EXHIBIT 17(i)
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SUPPLEMENT DATED OCTOBER 3, 2006
TO THE
CLASS A, CLASS B AND CLASS C SHARES PROSPECTUS
DATED FEBRUARY 1, 2006
THIS SUPPLEMENT PROVIDES THE FOLLOWING AMENDED AND SUPPLEMENTAL INFORMATION
AND SUPERSEDES ANY INFORMATION TO THE CONTRARY IN THE CLASS A, CLASS B, AND
CLASS C SHARES PROSPECTUS DATED FEBRUARY 1, 2006:
CHANGE IN PRINCIPAL RISKS
Effective immediately, the "Principal Investment Risks" section of the
Large Cap Fund (formerly the Large Cap Value Fund), on page 6 of the prospectus,
is replaced in its entirety with the following:
PRINCIPAL INVESTMENT
RISKS Your investment in the Fund may be subject to
the following principal risks:
MARKET RISK: The possibility that the Fund's
stock holdings will decline in price because of
a broad stock market decline. Markets generally
move in cycles, with periods of rising prices
followed by periods of falling prices. The
value of your investment will tend to increase
or decrease in response to these movements.
INVESTMENT STYLE RISK: The possibility that
the market segment on which this Fund
focuses -- large cap stocks -- will
underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which
could increase its transaction costs (thereby
lowering its performance) and may increase the
amount of taxes that you pay. If the Fund
invests in securities with additional risks,
its share price volatility accordingly could be
greater and its performance lower. For more
information about these risks, please see
Additional Investment Strategies and Risks on
page 107.
SHAREHOLDERS SHOULD RETAIN THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE.
BBT-SP-R3 1006
[BB&T FUNDS LOGO]
SUPPLEMENT DATED JULY 7, 2006
TO THE
CLASS A, CLASS B AND CLASS C SHARES PROSPECTUS
DATED FEBRUARY 1, 2006
THIS SUPPLEMENT PROVIDES THE FOLLOWING AMENDED AND SUPPLEMENTAL INFORMATION
AND SUPERSEDES ANY INFORMATION TO THE CONTRARY IN THE CLASS A, CLASS B, AND
CLASS C SHARES PROSPECTUS DATED FEBRUARY 1, 2006:
CHANGE IN INVESTMENT STRATEGIES
Effective 60 days from the date of this supplement, the principal
investment strategy of the BB&T Large Cap Fund will be amended to define large
capitalization companies, for purposes of the Fund's investment policy, as those
companies within the capitalization range of the S&P 500(R) Index. Accordingly,
the first paragraph under the "Principal Investment Strategies" section on page
6 of the prospectus will be replaced in its entirety with the following:
PRINCIPAL INVESTMENT STRATEGIES
To pursue this goal, the Fund invests primarily in domestically traded U.S.
common stocks of large U.S. companies and U.S. traded equity stocks of
foreign companies whose capitalization is within the range of those
companies in the S&P 500(R) Index.
In addition, the first paragraph on page 7 of the prospectus will be
replaced in its entirety with the following:
The chart and table on this page show how the Large Cap Fund has performed
and how its performance has varied from year to year. The bar chart gives
some indication of risk by showing changes in the Fund's yearly performance
to demonstrate that the Fund's value varied at different times. The table
below it compares the Fund's performance over time to those of the S&P
500(R) Index, a widely recognized, unmanaged index of common stocks, and
the Russell 1000(R) Value Index, a widely recognized, unmanaged index of
common stocks that measures the performance of those Russell 1000(R)
companies with lower price-to-book ratios and lower forecasted growth
values. Of course, past performance does not indicate how the Fund will
perform in the future.
The section entitled "Large Cap Fund" on page 107 of the prospectus will be
replaced in its entirety with the following:
LARGE CAP FUND - Under normal circumstances, the Fund will invest at least
80% of its net assets plus borrowings in the securities of large companies.
This policy will not be changed without 60 days' advance notice to
shareholders. Large companies are those companies with market
capitalizations within the range of those companies in the S&P 500(R)
Index. These stocks may
include common stock, preferred stock, warrants, or debt instruments that
are convertible to common stock.
CHANGE IN REDEMPTION FEE POLICY
Effective July 24, 2006, the BB&T Funds will no longer assess redemption
fees. Accordingly, all references to the payment of a redemption fee should be
disregarded. In addition, the section entitled "Redemption Fees," on page 132 of
the prospectus is hereby deleted in its entirety.
The "Redemption Fee" row of each Fund's fee table will be revised to read
as follows:
<Table>
Redemption Fee(5) None None None
</Table>
The section entitled "Exchanging Your Shares" on page 138 of the prospectus
is replaced in its entirety with the following:
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of
another BB&T Fund, usually without paying additional sales charges (see
"Notes" below). You must meet the minimum investment requirements for the
Fund into which you are exchanging. Exchanges from one Fund to another are
taxable. Class A Shares, Class B Shares, and Class C Shares may also be
exchanged for Institutional Shares of the same Fund if you become eligible
to purchase Institutional Shares. Neither Class B Shares or Class C Shares
may be exchanged for Class A Shares. Class C Shares may not be exchanged
for Class B Shares. Please consult the Institutional Shares prospectus for
more information. No transaction fees are currently charged for exchanges.
The first three paragraphs under the section entitled "Market Timing" on
page 138 of the prospectus are replaced in their entirety with the following:
MARKET TIMING
Excessive short-term trading or other abusive trading practices may disrupt
portfolio management strategies and hurt Fund performance. Such practices
may dilute the value of Fund shares, interfere with the efficient
management of a Fund's investments, and increase brokerage and
administrative costs. To prevent disruption in the management of the Fund
due to market timing strategies, we have adopted certain policies and
procedures. We reserve the right to close any account in which we have
identified a pattern of excessive or abusive trading. We cannot guarantee
that we will detect every market timer due to the limitations inherent in
our technological systems.
SHAREHOLDERS SHOULD RETAIN THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE.
BBT-SP-R2 0706
2
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SUPPLEMENT DATED MARCH 14, 2006
TO THE
CLASS A, CLASS B AND CLASS C SHARES PROSPECTUS
DATED FEBRUARY 1, 2006
THIS SUPPLEMENT PROVIDES THE FOLLOWING AMENDED AND SUPPLEMENTAL INFORMATION
AND SUPERSEDES ANY INFORMATION TO THE CONTRARY IN THE CLASS A, CLASS B, AND
CLASS C SHARES PROSPECTUS DATED FEBRUARY 1, 2006:
CHANGE IN FUND NAME
Effective March 14, 2006, the BB&T Large Cap Value Fund will be renamed the
BB&T LARGE CAP FUND. All references in the prospectus to the Large Cap Value
Fund should be construed to refer to the Large Cap Fund.
CHANGE TO BENCHMARK INDEX
Effective March 14, 2006, the benchmark index of the Large Cap Fund has
been changed in order to better represent the Fund's investment strategies for
comparison purposes:
<Table>
<Caption>
FUND CURRENT BENCHMARK INDEX NEW BENCHMARK INDEX
---- -------------------------- -------------------
BB&T Large Cap Fund Russell 1000(R) Value S&P 500(R) Index
(formerly the Large Cap Value Fund) Index
</Table>
Accordingly, the following information is added to the return table on page
7 of the prospectus:
<Table>
<Caption>
SINCE INCEPTION
1 YEAR 5 YEAR 10 YEAR (10/9/92)
------ ------ ------- ---------------
S&P 500(R) Index 4.91% 0.54% 9.08% 11.02%
(reflects no deductions for fees, expenses, or
taxes)
</Table>
CHANGE IN INVESTMENT STRATEGIES
Effective March 14, 2006, the investment strategy of the Large Cap Fund
(formerly the Large Cap Value Fund), on page 6 of the prospectus, will be
amended to read as follows:
RISK/RETURN SUMMARY
PRINCIPAL INVESTMENT
STRATEGIES To pursue this goal, the Fund invests primarily in
domestically traded U.S. common stocks of large U.S.
companies and U.S. traded equity stocks of foreign
companies whose capitalization is within the range of
those companies in the Russell 1000(R) Value Index.
In managing the Fund, the portfolio manager selects those
stocks that he believes are undervalued and have a
favorable outlook. In choosing individual stocks, the
portfolio manager uses quantitative and qualitative
processes to examine intrinsic value and the fundamental
outlook of a particular issuer.
The Fund may also invest in certain other equity
securities in addition to those described above. For a
more complete description of the various securities in
which the Fund may invest, please see Additional
Investment Strategies and Risks on page 107 or consult
the SAI.
Effective March 14, 2006, the "Principal Investment Risks" section of the
International Equity Fund, on page 26 of the prospectus, will be amended to read
as follows:
PRINCIPAL INVESTMENT
RISKS Your investment in the Fund may be subject to the
following principal risks:
MARKET RISK: The possibility that the Fund's stock
holdings will decline in price because of a broad stock
market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling
prices. The value of your investment will tend to
increase or decrease in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- foreign value
stocks -- will underperform other kinds of investments or
market averages.
FOREIGN INVESTMENT RISK: Foreign securities involve
risks not typically associated with investing in U.S.
securities. Foreign securities may be adversely affected
by myriad factors, including currency restrictions and
social, economic or political instability.
With respect to foreign currency risk, the portfolio
manager may enter into forward currency exchange
contracts for a number of purposes, including to more
closely align the Fund's foreign currency exposure with
that of the Morgan Stanley Capital International EAFE
Index. This strategy may result in losses.
The Fund may trade securities actively, which could
increase its transaction costs (thereby lowering its
performance) and may increase the amount of taxes that
you pay. If the Fund invests in securities with
additional risks, its share price volatility accordingly
could be greater and its performance lower. For more
information about these risks, please see Additional
Investment Strategies and Risks on page 107 or consult
the SAI.
CAPITAL MANAGER CONSERVATIVE GROWTH FUND. Effective immediately, the last
paragraph of disclosure under the heading "Risk/Return Summary" on page 87 of
the prospectus is replaced in its entirety with the following:
For a more complete description of the various securities in which the
Fund may invest, please see Additional Investment Strategies and Risks on
page 107 or consult the SAI.
2
CAPITAL MANAGER MODERATE GROWTH FUND. Effective immediately, the last
paragraph of disclosure under the heading "Risk/Return Summary" on page 92 of
the prospectus is replaced in its entirety with the following:
For a more complete description of the various securities in which the
Fund may invest, please see Additional Investment Strategies and Risks on
page 107 or consult the SAI.
CAPITAL MANAGER GROWTH FUND. Effective immediately, the last paragraph of
disclosure under the heading "Risk/Return Summary" on page 97 of the prospectus
is replaced in its entirety with the following:
For a more complete description of the various securities in which the
Fund may invest, please see Additional Investment Strategies and Risks on
page 107 or consult the SAI.
CAPITAL MANAGER EQUITY FUND. Effective immediately, the last paragraph of
disclosure under the heading "Risk/Return Summary" on page 102 of the prospectus
is replaced in its entirety with the following:
For a more complete description of the various securities in which the
Fund may invest, please see Additional Investment Strategies and Risks on
page 107 or consult the SAI.
FUNDS OF FUNDS. Effective immediately, the first two paragraphs under the
heading "Additional Investment Strategies and Risks -- Funds of Funds" on page
110 of the prospectus are replaced in their entirety with the following:
The Fund of Funds' net asset values will fluctuate with changes in the
value of the Underlying Funds in which they invest. Each Fund of Funds'
investment return is diversified by its investment in the Underlying Funds,
which invest in growth and income stocks, foreign securities, debt
securities, and cash and cash equivalents. With their remaining assets, the
Funds of Funds may make direct investments in government securities and
short-term paper. The Funds of Funds and the Underlying Funds may also hold
cash for liquidity purposes.
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
Effective immediately, the footnote on page 134 of the prospectus is
replaced in its entirety with the following:
(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 $1 million or more,
and for sales to employees of BB&T Funds, BB&T and its affiliates, the
Distributor and/or Advisor 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.
CHANGE IN PORTFOLIO MANAGERS
Effective March 14, 2006, Richard B. Jones will no longer serve as the
portfolio manager of the Large Cap Fund or on the portfolio management team for
the Funds of Funds. In addition, effective March 14, 2006, Eric Farls will no
longer serve on the portfolio management team for the Funds of
3
Funds. Accordingly, the following replaces the description of the Portfolio
Manager for the Large Cap Fund and Funds of Funds on pages 120-122 of the
Prospectus.
LARGE CAP FUND. Ronald T. Rimkus, CFA, has been primarily responsible for
the management of the Fund since March 2006. Mr. Rimkus joined BB&T Asset
Management, Inc. in January 2006 as the Director of Core Equity. From 2000 to
2006, Mr. Rimkus managed a large cap core equity product for Mesirow Financial,
Inc.
FUND OF FUNDS. All decisions for the Capital Manager Conservative Growth
Fund, Capital Manager Moderate Growth Fund, Capital Manager Growth Fund, and
Capital Manager Equity Fund are made by the BB&T Balanced Portfolio Management
Team, which includes Jeffrey J. Schappe, Robert F. Millikan, Ronald T. Rimkus
and Will Gholston.
Mr. Schappe, CFA, has been a member of the team that manages the Fund of
Funds since March 2005. Mr. Schappe has served as Chief Investment Officer for
BB&T Asset Management, Inc. since April 2004. From 2002 through April 2004, he
served as Senior Vice President and Chief Investment Officer for Citizens
Advisers. He joined Citizens in 2001 as Director of Research. Before working at
Citizens Advisers, Schappe managed the research department at George K. Baum &
Company, a regional broker-dealer and investment bank. Prior to that, he served
as Vice President/Portfolio Manager and Director of Research for Conseco Capital
Management.
Mr. Millikan, CFA, has been a member of the team that manages the Fund of
Funds since September 2004. Mr. Millikan is a Senior Vice President and Director
of Fixed Income Management with the Adviser. He has been with the Adviser and
its predecessors since February 2000. From July 1990 to February 2000, he was an
investment officer with First Citizens Bank.
Mr. Rimkus, CFA, has been a member of the team that manages the Fund of
Funds since March 2006. Mr. Rimkus joined BB&T Asset Management, Inc. in January
2006 as the Director of Core Equity. From 2000 to 2006, Mr. Rimkus managed a
large cap core equity product for Mesirow Financial, Inc.
Mr. Gholston, CFA, has been a member of the team since March 2006. Mr.
Gholston is an Assistant Vice President and Manager of Quantitative Analysis
with the Adviser. He has been with the Adviser since October 2003. Prior to
joining the Adviser, he served as an Investment Performance Associate/Analyst
for Cambridge Associates and UNC Management Company.
Additional information regarding the portfolio managers' compensation,
other accounts managed by the portfolio managers, and the portfolio managers'
ownership of shares in Funds for which they are portfolio managers is available
in the Statement of Additional Information.
SHAREHOLDERS SHOULD RETAIN THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE.
BBT-SP-R 0306
4
[BB&T LOGO]
PROSPECTUS
STOCK FUNDS
LARGE CAP VALUE FUND
LARGE CAP GROWTH FUND
MID CAP VALUE FUND
MID CAP GROWTH FUND
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
SPECIAL OPPORTUNITIES EQUITY FUND
EQUITY INCOME FUND
BOND FUNDS
TAXABLE BOND FUNDS
SHORT U.S. GOVERNMENT FUND
INTERMEDIATE U.S. GOVERNMENT FUND
TOTAL RETURN BOND FUND
TAX-FREE BOND FUNDS
KENTUCKY INTERMEDIATE TAX-FREE FUND
MARYLAND INTERMEDIATE TAX-FREE FUND
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
VIRGINIA INTERMEDIATE TAX-FREE FUND
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
FUNDS OF FUNDS
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
CAPITAL MANAGER MODERATE GROWTH FUND
CAPITAL MANAGER GROWTH FUND
CAPITAL MANAGER EQUITY FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
FEBRUARY 1, 2006
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.
BB&T FUNDS TABLE OF CONTENTS
<Table>
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
Carefully review this important 4 Overview
section, which summarizes each 5 STOCK FUNDS
Fund's investments, risks, past 6 Large Cap Value Fund
performance, and fees. 10 Large Cap Growth Fund
14 Mid Cap Value Fund
18 Mid Cap Growth Fund
22 Small Cap Fund
26 International Equity Fund
30 Special Opportunities Equity Fund
34 Equity Income Fund
38 BOND FUNDS
39 Short U.S. Government Fund
43 Intermediate U.S. Government Fund
47 Total Return Bond Fund
52 Kentucky Intermediate Tax-Free Fund
56 Maryland Intermediate Tax-Free Fund
60 North Carolina Intermediate Tax-Free Fund
64 South Carolina Intermediate Tax-Free Fund
68 Virginia Intermediate Tax-Free Fund
72 West Virginia Intermediate Tax-Free Fund
76 MONEY MARKET FUNDS
77 Prime Money Market Fund
82 U.S. Treasury Money Market Fund
86 FUNDS OF FUNDS
87 Capital Manager Conservative Growth Fund
92 Capital Manager Moderate Growth Fund
97 Capital Manager Growth Fund
102 Capital Manager Equity Fund
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
[ICON]
Review this section for 107 STOCK FUNDS
information on investment 107 Large Cap Value Fund
strategies and their risks. 107 Large Cap Growth Fund
107 Mid Cap Value Fund
107 Mid Cap Growth Fund
107 Small Cap Fund
107 International Equity Fund
107 Special Opportunities Equity Fund
107 Equity Income Fund
108 BOND FUNDS
108 Short U.S. Government Fund
108 Intermediate U.S. Government Fund
108 Total Return Bond Fund
108 Kentucky Intermediate Tax-Free Fund
108 Maryland Intermediate Tax-Free Fund
108 North Carolina Intermediate Tax-Free Fund
109 South Carolina Intermediate Tax-Free Fund
109 Virginia Intermediate Tax-Free Fund
109 West Virginia Intermediate Tax-Free Fund
109 MONEY MARKET FUNDS
109 Prime Money Market Fund
110 FUNDS OF FUNDS
111 Investment Practices
116 Investment Risks
FUND MANAGEMENT
[ICON]
Review this section for details on 118 The Investment Adviser
the people and organizations who 119 The Investment Sub-Advisers
oversee the Funds. 120 Portfolio Managers
123 The Distributor and Administrator
</Table>
2
BB&T FUNDS TABLE OF CONTENTS
<Table>
SHAREHOLDER INFORMATION
[ICON]
Review this section for details on 124 Choosing a Share Class
how shares are valued, how to 126 Pricing of Fund Shares
purchase, sell and exchange 127 Purchasing and Adding to Your Shares
shares, related charges and 130 Selling Your Shares
payments of dividends and 132 General Policies on Selling Shares
distributions. 134 Distribution Arrangements/Sales Charges
137 Distribution and Service (12b-1) Fees
138 Exchanging Your Shares
140 Dividends, Distributions and Taxes
141 Additional Information About the Funds
OTHER INFORMATION ABOUT THE FUNDS
[ICON]
143 Financial Highlights
</Table>
3
[ICON]
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
<Table>
THE FUNDS BB&T Funds is a mutual fund family that offers different
classes of shares in separate investment portfolios
("Funds"). The Funds have individual investment goals and
strategies. This prospectus gives you important information
about the Class A Shares, the Class B Shares, and the Class
C Shares of the Stock Funds, the Bond Funds, the Money
Market Funds and the Funds of Funds that you should know
before investing. As of the date of this Prospectus, Class B
Shares and Class C Shares of the Short Fund and the Tax-Free
Bond Funds were not yet being offered. Each Fund also offers
a fourth class of shares, known as Institutional Shares, in
a separate prospectus. Please read this prospectus and keep
it for future reference.
