05%
----------------------------------------------------------------------
Distribution and Service
(12b-1) Fee 0.50% 1.00%
----------------------------------------------------------------------
Other Expenses(6) 0.30% 0.30%
----------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.85% 1.35%
----------------------------------------------------------------------
Fee Waivers 0.30% 0.05%
----------------------------------------------------------------------
Total Annual Fund Operating
Expenses(7) 0.55% 1.30%
----------------------------------------------------------------------
</TABLE>

(1) Participating banks or other financial institutions may charge their
customers account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Fund.

(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."

(3) A CDSC on Class B Shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.

(4) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.

(5) Annual fund operating expenses, including Total Annual Fund Operating
Expenses, include the Fund's and Master Portfolio's fees and expenses.

(6) Other Expenses are based on estimated amounts for the current fiscal year.

(7) The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares and Class B Shares from exceeding
0.55% and 1.30%, respectively, for the period beginning September 11, 2000 and
ending on April 30, 2001.

As an investor in the Equity Index Fund, you will pay the following fees and
expenses when you buy and hold shares. Shareholder transaction fees are paid
from your account. Annual Fund operating expenses are paid out of Fund assets,
and are reflected in the share price.

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

CONTINGENT DEFERRED SALES CHARGE

Some Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a Contingent
Deferred Sales Charge.

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

EXPENSE EXAMPLE

<TABLE>
<CAPTION>
1 3
EQUITY INDEX FUND YEAR YEARS
----------------- ----- -----
<S> <C> <C>
CLASS A SHARES $504 $680
---------------------------------------
CLASS B SHARES
Assuming Redemption $632 $723
Assuming No Redemption $132 $423
</TABLE>

* These examples reflect the fees and
expenses of both the Fund and the
Master Portfolio.

Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:

- $10,000 investment

- 5% annual return

- redemption at the end of each period

- no changes in the Fund's operating expenses

Because this example is hypothetical and for comparison only, your actual costs
will be different.

7
<PAGE> 8

[LOGO]
ADDITIONAL INVESTMENT STRATEGIES AND RISKS

EQUITY INDEX FUND

TRACKING. The Fund seeks to achieve its investment objective by investing all
of its assets in the Master Portfolio. Under normal market conditions, at
least 90% of the Master Portfolio's total assets are invested in securities
comprising the S&P 500 Index. The Master Portfolio attempts to achieve, in
both rising and falling markets, a correlation of at least 95% between the
total return of its net assets before expenses and the total return of the
S&P 500 Index. It does not seek to "beat" the market it tracks. Barclays
Global Fund Advisors ("BGFA"), the Master Portfolio's investment adviser,
makes no attempt to apply economic, financial, or market analysis when
managing the portfolio. It selects securities because they will help the
Master Portfolio achieve returns corresponding to index returns. Including a
security among the Master Portfolio's holdings implies no opinion as to its
attractiveness as an investment.

INVESTING IN INDEXES. Investors often look to indexes as a standard of
performance. Indexes are model portfolios, groups of stocks or bonds selected
to represent not actual securities, but an entire market. One way an index
fund can seek to match an index's performance, before fees and expenses, is
through buying all the index's securities in the same proportion as they are
reflected in the index. This is what the Master Portfolio does with regard to
the S&P 500(R) Index.

INVESTING IN FUTURES AND OPTIONS. The Master Portfolio may invest in index
futures contracts and options on futures contracts to remain fully invested
while keeping cash on hand, either in anticipation of shareholder redemptions
or because it has not yet invested new shareholder money. The Master
Portfolio may invest up to 10% of its assets in high-quality money market
instruments to provide liquidity.

MASTER/FEEDER MUTUAL FUND STRUCTURE. While BB&T is the Fund's named
investment adviser, BB&T receives no management fee, and has no day-to-day
management duties while the Fund is fully invested in a separate mutual fund,
such as the Master Portfolio, that has a substantially similar investment
objective as the Fund. BGFA serves as investment adviser for the Master
Portfolio. The Master Portfolio may accept investments from other feeder
funds.

FEEDER FUND EXPENSES. The feeders bear the Master Portfolio's expenses in
proportion to the amount of assets each invests in the Portfolio. Each feeder
can set its own transaction minimums, fund-specific expenses, and conditions.

FEEDER FUND RIGHTS. Under the master/feeder structure, the Fund's Investment
Adviser may withdraw the Fund's assets from the Master Portfolio if the
Fund's Board of Trustees determines that doing so is in shareholders' best
interests. If the Investment Adviser withdraws the fund's assets, it would
then consider whether it should assume day-to-day management, invest in
another master portfolio, or recommend other action to the Fund's Board of
Trustees.

INVESTMENT PRACTICES

The Fund and the Master Portfolio invest in a variety of securities and
employ a number of investment techniques. Each security and technique
involves certain risks. The following table describes securities and
techniques the Fund and Master Portfolio use, as well as the main risks they
pose. Equity securities are subject mainly to market risk and investment
style risk.

<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
DERIVATIVES: Instruments whose value is derived from an Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some Liquidity
mortgage-backed securities. Leverage

FUTURES AND RELATED OPTIONS: A contract providing for the Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage

INDEX-BASED SECURITIES: Index-based securities such as Market
Standard & Poor's Depository Receipts ("SPDRs") and
NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"), represent
ownership in a long-term unit investment trust that holds a
portfolio of common stocks designed to track the price,
performance and dividend yield of an index, such as the S&P
500 Index or the NASDAQ-100 Index. Index-based securities
entitle a holder to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to
the index stocks in the underlying portfolio, less trust
expenses.
</TABLE>

8
<PAGE> 9

ADDITIONAL INVESTMENT STRATEGIES AND RISKS

<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
REVERSE REPURCHASE AGREEMENT: The sale of a security and the Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.

SECURITIES LENDING: The lending of up to 33 and 1/3% of the Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
</TABLE>

INVESTMENT RISKS

Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Fund and the Master Portfolio may
fluctuate, as will the value of your investment in the Fund. Certain
investments are more susceptible to these risks than others.

CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade
securities. The price of a security can be adversely affected prior to actual
default as its credit status deteriorates and the probability of default
rises.

INVESTMENT STYLE RISK. The risk that returns from a particular class or
group of stocks (e.g., value, growth, small cap, large cap) will trail
returns from other asset classes or the overall stock market.

LEVERAGE RISK. The risk associated with securities or practices that
multiply small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also may be
embedded directly in the characteristics of other securities.

HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Fund or Master Portfolio also holds, any loss generated by the
derivative should be substantially offset by gains on the hedged
investment, and vice versa. Hedges are sometimes subject to imperfect
matching between the derivative and underlying security, and there can be
no assurance that the Fund or Master Portfolio's hedging transactions
will be effective.

SPECULATIVE. To the extent that a derivative is not used as a hedge, the
Fund or Master Portfolio is directly exposed to the risks of that
derivative. Gains or losses from speculative positions in a derivative
may be substantially greater than the derivatives original cost.

LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that would normally prevail in
the market. The seller may have to lower the price, sell other securities
instead or forego an investment opportunity, any of which could have a
negative effect on Portfolio management or performance. This includes the
risk of missing out on an investment opportunity because the assets necessary
to take advantage of it are tied up in less advantageous investments.

MANAGEMENT RISK. The risk that a strategy used by the Fund's management may
fail to produce the intended result. This includes the risk that changes in
the value of a hedging instrument will not match those of the asset being
hedged. Incomplete matching can result in unanticipated risks.

MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than
it was worth at an earlier time. Market risk may affect a single issuer,
industrial sector of the economy or the market as a whole. There is also the
risk that the current interest rate may not accurately reflect existing
market rates. For fixed income securities, market risk is largely, but not
exclusively, influenced by changes in interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Finally, key information about a security or market
may be inaccurate or unavailable.

9
<PAGE> 10

[LOGO]
FUND MANAGEMENT

THE INVESTMENT ADVISER

ADVISER TO THE FUND. Branch Banking and Trust Company (BB&T or the "Adviser")
is the adviser for the Funds. BB&T is the oldest bank in North Carolina and
is the principal bank affiliate of BB&T Corporation, a bank holding company
that is a North Carolina corporation, headquartered in Winston-Salem, North
Carolina. As of December 31, 1999, BB&T Corporation had assets of
approximately $43.5 billion. Through its subsidiaries, BB&T Corporation
operates over 655 banking offices in Maryland, North Carolina, South
Carolina, Virginia and Washington, D.C., providing a broad range of financial
services to individuals and businesses.

In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Funds, it has
experience in managing collective investment funds with investment portfolios
and objectives comparable to those of the BB&T Funds. BB&T employs an
experienced staff of professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization of risk-adjusted
investment returns. BB&T has managed common and collective investment funds
for its fiduciary accounts for more than 17 years and currently manages
assets of more than $4.4 billion.

Under its Investment Advisory Agreement with respect to the Equity Index
Fund, BB&T exercises general oversight over the investment performance of the
Fund. BB&T will advise the Board of Trustees if investment of all of the
Fund's assets in shares of the Master Portfolio is no longer an appropriate
means of achieving the Fund's investment objective. For periods in which all
the Fund's assets are not invested in the Master Portfolio, BB&T will receive
an investment advisory fee from the Fund. If BB&T assumes active management
of the Fund prior to February 1, 2001, it will limit its investment advisory
fee to an annual rate of 0.05% of average net assets so managed. Thereafter,
the fee may be at .50% of average net assets under BB&T's investment advisory
agreement with the Fund.

During the year 2000, BB&T intends to reorganize its investment advisory
division as a separate, wholly owned subsidiary of BB&T to be called BB&T
Asset Management, LLC ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as the investment adviser to the BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T who
are currently providing investment management services to BB&T Funds will
continue to do so as the personnel of BB&T Asset Management. Additionally,
BB&T Asset Management will be wholly owned and otherwise fully controlled by
BB&T. As a result, this transaction will not be an "assignment" of the
investment advisory contract (and sub-advisory contracts) for purposes of the
Investment Company Act of 1940 and, therefore, a shareholder vote will not be
required.

ADVISER TO THE MASTER PORTFOLIO. BGFA provides investment guidance and policy
direction in connection with the management of the Master Portfolio's assets.
It makes the day-to-day decisions on buying and selling securities for the
Master Portfolio and conducts the research leading to those decisions. BGFA
is located at 45 Fremont Street, San Francisco, California 94105. It is a
wholly owned subsidiary of Barclays Global Investors, N.A., which in turn is
an indirect subsidiary of Barclays Bank PLC. Barclays Global Investors is the
world's largest manager of institutional investment assets. As of December
31, 1999, Barclays Global Investors and its affiliates, including BGFA,
provided investment advisory services for assets worth $783 billion. Barclays
Global Investors, BGFA, Barclays Bank and their affiliates deal, trade, and
invest for their own accounts in the types of securities in which the Master
Portfolio may also invest.

Unlike many traditional active investment funds, there is no single portfolio
manager who makes investment decisions for the Master Portfolio. Instead, the
Master Portfolio tracks the S&P 500(R) Index. The process reflects BGFA's
commitment to an objective and consistent investment management structure.

10
<PAGE> 11

FUND MANAGEMENT

THE DISTRIBUTOR AND ADMINISTRATOR

BISYS Fund Services, L.P. (the "Administrator"), 3435 Stelzer Road, Columbus,
Ohio 43219, serves as the Fund's administrator. The administrative services
of the Administrator include providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend disbursing services.

BISYS Fund Services, L.P. (the "Distributor") also serves as the distributor
of the Fund's shares. The Distributor may provide financial assistance in
connection with pre-approved seminars, conferences and advertising to the
extent permitted by applicable state or self-regulatory agencies, such as the
National Association of Securities Dealers.

The SAI has more detailed information about the Adviser and other service
providers.

11
<PAGE> 12

[LOGO]
SHAREHOLDER INFORMATION

CHOOSING A SHARE CLASS

Class A Shares and Class B Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have
it invested, and whether you plan to make additional investments. Your
financial representative can help you decide which share class is best for
you.

CLASS A SHARES

- Front-end sales charges, as described below.

- Distribution and service fees of 0.50% of average daily net assets.

CLASS B SHARES

- No front-end sales charge; all your money goes to work for you right away.

- Distribution and service (12b-1) fees of 1.00% of average daily net assets.

- A deferred sales charge, as described on page 21.

- Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.

- Maximum investment for all Class B purchases: $250,000.

Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could
end up paying more expenses over the long term than if they had paid a sales
charge.

Generally, expenses applicable to a Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service
(12b-1) fees, are borne solely by that share class.

12
<PAGE> 13

SHAREHOLDER INFORMATION

PRICING OF FUND SHARES
------------------------------
HOW NAV IS CALCULATED

The NAV is calculated by
adding the total value of the
Fund's investments and other
assets, subtracting all of its
liabilities and then dividing
that figure by the number of
outstanding shares of the
Fund:

NAV =

Total Assets - Total
Liabilities

-------------------------------
Number of Shares
Outstanding

Generally, you can find the
Fund's NAV daily in The Wall
Street Journal and other
newspapers. NAV is calculated
separately for each class of
shares.

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

Per share NAV for the Fund is determined and its shares are priced at the close
of regular trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern
time on days the Exchange is open.

Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund less any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price. For further information regarding
the methods used in valuing the Fund's investments, please see the SAI.

The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by BB&T Funds' Pricing Committee pursuant to procedures established by BB&T
Funds' Board of Trustees. For further information regarding the methods used in
valuing the Fund's investments, please see the SAI.

13
<PAGE> 14

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES

<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
<S> <C> <C>
Class A or Class B
-------------------------------------------------------
Regular $1,000 $0
-------------------------------------------------------
Automatic Investment Plan $25 $25
</TABLE>

All purchases must be in U.S. dollars.
A fee will be charged for any checks
that do not clear. Third-party checks
are not accepted.

The Fund may waive its minimum purchase
requirement. The Distributor may reject
a purchase order if it considers it in
the best interest of the Fund and its
shareholders.

From time to time, throughout the year
2000, BB&T or BISYS may offer a special
investment bonus of up to $50 in value
for individuals who purchase Class A or
B Shares of a BB&T Fund (excluding
Money Market Funds) through BB&T
Investment Services. The minimum
investment required to receive the
investment bonus is $5,000 and the
minimum holding period is six months.
One investment bonus is allowed per
shareholder. For more information
regarding the investment bonus, you
should call your BB&T investment
Counselor or the BB&T Funds at
1-800-228-1872.

You may purchase the Fund through the Distributor or through banks, brokers and
other investment representatives, which may charge additional fees and may
require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.

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

AVOID 31% TAX WITHHOLDING

The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
-----------------------------------------------------------------------------

14
<PAGE> 15

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES

CONTINUED

INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT

BY REGULAR MAIL

If purchasing through your financial adviser or brokerage account, simply
tell your adviser or broker that you wish to purchase shares of the Fund and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.

Initial Investment:

1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.

2. Make check, bank draft or money order payable to "BB&T Funds."

3. Mail to: BB&T Funds
P.O. Box 182533, Columbus, OH 43218-2533

Subsequent:

1. Use the investment slip attached to your account statement. Or, if
unavailable,

2. Include the following information on a piece of paper:

- BB&T Funds/Fund name

- Share class

- Amount invested

- Account name

- Account number

Include your account number on your check.

3. Mail to: BB&T Funds
P.O. Box 182533, Columbus, OH 43218-2533

BY OVERNIGHT SERVICE

See instructions 1-2 above for subsequent investments.

4. Send to: BB&T Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road, Columbus, OH 43219.

ELECTRONIC PURCHASES

Your bank must participate in the Automated Clearing House (ACH) and must be
a U. S. Bank. Your bank or broker may charge for this service.

Establish electronic purchase option on your account application or call
1-800-228-1872. Your account can generally be set up for electronic purchases
within 15 days.

Call 1-800-228-1872 to arrange a transfer from your bank account.

QUESTIONS?
Call 800-451-8382 or your
investment representative.

ELECTRONIC VS. WIRE TRANSFER

Wire transfers allow financial institutions to send funds to each other,
almost instantaneously. With an electronic purchase or sale, the transaction
is made through the Automated Clearing House (ACH) and may take up to eight
days to clear. There is generally no fee for ACH transactions.

15
<PAGE> 16

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES
CONTINUED

BY WIRE TRANSFER

Note: Your bank may charge a wire transfer fee.

For initial investment:
Fax the completed application, along with a request for a confirmation number
to 1-800-228-1872. Follow the instructions below after receiving your
confirmation number.

For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Huntington National Bank
Routing Number: ABA #044 000 024
A/C 01899607383
BB&T Funds

Include:
Your name and account number
Your confirmation number

AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-228-1872 TO ADVISE
US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK

-------------------------------------
YOU CAN ADD TO YOUR ACCOUNT BY USING
THE CONVENIENT OPTIONS DESCRIBED
BELOW. THE FUND RESERVES THE RIGHT TO
CHANGE OR ELIMINATE THESE PRIVILEGES
AT ANY TIME WITH 60 DAYS NOTICE.
-------------------------------------

AUTOMATIC INVESTMENT PLAN

You can make automatic investments in
the Fund from your bank account,
through payroll deduction or from
your federal employment, Social
Security or other regular government
checks. Automatic investments can be
as little as $25, once you've
invested the $25 minimum required to
open the account.

To invest regularly from your bank
account:

- Complete the Automatic
Investment Plan portion on your
Account Application or the
supplemental sign-up form

- Make sure you note:

- Your bank name, address and
account number

- The amount you wish to invest
automatically (minimum $25)

- How often you want to invest
(every month, 4 times a year,
twice a year or once a year)

- Attach a voided personal check.

Call 1-800-228-1872 for an enrollment form or consult the
SAI for additional information.
-----------------------------------------------------------------------------

DIVIDENDS AND DISTRIBUTIONS

All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A Shares than for Class B Shares, because
Class A Shares have lower distribution expenses. Income dividends for the
Fund are declared and paid quarterly. Capital gains are distributed at least
annually.

Distributions are made on a per share basis regardless of how long you've
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.

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

DIRECTED DIVIDEND OPTION

By selecting the appropriate box in the Account Application, you can elect
to receive your distributions in cash (check) or have distributions (capital
gains and dividends) reinvested in another BB&T Fund without a sales charge.
You must maintain the minimum balance in each Fund into which you plan to
reinvest dividends or the reinvestment will be suspended and your dividends
paid to you. The Fund may modify or terminate this reinvestment option without
notice. You can change or terminate your participation in the reinvestment
option at any time.

16
<PAGE> 17

SHAREHOLDER INFORMATION

SELLING YOUR SHARES

You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is received
by the Fund, its transfer
agent, or your investment
representative. Normally you
will receive your proceeds
within a week after your
request is received. See
section on "General Policies
on Selling Shares below."

BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)

1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below)

BY MAIL

1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:

- your Fund and account number

- amount you wish to redeem

- address where your check should be sent

- account owner signature

2. Mail to: BB&T Funds, P.O. Box 182533, Columbus, OH 43218-2533.

BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS
IN WRITING REQUIRED" BELOW)

1. See instruction 1 above.

2. Send to: BB&T Funds, Attn: T.A. Operations, 34335 Stelzer Road,
Columbus, OH 43219.

WITHDRAWING MONEY FROM YOUR FUND INVESTMENT

As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

When you sell Class B Shares, you will be charged a fee for any shares that have
not been held for a sufficient length of time. These fees will be deducted from
the money paid to you. See the section on "Distribution Arrangements/Sales
Charges" below for details.

INSTRUCTIONS FOR SELLING SHARES

If selling your shares through your financial adviser or broker, ask him or her
for redemption procedures. Your adviser and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.

17
<PAGE> 18

SHAREHOLDER INFORMATION

SELLING YOUR SHARES
CONTINUED

WIRE TRANSFER

You must indicate this option on your application.

The Fund will charge a $7 wire transfer fee for each wire transfer request.
Note: Your financial institution may also charge a separate fee.

Call 1-800-228-1872 to request a wire transfer.

If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.

ELECTRONIC REDEMPTIONS

Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank

Your bank may charge for this service.

Call 1-800-228-1872 to request an electronic redemption.

If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.

AUTO WITHDRAWAL PLAN

You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:

- Complete the supplemental sign-up form which you may obtain by calling
1-800-228-1872.

- Include a voided personal check.

- Your account must have a value of $5,000 or more to start withdrawals.

- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.

18
<PAGE> 19

SHAREHOLDER INFORMATION

GENERAL POLICIES ON SELLING SHARES

REDEMPTIONS IN WRITING REQUIRED

You must request redemption in writing and obtain a signature guarantee if:

- The check is not being mailed to the address on your account; or

- The check is not being made payable to the owner of the account.

A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.

VERIFYING TELEPHONE REDEMPTIONS

The Fund makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.

REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT

When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.

REFUSAL OF REDEMPTION REQUEST

Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.

REDEMPTION IN KIND

The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.

CLOSING OF SMALL ACCOUNTS

If your account falls below $1,000, the Fund may ask you to increase your
balance. If it is still below $1,000 after 60 days, the Fund may close your
account and send you the proceeds at the current NAV.

UNDELIVERABLE REDEMPTION CHECKS

For any shareholder who chooses to receive distributions in cash:

If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the Fund at the current NAV.

19
<PAGE> 20

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES

CALCULATION OF SALES CHARGES

CLASS A SHARES

Class A Shares are sold at their public offering price. This price equals NAV
plus the initial sales charge, if applicable. Therefore, part of the money
you invest will be used to pay the sales charge. The remainder is invested in
Fund shares. The sales charge decreases with larger purchases. There is no
sales charge on reinvested dividends and distributions.

The current sales charge rates are as follows:

<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $99,999 4.50% 4.71%
------------------------------------------------------------------------
$100,000 up to $249,999 3.50% 3.63%
------------------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
------------------------------------------------------------------------
$500,000 up to $999,999 1.50% 1.52%
------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00%
</TABLE>

(1) There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed in
the first year after purchase. This charge will be based on the lower of your
cost for the shares or their NAV at the time of redemption. There will be no
CDSC on reinvested distributions. For sales of over $1 million or more, the
Distributor pays broker-dealers out of its own assets, a fee of up to 1% of
the offering price of such shares up to $2.5 million, 0.5% of the offering
price from $2.5 million to $5 million, and 0.25% of the offering price over
$5 million.

20
<PAGE> 21

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED

<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
</TABLE>

If you sell some but not all of your Class B shares, certain shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will
be redeemed first, followed by shares subject to the lowest CDSC (typically
shares held for the longest time).

CONVERSION FEATURE -- CLASS B SHARES
- Class B Shares automatically convert to Class A Shares of the same Fund
after eight years from the end of the month of purchase.
- After conversion, your shares will be subject to the lower distribution
and shareholder servicing fees charged on Class A Shares which will
increase your investment return compared to the Class B Shares.
- You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
- If you purchased Class B Shares of one Fund which you exchanged for Class
B Shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B Shares.
- The dollar value of Class A Shares you receive will equal the dollar value
of the Class B Shares converted.

CLASS B SHARES
Class B Shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class B Shares of the Fund before the sixth anniversary, you will have to
pay a contingent deferred sales charge at the time of redemption. The CDSC will
be based upon the lower of the NAV at the time of purchase or the NAV at the
time of redemption according to the schedule below. There is no CDSC on
reinvested dividends or distributions.

21
<PAGE> 22

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES

CONTINUED

SALES CHARGE REDUCTIONS

Reduced sales charges for Class A Shares are available to shareholders with
investments of $100,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances.

- LETTER OF INTENT. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.

- RIGHTS OF ACCUMULATION. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.

- COMBINATION PRIVILEGE. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members
(spouse and children under 21) to achieve reduced sales charges.

SALES CHARGE WAIVERS

CLASS A SHARES

The following qualify for waivers of sales charges:

- Existing Shareholders of the Fund upon the reinvestment of dividend and
capital gain distributions;

- Shares purchased with proceeds from redemptions from another mutual fund
complex within 60 days after redemption, if you paid a front-end sales
charge for those shares.

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

- Investors for whom a BB&T correspondent bank or other financial
institution acts in a fiduciary, advisory, custodial, agency, or similar
capacity.

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

- Investors who beneficially hold Trust Shares of any Fund of the BB&T
Funds;

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

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

The Distributor may also waive the sales charge at anytime in its own
discretion. Consult the SAI for more details concerning sales charges
waivers.

REINSTATEMENT PRIVILEGE

If you have sold Class A Shares and decide to reinvest in the Fund
within a 90 day period, you will not be charged the applicable sales
charge on amounts up to the value of the shares you sold. You must
provide a written request for reinstatement and payment within 90 days
of the date your instructions to sell were processed.

22
<PAGE> 23

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED

CLASS B SHARES

The CDSC will be waived under certain circumstances, including the following:

- Minimum required distributions from an IRA or other qualifying retirement
plan to a Shareholder who has attained age 70 1/2.

- Redemptions from accounts following the death or disability of the
shareholder.

- Investors who purchased through a participant directed defined benefit
plan.

- Returns of excess contributions to retirement plans.

- Distributions of less than 12% of the annual account value under the Auto
Withdrawal Plan.

- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.

DISTRIBUTION AND SERVICE (12b-1) FEES

12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase
the cost of your investment.

- The 12b-1 and shareholder servicing fees vary by share class as follows:

- Class A Shares pay a 12b-1 fee of up to 0.50% of the average daily net
assets of a Fund.

- Class B Shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. This will cause expenses for Class B
Shares to be higher and dividends to be lower than for Class A Shares.

- The higher 12b-1 fee on Class B Shares, together with the CDSC, help the
Distributor sell Class B Shares without an "up-front" sales charge. In
particular, these fees help to defray the Distributor's costs of advancing
brokerage commissions to investment representatives.

- The Distributor may use up to 0.25% of the 12b-1 fee for shareholder
servicing and up to 0.75% for distribution.

Over time shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees
are paid out of the Fund's assets on an on-going basis.

23
<PAGE> 24

SHAREHOLDER INFORMATION

EXCHANGING YOUR SHARES You can exchange your shares in one Fund for shares of
the same class of another BB&T Fund, usually without paying additional sales
charges (see "Notes" below). You must meet the minimum investment
requirements for the Fund into which you are exchanging. Exchanges from one
Fund to another are taxable. Class A Shares and Class B Shares may also be
exchanged for Trust Shares of the same Fund if you become eligible to
purchase Trust Shares. Class B Shares may not be exchanged for Class A
Shares. Please consult the Trust Share prospectus for more information. No
transaction fees are currently charged for exchanges.