Each of the Funds in this prospectus is a mutual fund. A
mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities
like stocks and bonds. Before you look at specific Funds,
you should know a few general basics about investing in
mutual funds.
The value of your investment in a Fund is based on the
market prices of the securities the Fund holds. These prices
change daily due to economic and other events that affect
securities markets generally, as well as those that affect
particular companies or government units. These price
movements, sometimes called volatility, will vary depending
on the types of securities a Fund owns and the markets where
these securities trade.
LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN A FUND. YOUR INVESTMENT IN A FUND IS NOT A
DEPOSIT OR AN OBLIGATION OF BRANCH BANKING AND TRUST
COMPANY, BB&T CORPORATION, THEIR AFFILIATES, OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for
reaching that goal. However, it cannot be guaranteed that a
Fund will achieve its goal. Before investing, make sure that
the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a manner
designed to help the Fund achieve its goal. A portfolio
manager's judgments about the economy, stock markets and
companies, as well as a manager's selection of investments,
may cause a Fund to underperform other funds with similar
objectives.
</Table>
4
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
STOCK FUNDS
<Table>
These Funds seek long-term capital appreciation, and in some
cases current income, and invest primarily in equity and
equity-related securities, principally common stocks.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- seeking a long-term goal such as retirement
- looking to add a growth component to your portfolio
- willing to accept the risks of investing in the stock
markets
These Funds may not be appropriate if you are:
- pursuing a short-term goal or investing emergency
reserves
- uncomfortable with an investment that will fluctuate in
value
</Table>
5
LARGE CAP VALUE FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
VALUE FUND)
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital growth, current income or both,
primarily through investment in stocks.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
domestically traded U.S. common stocks of large U.S.
companies whose capitalization is within the range of those
companies in the Russell 1000(R) Value Index as well as
American Depositary Receipts ("ADRs").
In managing the Fund, the portfolio manager attempts to
diversify across different economic sectors selecting those
stocks that he believes are undervalued and have a favorable
outlook. In choosing individual stocks, the portfolio
manager uses quantitative and qualitative processes to
examine the value, growth and momentum characteristics of a
particular issuer. While some stocks may be purchased
primarily for income, most stocks will be purchased for
capital appreciation.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- value stocks -- will
underperform other kinds of investments or market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
6
LARGE CAP VALUE FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
VALUE FUND)
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1996 21.83
97 32.83
98 12.85
99 -2.47
2000 6.10
01 0.20
02 -19.72
03 23.76
04 12.24
05 7.47
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 16.89% 12/31/98
Worst quarter: -19.77% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Large Cap Value Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of risk by showing changes in the Fund's yearly performance to
demonstrate that the Fund's value varied at different times. The table below it
compares the Fund's performance over time to that of the Russell 1000(R) Value
Index, a widely recognized, unmanaged index of common stocks that measures the
performance of those Russell 1000(R) companies with lower price-to-book ratios
and lower forecasted growth values. Of course, past performance does not
indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class. The table assumes that Class B and Class C shareholders redeem all of
their fund shares at the end of the period indicated.
<Table>
<Caption>
10 YEARS SINCE INCEPTION
1 YEAR 5 YEARS(4) (3),(4) (3),(4)
------------------------------------------------------
CLASS A SHARES (with 5.75% Sales Charge)(2) (10/9/92)
------------------------------------------------------
RETURN BEFORE TAXES 1.31% 2.51% 7.90% 9.43%
------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -0.03% 1.85% 6.56% 8.06%
------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND
SALE OF FUND SHARES 2.65% 1.97% 6.34% 7.71%
------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
(with applicable Contingent Deferred Sales Charge) (10/9/92)
------------------------------------------------------
RETURN BEFORE TAXES 2.76% 2.76% 7.71% 9.29%
------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
(with applicable Contingent Deferred Sales Charge) (10/9/92)
------------------------------------------------------
RETURN BEFORE TAXES 6.65% 2.95% 8.13% 9.61%
------------------------------------------------------------------------------------------------------------------------------
RUSSELL 1000(R) VALUE INDEX
(reflects no deductions for fees, expenses, or taxes) 7.05% 5.28% 10.94% 12.55%(5)
------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(4) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(5) Since 9/30/92.
7
LARGE CAP VALUE FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
VALUE FUND)
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on Purchases 5.75%(2) None None
---------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
---------------------------------------------------------------------
Redemption Fee (on shares sold within 7
calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.74% 0.74% 0.74%
---------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
---------------------------------------------------------------------
Other Expenses 0.21% 0.21% 0.21%
---------------------------------------------------------------------
Total Fund Operating Expenses 1.45% 1.95% 1.95%
---------------------------------------------------------------------
Fee Waiver or Expense Reimbursement(6) -0.29% -0.04% -0.04%
---------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.16% 1.91% 1.91%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.70% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Large
Cap Value Fund, you will pay
the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
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.
------------------------------
8
LARGE CAP VALUE FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
VALUE FUND)
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
LARGE CAP VALUE FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $686 $980 $1,296 $2,187
------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $594 $908 $1,148 $2,142
Assuming No Redemption $194 $608 $1,048 $2,142
------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $194 $608 $1,048 $2,272
Assuming No Redemption $194 $608 $1,048 $2,272
------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
9
LARGE CAP GROWTH FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
GROWTH FUND)
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity and
equity-related securities of large capitalization growth
companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common
stocks, as well as American Depositary Receipts ("ADRs"), of
large capitalization companies that the portfolio manager
believes have attractive potential for growth. Large
capitalization companies are those companies whose market
capitalization is within the range of those companies in the
Russell 1000(R) Growth Index.
In managing the Fund's portfolio, the manager uses a variety
of economic projections, quantitative techniques, and
earnings projections in formulating individual stock
purchase and sale decisions. In choosing individual stocks,
the portfolio manager primarily uses a fundamental
investment process to identify companies with a history of
above average growth or companies that are expected to enter
periods of above average growth. Some of the criteria that
the manager uses to select these companies are return on
equity, price and earnings momentum, earnings surprise, the
company's management and the company's position within its
industry.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- large cap growth
stocks -- will underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
10
LARGE CAP GROWTH FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
GROWTH FUND)
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 24.84
99 36.85
2000 -13.46
01 -21.53
02 -27.86
03 26.20
04 5.81
05 1.92
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 29.64% 12/31/99
Worst quarter: -21.53% 3/31/01
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Large Cap Growth Fund has
performed and how its performance has varied from year to year. The bar chart
gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Russell
1000(R) Growth Index, a widely recognized, unmanaged index comprised of 1000 of
the largest capitalized U.S. domiciled companies with higher price-to-book
ratios and higher forecasted growth values whose common stock is traded in the
U.S. on the NYSE, American Stock Exchange, and NASDAQ. Of course, past
performance does not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class. The table assumes that Class B and Class C shareholders redeem all of
their fund shares at the end of the period indicated.
<Table>
5 SINCE
1 YEAR YEARS(3) INCEPTION(3)
------------------------------------
CLASS A SHARES (with 5.75% Sales Charge)(2) (10/3/97)
------------------------------------
RETURN BEFORE TAXES -3.90% -6.20% 0.47%
------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -3.96% -6.21% -0.04%
------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.45% -5.16% 0.32%
------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (10/3/97)
------------------------------------
RETURN BEFORE TAXES -3.01% -6.01% 0.45%
------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (10/3/97)
------------------------------------
RETURN BEFORE TAXES 1.01% -5.79% 0.46%
------------------------------------------------------------------------------------------------------------
RUSSELL 1000(R) GROWTH INDEX
(reflects no deductions for fees, expenses, or taxes) 5.26% -3.58% 2.36%(4)
------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class B Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares.
(4) Since 9/30/97.
11
LARGE CAP GROWTH FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
GROWTH FUND)
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.74% 0.74% 0.74%
------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.21% 0.21% 0.21%
------------------------------------------------------------------
Total Fund Operating Expenses 1.45% 1.95% 1.95%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.29% -0.04% -0.04%
------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.16% 1.91% 1.91%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.70% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Large
Cap Growth Fund, you will pay
the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
12
LARGE CAP GROWTH FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE LARGE COMPANY
GROWTH FUND)
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
LARGE CAP GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $686 $980 $1,296 $2,187
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $594 $908 $1,148 $2,142
Assuming No Redemption $194 $608 $1,048 $2,142
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $194 $608 $1,048 $2,272
Assuming No Redemption $194 $608 $1,048 $2,272
-----------------------------------------------------------------
</Table>
Use the table at right to
compare fees and expenses with
those of other funds. It
illustrates the amount of fees
and expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
13
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP VALUE FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing the
Fund's assets primarily in equity securities of companies
that are considered to be undervalued.
PRINCIPAL INVESTMENT STRATEGIES The Fund seeks to meet its objective by investing, normally,
in domestically traded U.S. equity securities of middle
capitalization companies. The Fund considers a company to be
a mid-capitalization company if it has a market
capitalization, at the time of purchase, within the range of
the largest and smallest capitalized companies within the
Russell Midcap(R) Value Index.
In managing the Fund, the portfolio managers attempt to
diversify across different economic sectors selecting those
stocks that they believe are undervalued. In choosing
individual stocks, the portfolio managers utilize both a
quantitative and qualitative approach to examine the
fundamental characteristics of a particular company.
Quantitative analysis focuses on businesses with strong cash
flow, a competitive advantage, balance sheet strength, and
above average profitability. Qualitatively, portfolio
managers look for quality management with characteristics of
insider ownership, fair incentive compensation and a
long-term history of skilled capital allocation decisions.
The team also gathers information from industry analysts and
competitors.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- mid cap value
stocks -- will underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
14
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP VALUE FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1),(2)
(in percents)
<Table>
1997 22.75
98 13.50
99 12.21
2000 3.16
01 4.87
02 -14.01
03 29.65
04 19.38
05 11.15
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fee, which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 16.08% 6/30/03
Worst quarter: -16.27% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1),(2)
The chart and table on this page show how the Mid Cap Value Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of risk by showing changes in the Fund's yearly performance to
demonstrate that the Fund's value varied at different times. The table below it
compares the Fund's performance over time to that of the Russell Midcap Value
Index, a widely recognized, unmanaged index of generally mid-sized companies
that measures the performance of those securities in the Russell 1000(R) Index
with lower price to book ratios and lower forecasted growth values. Of course,
past performance does not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class.
<Table>
<Caption>
1 YEAR 5 YEARS(4) SINCE INCEPTION(4)
-----------------------------------------
CLASS A SHARES (with 5.75% sales charge)(3) (8/1/96)
-----------------------------------------
RETURN BEFORE TAXES 4.75% 7.89% 10.72%
-----------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -2.11% 5.78% 8.76%
-----------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 9.93% 6.39% 8.70%
-----------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (8/1/96)
-----------------------------------------
RETURN BEFORE TAXES 7.52% 8.29% 11.01%
-----------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (8/1/96)
-----------------------------------------
RETURN BEFORE TAXES 10.31% 8.38% 10.98%
-----------------------------------------------------------------------------------------------------------------
RUSSELL MIDCAP VALUE INDEX
(reflects no deductions for fees, expenses, or taxes) 12.65% 12.21% 14.26%(5)
-----------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Performance data includes the performance of the OVB Equity Income Portfolio
for the period prior to its consolidation with the BB&T Mid Cap Value Fund on
July 23, 2001.
(3) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A shares only; after-tax returns for Class B and C Shares will vary.
(4) Class B and C Shares were not in existence prior to July 25, 2001.
Performance for periods prior to July 25, 2001 is based on Class A Share
performance and has been adjusted for the maximum contingent deferred sales
charge applicable to Class B and C Shares, respectively, but does not reflect
Class B and C Shares' 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.
(5) Since 7/31/96.
15
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP VALUE FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B CLASS C
PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.74% 0.74% 0.74%
------------------------------------------------------------------
Distribution and Service (12b-1) Fee 0.25% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.21% 0.21% 0.21%
------------------------------------------------------------------
Total Fund Operating Expenses 1.20% 1.95% 1.95%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.04% -0.04% -0.04%
------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.16% 1.91% 1.91%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within the one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.70% for the period from
February 1, 2006 through January 31, 2007.
As an investor in the Mid Cap
Value Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
------------------------------
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.
------------------------------
16
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP VALUE FUND
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
MID CAP VALUE FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $686 $930 $1,193 $1,943
---------------------------------------------------------
CLASS B SHARES
Assuming Redemption $594 $908 $1,148 $2,077
Assuming No Redemption $194 $608 $1,048 $2,077
---------------------------------------------------------
CLASS C SHARES
Assuming Redemption $194 $608 $1,048 $2,272
Assuming No Redemption $194 $608 $1,048 $2,272
---------------------------------------------------------
</Table>
Use the table at right to
compare fees and expenses with
those of other Funds. It
illustrates the amount of fees
and expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
17
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP GROWTH FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common
stocks of U.S. companies, as well as American Depositary
Receipts ("ADRs"), with market capitalizations within the
range of those companies in the Russell Midcap(R) Growth
Index and that have an established record of growth and
continue to present significant growth potential. In
selecting investments for the Fund, the portfolio manager
will consider growth factors such as a company's new
products, changes in management, and business
restructurings. The portfolio manager will also search for
companies that have established records of earnings and
sales growth over a period of at least two years that it
believes are poised to meet or exceed these figures going
forward. These companies generally will have lower amounts
of long-term debt (representing less than 40% of the
company's capitalization); have attractive price/earnings
ratios in relation to a company's 3 to 5-year earnings per
share growth rate; and have stock prices which have
outperformed the Russell Midcap Growth Index over the
previous six months. The portfolio manager will attempt to
avoid overweighting the Fund's position on any major market
sector (technology, health care, consumer discretionary,
energy and industrials) beyond 150% of the weighting that
sector has in the Russell Midcap Growth Index.
The portfolio manager may sell a stock if a company fails to
meet earnings or revenue expectations or becomes overvalued
(i.e., high price/earnings ratio relative to its earnings
growth). The portfolio manager may also sell a stock to
change the Fund's weighting in a particular company,
industry or sector, or if better opportunities are
available. Due to its investment strategy, the Fund may buy
and sell securities frequently. This may result in higher
transaction costs and additional capital gains tax
liabilities.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- mid cap growth
stocks -- will underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
18
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP GROWTH FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1),(2)
(in percents)
<Table>
1996 15.94
97 26.77
98 34.70
99 43.73
2000 -16.75
01 -24.33
02 -21.77
03 36.72
04 17.27
05 14.04
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 34.14% 12/31/99
Worst quarter: -20.20% 12/31/00
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1),(2)
The chart and table on this page show how the Mid Cap Growth Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of risk by showing changes in the Fund's yearly performance to
demonstrate that the Fund's value varied at different times. The table below it
compares the Fund's performance over time to that of the Russell Midcap Growth
Index, an unmanaged index of common stocks of mid-sized companies with higher
price-to-book ratios and higher forecasted growth values. Of course, past
performance does not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class.
<Table>
<Caption>
SINCE
1 YEAR 5 YEARS(4) 10 YEARS(4) INCEPTION(4)
----------------------------------------------------
CLASS A SHARES (with 5.75% sales charge)(3) (12/30/93)
----------------------------------------------------
RETURN BEFORE TAXES 7.49% 0.41% 9.21% 9.66%
----------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS 5.78% -0.18% 7.11% 7.86%
----------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 6.91% 0.23% 7.24% 7.84%
----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (12/30/93)
----------------------------------------------------
RETURN BEFORE TAXES 9.07% 0.77% 9.50% 9.90%
----------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (12/30/93)
----------------------------------------------------
RETURN BEFORE TAXES 13.16% 0.94% 9.50% 9.90%
----------------------------------------------------------------------------------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX
(reflects no deductions for fees, expenses, or taxes) 12.10% 1.38% 9.27% 10.12%(5)
----------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Performance data includes the performance of the OVB Capital Appreciation
Portfolio for the period prior to its consolidation with the BB&T Mid Cap Growth
Fund, formerly known as the BB&T Capital Appreciation Fund, on July 23, 2001.
(3) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(4) Class B and C Shares were not in existence prior to July 25, 2001.