AUTOMATIC EXCHANGES -- CLASS B SHARES ONLY

You can use the Funds' Automatic Exchange feature to purchase Class B Shares
of the Fund at regular intervals through regular, automatic redemptions from
the your BB&T Fund account. To participate in the Automatic Exchange Plan:

- Complete the appropriate section of the Account Application.

- Keep a minimum of $10,000 in your BB&T Funds account and $1,000 in
the Fund whose shares you are buying.

To change the Automatic Exchange instructions or to discontinue the feature,
you must send a written request to BB&T Funds, P.O. Box 182533, Columbus,
Ohio 43218-2533.

INSTRUCTIONS FOR EXCHANGING SHARES

Exchanges may be made by sending a written request to BB&T Funds, P.O. Box
182533, Columbus OH 43218-2533, or by calling 1-800-228-1872. Please provide the
following information:

- Your name and telephone number

- The exact name on your account and account number

- Taxpayer identification number (usually your Social Security number)

- Dollar value or number of shares to be exchanged

- The name of the Fund from which the exchange is to be made.

- The name of the Fund into which the exchange is being made.

See "Selling your Shares" for important information about telephone
transactions.

To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four exchanges from a Fund
during a calendar year.

NOTES ON EXCHANGES

- When exchanging from a Fund that has no sales charge or a lower sales charge
to a Fund with a higher sales charge, you will pay the difference.

- The registration and tax identification numbers of the two accounts must
be identical.

- The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.

- Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.

24
<PAGE> 25

SHAREHOLDER INFORMATION

DIVIDENDS, DISTRIBUTIONS AND TAXES

Please consult your tax adviser regarding your specific questions about
federal, state and local income taxes. Below we have summarized some
important tax issues that affect the Fund and its shareholders. This summary
is based on current tax laws, which may change.

The Fund distributes any net investment income monthly and any net realized
capital gains at least once a year. All distributions will be automatically
reinvested in additional Fund Shares unless you request to receive all
distributions in cash.

Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Distributions
are taxable whether you received them in cash or in additional shares.
Distributions are also taxable to you even if they are paid from income or
gains earned by the Fund before your investment (and thus were included in
the price you paid).

Any gain resulting from the sale or exchange of your Fund Shares (even if the
income from which is tax exempt) will generally be subject to tax. You should
consult your tax adviser for more information on your own tax situation,
including possible state and local taxes.

BB&T Funds will send you a statement each year showing the tax status of all
your distributions.

- The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.

- Any distributions of net long-term capital gains by the Fund are taxable to
you as long-term capital gains for tax purposes, no matter how long you've
owned shares in the Fund.

- Taxes are not considered when deciding to buy or sell securities. Capital
gains are realized from time to time as by-products of ordinary investment
activities. Distributions may vary considerably from year to year.

- If you sell or exchange shares, any gain or loss you have is a taxable
event. This means that you may have a capital gain to report as income, or
a capital loss to report as a deduction, when you complete your federal
income tax return.

- Distributions of dividends or capital gains, and capital gains or losses
from your sale or exchange of Fund shares, may be subject to state and
local income taxes as well.

The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account
such as an IRA or a qualified employee benefit plan. (Non-U.S. investors may
be subject to U.S. withholding and estate tax.)

MORE INFORMATION ABOUT TAXES IS IN OUR SAI.

25
<PAGE> 26

For more information about the Fund, the following documents are available free
upon request:

ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):

The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI):

The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.

You can get free copies of Reports and the SAI, prospectuses of other
members of the BB&T Funds Family, or request other information and discuss
your questions about the Fund by contacting a broker or bank that sells
the Fund. Or contact the Fund at:

BB&T Funds
3435 Stelzer Road
Columbus, Ohio 43219
Telephone: 1-800-228-1872
Internet: http://www.bbtfunds.com

You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:

- For a fee, by writing the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549-6009, or by calling
202-942-8090, or by sending an e-mail to [email protected]

- Free from the Commission's Website at http://www.sec.gov.

Investment Company Act file no. 811-6719.
<PAGE> 27
----------------------

BB&T FUNDS

EQUITY INDEX FUND

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 11, 2000

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

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Class A Shares and Class B Shares Prospectus of the BB&T
Equity Index Fund dated September 11, 2000. This Statement of Additional
Information is incorporated by reference in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing BB&T Funds at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 228- 1872.

<PAGE> 28

TABLE OF CONTENTS
-----------------

BB&T FUNDS..................................................................1

INVESTMENT OBJECTIVES AND POLICIES..........................................1
Additional Information on Portfolio Instruments....................1
Risk Considerations...............................................10
Master/Feeder Structure...........................................12
Investment Restrictions...........................................13
Portfolio Turnover................................................18

VALUATION..................................................................18

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................19
Purchase of Class A and Class B Shares............................20
Matters Affecting Redemption......................................25

ADDITIONAL TAX INFORMATION.................................................27

MANAGEMENT OF BB&T FUNDS...................................................31
Officers .........................................................33
Investment Adviser................................................34
Portfolio Transactions............................................36
Glass-Steagall Act................................................37
Manager and Administrator.........................................38
Distributor.......................................................40
Custodian.........................................................44
Independent Auditors..............................................44
Legal Counsel.....................................................44

PERFORMANCE INFORMATION....................................................44
Calculation of Total Return.......................................44
Performance Comparisons...........................................46

ADDITIONAL INFORMATION.....................................................48
Organization and Description of Shares............................48
Shareholder and Trustee Liability.................................50
Master Portfolio Organization.....................................50
Miscellaneous.....................................................51

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<PAGE> 29

STATEMENT OF ADDITIONAL INFORMATION

BB&T FUNDS

BB&T Funds is an open-end management investment company. The BB&T Funds
consist of eighteen series of units of beneficial interest ("Shares") offered to
the public, each representing interests in one of eighteen separate investment
portfolios (the "Funds"). The Statement of Information pertains to the BB&T
Equity Index Fund (the "Equity Index Fund") only.

The Fund may offer to the public three classes of Shares: Class A Shares,
Class B Shares and Trust Shares. As of the date of this Statement of Additional
Information, Trust Shares of the Fund were not yet being offered. Much of the
information contained in this Statement of Additional Information expands on
subjects discussed in the Prospectus. Capitalized terms not defined herein are
defined in the Prospectus. No investment in Shares of the Fund should be made
without first reading the Prospectus.

INVESTMENT OBJECTIVES AND POLICIES

THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING SUBSTANTIALLY
ALL OF ITS ASSETS IN THE S&P 500(R) INDEX MASTER PORTFOLIO (THE "MASTER
PORTFOLIO"), WHICH IS A SERIES OF MASTER INVESTMENT PORTFOLIO ("MIP"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY.

The Master Portfolio has substantially the same investment objective as the
Fund. The Fund may withdraw its investment in the Master Portfolio at any time,
if the Board of Trustees of the Fund determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Fund's
Board of Trustees would consider alternative investments, including investing
all of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies and restrictions described in
the Fund's Prospectus and this SAI.

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS

The following policies supplement the information pertaining to portfolio
instruments of the Fund as set forth in the Prospectus.

<PAGE> 30

BB&T EQUITY INDEX FUND. Under normal market conditions, at least 90% of the
value of the Master Portfolio's total assets is invested in securities
comprising the S&P 500(R) Index. The Master Portfolio has also represented that
it attempts to achieve, in both rising and falling markets, a correlation of at
least 95% between the total return of its net assets, before expenses, and the
total return of the S&P 500(R) Index. Notwithstanding the factors described
below, perfect (100%) correlation would be achieved if the total return of the
Master Portfolio's net assets increased or decreased exactly as the total return
of the S&P 500(R) Index increased or decreased.

The Master Portfolio may invest up to 10% of its total assets in
high-quality money market instruments to provide liquidity.

REPURCHASE AGREEMENTS. The Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The period of maturity is usually quite short, often overnight or a
few days, although it may extend over a number of months. The Master Portfolio
may enter into repurchase agreements only with respect to securities that could
otherwise be purchased by the Master Portfolio, and all repurchase transactions
must be collateralized. The Master Portfolio may participate in pooled
repurchase agreement transactions with other funds advised by Barclays Global
Fund Advisors ("BGFA").

The Master Portfolio's custodian has custody of, and holds in a segregated
account, securities acquired as collateral by the Master Portfolio under a
repurchase agreement. The Master Portfolio may enter into repurchase agreements
only with respect to securities of the type in which it may invest, including
government securities and mortgage-related securities, regardless of their
remaining maturities, and requires that additional securities be deposited with
the custodian if the value of the securities purchased should decrease below
resale price. BGFA monitors on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price. Certain costs may
be incurred by the Master Portfolio in connection with the sale of the
underlying securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, disposition of the securities by
the Master Portfolio may be delayed or limited. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delay and costs to the Master Portfolio in connection with insolvency
proceedings), it is the policy of the Master Portfolio to limit repurchase
agreements to selected creditworthy securities dealers or domestic banks or
other

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<PAGE> 31

recognized financial institutions. The Master Portfolio considers on an ongoing
basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered to be loans by the
Master Portfolio under the 1940 Act.

FLOATING- AND VARIABLE-RATE OBLIGATIONS. The Master Portfolio may purchase
debt instruments with interest rates that are periodically adjusted at specified
intervals or whenever a benchmark rate or index changes. The floating- and
variable-rate instruments that the Master Portfolio may purchase include
certificates of participation in such instruments. These adjustments generally
limit the increase or decrease in the amount of interest received on the debt
instruments. Floating- and variable-rate instruments are subject to
interest-rate risk and credit risk.

The Master Portfolio may purchase floating- and variable-rate demand notes
and bonds, which are obligations ordinarily having stated maturities in excess
of thirteen months, but which permit the holder to demand payment of principal
at any time, or at specified intervals not exceeding thirteen months. Variable
rate demand notes include master demand notes that are obligations that permit
the Master Portfolio to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Master Portfolio,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Master Portfolio's right to redeem is dependent on the ability of the borrower
to pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies and the Master Portfolio may invest in
obligations which are not so rated only if BGFA determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Master Portfolio may invest. BGFA, on behalf of the Master Portfolio ,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Master Portfolio's
portfolio. The Master Portfolio will not invest more than 10% of the value of
its total net assets in floating- or variable-rate demand obligations whose
demand feature is not exercisable within seven days. Such obligations may be
treated as liquid, provided that an active secondary market exists.

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<PAGE> 32

U.S. GOVERNMENT OBLIGATIONS. The Master Portfolio may invest in various
types of U.S. Government obligations. U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.

UNRATED, DOWNGRADED AND BELOW INVESTMENT GRADE INVESTMENTS. The Master
Portfolio may purchase instruments that are not rated if, in the opinion of the
adviser, BGFA, such obligation is of investment quality comparable to other
rated investments that are permitted to be purchased by the Master Portfolio.
After purchase by the Master Portfolio, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Master
Portfolio. Neither event will require a sale of such security by the Master
Portfolio provided that the amount of such securities held by the Master
Portfolio does not exceed 5% of the Fund's net assets. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, the Master Portfolio will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in its Prospectus and in this SAI.

The Master Portfolio is not required to sell downgraded securities, and the
Master Portfolio could hold up to 5% of its net assets in debt securities rated
below "Baa" by Moody's or below "BBB" by S&P or if unrated, low quality (below
investment grade) securities.

Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish the Master Portfolio's
ability to sell the securities at fair value either to meet redemption requests
or to respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of the
Master Portfolio's shares.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt

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<PAGE> 33

securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of the Master Portfolio to achieve its investment objective may, to the extent
it holds low rated or unrated low quality debt securities, be more dependent
upon such creditworthiness analysis than would be the case if the Master
Portfolio held exclusively higher rated or higher quality securities. Low rated
or unrated low quality debt securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than investment
grade securities. The prices of such debt securities have been found to be less
sensitive to interest rate changes than higher rated or higher quality
investments, but more sensitive to adverse economic downturns or individual
corporate developments. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a decline in low rated or
unrated low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolio may incur additional expenses to
seek recovery.

LETTERS OF CREDIT. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolio may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
BGFA, as investment adviser, are of comparable quality to issuers of other
permitted investments of the Master Portfolio may be used for letter of
credit-backed investments.

LOANS OF PORTFOLIO SECURITIES. The Master Portfolio may lend securities
from their portfolios to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other high-quality debt
obligations equal to at least 100% of the current market value of the securities
loan (including accrued interest thereon) plus the interest payable to the
Master Portfolio with respect to the loan is maintained with the Master
Portfolio. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Master Portfolio's investment adviser will
consider all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities will be fully collateralized based on values
that are marked to market daily. The Master Portfolio will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities that the Master Portfolio may receive as collateral will
not become part of the Master Portfolio's investment portfolio at the time of
the loan and, in the event of a default by the borrower, the Master Portfolio
will, if permitted by law, dispose of such collateral except for such part
thereof that is a security in which the Master Portfolio is permitted to invest.
During the time securities are on loan, the borrower will pay the Master
Portfolio any accrued income on those securities, and the Master Portfolio may
invest the cash collateral and earn income or receive an agreed-upon fee from a
borrower that has delivered cash-equivalent collateral. The Master

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<PAGE> 34

Portfolio will not lend securities having a value that exceeds one-third of the
current value of its total assets. Loans of securities by the Master Portfolio
will be subject to termination at the Master Portfolio's or the borrower's
option. The Master Portfolio may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with BGFA.

The principal risk of portfolio lending is potential default or insolvency
of the borrower. In either of these cases, the Master Portfolio could experience
delays in recovering securities or collateral or could lose all or part of the
value of the loaned securities.

FUTURES CONTRACTS AND OPTIONS TRANSACTIONS. The Master Portfolio may use
futures contracts as a hedge against the effects of interest rate changes or
changes in the market value of the stocks comprising the index in which the
Master Portfolio invests. In managing its cash flows, the Master Portfolio also
may use futures contracts as a substitute for holding the designated securities
underlying the futures contract. A futures contract is an agreement between two
parties, a buyer and a seller, to exchange a particular commodity at a specific
price on a specific date in the future. An option transaction generally involves
a right, which may or may not be exercised, to buy or sell a commodity or
financial instrument at a particular price on a specified future date. At the
time it enters into a futures transaction, the Master Portfolio is required to
make a performance deposit (initial margin) of cash or liquid securities in a
segregated account in the name of the futures broker. Subsequent payments of
"variation margin" are then made on a daily basis, depending on the value of the
futures position which is continually "marked to market."

The Master Portfolio may engage only in futures contract transactions
involving (i) the sale of a futures contract (i.e., short positions) to hedge
the value of securities held by the Master Portfolio; (ii) the purchase of a
futures contract when the Master Portfolio holds a short position having the
same delivery month (i.e., a long position offsetting a short position); or
(iii) the purchase of a futures contract to permit the Master Portfolio to, in
effect, participate in the market for the designated securities underlying the
futures contract without actually owning such designated securities. When the
Master Portfolio purchases a futures contract, it will create a segregated
account consisting of cash or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.

If the Master Portfolio enters into a short position in a futures contract
as a hedge against anticipated adverse market movements and the market then
rises, the increase in the value of the hedged securities will be offset, in
whole or in part, by a loss on the futures contract. If instead the Master
Portfolio purchases a futures contract as a substitute for investing in the
designated underlying securities, the Master Portfolio experiences gains or
losses that correspond generally to gains or losses in the underlying
securities. The latter type of futures contract transactions permits the Master
Portfolio to experience the results of being

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<PAGE> 35

fully invested in a particular asset class, while maintaining the liquidity
needed to manage cash flows into or out of the Master Portfolio (e.g., from
purchases and redemptions of fund shares). Under normal market conditions,
futures contract positions may be closed out on a daily basis. The Master
Portfolio expects to apply a portion of its cash or cash equivalents maintained
for liquidity needs to such activities.

Transactions by the Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio. Similarly, in employing futures contracts as a
substitute for purchasing the designated underlying securities, there is a risk
that the performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.

Futures contracts and options are standardized and traded on exchanges,
where the exchange serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts are subject to market risk
(i.e., exposure to adverse price changes). Although the Master Portfolio intends
to purchase or sell futures contracts only if there is an active market for such
contracts, no assurance can be given that a liquid market will exist for any
particular contract at any particular time. Many futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Master Portfolio to substantial losses.
If it is not possible, or if the Master Portfolio determines not to close a
futures position in anticipation of adverse price movements, the Master
Portfolio will be required to make daily cash payments on variation margin.

In order to comply with undertakings made by the Master Portfolio pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolio will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of the Master
Portfolio's

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<PAGE> 36

portfolio, after taking into account unrealized profits and unrealized losses on
any such contract it has entered into; and provided further, that in the case of
an option that is in-the-money at the time of purchase, the in-the-money amount
as defined in CFTC Reg. 190.01(x) may be excluded in computing such five
percent.

STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES. The Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, the Master Portfolio intends to
purchase and sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity. There can be no
assurance that a liquid market will exist at the time when the Master Portfolio
seeks to close out a futures contract or a futures option position. Lack of a
liquid market may prevent liquidation of an unfavorable position.

INVESTMENT COMPANY SECURITIES. The Master Portfolio may invest in
securities issued by other investment companies which principally invest in
securities of the type in which the Master Portfolio invests. Under the 1940
Act, the Master Portfolio's investment in such securities currently is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Master Portfolio's net assets with respect to
any one investment company and (iii) 10% of the Master Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other expenses.
The Master Portfolio may also purchase shares of exchange listed closed-end
funds.

ILLIQUID SECURITIES. The Master Portfolio may invest up to 15% of the value
of its net assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with its investment objective.
Such securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, participation interests that are not subject to the demand feature
described above, floating- and variable-rate demand obligations as to which the
Master Portfolio cannot exercise the related demand feature described above on
not more than seven days' notice and as to which there is no secondary market
and repurchase agreements providing for settlement more than seven days after
notice.

SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS. The Master Portfolio may
invest in high-quality money market instruments on an ongoing basis to provide
liquidity, for temporary purposes when there is an unexpected level of
shareholder purchases or redemptions or when "defensive" strategies are
appropriate. The instruments in which the Master Portfolio may invest include:
(i) short-term obligations issued or guaranteed by the U.S.

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<PAGE> 37

Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA ; (iv) nonconvertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of purchase of not more than
one year that are rated at least "Aa" by Moody's or "AA" by S&P (v) repurchase
agreements; and (vi) short-term, U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) that, at the time of investment have more than
$10 billion, or the equivalent in other currencies, in total assets and in the
opinion of BGFA are of comparable quality to obligations of U.S. banks which may
be purchased by the Master Portfolio.

BANK OBLIGATIONS. The Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions. Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Master Portfolio will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the FDIC. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay the
face amount of the instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed, floating- or
variable-interest rates.

COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS. The Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or sub-adviser to the Master Portfolio monitors on an
on-going basis the ability of an issuer of a demand instrument to pay principal
and interest on demand. The Master Portfolio also may invest in non-convertible
corporate debt securities (e.g., bonds and debentures) with not more than one
year remaining to maturity at the date of settlement. The Master Portfolio will
invest

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only in such corporate bonds and debentures that are rated at the time of
purchase at least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by
the Master Portfolio, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Master
Portfolio. BGFA will consider such an event in determining whether the Master
Portfolio should continue to hold the obligation. To the extent the Master
Portfolio continues to hold such obligations, it may be subject to additional
risk of default.

FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED- DELIVERY
TRANSACTIONS. The Master Portfolio may purchase or sell securities on a
when-issued or delayed-delivery basis and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
Securities purchased or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines, or the value of the security to be sold increases, before
the settlement date. Although the Master Portfolio will generally purchase
securities with the intention of acquiring them, the Master Portfolio may
dispose of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by BGFA.

BORROWING MONEY. As a fundamental policy, the Master Portfolio is permitted
to borrow to the extent permitted under the 1940 Act. However, the Master
Portfolio currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, and may borrow up to 20% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Master Portfolio's total assets, the
Master Portfolio will not make any investments.

INVESTMENT IN WARRANTS. The Master Portfolio may invest up to 5% of net
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities), including not more than 2%
of its net assets in warrants which are not listed on the New York or American
Stock Exchange. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The prices of
warrants do not necessarily correlate with the prices of the underlying
securities. The Master Portfolio may only purchase warrants on securities in
which the Master Portfolio may invest directly.

RISK CONSIDERATIONS

GENERAL. Since the investment characteristics and, therefore, investment
risks directly associated with such characteristics of the Fund correspond to
those of the Master Portfolio, the following is a discussion of the risks
associated with the investments of the Master Portfolio.

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EQUITY SECURITIES. The stock investments of the Master Portfolio are
subject to equity market risk. Equity market risk is the possibility that common
stock prices will fluctuate or decline over short or even extended periods. The
U.S. stock market tends to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. Throughout 1999, the stock
market, as measured by the S&P 500(R) Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue.

DEBT SECURITIES. The debt instruments in which the Master Portfolio invests
are subject to credit and interest rate risk. Credit risk is the risk that
issuers of the debt instruments in which the Master Portfolio invests may
default on the payment of principal and/or interest. Interest-rate risk is the
risk that increases in market interest rates may adversely affect the value of
the debt instruments in which the Master Portfolio invests. The value of the
debt instruments generally changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Although some of the Master Portfolio's securities
are guaranteed by the U.S. Government, its agencies or instrumentalities, such
securities are subject to interest rate risk and the market value of these
securities, upon which the Master Portfolio's daily NAV is based, will
fluctuate. No assurance can be given that the U.S. Government would provide
financial support to its agencies or instrumentalities where it is not obligated
to do so.

FOREIGN SECURITIES. Investing in the securities of issuers in any foreign
country, including through American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and similar securities, involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political,
social and monetary or diplomatic developments that could affect U.S.
investments in foreign countries. Additionally, dispositions of foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including withholding taxes. Foreign securities often trade
with less frequency and volume than domestic securities and, therefore, may
exhibit greater price volatility. Additional costs associated with an investment
in foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar. The Master
Portfolio's performance may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.

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<PAGE> 40

OTHER INVESTMENT CONSIDERATIONS. Certain of the floating-and- variable-rate
instruments that the Master Portfolio may purchase also may be considered
derivatives. Derivatives are financial instruments whose values are derived, at
least in part, from the prices of other securities or specified assets, indices
or rates. The Master Portfolio may use some derivatives as part of its
short-term liquidity holdings and/or substitutes for comparable market positions
in the underlying securities. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some derivatives
also may be susceptible to fluctuations in yield or value due to their structure
or contract terms. The Master Portfolio may not use derivatives to create
leverage without establishing adequate "cover" in compliance with SEC leverage
rules. Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by the Master Portfolio and one or more of these investment companies
or accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Master Portfolio or
the price paid or received by the Master Portfolio.

MASTER/FEEDER STRUCTURE

The Fund seeks to achieve its investment objective by investing all of its
assets into the Master Portfolio of MIP. The Fund and other entities investing
in the Master Portfolio are each liable for all obligations of the Master
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and MIP itself is unable to meet its obligations. Accordingly, the
Fund's Board of Trustees believes that neither the Fund nor its shareholders
will be adversely affected by investing Fund assets in the Master Portfolio.
However, if a mutual fund or other investor withdraws its investment from the
Master Portfolio, the economic efficiencies (e.g., spreading fixed expenses
among a larger asset base) that the Fund's Board believes may be available
through investment in the Master Portfolio may not be fully achieved. In
addition, given the relative novelty of the master/feeder structure, accounting
or operational difficulties, although unlikely, could arise.

The Fund may withdraw its investment in the Master Portfolio only if the
Fund's Board of Trustees determines that such action is in the best interests of
the Fund and its shareholders. Upon any such withdrawal, the Fund's Adviser,
under the general supervision of the Board, would consider alternative
investments, including investing all of the Fund's assets in another investment
company with the same investment objective as the Fund or for the Adviser to
assume active management of the Fund's assets in accordance with the investment
policies described below with respect to the Master Portfolio.

The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests.
Whenever the Fund, as an interestholder of the Master

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<PAGE> 41

Portfolio, is requested to vote on any matter submitted to interestholders of
the Master Portfolio, the Fund will hold a meeting of its shareholders to
consider such matters. The Fund will cast its votes in proportion to the votes
received from its shareholders. Shares for which the Fund receives no voting
instructions will be voted in the same proportion as the votes received from the
other Fund shareholders.

Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund also may elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its objective. In the
latter case, the Fund's inability to find a substitute investment company in
which to invest or equivalent management services could adversely affect
shareholders' investments in the Fund. The Fund will provide shareholders with
30 days' written notice prior to the implementation of any change in the
investment objective of the Fund or the Master Portfolio, to the extent
possible.

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES OF THE FUND. Except as provided otherwise, the
following investment restrictions may be changed with respect to a particular
Fund only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in this Statement of
Additional Information).

The Fund:

1. May purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company under the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

2. May not concentrate investments in a particular industry or
group of industries, or within any one state as concentration is
defined under the Investment Company Act of 1940, or the rules and
regulations thereunder, as such statute, rules or regulations may be
amended from time to time, except that there shall be no limitation
with respect to investments in any industry in which the S&P 500 Index
becomes concentrated to the same degree during the same period.

3. May issue senior securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

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<PAGE> 42

4. May lend or borrow money to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

6. May underwrite securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

7. May pledge, mortgage or hypothecate any of its assets to
the extent permitted by the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.

8. May, notwithstanding any other fundamental investment
policy or restriction, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and restrictions as
the Fund.

NON-FUNDAMENTAL POLICIES OF THE FUND. The fundamental limitations of the
Fund have been adopted to avoid wherever possible the necessity of shareholder
meetings otherwise required by the 1940 Act. This recognizes the need to react
quickly to changes in the law or new investment opportunities in the securities
markets and the cost and time involved in obtaining shareholder approvals for
diversely held investment companies. However, the Fund also has adopted
non-fundamental limitations, set forth below, which in some instances may be
more restrictive than their fundamental limitations. Any changes in the Fund's
non-fundamental limitations will be communicated to the Fund's shareholders
prior to effectiveness.

The Fund may not:

1. Acquire more than 10% of the voting securities of any one
issuer. This limitation applies to only 75% of a Fund's assets.

2. Invest in companies for the purpose of exercising control.

3. Borrow money, except for temporary or emergency purposes
and then only in an amount not exceeding one-third of the value of
total assets and except that a Fund may borrow from banks or enter into
reverse repurchase agreements for temporary emergency purposes in
amounts up to 20% of the value of its total assets at the time of such
borrowing. To the extent that such borrowing exceeds 5% of the value of
the Fund's

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<PAGE> 43

assets, asset coverage of at least 300% is required. In the event that
such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter or such longer period as the Securities
and Exchange Commission may prescribe by rules and regulations, reduce
the amount of its borrowings to such an extent that the asset coverage
of such borrowing shall be at least 300%. This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities
to accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings
will reduce income.