Performance for periods prior to July 25, 2001 is based on Class A Share
performance and has been adjusted for the maximum contingent deferred sales
charge applicable to Class B and C Shares, respectively, but does not reflect
Class B and C Shares' 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.
(5) Since 12/31/93.
19
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP GROWTH FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
---------------------------------------------------------------
Maximum Deferred Sales Charge
(load) None 5.00%(3) 1.00%(4)
---------------------------------------------------------------
Redemption Fee (on shares sold
within 7 calendar days of
purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.74% 0.74% 0.74%
---------------------------------------------------------------
Distribution and Service (12b-1)
Fee 0.25% 1.00% 1.00%
---------------------------------------------------------------
Other Expenses 0.22% 0.22% 0.22%
---------------------------------------------------------------
Total Fund Operating Expenses 1.21% 1.96% 1.96%
---------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.04% -0.04% -0.04%
---------------------------------------------------------------
Net Fund Operating Expenses(6) 1.17% 1.92% 1.92%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) 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 Agreements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.70% for the period from
February 1, 2006 through January 31, 2007.
As an investor in the Mid Cap
Growth Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
20
RISK/RETURN SUMMARY AND FUND EXPENSES MID CAP GROWTH FUND
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
MID CAP GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $687 $933 $1,198 $1,953
---------------------------------------------------------
CLASS B SHARES
Assuming Redemption $595 $911 $1,154 $2,088
Assuming No Redemption $195 $611 $1,054 $2,088
---------------------------------------------------------
CLASS C SHARES
Assuming Redemption $195 $611 $1,054 $2,282
Assuming No Redemption $195 $611 $1,054 $2,282
---------------------------------------------------------
</Table>
Use the table at right to
compare fees and expenses with
those of other Funds. It
illustrates the amount of fees
and expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
21
SMALL CAP FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE SMALL COMPANY
VALUE FUND)
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity and
equity-related securities of small capitalization companies.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common
stocks of U.S. small capitalization companies whose
capitalization is less than $3 billion and which the
portfolio manager believes are undervalued and have a
favorable outlook.
In managing the Fund's portfolio, the portfolio manager
initially screens from the universe of companies with market
capitalization under $3 billion. The portfolio manager then
attempts to diversify across different economic sectors
selecting those stocks that he believes have a favorable
outlook. In choosing individual stocks the portfolio manager
uses a quantitative process to examine the financial and
valuation characteristics of a particular issuer.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and Risk
on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
SMALL COMPANY RISK: Investing in smaller, lesser-known
companies involves greater risk than investing in those that
are more established. A small company's financial well-being
may, for example, depend heavily on just a few products or
services. In addition, investors may have limited
flexibility to buy or sell small company stocks, which tend
to trade less frequently than those of larger firms.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- small company
stocks -- will underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
22
SMALL CAP FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE SMALL COMPANY
VALUE FUND)
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2004 23.52
2005 9.26
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 10.41% 12/31/04
Worst quarter: -0.71% 3/31/05
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Small Cap Fund has performed and
how its performance has varied from year to year. The bar chart gives some
indication of risk by showing changes in the Fund's yearly performance to
demonstrate that the Fund's value varied at different times. The table below it
compares the Fund's performance over time to that of the Russell 2000 Index, a
widely recognized, unmanaged index of common stocks that measures the
performance of small to mid-sized companies. Of course, past performance does
not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class.
<Table>
1 YEAR SINCE INCEPTION
--------------------------
CLASS A SHARES(2) (5/19/03)
--------------------------
RETURN BEFORE TAXES 2.95% 20.60%
--------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS 0.67% 19.13%
--------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUNDS SHARES 4.81% 17.66%
--------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (5/19/03)
--------------------------
RETURN BEFORE TAXES 4.77% 21.57%
--------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (5/19/03)
--------------------------
RETURN BEFORE TAXES 8.49% 22.36%
--------------------------------------------------------------------------------------------------
RUSSELL 2000 INDEX(4)
(reflects no deductions for fees, expenses or taxes) 4.55% 21.79%(3)
--------------------------------------------------------------------------------------------------
RUSSELL 2000 VALUE INDEX(4)
(reflects no deductions for fees, expenses or taxes) 4.71% 23.74%
</Table>
<Table>
--------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after tax returns shown are not relevant to
investors who hold their Fund shares through tax deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and Class C Shares will vary.
(3) Since 5/22/03.
(4) The benchmark index for the Fund has changed from the Russell 2000 Value
Index to the Russell 2000 Index in order to provide a better comparison for the
Fund's investment policies.
23
SMALL CAP FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE SMALL COMPANY
VALUE FUND)
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on Purchases 5.75%(2) None None
---------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
---------------------------------------------------------------------
Redemption Fee (on shares sold within 7
calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 1.00% 1.00% 1.00%
---------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
---------------------------------------------------------------------
Other Expenses 0.22% 0.22% 0.22%
---------------------------------------------------------------------
Total Fund Operating Expenses 1.72% 2.22% 2.22%
---------------------------------------------------------------------
Fee Waiver or Expense Reimbursement(6) -0.45% -0.20% -0.20%
---------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.27% 2.02% 2.02%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemption within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.80% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Small
Cap 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.
------------------------------
24
SMALL CAP FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE SMALL COMPANY VALUE FUND)
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
SMALL CAP FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $697 $1,044 $1,415 $2,453
----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $605 $ 975 $1,272 $2,413
Assuming No Redemption $205 $ 675 $1,172 $2,413
----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $205 $ 675 $1,172 $2,539
Assuming No Redemption $205 $ 675 $1,172 $2,539
----------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
25
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation through
investment primarily in equity securities of foreign
issuers.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in stocks of
foreign issuers located in countries throughout the world.
The Fund may also invest its assets in stocks of companies
that are listed or operate in emerging economies. The Fund
primarily buys common stock but also can invest in preferred
stock and securities convertible into common and preferred
stock.
The portfolio manager uses a disciplined intrinsic or
fundamental value approach that seeks to take advantage of
anomalies in markets often created by human over-reactions
to both good and bad news. The portfolio manager, on behalf
of the Fund, intends to diversify broadly among countries,
but reserves the right to invest a substantial portion of
the Fund's assets in one or more countries if economic and
business conditions warrant such investments.
For each security under analysis, a fundamental value is
estimated, based upon detailed country, industry and company
analysis, including visits to the company, its competitors
and suppliers. This fundamental value estimate is a function
of the present value of the estimated future cash flows. The
resulting fundamental value estimate is then compared to the
company's current market price to ascertain whether a
valuation anomaly exists. A stock with a market price below
the estimated intrinsic or fundamental value would be
considered a candidate for inclusion in the Fund's
portfolio. This comparison between price and intrinsic or
fundamental value allows comparisons across industries and
countries.
The Fund generally will sell a stock when it reaches a
target price, which is when the portfolio manager believes
it is fully valued or when, in the portfolio manager's
opinion, conditions change such that the risk of continuing
to hold the stock is unacceptable when compared to the
growth potential.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses -- foreign value
stocks -- will underperform other kinds of investments or
market averages.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
26
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 11.13
99 37.97
2000 -18.70
01 -21.37
02 -18.58
03 24.38
04 16.51
05 9.52
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 24.71% 12/31/99
Worst quarter: -19.62% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the International Equity Fund has
performed and how its performance has varied from year to year. The bar chart
gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Morgan
Stanley Capital International Europe, Australasia and Far East ("EAFE") Index, a
widely recognized, unmanaged index generally representative of the performance
of stock markets in those regions. Prior to April 25, 2003, the Fund had a
different sub-adviser and would not necessarily have achieved the performance
results shown on in the chart and table on this page under its current
investment management arrangements. Of course, past performance does not
indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class. The table assumes that Class B and Class C shareholders redeem all of
their fund shares at the end of the period indicated.
<Table>
<Caption>
1 YEAR 5 YEARS(3) SINCE INCEPTION(3)
----------------------------------------
CLASS A SHARES (with 5.75% sales charge)(2) (1/2/97)
----------------------------------------
RETURN BEFORE TAXES 3.23% -0.86% 2.70%
----------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS 3.04% -0.96% 1.79%
----------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 2.32% -0.76% 1.90%
----------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (1/2/97)
----------------------------------------------------------------------------------------------------------------
RETURN BEFORE TAXES 4.85% -0.63% 2.63%
----------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (1/2/97)
----------------------------------------------------------------------------------------------------------------
RETURN BEFORE TAXES 8.77% -0.44% 2.63%
----------------------------------------------------------------------------------------------------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
(reflects no deductions for fees, expenses or taxes) 14.02% 4.94% 6.16%(4)
----------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class B Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares.
(4) Since 12/31/96.
27
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 1.00% 1.00% 1.00%
------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.29% 0.29% 0.29%
------------------------------------------------------------------
Total Fund Operating Expenses 1.79% 2.29% 2.29%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.35% -0.10% -0.10%
------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.44% 2.19% 2.19%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.90% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the
International Equity Fund, you
will pay the following fees
and expenses when you buy and
hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
28
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL EQUITY FUND
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
INTERNATIONAL EQUITY FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $713 $1,074 $1,458 $2,532
------------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $622 $1,006 $1,316 $2,493
Assuming No Redemption $222 $ 706 $1,216 $2,493
------------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $222 $ 706 $1,216 $2,618
Assuming No Redemption $222 $ 706 $1,216 $2,618
------------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
29
RISK/RETURN SUMMARY AND FUND EXPENSES SPECIAL OPPORTUNITIES EQUITY
FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
domestically traded common stocks of small-, mid- and
large-capitalization companies and, to a lesser extent,
American Depositary Receipts ("ADRs"). The Fund uses a
multi-style approach, meaning that it not only invests
across different capitalization levels but may target both
value- and growth-oriented companies. The portfolio manager
looks for companies experiencing above-average revenue and
profit growth as well as out-of-favor stocks that may be
depressed due to what the portfolio manager believes to be
temporary economic circumstances. In choosing individual
stocks, the portfolio manager then uses a quantitative
process to examine the value, growth and momentum
characteristics of a particular issuer.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the Statement of Additional
Information ("SAI").
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund is primarily invested in, whether
growth or value; large-, mid- or small cap; could
underperform other kinds of investments or market averages
that include style-focused investments.
MANAGEMENT RISK: The possibility that a strategy used by the
Fund's portfolio manager may fail to produce the intended
result.
SMALL COMPANY RISK: Investing in smaller, lesser-known
companies involves greater risk than investing in those that
are more established. A small company's financial well-
being may, for example, depend heavily on just a few
products or services. In addition, investors may have
limited flexibility to buy or sell small company stocks,
which tend to trade less frequently than those of larger
firms.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
30
RISK/RETURN SUMMARY AND FUND EXPENSES SPECIAL OPPORTUNITIES EQUITY
FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2004 27.38
2005 3.85
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 14.04% 12/31/04
Worst quarter: -1.36% 12/31/05
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Special Opportunities Equity Fund
has performed and how its performance has varied from year to year. The bar
chart gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the S&P 500
Index, a widely recognized, unmanaged index of common stocks. Of course, past
performance does not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class.
<Table>
1 YEAR SINCE INCEPTION
-------------------------
CLASS A SHARES(2) (6/2/03)
-------------------------
RETURN BEFORE TAXES -2.11% 16.09%
-------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -3.03% 15.47%
-------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUNDS SHARES -0.54% 13.72%
-------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (6/2/03)
-------------------------
RETURN BEFORE TAXES -0.84% 16.99%
-------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (6/2/03)
-------------------------
RETURN BEFORE TAXES 3.07% 17.92%
-------------------------------------------------------------------------------------------------
S&P 500 INDEX
(reflects no deductions for fees, expenses or taxes) 4.91% 12.53%(3)
-------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after tax returns shown are not relevant to
investors who hold their Fund shares through tax deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 5/31/03.
31
RISK/RETURN SUMMARY AND FUND EXPENSES SPECIAL OPPORTUNITIES EQUITY
FUND
As an investor in the Special Opportunities Equity Fund, you will pay the
following fees and expenses when you buy and hold shares. Shareholder
transaction fees are paid from your account. Annual Fund operating expenses are
paid out of Fund assets and are reflected in the share price.
---------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Some Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a Contingent
Deferred Sales Charge.
---------------------------------------------
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee 0.80% 0.80% 0.80%
------------------------------------------------------------------
Distribution and Service (12b-1)
Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.24% 0.24% 0.24%
------------------------------------------------------------------
Total Fund Operating Expenses 1.54% 2.04% 2.04%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.25% -0.00% -0.00%
------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.29% 2.04% 2.04%
</Table>
(1) Participating banks or other financial institutions may charge their
customers account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B Shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption, regardless of the date of purchase, if you request a wire transfer.
This fee is currently being waived.
(6) The Fund's Distributor has contractually agreed to limit the distribution
and service (12b-1) fees for Class A shares of the Fund to 0.25% for the period
from February 1, 2006 through January 31, 2007.
32
RISK/RETURN SUMMARY AND FUND EXPENSES SPECIAL OPPORTUNITIES EQUITY
FUND
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.
EXPENSE EXAMPLE
<Table>
<Caption>
SPECIAL OPPORTUNITIES 1 3 5 10
EQUITY FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $699 $1,010 $1,344 $2,284
----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $607 $ 940 $1,198 $2,241
Assuming No Redemption $207 $ 640 $1,098 $2,241
----------------------------------------------------------
CLASS C SHARES
Assuming Redemption $207 $ 640 $1,098 $2,369
Assuming No Redemption $207 $ 640 $1,098 $2,369
----------------------------------------------------------
</Table>
33
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INCOME FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital growth and current income.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
dividend-paying equity securities, in particular common
stocks of companies with a history of increasing dividend
rates, and convertible debt securities and convertible
preferred stock, which are convertible into common stock,
with favorable long-term fundamental characteristics. As
part of its investment strategy, the Fund may invest in
convertible securities that offer above average current
yield with participation in underlying equity performance.
Because yield is a primary consideration in selecting
securities, the Fund may purchase stocks of companies that
are out of favor in the financial community and therefore,
are selling below what the portfolio manager believes to be
their long-term investment value.
The Fund may also invest in certain other equity and debt
securities in addition to those described above. For a more
complete description of the various securities in which the
Fund may invest, please see Additional Investment Strategies
and Risks on page 107 or consult the Statement of Additional
Information ("SAI").
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
MARKET RISK: The possibility that the Fund's stock holdings
will decline in price because of a broad stock market
decline. Markets generally move in cycles, with periods of
rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease
in response to these movements.
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities such as bonds. The lower a security's rating, the
greater its credit risk.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
INVESTMENT STYLE RISK: The possibility that the market
segment on which this Fund focuses - income-producing
equities - will underperform other kinds of investments or
market averages.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
34
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INCOME FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
<Table>
2005 10.69
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 3.93% 6/30/05
Worst quarter: 1.22% 3/31/05
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Equity Income Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of risk by showing changes in the Fund's yearly performance to
demonstrate that the Fund's value varied at different times. The table below it
compares the Fund's performance over time to that of the S&P 500 Index, a widely
recognized, unmanaged index of common stocks. Of course, past performance does
not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class.
<Table>
1 YEAR SINCE INCEPTION
-------------------------
CLASS A SHARES(2) 6/30/04
-------------------------
RETURN BEFORE TAXES 4.35% 12.56%
-------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS 3.29% 11.66%
-------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUNDS SHARES 3.35% 10.41%
-------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 6/30/04
-------------------------
RETURN BEFORE TAXES 5.89% 13.73%
-------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) 6/30/04
-------------------------
RETURN BEFORE TAXES 9.80% 16.19%
-------------------------------------------------------------------------------------------------
S&P 500 INDEX (reflects no deductions for fees, expenses or taxes) 6/30/04
-------------------------
4.91% 8.14%
-------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after tax returns shown are not relevant to
investors who hold their Fund shares through tax deferred arrangements such as
401(k) plans or individual retirement accounts.
35
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INCOME FUND
As an investor in the Equity Income Fund, you will pay the following fees and
expenses when you buy and hold shares. Shareholder transaction fees are paid
from your account. Annual Fund operating expenses are paid out of Fund assets
and are reflected in the share price.
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold
within 7 calendar days of
purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee 0.70% 0.70% 0.70%
------------------------------------------------------------------
Distribution and Service (12b-1)
Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.34% 0.34% 0.34%
------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.54% 2.04% 2.04%
------------------------------------------------------------------
Fee Waivers or Expense
Reimbursement(6) -0.25% -0.00% -0.00%
------------------------------------------------------------------
Net Fund Operating Expenses(6) 1.29% 2.04% 2.04%
</Table>
(1) Participating banks or other financial institutions may charge their
customers account fees for automatic investment, exchanges and other cash
management services provided in connection with investment in the Funds.
(2) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a contingent deferred sales charge ("CDSC")
is applicable to redemptions within one year of purchase. See "Distribution
Arrangements."
(3) A CDSC on Class B Shares declines over six years starting with year one and
ending on the sixth anniversary from: 5%, 4%, 3%, 3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable only to redemptions within one year
of purchase.
(5) A wire transfer fee of $7.00 may be deducted from the amount of your
redemption if you request a wire transfer. This fee is currently being waived.
(6) The Fund's Distributor has contractually agreed to limit the distribution
and service (12b-1) fees for Class A shares of the Fund to 0.25% for the period
from February 1, 2006 through January 31, 2007.
36
RISK/RETURN SUMMARY AND FUND EXPENSES EQUITY INCOME FUND
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
EQUITY INCOME FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $699 $1,010 $1,344 $2,284
------------------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $607 $ 940 $1,198 $2,241
Assuming No Redemption $207 $ 640 $1,098 $2,241
------------------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $207 $ 640 $1,098 $2,369
Assuming No Redemption $207 $ 640 $1,098 $2,369
------------------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
37
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
BOND FUNDS
<Table>
TAXABLE BOND FUNDS The Short U.S. Government Fund, the Intermediate U.S.