4. Purchase or sell real estate, real estate limited
partnership interest, commodities or commodities contracts (except that
the Fund may invest in futures contracts and options on futures
contracts, as disclosed in the prospectus) and interest in a pool of
securities that are secured by interests in real estate. However,
subject to their permitted investments, the Fund may invest in
companies which invest in real estate, commodities or commodities
contracts.

5. Make short sales of securities, maintain a short position
or purchase securities on margin, except that the Fund may obtain
short-term credits as necessary for the clearance of security
transactions.

6. Act as an underwriter of securities of other issuers except
as it may be deemed an underwriter in selling a Fund security.

7. Issue senior securities (as defined in the Investment
Company Act of 1940) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order of the
Securities and Exchange Commission.

8. Invest in interest in oil, gas, or other mineral
exploration or development programs and oil, gas or mineral leases.

FUNDAMENTAL OPERATING POLICIES OF THE MASTER PORTFOLIO. The Master
Portfolio is subject to the following fundamental investment limitations which
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Master Portfolio's outstanding voting securities. To obtain
approval, a majority of the Master Portfolio's outstanding voting securities
means the vote of the lesser of: (1) 67% or more of the voting securities
present, if more than 50% of the outstanding voting securities are present or
represented, or (2) more than 50% of the outstanding voting shares.

The Master Portfolio may not:

1. invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of its total assets
may be invested, and securities

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<PAGE> 44

issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such
limitation.

2. hold more than 10% of the outstanding voting securities of
any single issuer. This investment restriction applies only with
respect to 75% of its total assets.

3. invest in commodities, except that the Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, futures
contracts, including those relating to indexes, and options on futures
contracts or indexes.

4. purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Master
Portfolio may purchase and sell securities that are secured by real
estate or issued by companies that invest or deal in real estate.

5. borrow money, except to the extent permitted under the 1940
Act, provided that the Master Portfolio may borrow up to 20% of the
current value of its net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of
up to 20% of the current value of its net assets (but investments may
not be purchased while any such outstanding borrowing in excess of 5%
of its net assets exists). For purposes of this investment restriction,
the Master Portfolio's entry into options, forward contracts, futures
contracts, including those relating to indexes, and options on futures
contracts or indexes shall not constitute borrowing to the extent
certain segregated accounts are established and maintained by the
Master Portfolio.

6. make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the
Master Portfolio may lend its portfolio securities in an amount not to
exceed one-third of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established
by the SEC and MIP's Board of Trustees.

7. act as an underwriter of securities of other issuers,
except to the extent that the Master Portfolio may be deemed an
underwriter under the Securities Act of 1933, as amended, by virtue of
disposing of portfolio securities.

8. invest 25% or more of its total assets in the securities of
issuers in any particular industry or group of closely related
industries except that, in the case of the Master Portfolio, there
shall be no limitation with respect to investments in (i) obligations
of the U.S. government, its agencies or instrumentalities; or (ii) any
industry in which the S&P 500(R) Index becomes concentrated to the same
degree during the same period, the Master Portfolio will be
concentrated as specified above only to the extent the percentage of
its assets invested in those categories of investments is

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<PAGE> 45

sufficiently large that 25% or more of its total assets would be
invested in a single industry.

9. issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent the activities
permitted in the Master Portfolio's fundamental policies (3) and (5)
may be deemed to give rise to a senior security.

10. purchase securities on margin, but the Master Portfolio
may make margin deposits in connection with transactions in options,
forward contracts, futures contracts, including those related to
indexes, and options on futures contracts or indexes.

NON-FUNDAMENTAL POLICIES OF THE MASTER PORTFOLIO. The Master Portfolio is
subject to the following non-fundamental operating policies which may be changed
by the Board of Trustees of the Master Portfolio without the approval of the
holders of the Master Portfolio's outstanding securities.

The Master Portfolio may:

1. invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i)
3% of the total voting stock of any one investment company, (ii) 5% of
the Master Portfolio's net assets with respect to any one investment
company, and (iii) 10% of the Master Portfolio's net assets in the
aggregate. Other investment companies in which the Master Portfolio
invests can be expected to charge fees for operating expenses, such as
investment advisory and administration fees, that would be in addition
to those charged by the Master Portfolio.

2. not invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among
others, (i) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on
resale, (ii) fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, and (iii)
repurchase agreements not terminable within seven days.

3. lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate)
one-third of the Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that
are marked to market daily. The Master Portfolio will not enter into
any portfolio security lending arrangement having a duration of longer
than one year.

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<PAGE> 46

If a percentage restriction is adhered to at the time of
investment, a later change in percentage resulting from a change in
values or assets will not constitute a violation of such restriction.

PORTFOLIO TURNOVER

Portfolio turnover rate is calculated by dividing the lesser of purchases
or sales of portfolio securities for the year by the monthly average value of
the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. The Fund expects to
remain fully invested in the Master Portfolio, therefore, there will be little
to no portfolio turnover. The portfolio turnover rate for the Master Portfolio
generally is not expected to exceed 50%.

High turnover rates will generally result in higher transaction costs to
the Fund and Master Portfolio and may result in higher levels of taxable
realized gains (including short-term taxable gains generally taxed at ordinary
income tax rates) to the Fund's shareholders. The portfolio turnover rate may
vary greatly from year to year as well as within a particular year, and may also
be affected by cash requirements for redemptions of Shares. A higher portfolio
turnover rate may lead to increased taxes and transaction costs. Portfolio
turnover will not be a limiting factor in making investment decisions. See
"Additional Tax Information."

VALUATION

The net asset value of the Fund is determined and its Shares are priced as
of the close of regular trading of the New York Stock Exchange (generally 4:00
p.m. Eastern Time) on each Business Day ("Valuation Time"). As used herein a
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day (other than a day on which no
Shares are tendered for redemption and no orders to purchase Shares are
received) during which there is sufficient trading in the Fund's portfolio
securities 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.

VALUATION OF THE FUND

Portfolio securities for which market quotations are readily available are
valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair

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<PAGE> 47

market value in BB&T Funds' Pricing Committee's best judgment under procedures
established by, and under the supervision of the BB&T Funds' Board of Trustees.
The Pricing Committee, as designated by the Board of Trustees, consists of the
following individuals or their designees: (i) the chief investment officer of
BB&T; (ii) the chief compliance officer of BISYS Fund Services, Inc.; and (iii)
the treasurer of BB&T Funds. Pricing determinations require an affirmative vote
of a majority of the Pricing Committee.

Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair market value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.

The Fund may use a pricing service to value certain portfolio securities
where the prices provided are believed to reflect the fair market value of such
securities. A pricing service would normally consider such factors as yield,
risk, quality, maturity, type of issue, trading characteristics, special
circumstances and other factors it deems relevant in determining valuations of
normal institutional trading units of debt securities and would not rely
exclusively on quoted prices. The methods used by the pricing service and the
valuations so established will be reviewed by the Fund under the general
supervision of the BB&T Funds' Board of Trustees. Several pricing services are
available, one or more of which may be used by the Pricing Committee from time
to time.

Investments in debt securities with remaining maturities of 60 days or less
may be valued based upon the amortized cost method.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each class of Shares of the Fund is sold on a continuous basis by BISYS
Fund Services ("BISYS"). In addition to purchasing Shares directly from BISYS,
Class A and Class B may be purchased through procedures established by BISYS in
connection with the requirements of accounts at BB&T, or BB&T's affiliated or
correspondent banks. Customers purchasing Shares of the Fund may include
officers, directors, or employees of BB&T or BB&T's affiliated or correspondent
banks.

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<PAGE> 48

PURCHASE OF CLASS A AND CLASS B SHARES

As stated in the Prospectus, the public offering price of Class A Shares of
the Fund is its net asset value next computed after an order is received, plus a
sales charge which varies based upon the quantity purchased. The public offering
price of such Class A Shares is calculated by dividing net asset value by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase. The offering price is rounded to
two decimal places each time a computation is made. The sales charge scale set
forth in the Class A and Class B Prospectus applies to purchases of Class A
Shares of the Fund by a Purchaser.

Class B Shares of the Fund are sold at their net asset value per share, as
next computed after an order is received. However, as discussed in the Class A
and Class B Prospectus, the Class B Shares are subject to a Contingent Deferred
Sales Charge if they are redeemed prior to the sixth anniversary of purchase.
Such Class B shares may be exchanged for Class B Shares of any other BB&T Fund
through the Auto Exchange Plan (see "Auto Exchange Plan").

Shares of the Fund sold to Participating Organizations acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of Customers
will normally be held of record by the Participating Organizations. With respect
to Shares so sold, it is the responsibility of the Participating Organization to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Participating Organizations and reflected in the account
statements provided by the Participating Organizations to Customers. Depending
upon the terms of a particular Customer account, a Participating Organization or
Bank may charge a Customer's account fees for services provided in connection
with investment in the Fund.

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
Fund by the Valuation Time. The broker-dealer is responsible for transmitting
such orders promptly. If the broker-dealer fails to do so, the investor's right
to that day's closing price must be settled between the investor and the
broker-dealer. If the broker-dealer receives the order after the Valuation Time
for that day, the price will be based on the net asset value determined as of
the Valuation Time for the next Business Day.

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

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<PAGE> 49

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 Fund's transfer agent
will deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account and will automatically invest that amount in Class A
or Class B Shares at the public offering price on the date of such deduction.

For a Shareholder to change the Auto Invest instructions or to discontinue
the feature, the request must be made in writing to the BB&T Funds, P.O. Box
182533, Columbus, OH 43218-2533. The Auto Invest Plan may be amended or
terminated without notice at any time by the Distributor.

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

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

For more information on a BB&T Funds IRA call the BB&T Funds at (800)
228-1872. Shareholders are advised to consult a tax adviser on BB&T Funds IRA
contribution and withdrawal requirements and restrictions.

SALES CHARGES

As the Fund's principal underwriter, BISYS acts as principal in selling
Class A and Class B Shares of the BB&T Funds to dealers. BISYS re-allows the
applicable sales charge as dealer discounts and brokerage commissions. However,
the Distributor, in its sole discretion, may pay certain dealers all or part of
the portion of the sales charge it receives. A broker or dealer who receives a
reallowance in excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the 1933 Act. From time to time dealers who
receive dealer discounts and broker commissions from the Distributor 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 the Fund. The maximum
cash compensation

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<PAGE> 50

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 the Fund, 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 the 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 the Fund or its shareholders. Neither
BISYS nor dealers are permitted to delay the placement of orders to benefit
themselves by a price change.

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

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

SALES CHARGE REDUCTIONS AND WAIVERS

Certain sales of Class A Shares are made without a sales charge, as described in
the Class A and Class B Prospectus under the caption "Sales Charge Waivers," to
promote goodwill with employees and others with whom BISYS, BB&T and/or the BB&T
Funds have business relationships, and because the sales effort, if any,
involved in making such sales is negligible.

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<PAGE> 51

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

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

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

CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION. A Purchaser (as defined
above) may qualify for a reduced sales charge by combining concurrent purchases
of Class A Shares of one or more of the Variable NAV Funds or by combining a
current purchase of Class A Shares of a Variable NAV Fund with prior purchases
of Shares of any Variable NAV Fund. The applicable sales charge is based on the
sum of (i) the Purchaser's current purchase of Class A Shares of any Variable
NAV Fund sold with a sales charge plus (ii) the then current net asset value of
all Class A Shares held by the Purchaser in any Variable NAV Fund. To receive
the applicable public offering price pursuant to the right of accumulation,
Shareholders

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<PAGE> 52

must at the time of purchase provide the Transfer Agent or the Distributor with
sufficient information to permit confirmation of qualification. Accumulation
privileges may be amended or terminated without notice at any time by the
Distributor.

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

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

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

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

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<PAGE> 53

EXCHANGE PRIVILEGE

CLASS B. Class B Shares of each Fund may be exchanged for Class B Shares of
the other Funds on the basis of relative net asset value per Class B Share,
without the payment of any Contingent Deferred Sales Charge which might
otherwise be due upon redemption of the outstanding Class B Shares.

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

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

If not selected on the Account Registration form, the Shareholder will
automatically receive Exchange privileges. A Shareholder wishing to exchange
Class A or Class B Shares purchased through a Participating Organization or Bank
may do so by contacting the Participating Organization or Bank. If an exchange
request in good order is received by the Distributor or the Transfer Agent by
12:00 noon (Eastern Time) on any Business Day, the exchange usually will occur
on that day.

MATTERS AFFECTING REDEMPTION

REDEMPTION BY MAIL. A written request for redemption must be received by
the BB&T Funds in order to constitute a valid tender for redemption. The
signature on the written request must be guaranteed by a bank, broker, dealer,
credit union, securities exchange, securities association, clearing agency or
savings association, as those terms are defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934 if (a) a redemption check is to be payable to
anyone other than the Shareholder(s) of record or (b) a redemption check is to
be mailed to the Shareholder(s) at an address other than the address of record
or other than to a commercial bank designated on the Account Registration Form
of such Shareholder(s). The Distributor reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine, (2) it has reason to believe that the transaction would

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<PAGE> 54

otherwise be improper, or (3) the guarantor institution is a broker or dealer
that is neither a member of a clearing corporation nor maintains net capital of
at least $100,000. Proceeds may be mailed to the address of record or sent
electronically or mailed to a previously designated bank account without a
signature guarantee. See "Redemption by Telephone" for further discussion on
sending proceeds to your bank account.

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

The BB&T Funds may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists as
a result of which (i) disposal by the BB&T Funds of securities owned by it is
not reasonably practical or (ii) it is not reasonably practical for the Company
to determine the fair market value of its total net assets.

The BB&T Funds may redeem any class of Shares involuntarily if redemption
appears appropriate in light of the BB&T Funds' responsibilities under the 1940
Act.

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<PAGE> 55

AUTO WITHDRAWAL PLAN. BB&T Funds Auto Withdrawal Plan enables Shareholders
to make regular redemptions of Class A Shares and Class B Shares of the Fund.
With Shareholder authorization, the Fund's transfer agent will automatically
redeem Class A Shares and Class B Shares at the net asset value of the Fund on
the dates of withdrawal and have the amount specified transferred according to
the instructions of the Shareholder.

Purchase of additional Class A Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities.

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

PAYMENTS TO SHAREHOLDERS. Redemption orders are effected at the net asset
value per Share next determined after the Shares are properly tendered for
redemption, as described above. Payment to Shareholders for Shares redeemed will
be made within seven days after receipt by the Distributor of the request for
redemption. However, to the greatest extent possible, the Fund 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 Fund or the
Shareholders of the Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.

ADDITIONAL TAX INFORMATION

Each BB&T Fund will be treated as a separate entity for federal income tax
purposes. It is the policy of the Fund to qualify for the favorable tax
treatment accorded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By following such
policy, the Fund expects to eliminate or reduce to a nominal amount the federal
income taxes to which the Fund may be subject. Regulated investment companies
are subject to a federal excise tax if they do not distribute substantially all
of their income on a timely basis. The Fund intends to avoid paying federal
income and excise taxes by timely distributing substantially all its net
investment income and net realized capital gains.

In order to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, the Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans,

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<PAGE> 56

and gains from the sale of stock, securities, and foreign currencies, or other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies; (b) each year distribute at least 90% of its
dividend, interest (including tax-exempt interest), and certain other income and
the excess, if any, of its net short-term capital gains over its net long-term
capital losses; and (c) diversify its holdings so that, at the end of each
fiscal quarter (i) at least 50% of the market value of its assets is represented
by cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, limited in respect of any one issuer
to a value not greater than 5% of the value of the Fund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities (other than those of
the U.S. Government or other regulated investment companies) of any one issuer
or of two or more issuers which the Fund controls and which are engaged in the
same, similar, or related trades or businesses.

From time to time, BGFA may find it necessary to make certain types of
investments for the purpose of ensuring that the Master Portfolio, and therefore
the Fund, continues to qualify for treatment as a RIC under the Code. For
purposes of complying with these qualification requirements the Fund will be
deemed to own a proportionate share of the Master Portfolio.

A non-deductible excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of whether they have a
non-calendar taxable year) an amount equal to 98% of their "ordinary income" (as
defined) for the calendar year plus 98% of their capital gain net income for the
1-year period ending on October 31 of such calendar year plus any undistributed
amounts from prior years. For the foregoing purposes, the Fund is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. If distributions during a calendar
year by a Fund were less than the required amount, the Fund would be subject to
a non-deductible excise tax equal to 4% of the deficiency.

Distributions from the Fund (other than exempt-interest dividends, as
discussed below) will be taxable to Shareholders as ordinary income to the
extent derived from the Fund's investment income and net short-term capital
gains. Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains (generally subject to a 20%
tax rate), regardless of how long a Shareholder has held the Fund's shares and
are not eligible for the dividends received deduction. Any distributions that
are not from the Fund's investment company taxable income or net capital gains
may be characterized as a return of capital to Shareholders or, in some cases,
as capital gain. The tax treatment of dividends and distributions will be the
same whether a Shareholder reinvests them in additional shares or elects to
receive them in cash.

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<PAGE> 57

Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular Shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses.

Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a Shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the Shareholder's
hands, and will be long-term or short-term generally depending upon the
Shareholder's holding period for the shares.

The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends and other distributions paid to any
Shareholder who has provided either an incorrect taxpayer identification number
or no number at all, who is subject to withholding by the Internal Revenue
Service for failure properly to report payments of interest or dividends, or who
fails to provide a certified statement that he or she is not subject to "backup
withholding."

Dividends received by a Shareholder of the Fund that are derived from the
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 the Fund.

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

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

Dividends will generally be taxable to a Shareholder as ordinary income to
the extent of the Shareholder's ratable share of the earnings and profits of the
Fund as determined for tax purposes. Certain dividends paid by the Fund, and
so-designated by the Fund, 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 the Fund 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. Distributions
designated by the 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.

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<PAGE> 58

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 the 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).

The Fund's transactions in futures contracts, options, and
foreign-currency-denominated securities, and certain other investment and
hedging activities of the Fund, will be subject to special tax rules (including
"mark-to-market," "straddle," "wash sale," "constructive sale," and "short sale"
rules), the effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of the Fund's
assets, convert short-term capital losses into long-term capital losses, convert
long-term capital gains into short-term capital losses, and otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to Shareholders. Income earned as a
result of these transactions would, in general, not be eligible for the
dividends received deduction or for treatment as exempt-interest dividends when
distributed to Shareholders. The Fund will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Fund. The Fund's investments in certain debt obligations
may cause the Fund to recognize taxable income in excess of the cash generated
by such obligations. Thus, the Fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.

Although the Fund expects to qualify as a "regulated investment company" (a
"RIC") and to be relieved of all or substantially all federal income taxes,
depending upon the extent of their activities in states and localities in which
their offices are maintained, in which their agents or independent contractors
are located, or in which they are otherwise deemed to be conducting business,
the Fund may be subject to the tax laws of such states or localities. If for any
taxable year the Fund does not qualify for the special federal tax treatment
afforded a RIC, all of its taxable income will be subject to federal income tax
at regular corporate rates at the Fund level (without any deduction for
distributions to its Shareholders). In addition, distributions to Shareholders
will be taxed as ordinary income even if the distributions are attributable to
capital gains or exempt interest earned by the Fund. Furthermore, in order to
requalify for taxation as a RIC, the Fund may be required to recognize gains,
pay substantial taxes and interest, and make certain distributions.

Prior proposed legislation that was ultimately not enacted would have
reinstated a deductible tax (the "Environmental Tax"), imposed through tax years
beginning before January 1, 1996, at a rate of 0.12% on a corporation's
alternative minimum taxable income (computed without regard to the alternative
minimum tax net operating loss deduction) in excess of $2 million. If the
Environmental Tax is reinstated, exempt-interest dividends paid by the Fund that
are included in a corporate Shareholder's alternative minimum taxable income may
subject such shareholder to the Environmental Tax. It is not possible for the
Fund to predict whether

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<PAGE> 59

similar legislation might be proposed and enacted in the future. Corporate
Shareholders should consult with their own tax advisors regarding the likelihood
of such legislation and its effect on them.

Under federal tax law in effect at the date of this Prospectus, a
Shareholder's interest deduction generally will not be disallowed if the average
adjusted basis of the shareholder's tax-exempt obligations does not exceed two
percent of the average adjusted basis of the Shareholder's trade or business
assets (in the case of most corporations and some individuals) and portfolio
investments (in the case of individuals). Prior proposed legislation that was
ultimately not enacted would have further limited or repealed this two-percent
de minimis exception, which could reduce the total after-tax yield to investors
to whom the de minimis exception would otherwise apply. It is not possible for
the Fund to predict whether similar legislation might be proposed and enacted in
the future. Shareholders should consult with their own tax advisors regarding
the likelihood of such legislation and its effect on them.

Information set forth in the Prospectus and this Statement of Additional
Information which relates to federal taxation is only a summary of some of the
important federal tax considerations generally affecting U.S. purchasers of
Shares of the Funds. No attempt has been made to present a detailed explanation
of the federal income tax treatment of the Fund or its Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of the Fund are urged to consult
their tax advisers with specific reference to their own tax situation
(especially with respect to foreign, state or local taxation). In addition, the
tax discussion in the Prospectus and this Statement of Additional Information is
based on tax laws and regulations which are in effect on the date of the
Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.

MANAGEMENT OF BB&T FUNDS

TRUSTEES

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

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<PAGE> 60

POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS WITH THE BB&T FUNDS THE PAST 5 YEARS
---------------- ------------------- ---------------------------
<S> <C> <C>
*Walter B. Grimm Chairman of the Board From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 54

William E. Graham, Jr. Trustee From January 1994 to present,
1 Hannover Square Counsel, Hunton & Williams;
Fayetteville Street Mall from 1985 to December, 1993,
P.O. Box 109 Vice Chairman, Carolina
Raleigh, NC 27602 Power & Light Company
Age: 70

Thomas W. Lambeth Trustee From 1978 to present,
101 Reynolda Village Executive Director, Z. Smith
Winston-Salem, NC 27106 Reynolds Foundation
Age: 65

*W. Ray Long Trustee Retired; Executive Vice
605 Blenheim Drive President, Branch Banking and
Raleigh, NC 27612 Trust Company prior to August
Age: 65 1998.

Robert W. Stewart Trustee Retired; Chairman and Chief
201 Huntington Road Executive Officer of
Greenville, SC 29615 Engineered Custom Plastics
Age: 67 Corporation from 1969 to 1990

*Raymond K. McCulloch Trustee From August 1998 to present,
434 Fayetteville Street Mall Executive Vice President,
29th Floor Branch Banking and Trust
Raleigh, NC 27601 Company; employee of Branch
Age: 43 Banking and Trust Company
since 1989.

Drew T. Kagan Trustee From February 1997 to present,
118 East Washington Street President and Chief Executive
Lewisburg, WV 24901 Officer, Investment Affiliate,
Age: 52 Inc.; From January 1995 to
February 1997, President,
Provident Securities Inc.,
and Senior Vice President,
Provident Bank.

</TABLE>

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

The Trustees receive fees and are reimbursed for expenses in connection
with each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, BISYS Fund Services Ohio, Inc. or Branch
Banking and Trust Company receives any compensation from the BB&T Funds for
acting as a Trustee. Walter B. Grimm is an employee of BISYS Fund Services.

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<PAGE> 61

OFFICERS

The officers of the Fund, their current addresses, and principal
occupations during the past five years are as follows (if no address is listed,
the address is 3435 Stelzer Road, Columbus, Ohio 43219):

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
Age: 55 and President BISYS Fund Services.

Mark S. Redman Secretary and Vice From February 1989 to present, employee of
Age: 46 President BISYS Fund Services.

Gary Tenkman Treasurer From April 1998 to present, Director,
Age: 29 Financial Services, BISYS Fund Services;
from 1990 to March 1998, Audit Manager,
Ernst & Young LLP.

Bob Tuch Assistant Secretary From June 1991 to present, employee of BISYS
Age: 49 Fund Services.

Alaina V. Metz Assistant Secretary From June 1995 to present, employee, BISYS
Age: 33 Fund Services; from May 1989 - June 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</TABLE>

The officers of BB&T Funds receive no compensation directly from BB&T Funds
for performing the duties of their offices. BISYS Fund Services, L.P. receives
fees from BB&T Funds for acting as Administrator and BISYS Fund Services Ohio,
Inc. receives fees from BB&T Funds for acting as Transfer Agent and for
providing fund accounting services to BB&T Funds.

COMPENSATION TABLE(1)
------------------

<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT BENEFITS ANNUAL COMPENSATION
NAME OF PERSON, FROM THE ACCRUED AS PART BENEFITS UPON FROM THE BB&T FUNDS
POSITION BB&T FUNDS OF FUND EXPENSES RETIREMENT PAID TO TRUSTEE
--------------- ------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Walter B. Grimm None None None None
Chairman of the Board
</TABLE>

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<PAGE> 62

<S> <C> <C> <C> <C>
W. Ray Long $10,500 None None $10,500
Trustee

William E. Graham $8,500 None None $ 8,500
Trustee

Thomas W. Lambeth $10,500 None None $10,500
Trustee

Robert W. Stewart $10,500 None None $10,500
Trustee

Raymond K. McCulloch None None None None
Trustee

Drew T. Kagan None None None None
Trustee
</TABLE>

(1) Figures are for the Funds' fiscal year ended September 30, 1999. BB&T Funds
includes eighteen separate series.

CODE OF ETHICS

BB&T Funds, BB&T and BISYS Fund Services, L.P. have each adopted a code of
ethics ("Codes") pursuant to Rule 17j-1 of the 1940 Act, and these Codes permit
personnel covered by the Codes to invest in securities, including securities
that may be purchased or held by the Fund, subject to certain restrictions.

INVESTMENT ADVISER

INVESTMENT ADVISER OF THE FUND. Investment advisory and management services
are provided to each Fund of the BB&T Funds by BB&T pursuant to an Investment
Advisory Agreement ("Advisory Agreement") dated October 1, 1992.

Under the Advisory Agreement between BB&T Funds and BB&T, the fee payable
to BB&T by the Equity Index Fund, for investment advisory services is: (a) no
fee for periods that all of the Fund's assets are invested in the Master
Portfolio, (b) a fee computed daily and paid monthly at the annual rate of five
one hundredths of one percent (0.05%) of the Fund's average daily net assets if
the Fund's assets are not invested in the Master Portfolio and the Adviser has
assumed active management of the Fund's portfolio, or (c) 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 the Fund's expenses and increase the net income of the
Fund during the period when such lower fee is in effect.