Government Fund and the Total Return Bond Fund seek current
income consistent with the preservation of capital and
invest primarily in fixed income securities, such as U.S.
government securities or corporate, bank and commercial
obligations.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- looking to add a monthly income component to your
portfolio
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing emergency reserves
- uncomfortable with an investment that will fluctuate in
value
TAX-FREE BOND FUNDS The Kentucky Intermediate Tax-Free Fund, the Maryland
Intermediate Tax-Free Fund, the North Carolina Intermediate
Tax-Free Fund, the South Carolina Intermediate Tax-Free
Fund, the Virginia Intermediate Tax-Free Fund, and the West
Virginia Intermediate Tax-Free Fund seek tax-exempt income
and invest primarily in municipal securities which are
exempt from federal and, respectively, Kentucky, Maryland,
North Carolina, South Carolina, Virginia, or West Virginia
income taxes.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- looking to add a monthly income component to your
portfolio.
- seeking monthly federal and Kentucky, Maryland, North
Carolina, South Carolina, Virginia, or West Virginia
tax-exempt dividends
- willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
- investing through a tax-exempt retirement plan
- uncomfortable with an investment that will fluctuate in
value
- investing emergency reserves
</Table>
38
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT U.S. GOVERNMENT FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The duration range of the Fund will be
from 1.0 to 3.5 years.
In managing the portfolio, the portfolio manager uses a "top
down" investment management approach focusing on allocation
among sectors, interest rate risk, credit risk, and
individual securities selection. The portfolio manager sets
and continually adjusts a target for the interest rate
sensitivity of the Fund's holdings based upon expectations
about interest rates and other economic factors. The
portfolio manager then selects individual securities
consistent with the target by looking for the best relative
values within particular sectors.
The Fund may also invest in certain other debt securities.
For a more complete description of the various securities in
which the Fund may invest, please see Additional Investment
Strategies and Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a significant number of the
mortgages underlying a mortgage-backed bond are refinanced,
the bond may be "prepaid." Call risk is the possibility
that, during periods of declining interest rates, a bond
issuer will "call" -- or repay -- higher-yielding bonds
before their stated maturity date. In both cases, investors
receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices
and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
U.S. GOVERNMENT AGENCY SECURITIES: The Fund invests in
securities issued or guaranteed by the U.S. government or
its agencies (such as Fannie Mae or Ginnie Mae securities).
Although U.S. government securities issued directly by the
U.S. government are guaranteed by the U.S. Treasury, other
U.S. government securities issued by an agency or
instrumentality of the U.S. government may not be. No
assurance can be given that the U.S. government would
provide financial support to its agencies and
instrumentalities if not required to do so by law.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
39
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT U.S. GOVERNMENT FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
<Caption>
1996 2.8
---- ---
97 6.11
98 6.66
99 1.26
2000 8.04
01 5.51
02 5.67
03 0.91
04 0.83
05 1.17
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 3.73% 9/30/98
Worst quarter: -1.38% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Short U.S. Government Fund has
performed and how its performance has varied from year to year. The bar chart
gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Merrill
Lynch 1-5 Year U.S. Treasuries/Agencies Index, a widely recognized, unmanaged
index of U.S. government and agency bonds that have a minimum size of $150
million. Of course, past performance does not indicate how the Fund will perform
in the future.
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
--------------------------------------------
CLASS A SHARES (with 3.00% sales charge)(2) (11/30/92)
--------------------------------------------
RETURN BEFORE TAXES -1.88% 2.37% 3.65% 4.12%
--------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -2.95% 1.00% 1.87% 2.25%
--------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -1.22% 1.19% 1.99% 2.33%
---------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH 1-5 YEAR U.S. TREASURIES/AGENCIES INDEX(3)
(reflects no deductions for fees, expenses, or taxes) 1.45% 4.17% 5.11% 5.41%
---------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH 1-5 YEAR U.S. TREASURY INDEX(3)
(reflects no deductions for fees, expenses, or taxes) 1.39% 4.07% 5.04% 5.36%
---------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) The Fund has changed its standardized benchmark from the Merrill Lynch 1-5
Year U.S. Treasury Index to the Merrill Lynch 1-5 Year Treasuries/Agencies Index
in order to better represent the Fund's investment policies for comparison
purposes.
40
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT U.S. GOVERNMENT FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 3.00%(2)
-----------------------------------------------------
Maximum Deferred Sales Charge (load) None
-----------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
-----------------------------------------------------
Distribution and Service
(12b-1) Fee(4) 0.50%
-----------------------------------------------------
Other Expenses 0.20%
-----------------------------------------------------
Total Fund Operating Expenses 1.30%
-----------------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.40%
-----------------------------------------------------
Net Fund Operating Expenses(4) 0.90%
-----------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption
if you, regardless of the date of purchase,
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.45% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Short
U.S. Government 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.
41
RISK/RETURN SUMMARY AND FUND EXPENSES SHORT U.S. GOVERNMENT FUND
EXPENSE EXAMPLE
<Table>
<Caption>
SHORT U.S. GOVERNMENT 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $389 $661 $954 $1,787
----------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
42
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government
Securities"), some of which may be subject to repurchase
agreements, or in "high grade" (rated at the time of
purchase in one of the three highest rating categories by an
NRSRO or are determined by the portfolio manager to be of
comparable quality) collateralized mortgage obligations
("CMOs"). The Fund may also invest in short-term
obligations, commercial bonds and the shares of other
investment companies. The duration range of the Fund will be
from 3.0 to 7.0 years.
In managing the portfolio, the portfolio manager uses a "top
down" investment management approach focusing on allocation
among sectors, interest rate risk, credit risk, and
individual securities selection. The portfolio manager sets
and continually adjusts a target for the interest rate
sensitivity of the Fund's holdings based upon expectations
about interest rates and other economic factors. The
portfolio manager then selects individual securities
consistent with the target by looking for the best relative
values within particular sectors.
The Fund may also invest in certain other debt securities in
addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a significant number of the
mortgages underlying a mortgage-backed bond are refinanced,
the bond may be "prepaid." Call risk is the possibility
that, during periods of declining interest rates, a bond
issuer will "call" -- or repay -- higher-yielding bonds
before their stated maturity date. In both cases, investors
receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices
and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities such as bonds. The lower a security's rating the
greater its credit risk.
U.S. GOVERNMENT AGENCY SECURITIES: The Fund invests in
securities issued or guaranteed by the U.S. government or
its agencies (such as Fannie Mae or Ginnie Mae securities).
Although U.S. government securities issued directly by the
U.S. government are guaranteed by the U.S. Treasury, other
U.S. government securities issued by an agency or
instrumentality of the U.S. government may not be. No
assurance can be given that the U.S. government would
provide financial support to its agencies and
instrumentalities if not required to do so by law.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
43
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1996 1.91
97 8.31
98 9.31
99 -2.53
2000 11.78
01 6.26
02 10.38
03 2.01
04 2.10
05 1.64
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
The chart and table on this page show how the Intermediate U.S. Government Fund
has performed and how its performance has varied from year to year. The bar
chart gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Lehman
Brothers U.S. Government/Mortgage Bond Index, an unmanaged index of U.S.
Treasury, government agency and mortgage-backed securities with maturities of 10
years or less. Of course, past performance does not indicate how the Fund will
perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class. The table assumes that Class B and Class C shareholders redeem all of
their fund shares at the end of the period indicated.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
<Table>
Best quarter: 5.96% 9/30/98
Worst quarter: -2.69% 3/31/96
</Table>
<Table>
<Caption>
10 YEARS SINCE INCEPTION
1 YEAR 5 YEARS(4) (3),(4) (3),(4)
CLASS A SHARES (with 5.75% Sales Charge)(2) (10/9/92)
-------------------------------------------------------
RETURN BEFORE TAXES -4.20% 3.20% 4.35% 4.98%
-------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -5.50% 1.57% 2.40% 2.89%
-------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.74% 1.77% 2.51% 2.94%
-------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (10/9/92)
-------------------------------------------------------
RETURN BEFORE TAXES -2.92% 3.46% 4.12% 4.80%
-------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (10/9/92)
-------------------------------------------------------
RETURN BEFORE TAXES 1.09% 3.78% 4.65% 5.20%
-------------------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS U.S. GOVERNMENT/MORTGAGE BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 2.63% 5.40% 6.02% 6.32%(5)
-------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(4) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(5) Since 9/30/92.
44
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B CLASS C
PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on Purchases 5.75%(2) None None
---------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
---------------------------------------------------------------------
Redemption Fee (on shares sold within 7
calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS)() SHARES SHARES SHARES
Management Fee(6) 0.60% 0.60% 0.60%
---------------------------------------------------------------------
Distribution and Service (12b-1) Fee(6) 0.50% 1.00% 1.00%
---------------------------------------------------------------------
Other Expenses 0.20% 0.20% 0.20%
---------------------------------------------------------------------
Total Fund Operating Expenses 1.30% 1.80% 1.80%
---------------------------------------------------------------------
Fee Waiver or Expense Reimbursement(6) -0.37% -0.12% -0.12%
---------------------------------------------------------------------
Net Fund Operating Expenses(6) 0.93% 1.68% 1.68%
---------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.48% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the
Intermediate U.S. Government
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.
------------------------------
45
RISK/RETURN SUMMARY AND FUND EXPENSES INTERMEDIATE U.S. GOVERNMENT FUND
EXPENSE EXAMPLE
<Table>
<Caption>
INTERMEDIATE U.S. GOVERNMENT 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $664 $929 $1,213 $2,022
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $571 $855 $1,064 $1,975
Assuming No Redemption $171 $555 $ 964 $1,975
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $171 $555 $ 964 $2,106
Assuming No Redemption $171 $555 $ 964 $2,106
-----------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
46
TOTAL
RETURN BOND FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE INTERMEDIATE
CORPORATE BOND FUND)
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks a high level of current income and a
competitive total return.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in a
diversified portfolio of bonds, including: securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, corporate bonds, asset-backed securities,
mortgage-backed securities, including commercial
mortgage-backed securities, and convertible securities. The
Fund will invest the portion of its assets invested in
corporate bonds primarily in investment grade corporate
bonds. The Fund may invest up to 25% of its total assets in
bonds that are below investment grade, which are commonly
referred to as "high yield" or "junk" bonds, and/or foreign
and emerging market bonds.
In managing the portfolio, the manager uses a "top down"
investment management approach focusing on interest rate
risk, allocation among sectors, credit risk, and individual
securities selection. The manager employs a proprietary
regression model which provides an indication of the trend
in interest rates, either rising or falling, over a three
month forward looking horizon enabling the firm to position
its portfolios relative to the benchmark in terms of
duration. For yield curve management, in addition to the
trend in interest rates, other factors such as future
inflation expectations, supply factors, and forward curve
analysis are considered. Sector weightings are driven by a
combination of the firm's macro view on interest rates and
volatility as well as relative spread analysis. Utilizing
fundamental analysis the manager then selects individual
securities consistent with the target by looking for the
best relative values within particular sectors. The analysis
incudes an attempt to understand the structure and embedded
features of potential securities. Features that are analyzed
include puts, calls, sinking fund requirements, prepayment
and extension risk, and individual company financial date
for potential corporate holdings. Scenario analysis is the
primary tool employed for these assessments.
The Fund may also invest in certain other debt securities in
addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
</Table>
47
TOTAL
RETURN BOND FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE INTERMEDIATE
CORPORATE BOND FUND)
RISK/RETURN SUMMARY
CONTINUED
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities such as bonds. The lower a security's rating, the
greater its credit risk.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
PREPAYMENT/CALL RISK: If a significant number of the
mortgages underlying a mortgage-backed bond are refinanced,
the bond may be "prepaid." Call risk is the possibility
that, during periods of declining interest rates, a bond
issuer will "call" -- or repay -- higher-yielding bonds
before their stated maturity date. In both cases, investors
receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices
and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
HIGH-YIELD/HIGH-RISK DEBT SECURITIES: High-yield/high-risk
debt securities are securities that are rated below
investment grade by the primary rating agencies. These
securities are considered speculative and involve greater
risk of loss than investment grade debt securities.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability. These risks are
particularly pronounced for emerging markets.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
48
TOTAL
RETURN BOND FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE INTERMEDIATE
CORPORATE BOND FUND)
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2000 10.37
01 6.93
02 7.53
03 6.76
04 3.85
05 1.54
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 4.71% 9/30/02
Worst quarter: -3.19% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Total Return Bond Fund has
performed and how its performance has varied from year to year. The bar chart
gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Lehman
Brothers Aggregate Index, an index that covers the U.S. investment grade fixed
rate bond market, with index components for government and corporate securities,
mortgage pass-through securities, and asset-backed securities. Of course, past
performance does not indicate how the Fund will perform in the future.
The returns for Class B Shares and Class C Shares will differ from the Class A
Share returns shown in the bar chart because of differences in expenses of each
class. The table assumes that Class B and Class C shareholders redeem all of
their fund shares at the end of the period indicated.
<Table>
<Caption>
1 YEAR 5 YEARS(3) SINCE INCEPTION(3)
---------------------------------------
CLASS A SHARES (with 5.75% Sales Charge)(2) (12/2/99)
---------------------------------------
RETURN BEFORE TAXES -4.28% 4.05% 4.89%
---------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -5.73% 2.11% 2.85%
---------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.71% 2.30% 2.93%
----------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (12/2/99)
---------------------------------------
RETURN BEFORE TAXES -3.10% 4.37% 5.14%
----------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (12/2/99)
---------------------------------------
RETURN BEFORE TAXES 0.78% 4.57% 5.17%
----------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE INDEX(5)
(reflects no deductions for fees, expenses, or taxes) 2.43% 5.87% 6.63%(4)
----------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS U.S. CREDIT INDEX(5)
(reflects no deductions for fees, expenses, or taxes) 1.96% 7.11% 7.29%(4)
----------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class B Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares.
(4) Since 11/30/99.
(5) The Fund has changed its standardized benchmark from the Lehman Brothers
U.S. Credit Index to the Lehman Brothers Aggregate Index in order to better
represent the Fund's investment policies for comparison purposes.
49
TOTAL RETURN BOND
FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE INTERMEDIATE CORPORATE BOND
FUND)
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B CLASS C
PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on Purchases 5.75%(2) None None
---------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
---------------------------------------------------------------------
Redemption Fee (on shares sold within 7
calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.60% 0.60% 0.60%
---------------------------------------------------------------------
Distribution and Service (12b-1) Fee(6) 0.50% 1.00% 1.00%
---------------------------------------------------------------------
Other Expenses 0.20% 0.20% 0.20%
---------------------------------------------------------------------
Total Fund Operating Expenses 1.30% 1.80% 1.80%
---------------------------------------------------------------------
---------------------------------------------------------------------
Fee Waiver or Expense Reimbursement(6) -0.37% -0.12% -0.12%
---------------------------------------------------------------------
Net Fund Operating Expenses(6) 0.93% 1.68% 1.68%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.48% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Total
Return Bond Fund, you will pay
the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
50
TOTAL RETURN BOND
FUND
RISK/RETURN SUMMARY AND FUND EXPENSES (FORMERLY THE INTERMEDIATE CORPORATE BOND
FUND)
EXPENSE EXAMPLE
<Table>
<Caption>
TOTAL RETURN 1 3 5 10
BOND FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $664 $929 $1,213 $2,022
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $571 $855 $1,064 $1,975
Assuming No Redemption $171 $555 $ 964 $1,975
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $171 $555 $ 964 $2,106
Assuming No Redemption $171 $555 $ 964 $2,106
-----------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
51
RISK/RETURN SUMMARY AND FUND EXPENSES KENTUCKY INTERMEDIATE TAX-FREE
FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and
Kentucky income taxes consistent with preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the Commonwealth of Kentucky and its political
subdivisions, that provide income exempt from both federal
personal income tax and Kentucky personal income tax. The
Fund invests in Kentucky municipal securities only if they
are "investment grade" (rated at the time of purchase in one
of the four highest rating categories by an NRSRO, or are
determined by the portfolio manager to be of comparable
quality). The Fund will maintain an average duration of 3.5
to 8 years.
In managing the Fund's portfolio, the portfolio manager uses
a "top down" investment management approach focusing on
interest rates and credit quality. The portfolio manager
sets, and continually adjusts, a target for the interest
rate sensitivity of the Fund's portfolio based on
expectations about interest rate movements. The portfolio
manager then selects securities consistent with this target
based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its investments in
securities issued by Kentucky and its political subdivisions
the Fund may be more vulnerable to unfavorable developments
in Kentucky than funds that are more geographically
diversified.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is non-diversified,
it may invest a greater percentage of its assets in a
particular issuer compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
obligor will exercise its right to pay principal on an
obligation (such as mortgage-related securities) later than
expected. This may happen when there is a rise in interest
rates. These events may lengthen the duration (i.e. interest
rate sensitivity) and potentially reduce the value of these
securities.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, including the
state-specific risk associated with the Fund, please see
Additional Investment Strategies and Risks on page 107 or
consult the SAI.
</Table>
52
RISK/RETURN SUMMARY AND FUND EXPENSES KENTUCKY INTERMEDIATE TAX-FREE
FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2004 2.29
2005 1.03
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 2.75% 9/30/04
Worst quarter: -2.21% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Kentucky Intermediate Tax-Free
Fund has performed and how its performance has varied from year to year. The bar
chart gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Lehman
Brothers 7-Year Municipal Bond Index, an unmanaged index generally
representative of the performance of municipal bonds with a minimum credit of at
least Baa, a maturity value of at least $5 million and a maturity range of 6-8
years. Of course, past performance does not indicate how the Fund will perform
in the future.
<Table>
1 YEAR SINCE INCEPTION
------------------------
CLASS A SHARES (with 3.00% sales charge)(2) (2/24/03)
------------------------
RETURN BEFORE TAXES -2.04% 2.10%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -2.04% 2.10%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUNDS SHARES -0.41% 2.24%
------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses or taxes) 1.72% 3.20%(3)
------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after tax returns shown are not relevant to
investors who hold their Fund shares through tax deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 2/28/03.