The Advisory Agreement provides that BB&T shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the BB&T Funds in
connection with the performance of such Advisory Agreement, except a loss
resulting from a breach of

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<PAGE> 63

fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of BB&T in the performance of its duties, or from reckless disregard by
BB&T of its duties and obligations thereunder.

Unless sooner terminated, the Advisory Agreement will continue in effect
until September 30, 2000 as to each of the Funds and from year to year if such
continuance is approved at least annually by the BB&T Funds' Board of Trustees
or by vote of the holders of a majority of the outstanding Shares of that Fund
(as defined under "GENERAL INFORMATION - Miscellaneous"). The Advisory Agreement
is terminable as to a particular Fund at any time upon 60 days written notice
without penalty by the Trustees, by vote of the holders of a majority of the
outstanding Shares of that Fund, or by BB&T. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.

During the first half of 2000, BB&T intends to reorganize its investment
advisory division as a separate, wholly owned subsidiary of BB&T to be called
BB&T Asset Management, Inc. ("BB&T Asset Management"). Once organized and
registered with the Securities and Exchange Commission, BB&T Asset Management
will replace BB&T as investment adviser to BB&T Funds. Following the
reorganization, the management and investment advisory personnel of BB&T that
are currently providing investment management services to BB&T Funds will
continue to do so as the personnel of BB&T Asset Management. Additionally, BB&T
Asset Management will be wholly owned and otherwise fully controlled by BB&T. As
a result, this transaction will not be an "assignment" of the Advisory Agreement
(and Sub-Advisory Agreements) for purposes of the 1940 Act and, therefore, a
shareholder vote will not be required.

INVESTMENT ADVISER OF THE MASTER PORTFOLIO. The advisor to the Master
Portfolio is Barclays Global Fund Advisors ("BGFA"). BGFA is an indirect
subsidiary of Barclays Bank PLC. Pursuant to an Investment Advisory Contract
("Advisory Contract") with the Master Portfolio, BGFA provides investment
guidance and policy direction in connection with the management of the Master
Portfolio's assets. Pursuant to the Advisory Contract, BGFA furnishes to the
Master Portfolio's Boards of Trustees periodic reports on the investment
strategy and performance of the Master Portfolio. The Advisory Contract is
required to be approved annually by (i) MIP's Board of Trustees or (ii) vote of
a majority (as defined in the 1940 Act) of the outstanding voting securities of
the Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIP's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIP or BGFA, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Advisory
Contract is terminable without penalty, on 60 days written notice by MIP's Board
of Trustees or by vote of the holders of a majority of the Master Portfolio's
shares, or, on not less than 60 days written notice, by BGFA. The Advisory
Contract will terminate automatically if assigned.

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<PAGE> 64

BGFA is entitled to receive monthly fees at the annual rate of 0.05% of the
average daily net assets of the Master Portfolio as compensation for its
advisory services to the Master Portfolio. The Advisory Contract provides that
the advisory fee is accrued daily and paid monthly. This advisory fee is an
expense of the Master Portfolio borne proportionately by its interestholders,
such as the Fund.

BGFA has agreed to provide to the Master Portfolio, among other things,
money market security and fixed-income research, analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition, credit conditions and average maturities of the
Master Portfolio's investment portfolio.

PORTFOLIO TRANSACTIONS

Purchases and sales of equity securities on a securities exchange usually
are effected through brokers who charge a negotiated commission for their
services. Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in light of generally prevailing rates. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Stephens Inc. or Barclays Global Investors, N.A. In the over-
the-counter-market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.

Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities also may be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions.

Under the 1940 Act, persons affiliated with the Master Portfolio are
prohibited from dealing with the Master Portfolio as a principal in the purchase
and sale of portfolio securities unless an exemptive order allowing such
transactions is obtained from the Commission or an exemption is otherwise
available. The Master Portfolio may purchase securities from underwriting
syndicates of which Stephens is a member under certain conditions in accordance
with the provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by MIP's Board of Trustees.

The Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Board of Trustees, BGFA is responsible for the
Master Portfolio's investment decisions and

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<PAGE> 65

the placing of portfolio transactions. In placing orders, it is the policy of
the Master Portfolio to obtain the best overall terms taking into account the
dealer's general execution and operational facilities, the type of transaction
involved and other factors such as the dealer's risk in positioning the
securities involved BGFA generally seeks reasonably competitive spreads or
commissions.

In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. Certain of the
brokers or dealers with whom the Master Portfolios may transact business offer
commission rebates to the Master Portfolio. BGFA considers such rebates in
assessing the best overall terms available for any transaction. BGFA may cause
the Master Portfolio to pay a broker/dealer which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker/dealer for effecting the same transaction, provided that BGFA
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of BGFA. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond, and government securities markets
and the economy.

Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by BGFA and does not reduce the
advisory fees payable by the Master Portfolio. MIP's Board of Trustees will
periodically review the commissions paid by the Master Portfolio to consider
whether the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Master Portfolio. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which BGFA exercises investment discretion. Conversely, the Master Portfolio
may be the primary beneficiary of the research or services received as a result
of portfolio transactions effected for such other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making

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<PAGE> 66

responsibilities." Accordingly, the price to the Master Portfolio in any
transaction may be less favorable than that available from another broker/dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered.

GLASS-STEAGALL ACT

In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a bank complied with
the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a bank performing investment
advisory services for an investment company would not violate the Glass-Steagall
Act.

BB&T believe that they possess the legal authority to perform the services
for the Fund contemplated by the Advisory Agreement and described in the
Prospectus and this Statement of Additional Information and has so represented
in the Advisory Agreement. Future changes in either federal or state statutes
and regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict BB&T from continuing
to perform such services for BB&T Funds. Depending upon the nature of any
changes in the services which could be provided by BB&T, the Board of Trustees
of BB&T Funds would review BB&T Funds' relationship with BB&T and consider
taking all action necessary in the circumstances.

Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of BB&T or their affiliated and correspondent
banks (the "Banks") in connection with Customer's purchases of Shares of the
Fund, the Banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not

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<PAGE> 67

anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per Share or result in financial losses to any
Customer.

MANAGER AND ADMINISTRATOR

ADMINISTRATOR OF THE FUND. BISYS Fund Services, L.P. serves as
Administrator (the "Administrator") to the Fund pursuant to the Management and
Administration Agreement dated as of June 1, 2000, as amended (the
"Administration Agreement"). The Administrator is wholly owned by The BISYS
Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations. The Administrator assists in supervising all operations
of the Fund (other than those performed by BB&T under the Advisory Agreement,
those performed by Firstar Bank, N.A. under their custodial services agreements
with BB&T Funds and those performed by BISYS Fund Services Ohio, Inc. under its
transfer agency and shareholder service and fund accounting agreements with BB&T
Funds). The Administrator is a broker- dealer registered with the Securities and
Exchange Commission, and is a member of the National Association of Securities
Dealers, Inc. The Administrator provides financial services to institutional
clients.

Under the Administration Agreement, the Administrator has agreed to monitor
the net asset value of the Fund, to maintain office facilities for BB&T Funds,
to maintain the Fund's financial accounts and records, and to furnish BB&T Funds
statistical and research data and certain bookkeeping services, and certain
other services required by BB&T Funds. The Administrator prepares annual and
semi-annual reports to the Securities and Exchange Commission, prepares Federal
and state tax returns, prepares filings with state securities commissions, and
generally assists in supervising all aspects of the Fund's operations (other
than those performed by BB&T under the Advisory Agreement, those by Firstar
Bank, N.A. under its custodial services agreements with BB&T Funds and those
performed by BISYS Fund Services Ohio, Inc. under its transfer agency and
shareholder service and fund accounting agreements with BB&T Funds). Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.

Under the Administration Agreement for expenses assumed and services
provided as manager and administrator, the Administrator receives a fee from the
Fund equal to the lesser of (a) a fee computed at the annual rate of twenty
one-hundredths of one percent (0.20%) of such Fund's average daily net assets or
(b) such fee as may from time to time be agreed upon in writing by BB&T Funds
and the Administrator. A fee agreed to in writing from time to time by BB&T
Funds and the Administrator may be significantly lower than the fee calculated
at the annual rate and the effect of such lower fee would be to lower a Fund's
expenses and increase the net income of such Fund during the period when such
lower fee is in effect.

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<PAGE> 68

The Administration Agreement shall, unless sooner terminated as provided in
the Administration Agreement (described below), will continue until May 31,
2005. Thereafter, the Administration Agreement shall be renewed automatically
for successive one year terms, unless written notice not to renew is given by
the non-renewing party to the other party at least 60 days prior to the
expiration of the then-current term. The Administration Agreement is terminable
with respect to the Fund only upon mutual agreement of the parties to the
Administration Agreement and for cause (as defined in the Administration
Agreement) by the party alleging cause, on not less than 60 days notice by BB&T
Funds' Board of Trustees or by the Administrator.

The Administration Agreement provides that the Administrator shall not be
liable for any loss suffered by BB&T Funds in connection with the matters to
which the Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
from the reckless disregard by the Administrator of its obligations and duties
thereunder.

ADMINISTRATOR AND PLACEMENT AGENT OF THE MASTER PORTFOLIO. Stephens Inc.
("Stephens") and Barclays Global Investors, N.A. ("BGI") serve as
co-administrators on behalf of the Master Portfolio. Under the Co-Administration
Agreement between Stephens, BGI and the Master Portfolio, Stephens and BGI
provide as administrative services, among other things: (i) general supervision
of the operation of the Master Portfolio, including coordination of the services
performed by the investment advisor, transfer and dividend disbursing agent,
custodian, shareholder servicing agent(s), independent auditors and legal
counsel; (ii) general supervision of regulatory compliance matters, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Master Portfolio; and (iii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Master Portfolio's officers and Board.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Master Portfolio together with those ordinary
clerical and bookkeeping services that are not furnished by BGFA. Stephens also
pays the compensation of the Master Portfolio's trustees, officers and employees
who are affiliated with Stephens. Furthermore, except as provided in the
Advisory Contract, Stephens and BGI bears substantially all costs of the Master
Portfolio and the Master Portfolio's operations. However, Stephens and BGI are
not required to bear any cost or expense which a majority of the disinterested
trustees of the Master Portfolio deem to be an extraordinary expense.

Stephens also acts as the placement agent of Master Portfolio's shares
pursuant to a Placement Agency Agreement ("Placement Agency Agreement") with the
Master Portfolio.

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<PAGE> 69

DISTRIBUTOR

BISYS Fund Services LP serves as distributor to the Fund pursuant to a
Distribution Agreement dated October 1, 1993, (the "Distribution Agreement").
The Distribution Agreement provides that, unless sooner terminated it will
continue in effect for continuous one-year periods if such continuance is
approved at least annually (i) by BB&T Funds' Board of Trustees or by the vote
of a majority of the outstanding Shares of the Fund subject to such Distribution
Agreement, and (ii) by the vote of a majority of the Trustees of BB&T Funds who
are not parties to such Distribution Agreement or interested persons (as defined
in the 1940 Act) of any party to such Distribution Agreement, cast in person at
a meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.

No compensation is paid to the Distributor under the Distribution
Agreement. However, the Distributor is entitled to receive payments under the
Distribution and Shareholder Services Plan, dated October 1, 1992, as restated
February 7, 1997 (the "Distribution Plan"). Under the Distribution Plan, a Fund
will pay a monthly distribution fee to the Distributor as compensation for its
services in connection with the Distribution Plan at an annual rate equal to
fifty one-hundredths of one percent (0.50%) of the average daily net assets of
Class A Shares of the Fund and one percent (1.00%) of the average daily net
assets of Class B Shares of the Fund. The Distributor may periodically waive all
or a portion of the fee with respect to the Fund in order to increase the net
investment income of the Fund available for distribution as dividends. The
Distributor has agreed with 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 the Fund.

The Distribution Plan was initially approved on August 18, 1992 by BB&T
Funds' Board of Trustees, including a majority of the trustees who are not
interested persons of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan (the "Independent
Trustees"). An Amended and Re-Executed Distribution Plan was approved on
February 7, 1997. The Distribution Plan provides for fees only upon the Class A
and Class B Shares of the Fund.

The Distribution Agreement is the successor to the previous distribution
agreement, which terminated automatically by its terms upon consummation of the
acquisition of Winsbury by The BISYS Group, Inc. The Distribution Agreement was
unanimously approved by the Board of Trustees of BB&T Funds, and is materially
identical to the terminated distribution agreement.

In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan may
be terminated with respect to the Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of the Fund. The

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<PAGE> 70

Distribution Plan may be amended by vote of BB&T Funds' Board of Trustees,
including a majority of the Independent Trustees, cast in person at a meeting
called for such purpose, except that any change in the Distribution Plan that
would materially increase the distribution fee with respect to the Fund requires
the approval of the holders of the Fund's Class A and Class B Shares. The BB&T
Funds' Board of Trustees will review on a quarterly and annual basis written
reports of the amounts received and expended under the Distribution Plan
(including amounts expended by the Distributor to Participating Organizations
pursuant to the Servicing Agreements entered into under the Distribution Plan)
indicating the purposes for which such expenditures were made.

The Distributor may use the distribution fee to provide distribution
assistance with respect to the Fund's Class A and Class B Shares or to provide
shareholder services to the holders of such Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and intermediaries (such
as insurance companies and investment counselors but not including banks),
broker-dealers, and the Distributor's affiliates and subsidiaries compensation
for services or reimbursement of expenses incurred in connection with
distribution assistance or (ii) to pay banks, other financial institutions and
intermediaries, broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with the provision of shareholder services. All payments by the
Distributor for distribution assistance or shareholder services under the
Distribution Plan will be made pursuant to an agreement (a "Servicing
Agreement") between the Distributor and such bank, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor
(hereinafter referred to individually as "Participating Organizations"). A
Servicing Agreement will relate to the provision of distribution assistance in
connection with the distribution of the 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 the 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

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<PAGE> 71

incurred in a particular year, the Distributor will realize a loss in that year
under the Distribution Plan and will not recover from the 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 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, 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 BB&T Funds to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.

EXPENSES

BB&T and the Administrator each bear all expenses in connection with the
performance of their services as Adviser and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for the Fund. Each BB&T 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 the Fund on the basis
of the relative net asset value of each class. At present, the only expenses
that will be borne solely by Class A and Class B Shares, other than in
accordance with the relative net asset value of the class, are expenses under
the Distribution Plan which relate only to the Class A and Class B Shares.

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<PAGE> 72

SECURITIES LENDING AGENT

BB&T Funds has retained Cantor Fitzgerald & Co. ("Cantor Fitzgerald") as
its securities lending agent and will compensate that firm based on a percentage
of the profitability generated by securities lending transactions effected on
the behalf of BB&T Funds. Cantor Fitzgerald has employed BISYS to provide
certain administrative services relating to securities lending transactions
entered into on behalf of BB&T Funds. Cantor Fitzgerald, rather than BB&T Funds,
will compensate BISYS for those services.

CUSTODIAN

Firstar Bank, N.A. serves as the Custodian to BB&T Funds. Investors Bank &
Trust Company ("IBT") located at 200 Clarendon Street, Boston, MA 02111, serves
as custodian of the assets of the Master Portfolio. As a result, IBT has custody
of all securities and cash of the Master Portfolio, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments, and performs other duties, all as directed by
the officers of the Master Portfolio. The custodian is in no way responsible for
any of the investment policies or decisions of the Master Portfolio.

TRANSFER AGENT AND FUND ACCOUNTING SERVICES

BISYS Fund Services Ohio, Inc. serves as transfer agent to the Fund
pursuant to a Transfer Agency Agreement with the BB&T Funds.

Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, MA
02111, provides fund accounting services to the Fund pursuant to a Fund
Accounting Agreement with BB&T Funds.

IBT also acts as transfer agent and dividend-disbursing agent for the
Master Portfolio.

INDEPENDENT AUDITORS

KPMG LLP ("KPMG") has been selected as independent auditors. KPMG's address
is Two Nationwide Plaza, Suite 1600, Columbus, Ohio 43215.

LEGAL COUNSEL

Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, DC 20005 are counsel to the BB&T Funds.

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<PAGE> 73

PERFORMANCE INFORMATION

CALCULATION OF TOTAL RETURN

Total Return is a measure of the change in value of an investment in the
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year. Average annual total return is
measured by comparing the value of an investment in the Fund at the beginning of
the relevant period to the redemption value of an investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions). Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized.

The average total return for the Master Portfolio, for the periods
indicated ended 12/31/99, is shown in the table below:

Average Annual Total Returns

<TABLE>
<CAPTION>
Since
One Five Inception
Fund Name Year Years (7/02/93)
--------- --------------- --------------- --------------
With Without With Without With Without
Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Master Portfolio(1) 14.71% 20.12% 26.53% 27.70% 21.11% 21.98%
</TABLE>

* Reflects maximum sales charge of 4.50% on Class A Shares of the Fund.

(1) Adjusted to reflect Rule 12b-1 fees and other expenses applicable to Class
A Shares of the Fund.

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<PAGE> 74

The average total return for the Master Portfolio, for the periods
indicated ended 12/31/99, is shown in the table below:

Average Annual Total Returns

* Reflects maximum CDSC of 5.00% on Class B Shares of the Fund.

(1) Adjusted to reflect Rule 12b-1 fees and other expenses applicable to Class
B Shares of the Fund.

No yield or total return information is available for the Equity Index
Fund, which had not commenced operations as of the date of this Statement of
Additional Information.

At any time in the future, yields and total return may be higher or lower
than past yields, there can be no assurance that any historical results will
continue.

PERFORMANCE COMPARISONS

YIELD AND TOTAL RETURN. From time to time, performance information for the
Fund showing their average annual total return, aggregate total return yield
and/or effective yield may be included in advertisements or in information
furnished to present or prospective shareholders and the ranking of those
performance figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services as having the same investment
objectives may from time to time be included in advertisements.

Yield, effective yield, total return and distribution rate will be
calculated separately for each Class of Shares. Because Class A Shares are
subject to lower Distribution Plan fees than Class B Shares, the yield and total
return for Class A Shares will be higher than that of the Class B Shares for the
same period.

From time to time, the Fund may include the following types of information
in advertisements, supplemental sales literature and reports to Shareholders:
(1) discussions of general economic or financial principals (such as the effects
of inflation, the power of compounding and the benefits of dollar-cost
averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for of the Fund, (5) descriptions of investment
strategies for the Fund; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, insured bank products,
annuities, qualified retirement plans and

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individual stocks and bonds), which may or may not include the Fund; (7)
comparisons of investment products (including the Fund) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in the Fund. The Fund
may also include in these communications calculations, such as hypothetical
compounding examples, that describe hypothetical investment results, such
performance examples will be based on an express set of assumptions and are not
indicative of performance of the Fund.

Investors may also judge the performance of the 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 Fund that appears in a publication
such as those mentioned above may be included in advertisements and in reports
to Shareholders.

Total return and/or yield may also be used to compare the performance of
the Fund against certain widely acknowledged standards or indices for stock and
bond market performance. The Standard & Poor's Composite Stock Price Index of
500 stocks (the "S&P 500(R) Index") is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of 500 Stocks relative
to the base period 1941-43. The S&P 500(R) Index is composed almost entirely of
common stocks of companies listed on the New York Stock Exchange, although the
common stocks of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500(R)
Index represents about 80% of the market value of all issues traded on the New
York Stock Exchange.

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The Fund may also calculate a distribution rate. Distribution rates will be
computed by dividing the distribution per Share of a class made by the 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 the 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. The Fund does not intend to publish distribution rates in Fund
advertisements but may publish such rates in supplemental sales literature.
Distribution rates may also be presented excluding the effect of a sales charge,
if any.

Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, the Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by BB&T or
its affiliated or correspondent banks for cash management services will reduce
the Fund's effective yield to Customers.

ADDITIONAL INFORMATION

ORGANIZATION AND DESCRIPTION OF SHARES

The BB&T Funds (previously The BB&T Mutual Funds Group) was organized as a
Massachusetts business trust by the Agreement and Declaration of Trust, dated
October 1, 1987, under the name "Shelf Registration Trust IV." The BB&T Funds'
Agreement and

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Declaration of Trust has been amended three times: (1) on June 25, 1992 to
change the Trust's name, (2) on August 18, 1992, to provide for the issuance of
multiple classes of shares, and (3) on May 17, 1999 to change the Trust's name.
A copy of the BB&T Funds' Amended and Restated Agreement and Declaration of
Trust, (the "Declaration of Trust") is on file with the Secretary of State of
The Commonwealth of Massachusetts. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of Shares, which are units of
beneficial interest. The BB&T Funds presently has eighteen series of Shares
offered to the public which represent interests in the U.S. Treasury Fund, the
Prime Money Market Fund, the Tax-Free Money Market Fund, the Growth and Income
Stock Fund, the North Carolina Fund, the South Carolina Fund, the Virginia Fund,
the Short-Intermediate Fund, the Intermediate U.S. Government Bond Fund, the
Intermediate Corporate Bond Fund, the Balanced Fund, the Large Company Growth
Fund, the Small Company Growth Fund, the International Equity Fund, the Equity
Index Fund, the Capital Manager Conservative Growth Fund, the Capital Manager
Moderate Growth Fund, and the Capital Manager Growth Fund, respectively. The
BB&T Funds' Declaration of Trust authorizes the Board of Trustees to divide or
redivide any unissued Shares of the BB&T Funds into one or more additional
series.

Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the Fund's Shares will be fully paid and non-assessable.
In the event of a liquidation or dissolution of the BB&T Funds, Shareholders of
a Fund are entitled to receive the assets available for distribution belonging
to that Fund, and a proportionate distribution, based upon the relative asset
values of the respective Funds, of any general assets not belonging to any
particular Fund which are available for distribution.

Shares of the BB&T Funds are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote in the aggregate and not by series or class
on all matters except (i) when required by the 1940 Act, shares shall be voted
by individual series, (ii) when the Trustees have determined that the matter
affects only the interests of a particular series or class, then only
Shareholders of such series or class shall be entitled to vote thereon, and
(iii) only the holders of Class A and Class B Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Distribution Plan
applicable to such class. There will normally be no meetings of Shareholders for
the purposes of electing Trustees unless and until such time as less than a
majority of the Trustees have been elected by the Shareholders, at which time
the Trustees then in office will call a Shareholders' meeting for the election
of Trustees. In addition, Trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares of the
BB&T Funds and filed with the BB&T Funds' custodian or by vote of the holders of
two-thirds of the outstanding shares of the BB&T Funds at a meeting duly called
for the purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares of any Fund. Except as
set forth above, the Trustees shall continue to hold office and may appoint
their successors.

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

SHAREHOLDER AND TRUSTEE LIABILITY

Under Massachusetts law, Shareholders could, under certain circumstances,
be held personally liable for the obligations of the BB&T Funds. However, the
BB&T Funds' Declaration of Trust disclaims Shareholder liability for acts or
obligations of the BB&T Funds and requires that notice of such disclaimer be
given in every agreement, obligation or instrument entered into or executed by
the BB&T Funds or the Trustees. The Declaration of Trust provides for
indemnification out of a Fund's property for all loss and expense of any
Shareholder of such Fund held liable on account of being or having been a
Shareholder. Thus, the risk of a Shareholder incurring financial loss on account
of Shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations.

The Agreement and Declaration of Trust states further that no Trustee,
officer or agent of the BB&T Funds shall be personally liable in connection with
the administration or preservation of the assets of the BB&T Funds or the
conduct of the BB&T Funds' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act expect for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Agreement and Declaration of Trust also provides that all
persons having any claim against the Trustees or the BB&T Funds shall look
solely to the assets of the BB&T Funds for payment.

MASTER PORTFOLIO ORGANIZATION

The Master Portfolio is a series of Master Investment Portfolio ("MIP"), an
open-end, series management investment company organized as Delaware business
trust. MIP was organized on October 21, 1993. MIP currently consists of twelve
series, including the Master Portfolio. In accordance with Delaware law and in
connection with the tax treatment sought by MIP, the Declaration of Trust
provides that its investors are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also provides
that MIP must maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its investors,
trustees, officers, employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations. Thus, the risk of an
investor incurring financial loss on account of investor liability is limited to

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circumstances in which both inadequate insurance existed and MIP itself was
unable to meet its obligations.

The Declaration of Trust further provides that obligations of MIP are not
binding upon its trustees individually but only upon the property of MIP and
that the trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the trustee's office.

The interests in the Master Portfolio have substantially identical voting
and other rights as those rights enumerated above for shares of the Fund. MIP is
generally not required to hold annual meetings, but is required by Section 16(c)
of the 1940 Act to hold a special meeting and assist investor communications
under certain circumstances. Whenever the Fund is requested to vote on a matter
with respect to the Master Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such shareholders.

In a situation where the Fund does not receive instruction from certain of
its shareholders on how to vote the corresponding shares of the Master
Portfolio, such Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.

MISCELLANEOUS

The BB&T Funds may include information in its Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for
one or more of the Funds within the BB&T Funds, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
Shareholders of the activities of the BB&T Funds for the most recent fiscal year
or half-year and to provide the views of the Adviser and/or BB&T Funds officers
regarding expected trends and strategies.

The organizational expenses of each Fund of the BB&T Funds are amortized
over a period of two years from the commencement of the public offering of
Shares of the Fund. On June 30, 1998, the Funds adopted Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities." Under the
provisions of SOP 98-5, costs associated with organizing a fund which commences
operating subsequent to June 30, 1998, must be expensed as incurred and may not
be amortized over future periods. Accordingly, costs incurred in connection with
the organization of Funds commencing operations subsequent to June 20, 1998,
like the Equity Income Fund, will be paid during their first year of operations.
In the event any of the initial Shares of the BB&T Funds are redeemed during the
amortization period by any holder

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thereof, the redemption proceeds will be reduced by a pro rata portion of any
unamortized organization expenses in the same proportion as the number of
initial Shares being redeemed bears to the total number of initial Shares
outstanding at the time of redemption. Investors purchasing Shares of the Fund
subsequent to the date of the Prospectus and this Statement of Additional
Information bear such expenses only as they are amortized against a Fund's
investment income.

BB&T Funds is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Securities and Exchange Commission of the management or policies of BB&T
Funds.

As of September 11, 2000, BISYS Fund Services owned of record 100% of the
outstanding Shares of the Fund, and held voting or investment power with respect
to 100% of the Shares of the Fund. As a result, BISYS Fund Services may be
deemed to be a "controlling person" of the Fund under the 1940 Act.

The Prospectus of the Fund and this Statement of Additional Information
omit certain of the information contained in the Registration Statement filed
with the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.

The Prospectus of the Fund and this Statement of Additional Information are
not an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectus of the Fund and this Statement of Additional
Information.

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