53
RISK/RETURN SUMMARY AND FUND EXPENSES KENTUCKY INTERMEDIATE TAX-FREE
FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load)
on Purchases 3.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee (on shares sold within
7 days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses 0.30%
----------------------------------------------
Total Fund Operating Expenses 1.40%
----------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.45%
----------------------------------------------
Net Fund Operating Expenses(4) 0.95%
----------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.40% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Kentucky
Intermediate Tax-Free Fund,
you will pay the following
fees and expenses when you buy
and hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
54
RISK/RETURN SUMMARY AND FUND EXPENSES KENTUCKY INTERMEDIATE TAX-FREE
FUND
EXPENSE EXAMPLE
<Table>
<Caption>
KENTUCKY INTERMEDIATE TAX-FREE 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $394 $687 $1,001 $1,892
------------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
55
RISK/RETURN SUMMARY AND FUND EXPENSES MARYLAND INTERMEDIATE TAX-FREE
FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and
Maryland income taxes consistent with preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of Maryland and its political
subdivisions, that provide income exempt from both federal
personal income tax and Maryland personal income tax. The
Fund invests in Maryland municipal securities only if they
are "investment grade" (rated at the time of purchase in one
of the four highest rating categories by an NRSRO, or are
determined by the portfolio manager to be of comparable
quality). The Fund will maintain an average duration of 3.5
to 8 years.
In managing the Fund's portfolio, the portfolio manager uses
a "top down" investment management approach focusing on
interest rates and credit quality. The portfolio manager
sets, and continually adjusts, a target for the interest
rate sensitivity of the Fund's portfolio based on
expectations about interest rate movements. The portfolio
manager then selects securities consistent with this target
based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its investments in
securities issued by Maryland and its political subdivisions
the Fund may be more vulnerable to unfavorable developments
in Maryland than funds that are more geographically
diversified.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is non-diversified,
it may invest a greater percentage of its assets in a
particular issuer compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, including the
state-specific risk associated with the Fund, please see
Additional Investment Strategies and Risks on page 107 or
consult the SAI.
</Table>
56
RISK/RETURN SUMMARY AND FUND EXPENSES MARYLAND INTERMEDIATE TAX-FREE
FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2004 2.14
2005 1.38
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 2.80% 9/30/04
Worst quarter: -2.28% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show how the Maryland Intermediate Tax-Free
Fund has performed and how its performance has varied from year to year. The bar
chart gives some indication of risk by showing changes in the Fund's yearly
performance to demonstrate that the Fund's value varied at different times. The
table below it compares the Fund's performance over time to that of the Lehman
Brothers 7-Year Municipal Bond Index, an unmanaged index generally
representative of the performance of municipal bonds with a minimum credit of at
least Baa, a maturity value of at least $5 million and a maturity range of 6-8
years. Of course, past performance does not indicate how the Fund will perform
in the future.
<Table>
1 YEAR SINCE INCEPTION
------------------------
CLASS A SHARES (with 3.00% sales charge)(2) (2/24/03)
------------------------
RETURN BEFORE TAXES -1.63% 1.57%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.63% 1.57%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUNDS SHARES -0.15% 1.72%
------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses or taxes) 1.72% 3.20%(3)
------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after tax returns shown are not relevant to
investors who hold their Fund shares through tax deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 2/28/03.
57
RISK/RETURN SUMMARY AND FUND EXPENSES MARYLAND INTERMEDIATE TAX-FREE
FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load)
on Purchases 3.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses 0.34%
----------------------------------------------
Total Fund Operating Expenses 1.44%
----------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.55%
----------------------------------------------
Net Fund Operating Expenses(4) 0.89%
----------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.30% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Maryland
Intermediate Tax-Free Fund,
you will pay the following
fees and expenses when you buy
and hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
58
RISK/RETURN SUMMARY AND FUND EXPENSES MARYLAND INTERMEDIATE TAX-FREE
FUND
EXPENSE EXAMPLE
<Table>
<Caption>
MARYLAND INTERMEDIATE TAX-FREE 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $388 $689 $1,013 $1,927
------------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
59
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and North
Carolina income taxes consistent with preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of North Carolina and its political
subdivisions, that provide income exempt from both federal
personal income tax and North Carolina personal income tax.
The Fund invests in North Carolina municipal securities only
if they are "investment grade" (rated at the time of
purchase in one of the four highest rating categories by an
NRSRO, or are determined by the portfolio manager to be of
comparable quality). The Fund will maintain an average
duration of 3.5 to 8 years.
In managing the Fund's portfolio, the portfolio manager uses
a "top down" investment management approach focusing on
interest rates and credit quality. The portfolio manager
sets, and continually adjusts, a target for the interest
rate sensitivity of the Fund's portfolio based on
expectations about interest rate movements. The portfolio
manager then selects securities consistent with this target
based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its investments in
securities issued by North Carolina and its political
subdivisions the Fund may be more vulnerable to unfavorable
developments in North Carolina than funds that are more
geographically diversified.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is non-diversified,
it may invest a greater percentage of its assets in a
particular issuer compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, including the
state-specific risk associated with the Fund, please see
Additional Investment Strategies and Risks on page 107 or
consult the SAI.
</Table>
60
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE TAX-FREE FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1996 2.56
97 6.36
98 5.19
99 -2.21
2000 9.26
01 4.66
02 8.91
03 3.15
04 2.13
05 1.42
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 4.03% 6/30/02
Worst quarter: -2.35% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
show how the North Carolina
Intermediate Tax-Free Fund has
performed and how its performance
has varied from year to year. The
bar chart gives some indication of
risk by showing changes in the
Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Lehman Brothers 7-Year
Municipal Bond Index, an unmanaged
index generally representative of
the performance of municipal bonds
with a minimum credit of at least
Baa, a maturity value of at least
$5 million and a maturity range of
6-8 years. Of course, past
performance does not indicate how
the Fund will perform in the
future.
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
--------------------------------------------
CLASS A SHARES (with 3.00% Sales Charge)(2) (10/16/92)
--------------------------------------------
RETURN BEFORE TAXES -1.64% 3.38% 3.77% 3.96%
--------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.78% 3.27% 3.70% 3.90%
--------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF
FUND SHARES 0.21% 3.34% 3.73% 3.90%
---------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.72% 5.13% 5.26% 5.77%(3)
---------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 10/31/92.
61
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load)
on Purchases 3.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses 0.22%
----------------------------------------------
Total Fund Operating Expenses 1.32%
----------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.40%
----------------------------------------------
Net Fund Operating Expenses(4) 0.92%
----------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.45% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the North
Carolina Intermediate Tax-Free
Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
62
RISK/RETURN SUMMARY AND FUND EXPENSES NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
EXPENSE EXAMPLE
<Table>
<Caption>
NORTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $391 $667 $965 $1,809
----------------------------------------------------------------
</Table>
Use the table at right to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
63
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and South
Carolina income taxes consistent with preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of the State of South Carolina and its political
subdivisions that provide income exempt from both federal
personal income tax and South Carolina personal income tax.
The Fund invests in South Carolina municipal securities only
if they are "investment grade" (rated at the time of
purchase in one of the four highest rating categories by an
NRSRO, or are determined by the portfolio manager to be of
comparable quality). The Fund will maintain an average
duration of 3.5 to 8 years.
In managing the Fund's portfolio, the portfolio manager uses
a "top down" investment management approach focusing on
interest rates and credit quality. The portfolio manager
sets, and continually adjusts, a target for the interest
rate sensitivity of the Fund's portfolio based on
expectations about interest rate movements. The portfolio
manager then selects securities consistent with this target
based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its investments in
securities issued by South Carolina and its political
subdivisions, the Fund may be more vulnerable to unfavorable
developments in South Carolina than funds that are more
geographically diversified.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is non-diversified,
it may invest a greater percentage of its assets in a
particular issuer compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, including the
state-specific risk associated with the Fund, please see
Additional Investment Strategies and Risks on page 107 or
consult the SAI.
</Table>
64
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 5.29
99 -2.72
2000 9.31
01 4.79
02 9.09
03 3.55
04 2.53
05 1.24
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 4.07% 6/30/02
Worst quarter: -2.42% 6/30/99
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
show how the South Carolina
Intermediate Tax-Free Fund has
performed and how its performance
has varied from year to year. The
bar chart gives some indication of
risk by showing changes in the
Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Lehman Brothers 7-Year
Municipal Bond Index, an unmanaged
index generally representative of
the performance of municipal bonds
with a minimum credit of at least
Baa, a maturity value of at least
$5 million and a maturity range of
6-8 years. Of course, past
performance does not indicate how
the Fund will perform in the
future.
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION
----------------------------------
CLASS A SHARES (with 3.00% Sales Charge)(2) (10/20/97)
----------------------------------
RETURN BEFORE TAXES -1.79% 3.58% 3.94%
----------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -2.04% 3.50% 3.85%
----------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 0.26% 3.56% 3.86%
----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.72% 5.13% 5.17%(3)
----------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 10/31/97.
65
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 3.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS)() SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses 0.23%
----------------------------------------------
Total Fund Operating Expenses 1.33%
----------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.40%
----------------------------------------------
Net Fund Operating Expenses(4) 0.93%
----------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.45% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the South
Carolina Intermediate Tax-Free
Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
66
RISK/RETURN SUMMARY AND FUND EXPENSES SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND
EXPENSE EXAMPLE
<Table>
<Caption>
SOUTH CAROLINA INTERMEDIATE 1 3 5 10
TAX-FREE FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $392 $671 $970 $1,820
----------------------------------------------------------------
</Table>
Use the table at right to
compare fees and expenses with
those of other funds. It
illustrates the amount of fees
and expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
67
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and
Virginia income taxes consistent with preservation of
capital.
PRINCIPAL
INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in
municipal securities of the Commonwealth of Virginia
and its political subdivisions that provide income
exempt from both federal personal income tax and
Virginia personal income tax. The Fund invests in
Virginia municipal securities only if they are
"investment grade" (rated at the time of purchase in
one of the four highest rating categories by an NRSRO,
or are determined by the portfolio manager to be of
comparable quality). The Fund will maintain an average
duration of 3.5 to 8 years.
In managing the Fund's portfolio, the portfolio
manager uses a "top down" investment management
approach focusing on interest rates and credit
quality. The portfolio manager sets, and continually
adjusts, a target for the interest rate sensitivity of
the Fund's portfolio based on expectations about
interest rate movements. The portfolio manager then
selects securities consistent with this target based
on their individual characteristics.
The Fund is non-diversified and, therefore, may
concentrate its investments in a limited number of
issuers. The Fund may also invest in certain other
debt securities in addition to those described above.
For a more complete description of the various
securities in which the Fund may invest, please see
Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL
INVESTMENT RISKS Your investment in the Fund may be subject to the
following principal risks:
INTEREST RATE RISK: The possibility that the value of
the Fund's investments will decline due to an increase
in interest rates. Interest rate risk is generally
high for longer-term bonds and low for shorter-term
bonds.
STATE SPECIFIC RISK: By concentrating its investments
in securities issued by Virginia and its political
subdivisions, the Fund may be more vulnerable to
unfavorable developments in Virginia than funds that
are more geographically diversified.
CREDIT RISK: The possibility that an issuer cannot
make timely interest and principal payments on its
debt securities, such as bonds. The lower a security's
rating, the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is
non-diversified, it may invest a greater percentage of
its assets in a particular issuer compared with other
funds. Accordingly, the Fund's portfolio may be more
sensitive to changes in the market value of a single
issuer or industry.
CALL RISK: Call risk is the possibility that, during
periods of declining interest rates, a bond issuer
will "call" -- or repay -- higher-yielding bonds
before their stated maturity date. As a result,
investors receive their principal back and are
typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can
cause bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an
underlying mortgage holder will exercise its right to
pay principal on an obligation (such as
mortgage-related securities) later than expected. This
may happen when there is a rise in interest rates.
These events may lengthen the duration (i.e. interest
rate sensitivity) and potentially reduce the value of
these securities.
INCOME RISK: The possibility that the Fund's income
will decline due to a decrease in interest rates.
Income risk is generally high for shorter-term bonds
and low for longer-term bonds.
The Fund may trade securities actively, which could
increase its transaction costs (thereby lowering its
performance) and may increase the amount of taxes that
you pay. If the Fund invests in securities with
additional risks, its share price volatility
accordingly could be greater and its performance
lower. For more information about these risks,
including the state-specific risk associated with the
Fund, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
68
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2000 9.74
01 4.52
02 8.90
03 3.47
04 2.02
05 1.29
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 3.86% 9/30/02
Worst quarter: -2.15% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
show how the Virginia Intermediate
Tax-Free Fund has performed and
how its performance has varied
from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's
yearly performance to demonstrate
that the Fund's value varied at
different times. The table below
it compares the Fund's performance
over time to that of the Lehman
Brothers 7-Year Municipal Bond
Index, an unmanaged index
generally representative of the
performance of municipal bonds
with a minimum credit of at lease
Baa, a maturity value of at least
$5 million and a maturity range of
6-8 years. Of course, past
performance does not indicate how
the Fund will perform in the
future.
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------
CLASS A SHARES (with 3.00% Sales Charge)(2) (5/17/99)
---------------------------------
RETURN BEFORE TAXES -1.74% 3.37% 3.80%
---------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.82% 3.29% 3.75%
---------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 0.14% 3.36% 3.78%
----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.72% 5.13% 5.13%
----------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30-day yield, call 1-800-228-1872.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
(3) Since 5/31/99.
69
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 3.00%(2)
----------------------------------------------
Maximum Deferred Sales Charge (load) None
----------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A
(FEES PAID FROM FUND ASSETS) SHARES
Management Fee(4) 0.60%
----------------------------------------------
Distribution and Service (12b-1)
Fee(4) 0.50%
----------------------------------------------
Other Expenses 0.21%
----------------------------------------------
Total Fund Operating Expenses 1.31%
----------------------------------------------
Fee Waiver or Expense
Reimbursement(4) -0.40%
----------------------------------------------
Net Fund Operating Expenses(4) 0.91%
----------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(4) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.45% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period.
As an investor in the Virginia
Intermediate Tax-Free Fund,
you will pay the following
fees and expenses when you buy
and hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
70
RISK/RETURN SUMMARY AND FUND EXPENSES VIRGINIA INTERMEDIATE TAX-FREE
FUND
EXPENSE EXAMPLE
<Table>
<Caption>
VIRGINIA INTERMEDIATE 1 3 5 10
TAX-FREE FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $390 $664 $959 $1,798
----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
71
RISK/RETURN SUMMARY AND FUND EXPENSES WEST VIRGINIA INTERMEDIATE
TAX-FREE FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal and West
Virginia income taxes consistent with preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal
securities of West Virginia and its political subdivisions
that provide income exempt from both federal personal income
tax and West Virginia personal income tax. The Fund invests
in West Virginia municipal securities only if they are
"investment grade" (rated at the time of purchase in one of
the four highest rating categories by an NRSRO, or are
determined by the portfolio manager to be of comparable
quality). The Fund will maintain an average duration of 3.5
to 8 years.
In managing the Fund's portfolio, the portfolio manager uses
a "top down" investment management approach focusing on
interest rates and credit quality. The portfolio manager
sets, and continually adjusts, a target for the interest
rate sensitivity of the Fund's portfolio based on
expectations about interest rate movements. The portfolio
manager then selects securities consistent with this target
based on their individual characteristics.
The Fund is non-diversified and, therefore, may concentrate
its investments in a limited number of issuers. The Fund may
also invest in certain other debt securities in addition to
those described above. For a more complete description of
the various securities in which the Fund may invest, please
see Additional Investment Strategies and Risks on page 107
or consult the SAI.
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates. Interest rate risk is generally high for
longer-term bonds and low for shorter-term bonds.
STATE SPECIFIC RISK: By concentrating its investments in
securities issued by West Virginia and its political
subdivisions, the Fund may be more vulnerable to unfavorable
developments in West Virginia than funds that are more
geographically diversified.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities, such as bonds. The lower a security's rating,
the greater its credit risk.
NON-DIVERSIFIED RISK: Because the Fund is non-diversified,
it may invest a greater percentage of its assets in a
particular issuer compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to changes in the
market value of a single issuer or industry.
CALL RISK: Call risk is the possibility that, during periods
of declining interest rates, a bond issuer will "call" -- or
repay -- higher-yielding bonds before their stated maturity
date. As a result, investors receive their principal back
and are typically forced to reinvest it in bonds that pay
lower interest rates. Rapid changes in call rates can cause
bond prices and yields to be volatile.
ESTIMATED MATURITY RISK: The possibility that an underlying
mortgage holder will exercise its right to pay principal on
an obligation (such as mortgage-related securities) later
than expected. This may happen when there is a rise in
interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value
of these securities.
INCOME RISK: The possibility that the Fund's income will
decline due to a decrease in interest rates. Income risk is
generally high for shorter-term bonds and low for
longer-term bonds.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, including the
state-specific risk associated with the Fund, please see
Additional Investment Strategies and Risks on page 107 or
consult the SAI.
</Table>
72
RISK/RETURN SUMMARY AND FUND EXPENSES WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1,2)
(in percents)
<Table>
1996 3.25
97 8.84
98 5.98
99 -3.13
2000 11.05
01 3.51
02 8.97
03 3.77
04 2.30
05 2.07
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 4.69% 12/31/00
Worst quarter: -2.05% 6/30/04
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1,2)
The chart and table on this page
show how the West Virginia
Intermediate Tax-Free Fund has
performed and how its performance
has varied from year to year. The
bar chart gives some indication of
risk by showing changes in the
Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Lehman Brothers 7-Year
Municipal Bond Index, an unmanaged
index generally representative of
the performance of municipal bonds
with a minimum credit of at least
Baa, a maturity value of at least
$5 million and a maturity range of
6-8 years. Of course, past
performance does not indicate how
the Fund will perform in the
future.
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
------------------------------------------------------------
CLASS A SHARES (with 3.00% sales charge)(3) (12/17/93)
------------------------------------------------------------
RETURN BEFORE TAXES -1.01% 3.51% 4.19% 4.31%
------------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.10% 3.32% 4.05% 4.19%
------------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND
SHARES 0.68% 3.45% 4.13% 4.25%
---------------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX
(reflects no deductions for fees, expenses or taxes) 1.72% 5.13% 5.26% 5.27%
---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions. For current
performance information including the Fund's 30 day yield, call 1-800-228-1872.
(2) Performance data includes the performance of the OVB West Virginia
Tax-Exempt Income Portfolio for the period prior to its consolidation with the
BB&T West Virginia Intermediate Tax-Free Fund on July 23, 2001.
(3) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
(4) Since 12/31/93.
73
RISK/RETURN SUMMARY AND FUND EXPENSES WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A
(FEES PAID BY YOU DIRECTLY)(1) SHARES
Maximum Sales Charge (load) on
Purchases 3.00%(2)
-----------------------------------------------------
Maximum Deferred Sales Charge (load) None
-----------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(3) 2.00%
ANNUAL FUND OPERATING EXPENSES (FEES CLASS A
PAID FROM FUND ASSETS)() SHARES
Management Fee 0.45%
-----------------------------------------------------
Distribution and Service (12b-1) Fee 0.25%
-----------------------------------------------------
Other Expenses 0.22%
-----------------------------------------------------
Total Fund Operating Expenses 0.92%
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
As an investor in the West
Virginia Intermediate Tax-Free
Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
74
RISK/RETURN SUMMARY AND FUND EXPENSES WEST VIRGINIA INTERMEDIATE TAX-FREE FUND
EXPENSE EXAMPLE
<Table>
<Caption>
WEST VIRGINIA
INTERMEDIATE TAX-FREE 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $391 $584 $794 $1,397
--------------------------------------------------------
</Table>
Use the table at right to
compare fees and expenses with
those of other Funds. It
illustrates the amount of fees
and expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
75
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
MONEY MARKET FUNDS
<Table>
These Funds seek current income with liquidity and stability
of principal by investing primarily in short-term debt
securities. The Funds seek to maintain a stable price of
$1.00 per share.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- seeking preservation of capital
- investing short-term reserves
- willing to accept lower potential returns in exchange
for a higher degree of safety
These Funds may not be appropriate if you are:
- seeking high total return
- pursuing a long-term goal or investing for retirement
</Table>
76
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks to provide as high a level of current
interest income as is consistent with maintaining liquidity
and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S.
dollar-denominated, "high-quality" short-term debt
securities, including the following:
- Obligations issued or supported by the credit of U.S. or
foreign banks or savings institutions with total assets
in excess of $1 billion (including obligations of
foreign branches of such banks);
- High quality commercial paper and other obligations
issued or guaranteed by U.S. and foreign corporations
and other issuers including corporate debt securities
that the issuer or a third party, such as a dealer or
bank, must repay on demand;
- Asset-backed securities;
- Securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or
instrumentalities and related custodial receipts;
- Securities issued or guaranteed by foreign governments
or their political subdivisions, agencies or
instrumentalities;
- Funding agreements issued by highly-rated U.S. insurance
companies;
- Securities issued or guaranteed by state or local
government bodies; and
- Repurchase agreements relating to the above instruments.
"High-quality" debt securities are those obligations which,
at the time of purchase, (i) possess one of the two highest
short-term ratings from at least two NRSROs (for example,
commercial paper rated "A-1" or "A-2" by Standard & Poor's
Corporation and "P-1" or "P-2" by Moody's Investors Service,
Inc.); or (ii) are single rated and have received one of the
two highest short-term ratings by an NRSRO; or (iii) if
unrated, are determined by the Sub-Adviser to be of
comparable quality.
When selecting securities for the Fund's portfolio, the
portfolio manager first considers safety of principal and
the quality of an investment. The portfolio manager then
focuses on generating a high level of income. The portfolio
manager generally evaluates investments based on interest
rate sensitivity selecting those securities whose maturities
fit the Fund's interest rate sensitivity target and which
the portfolio manager believes to be the best relative
values.
The Fund will maintain an average weighted portfolio
maturity of 90 days or less and will limit the maturity of
each security in its portfolio to 397 days or less.
For a more complete description of the securities in which
the Fund may invest, please see Additional Investment
Strategies and Risks on page 107 or consult the SAI.
</Table>
77
RISK/RETURN SUMMARY
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INTEREST RATE RISK: The possibility that the value of the
Fund's investments will decline due to an increase in
interest rates or that the Fund's yield will decrease due to
a decrease in interest rates. Interest rate risk is
generally high for longer-term debt securities and low for
shorter-term debt securities.
CREDIT RISK: The possibility that an issuer cannot make
timely interest and principal payments on its debt
securities such as bonds. The lower a security's rating, the
greater its credit risk.
PREPAYMENT/CALL RISK: If a significant number of the
mortgages underlying a mortgage-backed bond are refinanced,
the bond may be "prepaid." Call risk is the possibility
that, during periods of declining interest rates, a bond
issuer will "call" -- or repay -- higher-yielding bonds
before their stated maturity date. In both cases, investors
receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices
and yields to be volatile.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION
OF BRANCH BANKING AND TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
</Table>
78
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 4.86
99 4.49
2000 5.61
01 3.38
02 0.98
03 0.36
04 0.65
05 2.40
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 1.46% 12/31/00
Worst quarter: 0.06% 9/30/03
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
show how the Prime Money Market
Fund has performed and how its
performance has varied from year
to year. The bar chart gives some
indication of risk by showing
changes in the Fund's yearly
performance to demonstrate that
the Fund's value varied at
different times. The table below
it shows the Fund's performance
over time. Of course, past
performance does not indicate how
the Fund will perform in the
future.
The returns for Class B and Class
C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences
in expenses of each class. The
table assumes that Class B and
Class C shareholders redeem all of
their fund shares at the end of
the period indicated.
<Table>
<Caption>
5 YEARS SINCE INCEPTION
1 YEAR (3) (2),(3)
---------------------------------------
CLASS A SHARES (10/1/97)
---------------------------------------
2.40% 1.55% 2.89%
----------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (10/1/97)
---------------------------------------
-2.13% 0.86% 2.38%
----------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (10/1/97)
---------------------------------------
1.87% 1.19% 2.66%
----------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to September 2, 1998. Performance
for periods prior to September 2, 1998 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(3) Class C Shares were not in existence prior to January 30, 2002. Performance
for periods prior to January 30, 2002 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
As of December 31, 2005, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Class C Shares was 3.38%, 2.88%, and 2.88%, respectively. Without
fee waivers and expense reimbursements, the Fund's yield would have been 3.27%,
2.77%, and 2.77%, respectively, for this time period. For current yield
information on the Fund, call 1-800-228-1872. The Fund's yield appears in The
Wall Street Journal each Thursday.
79
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases None None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(2) 1.00%(3)
------------------------------------------------------------------
Redemption Fee(4) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS)() SHARES SHARES SHARES
Management Fee(5) 0.40% 0.40% 0.40%
------------------------------------------------------------------
Distribution and Service (12b-1) Fee 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.20% 0.20% 0.20%
------------------------------------------------------------------
Total Fund Operating Expenses 1.10% 1.60% 1.60%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(5) -0.11% -0.11% -0.11%
------------------------------------------------------------------
Net Fund Operating Expenses(5) 0.99% 1.49% 1.49%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(3) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(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) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.29% for the period from
February 1, 2006 through January 31, 2007.
As an investor in the Prime
Money Market Fund, you will
pay the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
80
RISK/RETURN SUMMARY AND FUND EXPENSES PRIME MONEY MARKET FUND
EXPENSE EXAMPLE
<Table>
<Caption>
1 3 5 10
PRIME MONEY MARKET FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $101 $339 $596 $1,330
----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $552 $794 $960 $1,757
Assuming No Redemption $152 $494 $860 $1,757
----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $152 $494 $860 $1,891
Assuming No Redemption $152 $494 $860 $1,891
----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
81
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks current income with liquidity and stability
of principal by investing exclusively in short-term United
States dollar-denominated obligations issued or guaranteed
by the U.S. Treasury, some of which may be subject to
repurchase agreements.
PRINCIPAL To pursue this goal, the Fund invests exclusively in
INVESTMENT STRATEGIES short-term U.S. dollar- denominated obligations issued by
the U.S. Treasury ("U.S. Treasury Securities"), and
repurchase agreements collateralized by U.S. Treasury
Securities. Obligations purchased by the Fund are limited to
U.S. dollar-denominated obligations which the Board of
Trustees has determined present minimal credit risks.
In managing the Fund, the portfolio manager focuses on
generating a high level of income. The portfolio manager
generally evaluates investments based on interest rate
sensitivity selecting those securities whose maturities fit
the Fund's interest rate sensitivity target and which the
portfolio manager believes to be the best relative values.
Generally, the portfolio manager buys and holds securities
until their maturity.
The Fund will maintain an average weighted portfolio
maturity of 90 days or less and will limit the maturity of
each security in its portfolio to 397 days or less.
For a more complete description of the securities in which
the Fund may invest, please see Additional Investment
Strategies and Risks on page 107 or consult the SAI.
PRINCIPAL Your investment in the Fund may be subject to the following
INVESTMENT RISKS principal risks:
INTEREST RATE RISK: The possibility that the Fund's yield
will decrease due to a decrease in interest rates or that
the value of the Fund's investments will decline due to an
increase in interest rates. Interest rate risk is generally
high for longer-term debt securities and low for
shorter-term debt securities.
For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION
OF BRANCH BANKING AND TRUST COMPANY, BB&T CORPORATION, THEIR
AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
</Table>
82
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1996 4.41
97 4.57
98 4.59
99 4.15
2000 5.27
01 3.16
02 0.79
03 0.20
04 0.55
05 2.14
</Table>
The performance information shown above is
based on a calendar year.
<Table>
Best quarter: 1.38% 12/31/00
Worst quarter: 0.03% 9/30/03
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page show
how the U.S. Treasury Money Market
Fund has performed and how its
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The table
below it shows the Fund's performance
over time. Of course, past
performance does not indicate how the
Fund will perform in the future.
The returns for Class B Shares and
Class C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
<Table>
<Caption>
10 YEARS SINCE INCEPTION
1 YEAR 5 YEARS(3) (2),(3) (2),(3)
------------------------------------------------------
CLASS A SHARES (10/5/92)
------------------------------------------------------
2.14% 1.36% 2.97% 3.10%
-------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable
Contingent Deferred Sales Charge) (10/5/92)
------------------------------------------------------
-2.39% 0.73% 2.35% 2.63%
-------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable
Contingent Deferred Sales Charge) (10/5/92)
------------------------------------------------------
1.59% 1.06% 2.81% 2.98%
-------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) Class B Shares were not in existence prior to January 1, 1996. Performance
for periods prior to January 1, 1996 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(3) Class C Shares were not in existence prior to January 30, 2002. Performance
for periods prior to January 30, 2002 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
As of December 31, 2005, the Fund's 7-day yield for Class A Shares, Class B
Shares, and Class C Shares was 2.95%, 2.45%, and 2.41%, respectively. Without
fee waivers and expense reimbursements, the Fund's yield would have been 2.83%,
2.33%, and 2.29%, respectively for this time period. For current yield
information on the Fund, call 1-800-228-1872. The Fund's yield appears in The
Wall Street Journal each Thursday.
83
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases None None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(2) 1.00%(3)
------------------------------------------------------------------
Redemption Fee(4) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(5) 0.40% 0.40% 0.40%
------------------------------------------------------------------
Distribution and Service (12b-1) Fee 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses 0.20% 0.20% 0.20%
------------------------------------------------------------------
Total Fund Operating Expenses 1.10% 1.60% 1.60%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(5) -0.14% -0.14% -0.14%
------------------------------------------------------------------
Net Fund Operating Expenses(5) 0.96% 1.46% 1.46%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customer's
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(3) The CDSC on Class C Shares is applicable
only to redemption within one year of
purchase.
(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) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.26% for the period from
February 1, 2006 through January 31, 2007.
As an investor in the U.S.
Treasury Money Market Fund,
you will pay the following
fees and expenses when you buy
and hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
84
RISK/RETURN SUMMARY AND FUND EXPENSES U.S. TREASURY MONEY MARKET FUND
EXPENSE EXAMPLE
<Table>
<Caption>
U.S. TREASURY MONEY MARKET 1 3 5 10
FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $ 98 $336 $593 $1,328
----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $549 $791 $958 $1,754
Assuming No Redemption $149 $491 $858 $1,754
----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $149 $491 $858 $1,888
Assuming No Redemption $149 $491 $858 $1,888
----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
85
RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW
FUNDS OF FUNDS
<Table>
These Funds invest substantially all of their assets in
Institutional Shares of the BB&T Funds described earlier in
this prospectus.
WHO MAY WANT TO INVEST Consider investing in these Funds if you are:
- seeking to spread your investment among many different
mutual funds that match your goals in one simple
package
- seeking investment professionals to select and maintain
a portfolio of mutual funds for you
- seeking the benefits of asset allocation and multiple
levels of risk reducing diversification
These Funds may not be appropriate if you are:
- pursuing a short-term goal or investing emergency
reserves
- uncomfortable with an investment that will fluctuate in
value
</Table>
86
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE GROWTH FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital appreciation and income by investing
primarily in a group of diversified BB&T Funds which invest
primarily in equity and fixed income securities.
PRINCIPAL To pursue this goal, the Fund allocates its assets among the
INVESTMENT STRATEGIES Underlying Funds (listed below) within predetermined
strategy ranges set forth below. The portfolio manager will
make allocation decisions according to his outlook for the
economy, financial markets and relative market valuation of
the Underlying Funds.
The Fund will invest 25% to 55% of its total assets in
Underlying Funds which invest primarily in equity
securities, 45% to 75% of its total assets in Underlying
Funds which invest primarily in fixed income securities and
up to 20% of its total assets in Underlying Funds which are
money market funds. The Fund will invest its assets in the
following Underlying Funds within the strategy ranges
(expressed as a percentage of the Fund's total assets)
indicated below:
</Table>
<Table>
<Caption>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
STOCK FUNDS
Large Cap Value Fund* 0%-55%
Large Cap Growth Fund* 0%-55%
Mid Cap Value Fund 0%-30%
Mid Cap Growth Fund 0%-30%
Small Cap Fund* 0%-30%
International Equity Fund 0%-30%
BOND FUNDS
Short U.S. Government Fund 0%-75%
Intermediate U.S. Government Fund 0%-75%
Total Return Bond Fund* 0%-75%
MONEY MARKET FUNDS
Prime Money Market Fund 0%-20%
U.S. Treasury Money Market Fund 0%-20%
</Table>
<Table>
The Underlying Funds are described earlier in this
Prospectus.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
</Table>
* Prior to February 1, 2006, the BB&T Large Cap Value
Fund and the BB&T Large Cap Growth Fund were known as
the BB&T Large Company Value Fund and the BB&T Large
Company Growth Fund, respectively; prior to November
21, 2005, the BB&T Small Cap Fund was known as the
BB&T Small Company Value Fund; and prior to June 1,
2005, the BB&T Total Return Bond Fund was known as the
BB&T Intermediate Corporate Bond Fund.
87
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE GROWTH FUND
RISK/RETURN SUMMARY
CONTINUED
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's investments are
concentrated in the Underlying Funds, so the Fund's
investment performance is directly related to the
performance of those Underlying Funds. Before investing in
the Fund, investors should assess the risks associated with
the Underlying Funds in which the Fund invests and the types
of investments made by those Underlying Funds. In addition,
since the Fund must allocate its investments among the
Underlying Funds, the Fund does not have the same
flexibility to invest as a mutual fund without these
constraints. As a result, you could lose money by investing
in the Fund, particularly if there is a sudden decline in
the share prices of the Underlying Funds' holdings.
FIXED INCOME FUNDS: The Fund invests in Underlying Funds
that invest primarily in fixed income securities, which are
subject to interest rate and credit risk. Interest rate risk
is the potential for a decline in bond prices due to rising
interest rates. Credit risk is the possibility that the
issuer of a fixed-income security will fail to make timely
payments of interest or principal, or that the security will
have its credit rating downgraded.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
EQUITY FUNDS: The Fund also invests in Underlying Funds that
invest primarily in equity securities, which are subject to
market risk. Stocks and other equity securities fluctuate in
price, often based on factors unrelated to the issuers'
value, and such fluctuations can be pronounced. Equity Funds
may also be subject to investment style risk which is the
risk that the particular market segment on which a Fund
focuses will underperform other kinds of investments.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
88
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE GROWTH FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 10.56
1999 6.08
2000 3.06
01 -3.39
02 -6.64
03 12.48
04 6.25
05 3.66
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 7.65% 12/31/98
Worst quarter: -5.56% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
shows how the Capital Manager
Conservative Growth Fund has
performed and how its performance has
varied from year to year. The bar
chart gives some indication of risk
by showing changes in the Fund's
yearly performance to demonstrate
that the Fund's value varied at
different times. The table below it
compares the Fund's performance over
time to that of the S&P 500(R) Index,
a widely recognized, unmanaged index
of common stocks, and the Lehman
Brothers Intermediate Government Bond
Index, an unmanaged index
representative of the total return of
government bonds with maturities of
less than 10 years. Of course, past
performance does not indicate how the
Fund will perform in the future.
The returns for Class B Shares and
Class C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
<Table>
<Caption>
5 SINCE
1 YEAR YEARS (3),(4) INCEPTION (3),(4)
---------------------------------------------
CLASS A SHARES (with 5.75% sales charge)(2) (10/2/97)
---------------------------------------------
RETURN BEFORE TAXES -2.29% 1.04% 3.08%
---------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -3.14% 0.19% 1.80%
---------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -1.41% 0.41% 1.93%
---------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (10/2/97)
---------------------------------------------
RETURN BEFORE TAXES -1.11% 1.35% 3.27%
---------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (10/2/97)
---------------------------------------------
RETURN BEFORE TAXES 2.86% 1.48% 3.35%
---------------------------------------------------------------------------------------------------------------------
S&P 500(R) INDEX (reflects no deductions for fees, expenses, or
taxes) 4.91% 0.54% 5.00%(6)
---------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.68% 4.82% 5.52%(6)
---------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only, after-tax returns for Class B and C Shares will vary.
(3) Class A Shares were not in existence prior to January 29, 1998. Performance
for periods prior to that is based on the historical performance of the
Institutional Shares, and has been adjusted for the maximum sales charge
applicable to the Class A Shares, but does not include the Class A Shares 12b-1
fees, which, if reflected, performance would have been lower.
(4) Class B Shares were not in existence prior to January 29, 1999. Performance
for periods prior to January 29, 1999 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(5) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(6) Since 9/30/97.
89
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE GROWTH FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
--------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
--------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.25% 0.25% 0.25%
--------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
--------------------------------------------------------------------
Other Expenses(6) 0.20% 0.20% 0.20%
--------------------------------------------------------------------
Total Fund Operating Expenses(6,7) 0.95% 1.45% 1.45%
--------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.50% -0.25% -0.25%
--------------------------------------------------------------------
Net Fund Operating Expenses(6,7) 0.45% 1.20% 1.20%
--------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.00% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period. For the current fiscal year,
total actual operating expenses are expected
to be less than the amount shown above
because of voluntary additional fee waivers
or expense reimbursements. With these fee
waivers or reimbursements, the Fund's total
actual operating expenses for each class are
expected to be: Class A Shares, 0.33%, Class
B Shares, 1.08%, Class C Shares, 1.08%. These
voluntary fee waivers or expense
reimbursement arrangements may be
discontinued at any time.
(7) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
weighted average expense ratio for each class
after all waivers and reimbursements is
expected to be 1.12%, 1.87%, and 1.87% for
Class A Shares, Class B Shares, and Class C
Shares, respectively. After contractual
expense waivers and reimbursements the
expense ratios are expected to be 1.24%,
1.99%, and 1.99%, and prior to any expense
waivers and reimbursements the weighted
average expense ratio is expected to be
1.84%, 2.34%, and 2.34% for Class A Shares,
Class B Shares, and Class C Shares,
respectively.
As an investor in the Capital
Manager Conservative Growth
Fund, you will pay the
following fees and expenses
when you buy and hold shares.
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets
and are reflected in the share
price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
90
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER CONSERVATIVE GROWTH FUND
EXPENSE EXAMPLE
<Table>
<Caption>
CAPITAL MANAGER CONSERVATIVE 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $618 $813 $1,024 $1,631
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $522 $734 $ 868 $1,578
Assuming No Redemption $122 $434 $ 768 $1,578
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $122 $434 $ 768 $1,714
Assuming No Redemption $122 $434 $ 768 $1,714
-----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
91
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital appreciation and, secondarily, income
by investing primarily in a group of diversified BB&T Funds
which invest primarily in equity and fixed income
securities.
PRINCIPAL To pursue this goal, the Fund allocates its assets among the
INVESTMENT STRATEGIES Underlying Funds (listed below) within predetermined
strategy ranges set forth below. The portfolio manager will
make allocation decisions according to his outlook for the
economy, financial markets and relative market valuation of
the Underlying Funds.
The Fund will invest 45% to 75% of its total assets in
Underlying Funds which invest primarily in equity
securities, 25% to 55% of its total assets in Underlying
Funds which invest primarily in fixed income securities and
up to 15% of its total assets in Underlying Funds which are
money market funds. The Fund will invest its assets in the
following Underlying Funds within the strategy ranges
(expressed as a percentage of the Fund's total assets)
indicated below:
</Table>
<Table>
<Caption>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
STOCK FUNDS
Large Cap Value Fund* 0%-75%
Large Cap Growth Fund* 0%-75%
Mid Cap Value Fund 0%-50%
Mid Cap Growth Fund 0%-50%
Small Cap Fund* 0%-50%
International Equity Fund 0%-50%
BOND FUNDS
Short U.S. Government Fund 0%-55%
Intermediate U.S. Government Fund 0%-55%
Total Return Bond Fund* 0%-55%
MONEY MARKET FUNDS
Prime Money Market Fund 0%-15%
U.S. Treasury Money Market Fund 0%-15%
</Table>
<Table>
The Underlying Funds are described earlier in this
Prospectus.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
* Prior to February 1, 2006, the BB&T Large Cap Value Fund
and the BB&T Large Cap Growth Fund were known as the BB&T
Large Company Value Fund and the BB&T Large Company Growth
Fund, respectively; prior to November 21, 2005, the BB&T
Small Cap Fund was known as the BB&T Small Company Value
Fund; and prior to June 1, 2005, the BB&T Total Return Bond
Fund was known as the BB&T Intermediate Corporate Bond Fund.
</Table>
92
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH FUND
RISK/RETURN SUMMARY
CONTINUED
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's investments are
concentrated in the Underlying Funds, so the Fund's
investment performance is directly related to the
performance of those Underlying Funds. Before investing in
the Fund, investors should assess the risks associated with
the Underlying Funds in which the Fund invests and the types
of investments made by those Underlying Funds. In addition,
since the Fund must allocate its investments among the
Underlying Funds, the Fund does not have the same
flexibility to invest as a mutual fund without these
constraints. As a result, you could lose money by investing
in the Fund, particularly if there is a sudden decline in
the share prices of the Underlying Funds' holdings.
EQUITY FUNDS: The Fund invests in Underlying Funds that
invest primarily in equity securities, which are subject to
market risk. Stocks and other equity securities fluctuate in
price, often based on factors unrelated to the issuers'
value, and such fluctuations can be pronounced. Equity Funds
may also be subject to investment style risk which is the
risk that the particular market segment on which a Fund
focuses will underperform other kinds of investments.
FIXED INCOME FUNDS: The Fund also invests in Underlying
Funds that invest primarily in fixed income securities,
which are subject to interest rate and credit risk. Interest
rate risk is the potential for a decline in bond prices due
to rising interest rates. Credit risk is the possibility
that the issuer of a fixed-income security will fail to make
timely payments of interest or principal, or that the
security will have its credit rating downgraded.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
93
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 12.24
1999 10.34
2000 0.03
01 -7.19
02 -13.24
03 17.85
04 8.54
05 4.67
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 11.68% 12/31/98
Worst quarter: -10.45% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
shows how the Capital Manager
Moderate Growth Fund has performed
and how its performance has varied
from year to year. The bar chart
gives some indication of risk by
showing changes in the Fund's yearly
performance to demonstrate that the
Fund's value varied at different
times. The table below it compares
the Fund's performance over time to
that of the S&P 500(R) Index, a
widely recognized, unmanaged index of
common stocks, and the Lehman
Brothers Intermediate Government Bond
Index, an unmanaged index
representative of the total return of
government bonds with maturities of
less than 10 years. Of course, past
performance does not indicate how the
Fund will perform in the future.
The returns for Class B Shares and
Class C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
<Table>
<Caption>
SINCE INCEPTION
1 YEAR 5 YEARS (3),(4),(5)
------------------------------------------
CLASS A SHARES (with 5.75% sales charge)(2) 10/2/97
------------------------------------------
RETURN BEFORE TAXES -1.40% 0.32% 2.83%
------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.99% -0.25% 1.78%
------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -0.76% -0.01% 1.91%
------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 10/2/97
------------------------------------------
RETURN BEFORE TAXES -0.13% 0.57% 2.96%
------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) 10/2/97
------------------------------------------
RETURN BEFORE TAXES 3.79% 0.83% 3.15%
------------------------------------------------------------------------------------------------------------------
S&P 500(R) INDEX (reflects no deductions for fees, expenses, or
taxes) 4.91% 0.54% 5.00%(6)
------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.68% 4.82% 5.52%(6)
------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class A Shares were not in existence prior to January 29, 1998. Performance
for periods prior to that is based on the historical performance of the
Institutional Shares, and has been adjusted for the maximum sales charge
applicable to the Class A Shares, but does not include the Class A Shares 12b-1
fees, which, if reflected, performance would have been lower.
(4) Class B Shares were not in existence prior to January 29, 1999. Performance
for periods prior to January 29, 1999 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(5) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(6) Since 9/30/97.
94
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.25% 0.25% 0.25%
------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses(6) 0.24% 0.24% 0.24%
------------------------------------------------------------------
Total Fund Operating Expenses(6,7) 0.99% 1.49% 1.49%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.50% -0.25% -0.25%
------------------------------------------------------------------
Net Fund Operating Expenses(6,7) 0.49% 1.24% 1.24%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.00% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period. For the current fiscal year,
total actual operating expenses are expected
to be less than the amount shown above
because of voluntary additional fee waivers
or expense reimbursements. With these fee
waivers or reimbursements, the Fund's total
actual operating expenses for each class are
expected to be: Class A Shares, 0.37%, Class
B Shares, 1.12%, Class C Shares, 1.12%. These
voluntary fee waivers or expense
reimbursement arrangements may be
discontinued at any time.
(7) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
weighted average expense ratio for each class
after all waivers and reimbursements is
expected to be 1.22%, 1.97%, and 1.97% for
Class A Shares, Class B Shares, and Class C
Shares, respectively. After contractual
expense waivers and reimbursements the
expense ratios are expected to be 1.34%,
2.09%, and 2.09%, and prior to any expense
waivers and reimbursements the weighted
average expense ratio is expected to be
1.93%, 2.43%, and 2.43% for Class A Shares,
Class B Shares, and Class C Shares,
respectively.
As an investor in the Capital
Manager Moderate Growth Fund,
you will pay the following
fees and expenses when you buy
and hold shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
95
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER MODERATE GROWTH FUND
EXPENSE EXAMPLE
<Table>
<Caption>
CAPITAL MANAGER MODERATE 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $622 $825 $1,045 $1,675
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $526 $746 $ 890 $1,623
Assuming No Redemption $126 $446 $ 790 $1,623
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $126 $446 $ 790 $1,758
Assuming No Redemption $126 $446 $ 790 $1,758
-----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
96
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital appreciation by investing primarily
in a group of diversified BB&T Funds which invest primarily
in equity securities.
PRINCIPAL To pursue this goal, the Fund allocates its assets among the
INVESTMENT STRATEGIES Underlying Funds (listed below) within predetermined
strategy ranges set forth below. The portfolio manager will
make allocation decisions according to his outlook for the
economy, financial markets and relative market valuation of
the Underlying Funds.
The Fund will invest 60% to 90% of its total assets in
Underlying Funds which invest primarily in equity
securities, 10% to 40% of its total assets in Underlying
Funds which invest primarily in fixed income securities and
up to 10% of its total assets in Underlying Funds which are
money market funds. The Fund will invest its assets in the
following Underlying Funds within the strategy ranges
(expressed as a percentage of the Fund's total assets)
indicated below:
</Table>
<Table>
<Caption>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
STOCK FUNDS
Large Cap Value Fund* 0%-90%
Large Cap Growth Fund* 0%-90%
Mid Cap Value Fund 0%-65%
Mid Cap Growth Fund 0%-65%
Small Cap Fund* 0%-65%
International Equity Fund 0%-65%
BOND FUNDS
Short U.S. Government Fund 0%-40%
Intermediate U.S. Government Fund 0%-40%
Total Return Bond Fund* 0%-40%
MONEY MARKET FUNDS
Prime Money Market Fund 0%-10%
U.S. Treasury Money Market Fund 0%-10%
</Table>
<Table>
The Underlying Funds are described earlier in this
Prospectus.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
* Prior to February 1, 2006, the BB&T Large Cap Value Fund
and the BB&T Large Cap Growth Fund were known as the BB&T
Large Company Value Fund and the BB&T Large Company Growth
Fund, respectively; prior to November 21, 2005, the BB&T
Small Cap Fund was known as the BB&T Small Company Value
Fund; and prior to June 1, 2005, the BB&T Total Return Bond
Fund was known as the BB&T Intermediate Corporate Bond Fund.
</Table>
97
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
RISK/RETURN SUMMARY
CONTINUED
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's investments are
concentrated in the Underlying Funds, so the Fund's
investment performance is directly related to the
performance of those Underlying Funds. Before investing in
the Fund, investors should assess the risks associated with
the Underlying Funds in which the Fund invests and the types
of investments made by those Underlying Funds. In addition,
since the Fund must allocate its investments among the
Underlying Funds, the Fund does not have the same
flexibility to invest as a mutual fund without these
constraints. As a result, you could lose money by investing
in the Fund, particularly if there is a sudden decline in
the share prices of the Underlying Funds' holdings.
EQUITY FUNDS: The Fund invests in Underlying Funds that
invest primarily in equity securities, which are subject to
market risk. Stocks and other equity securities fluctuate in
price, often based on factors unrelated to the issuers'
value, and such fluctuations can be pronounced. Equity Funds
may also be subject to investment style risk which is the
risk that the particular market segment on which a Fund
focuses will underperform other kinds of investments.
FIXED INCOME FUNDS: The Fund also invests in Underlying
Funds that invest primarily in fixed income securities,
which are subject to interest rate and credit risk. Interest
rate risk is the potential for a decline in bond prices due
to rising interest rates. Credit risk is the possibility
that the issuer of a fixed-income security will fail to make
timely payments of interest or principal, or that the
security will have its credit rating downgraded.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
98
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
1998 13.39
1999 13.77
2000 -1.79
01 -11.62
02 -18.18
03 21.51
04 10.04
05 5.45
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 14.83% 12/31/98
Worst quarter: -13.92% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
shows how the Capital Manager Growth
Fund has performed and how its
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
S&P 500(R) Index, a widely
recognized, unmanaged index of common
stocks, and the Lehman Brothers
Intermediate Government Bond Index,
an unmanaged index representative of
the total return of government bonds
with maturities of less than 10
years. Of course, past performance
does not indicate how the Fund will
perform in the future.
The returns for Class B Shares and
Class C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
<Table>
<Caption>
5 YEARS SINCE INCEPTION
1 YEAR (5) (3),(4),(5)
------------------------------------------
CLASS A SHARES (with 5.75% sales charge)(2) (10/2/97)
------------------------------------------
RETURN BEFORE TAXES -0.59% -0.79% 2.35%
------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -1.01% -1.14% 1.48%
------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -0.17% -0.80% 1.63%
------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (10/2/97)
------------------------------------------
RETURN BEFORE TAXES 0.56% -0.57% 2.51%
------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (10/2/97)
------------------------------------------
RETURN BEFORE TAXES 4.61% -0.34% 2.63%
------------------------------------------------------------------------------------------------------------------
S&P 500(R) INDEX (reflects no deductions for fees, expenses, or
taxes) 4.91% 0.54% 5.00%(6)
------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX
(reflects no deductions for fees, expenses, or taxes) 1.68% 4.82% 5.52%(6)
------------------------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only; after-tax returns for Class B and C Shares will vary.
(3) Class A Shares were not in existence prior to January 29, 1998. Performance
for periods prior to that is based on the historical performance of the
Institutional Shares, and has been adjusted for the maximum sales charge
applicable to the Class A Shares, but does not include the Class A Shares 12b-1
fees, which, if reflected, performance would have been lower.
(4) Class B Shares were not in existence prior to January 29, 1999. Performance
for periods prior to January 29, 1999 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(5) Class C Shares were not in existence prior to February 1, 2001. Performance
for periods prior to February 1, 2001 is based on Class A Share performance and
has been adjusted for the maximum contingent deferred sales charge applicable to
Class C Shares, but does not reflect the Class C Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
(6) Since 9/30/97.
99
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.25% 0.25% 0.25%
------------------------------------------------------------------
Distribution and Service (12b-1)
Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses(6) 0.25% 0.25% 0.25%
------------------------------------------------------------------
Total Fund Operating Expenses(6,7) 1.00% 1.50% 1.50%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.50% -0.25% -0.25%
------------------------------------------------------------------
Net Fund Operating Expenses(6,7) 0.50% 1.25% 1.25%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.00% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period. For the current fiscal year,
total actual operating expenses are expected
to be less than the amount shown above
because of voluntary additional fee waivers
or expense reimbursements. With these fee
waivers or reimbursements, the Fund's total
actual operating expenses for each class are
expected to be: Class A Shares, 0.38%, Class
B Shares, 1.13%, Class C Shares, 1.13%. These
voluntary fee waivers or expense
reimbursement arrangements may be
discontinued at any time.
(7) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
weighted average expense ratio for each class
after all waivers and reimbursements is
expected to be 1.27%, 2.02%, and 2.02% for
Class A Shares, Class B Shares, and Class C
Shares, respectively. After contractual
expense waivers and reimbursements the
expense ratios are expected to be 1.39%,
2.14%, and 2.14%, and prior to any expense
waivers and reimbursements the weighted
average expense ratio is expected to be
1.98%, 2.48%, and 2.48% for Class A Shares,
Class B Shares, and Class C Shares,
respectively.
As an investor in the Capital
Manager Growth Fund, you will
pay the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
100
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER GROWTH FUND
EXPENSE EXAMPLE
<Table>
<Caption>
CAPITAL MANAGER 1 3 5 10
GROWTH FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $623 $828 $1,050 $1,686
-----------------------------------------------------------
CLASS B SHARES
Assuming Redemption $527 $750 $ 895 $1,634
Assuming No Redemption $127 $450 $ 795 $1,634
-----------------------------------------------------------
CLASS C SHARES
Assuming Redemption $127 $450 $ 795 $1,769
Assuming No Redemption $127 $450 $ 795 $1,769
-----------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other Funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
101
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER EQUITY FUND
RISK/RETURN SUMMARY
<Table>
INVESTMENT OBJECTIVE The Fund seeks capital appreciation by investing primarily
in a group of diversified BB&T Funds which invest primarily
in equity securities.
PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund allocates its assets among the
Underlying Funds (listed below) within predetermined
strategy ranges set forth below. The portfolio manager will
make allocation decisions according to his outlook for the
economy, financial markets and relative market valuation of
the Underlying Funds.
The Fund will invest up to 100% of its total assets in
Underlying Funds which invest primarily in equity securities
and up to 10% of its total assets in Underlying Funds which
invest primarily in fixed income securities and money market
funds. The Fund will invest its assets in the following
Underlying Funds within the strategy ranges (expressed as a
percentage of the Fund's total assets) indicated below:
</Table>
<Table>
<Caption>
INVESTMENT RANGE
UNDERLYING FUND (PERCENTAGE OF FUND ASSETS)
----------------------------------------------------------------------------------
STOCK FUNDS
Large Cap Value Fund* 0%-90%
Large Cap Growth Fund* 0%-90%
Mid Cap Value Fund 0%-65%
Mid Cap Growth Fund 0%-65%
Small Cap Fund* 0%-65%
International Equity Fund 0%-65%
BOND FUNDS
Short U.S. Government Fund 0%-40%
Intermediate U.S. Government Fund 0%-40%
Total Return Bond Fund* 0%-40%
MONEY MARKET FUNDS
Prime Money Market Fund 0%-10%
U.S. Treasury Money Market Fund 0%-10%
</Table>
<Table>
The Underlying Funds are described earlier in this
Prospectus.
The Fund may also invest in certain other equity securities
in addition to those described above. For a more complete
description of the various securities in which the Fund may
invest, please see Additional Investment Strategies and
Risks on page 107 or consult the SAI.
* Prior to February 1, 2006, the BB&T Large Cap Value Fund
and the BB&T Large Cap Growth Fund were known as the BB&T
Large Company Value Fund and the BB&T Large Company Growth
Fund, respectively; prior to November 21, 2005, the BB&T
Small Cap Fund was known as the BB&T Small Company Value
Fund; and prior to June 1, 2005, the BB&T Total Return Bond
Fund was known as the BB&T Intermediate Corporate Bond Fund.
</Table>
102
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER EQUITY FUND
RISK/RETURN SUMMARY
CONTINUED
<Table>
PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following
principal risks:
INVESTING IN MUTUAL FUNDS: The Fund's investments are
concentrated in the Underlying Funds, so the Fund's
investment performance is directly related to the
performance of those Underlying Funds. Before investing in
the Fund, investors should assess the risks associated with
the Underlying Funds in which the Fund invests and the types
of investments made by those Underlying Funds. In addition,
since the Fund must allocate its investments among the
Underlying Funds, the Fund does not have the same
flexibility to invest as a mutual fund without these
constraints. As a result, you could lose money by investing
in the Fund, particularly if there is a sudden decline in
the share prices of the Underlying Funds' holdings.
EQUITY FUNDS: The Fund invests in Underlying Funds that
invest primarily in equity securities, which are subject to
market risk. Stocks and other equity securities fluctuate in
price, often based on factors unrelated to the issuers'
value, and such fluctuations can be pronounced. Equity Funds
may also be subject to investment style risk which is the
risk that the particular market segment on which a Fund
focuses will underperform other kinds of investments.
FIXED INCOME FUNDS: The Fund also invests in Underlying
Funds that invest primarily in fixed income securities,
which are subject to interest rate and credit risk. Interest
rate risk is the potential for a decline in bond prices due
to rising interest rates. Credit risk is the possibility
that the issuer of a fixed-income security will fail to make
timely payments of interest or principal, or that the
security will have its credit rating downgraded.
FOREIGN INVESTMENT RISK: Foreign securities involve risks
not typically associated with investing in U.S. securities.
Foreign securities may be adversely affected by myriad
factors, including currency fluctuations and social,
economic or political instability.
The Fund may trade securities actively, which could increase
its transaction costs (thereby lowering its performance) and
may increase the amount of taxes that you pay. If the Fund
invests in securities with additional risks, its share price
volatility accordingly could be greater and its performance
lower. For more information about these risks, please see
Additional Investment Strategies and Risks on page 107.
</Table>
103
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER EQUITY FUND
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS A SHARES(1)
(in percents)
<Table>
2002 -21.49
2003 24.18
2004 11.43
2005 6.82
</Table>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
Additionally, the performance information
shown above is based on a calendar year.
<Table>
Best quarter: 13.97% 6/30/03
Worst quarter: -16.36% 9/30/02
</Table>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended
December 31, 2005)(1)
The chart and table on this page
shows how the Capital Manager Equity
Fund has performed and how its
performance has varied from year to
year. The bar chart gives some
indication of risk by showing changes
in the Fund's yearly performance to
demonstrate that the Fund's value
varied at different times. The table
below it compares the Fund's
performance over time to that of the
S&P 500(R) Index, a widely
recognized, unmanaged index of common
stocks. Of course, past performance
does not indicate how the Fund will
perform in the future.
The returns for Class B Shares and
Class C Shares will differ from the
Class A Share returns shown in the
bar chart because of differences in
expenses of each class. The table
assumes that Class B and Class C
shareholders redeem all of their fund
shares at the end of the period
indicated.
<Table>
<Caption>
1 YEAR SINCE INCEPTION
------------------------
CLASS A SHARES (with 5.75% sales charge)(2) (3/19/01)
------------------------
RETURN BEFORE TAXES 0.67% 1.32%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS -0.16% 1.10%
------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALES OF FUND SHARES 0.70% 1.03%
------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (3/19/01)
------------------------
RETURN BEFORE TAXES 2.02% 1.44%
------------------------------------------------------------------------------------------------
CLASS C SHARES (with applicable Contingent Deferred Sales Charge) (3/19/01)
------------------------
RETURN BEFORE TAXES 5.94% 1.75%
------------------------------------------------------------------------------------------------
S&P 500(R) INDEX (reflects no deductions for fees, expenses, or
taxes) 4.91% 3.28%(3)
------------------------------------------------------------------------------------------------
</Table>
(1) Both charts assume reinvestment of dividends and distributions.
(2) After tax returns are calculated using the historical highest individual
federal marginal income tax rate and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on a an investor's tax situation
and may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A Shares only after-tax returns for Class B and C shares will vary.
(3) Since 3/31/01.
104
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER EQUITY FUND
FEES AND EXPENSES
<Table>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES
Maximum Sales Charge (load) on
Purchases 5.75%(2) None None
------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None 5.00%(3) 1.00%(4)
------------------------------------------------------------------
Redemption Fee (on shares sold within
7 calendar days of purchase)(5) 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C
(FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES
Management Fee(6) 0.25% 0.25% 0.25%
------------------------------------------------------------------
Distribution and Service
(12b-1) Fee(6) 0.50% 1.00% 1.00%
------------------------------------------------------------------
Other Expenses(6) 0.23% 0.23% 0.23%
------------------------------------------------------------------
Total Fund Operating Expenses(6,7) 0.98% 1.48% 1.48%
------------------------------------------------------------------
Fee Waiver or Expense
Reimbursement(6) -0.50% -0.25% -0.25%
------------------------------------------------------------------
Net Fund Operating Expenses(6,7) 0.48% 1.23% 1.23%
------------------------------------------------------------------
</Table>
(1) Participating banks or other financial
institutions may charge their customers
account fees for automatic investment,
exchanges and other cash management services
provided in connection with investment in the
Funds.
(2) Lower sales charges are available
depending upon the amount invested. For
investments of $1 million or more, a
contingent deferred sales charge ("CDSC") is
applicable to redemptions within one year of
purchase. See "Distribution Arrangements."
(3) A CDSC on Class B Shares declines over
six years starting with year one and ending
on the sixth anniversary from: 5%, 4%, 3%,
3%, 2%, 1%.
(4) The CDSC on Class C Shares is applicable
only to redemptions within one year of
purchase.
(5) A wire transfer fee of $7.00 may be
deducted from the amount of your redemption,
regardless of the date of purchase, if you
request a wire transfer. This fee is
currently being waived.
(6) The Fund's Adviser has contractually
agreed to limit the management fees paid by
the Fund to 0.00% for the period from
February 1, 2006 through January 31, 2007.
Additionally, the Fund's Distributor has
contractually agreed to limit the
distribution and service (12b-1) fees for
Class A shares of the Fund to 0.25% for the
same period. For the current fiscal year,
total actual operating expenses are expected
to be less than the amount shown above
because of voluntary additional fee waivers
or expense reimbursements. With these fee
waivers or reimbursements, the Fund's total
actual operating expenses for each class are
expected to be: Class A Shares, 0.36%, Class
B Shares, 1.11%, Class C Shares, 1.11%. These
voluntary fee waivers or expense
reimbursement arrangements may be
discontinued at any time.
(7) In addition to the expenses shown above,
if you buy and hold shares of the Fund you
will indirectly bear your pro rata share of
fees and expenses incurred by the Underlying
Funds in which the Fund invests, so that the
investment returns of the Fund will be net of
the expenses of the Underlying Funds. After
combining the total operating expenses of the
Fund with those of the Underlying Funds, the
weighted average expense ratio for each class
after all waivers and reimbursements is
expected to be 1.25%, 2.00%, and 2.00% for
Class A Shares, Class B Shares, and Class C
Shares, respectively. After contractual
expense waivers and reimbursements the
expense ratios are expected to be 1.37%,
2.12%, and 2.12%, and prior to any expense
waivers and reimbursements the weighted
average expense ratio is expected to be
1.96%, 2.46%, and 2.46% for Class A Shares,
Class B Shares, and Class C Shares,
respectively.
As an investor in the Capital
Manager Equity Fund, you will
pay the following fees and
expenses when you buy and hold
shares. Shareholder
transaction fees are paid from
your account. Annual Fund
operating expenses are paid
out of Fund assets and are
reflected in the share price.
------------------------------
CONTINGENT DEFERRED SALES
CHARGE
Some Fund share classes impose
a back end sales charge (load)
if you sell your shares before
a certain period of time has
elapsed. This is called a
Contingent Deferred Sales
Charge.
------------------------------
105
RISK/RETURN SUMMARY AND FUND EXPENSES CAPITAL MANAGER EQUITY FUND
EXPENSE EXAMPLE
<Table>
<Caption>
CAPITAL MANAGER 1 3 5 10
EQUITY FUND YEAR YEARS YEARS YEARS
CLASS A SHARES $621 $822 $1,040 $1,664
-----------------------------------------------------------------
CLASS B SHARES
Assuming Redemption $525 $743 $ 884 $1,611
Assuming No Redemption $125 $443 $ 784 $1,611
-----------------------------------------------------------------
CLASS C SHARES
Assuming Redemption $125 $443 $ 784 $1,747
Assuming No Redemption $125 $443 $ 784 $1,747
-----------------------------------------------------------------
</Table>
Use the table at right to compare
fees and expenses with those of
other funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each
period
- no changes in the fund's
operating expenses
Because this example is
hypothetical and for comparison
only, your actual costs will be
different.
106
[ICON]
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
STOCK FUNDS
LARGE CAP VALUE FUND -- Under normal circumstances, the Fund will invest at
least 80% of its net assets plus borrowings in the securities of large
companies. This policy will not be changed without 60 days' advance notice to
shareholders. Large companies are those companies with market capitalizations
within the range of those companies in the Russell 1000(R) Value Index. These
stocks may include common stock, preferred stock, warrants, or debt
instruments that are convertible to common stock.
LARGE CAP GROWTH FUND -- Under normal circumstances, the Fund will invest at
least 80% of its net assets plus borrowings in the securities of large
companies. This policy will not be changed without 60 days' advance notice to
shareholders. Large companies are those companies with market capitalizations
within the range of those companies in the Russell 1000(R) Growth Index.
MID CAP VALUE FUND -- Under normal circumstances, the Fund will invest at
least 80% of its net assets plus borrowings in the securities of middle
capitalization companies. This policy will not be changed without 60 days'
advance notice to shareholders. Middle capitalization companies are those
companies with market capitalizations within the range of those companies in
the Russell Midcap(R) Value Index.
MID CAP GROWTH FUND -- Under normal circumstances, the Fund will invest at
least 80% of its net assets plus borrowings in the securities of middle
capitalization companies. This policy will not be changed without 60 days'
advance notice to shareholders. Middle capitalization companies are those
companies with market capitalizations within the range of those companies in
the Russell Midcap(R) Growth Index.
SMALL CAP FUND -- Under normal circumstances, the Fund will invest at least
80% of its net assets plus borrowings in the common stocks of small companies
with market capitalization less than $3 billion. This policy will not be
changed without 60 days' advance notice to shareholders.
INTERNATIONAL EQUITY FUND -- The Fund normally invests at least 65% of its
total assets in the equity securities of foreign issuers. Under normal
circumstances, the Fund will invest at least 80% of its net assets plus
borrowings in equity securities. This policy will not be changed without 60
days advance notice to shareholders. The Fund invests primarily in equity
securities of issuers located throughout the world.
From time to time the Fund may invest more than 25% of its total assets in
the securities of issuers located in countries such as France, Germany,
Japan, and the United Kingdom.
The Fund may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") and other similar global instruments.
The Fund may also invest its assets in equity securities of issuers located
in countries with emerging economies or securities markets. The Fund intends
to limit its investment in such countries to 20% of its total assets. The
Fund may (but is not required to) use forward foreign currency exchange
contracts to hedge against movements in the value of foreign currencies
(including the Euro relative to the U.S. dollar) in connection with specific
portfolio transactions or with respect to portfolio positions.
SPECIAL OPPORTUNITIES EQUITY FUND -- Under normal circumstances, the Fund
will invest at least 80% of its net assets plus borrowings in equity
securities. This policy will not be changed without 60 days' advance notice
to shareholders.
EQUITY INCOME FUND -- Under normal circumstances, the Fund will invest at
least 80% of its net assets plus borrowings in equity securities. This policy
will not be changed without 60 days' advance notice to shareholders.
ALL STOCK FUNDS (EXCEPT THE INTERNATIONAL EQUITY FUND): FOREIGN
SECURITIES -- Each Fund may invest in foreign securities through the purchase
of ADRs or the purchase of foreign securities on the New York Stock Exchange.
However, a Fund will not do so if immediately after a purchase and as a
result of the purchase the total value of foreign securities owned by the
Fund would exceed 25% of the value of its total assets.
107
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
BOND FUNDS
SHORT U.S. GOVERNMENT FUND -- Under normal circumstances, the Fund will
invest at least 80% of its net assets plus borrowings in securities issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. This
policy will not be changed without 60 days' advance notice to shareholders.
The Fund may invest up to 20% of its net assets in bonds, notes and
debentures of corporate issuers. The Fund invests in bonds, notes and
debentures only if they are high grade (rated at time of purchase in one of
the three highest rating categories by an NRSRO), or are determined by the
portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
INTERMEDIATE U.S. GOVERNMENT FUND -- Under normal circumstances, the Fund
will invest at least 80% of its net assets plus borrowings in bonds issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. This
policy will not be changed without 60 days' advance notice to shareholders.
Bonds for this purpose include Treasury bills (maturities of less than one
year), bonds (maturities of ten years or more) and notes (maturities of one
to ten years) of the U.S. Government. The Fund may invest up to 20% of its
net assets in bonds, notes and debentures of corporate issuers. The Fund
invests in bonds, notes and debentures only if they are high grade (rated at
time of purchase in one of the three highest rating categories by an NRSRO),
or are determined by the portfolio manager to be of comparable quality.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
TOTAL RETURN BOND FUND. Under normal market conditions, the Fund will invest
at least 80% of its assets in a diversified portfolio of bonds, including:
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, corporate bonds, asset-backed securities, commercial
mortgage-backed securities and convertible securities. This policy will not
be changed without 60 days' advance notice to shareholders. The Fund may
invest up to 25% of its total assets in bonds that are below investment grade
and/or foreign and emerging market bonds.
The Fund may also invest in short-term obligations, commercial bonds and the
shares of other investment companies.
ALL TAXABLE BOND FUNDS -- Mortgage-related securities purchased by the
Taxable Bond Funds will be either (i) issued by U.S. Government-owned or
sponsored corporations or (ii) rated in the highest category by an NRSRO at
the time of purchase (for example, rated Aaa by Moody's or AAA by S&P), or,
if not rated, are of comparable quality as determined by the Adviser.
KENTUCKY INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental policy, the
Fund will invest, under normal market conditions, at least 80% of its net
assets plus borrowings in investments the income from which is exempt from
federal income tax and Kentucky personal income tax ("Kentucky Tax-Exempt
Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than Kentucky tax-exempt obligations to over 20%
of its total assets.
MARYLAND INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental policy, the
Fund will invest, under normal market conditions, at least 80% of its net
assets plus borrowings in investments the income from which is exempt from
federal income tax and Maryland personal income tax ("Maryland Tax-Exempt
Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than Maryland tax-exempt obligations to over 20%
of its total assets.
NORTH CAROLINA INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental
policy, the Fund will invest, under normal market conditions, at least 80% of
its net assets plus borrowings in investments the income from which is exempt
from federal income tax and North Carolina personal income tax ("North
Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its total holdings in
tax-exempt obligations other than North Carolina tax-exempt obligations to
over 20% of its total assets.
108
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
SOUTH CAROLINA INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental
policy, the Fund will invest, under normal market conditions, at least 80% of
its net assets plus borrowings in investments the income from which is exempt
from federal income tax and South Carolina personal income tax ("South
Carolina Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than South Carolina tax-exempt obligations to
over 20% of its total assets.
VIRGINIA INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental policy, the
Fund will invest, under normal market conditions, at least 80% of its net
assets plus borrowings in investments the income from which is exempt from
federal income tax and Virginia personal income tax ("Virginia Tax-Exempt
Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than Virginia tax-exempt obligations to over 20%
of its total assets.
WEST VIRGINIA INTERMEDIATE TAX-FREE FUND -- As a matter of fundamental
policy, the Fund will invest, under normal market conditions, at least 80% of
its net assets plus borrowings in investments the income from which is exempt
from federal income tax and West Virginia personal income tax ("West Virginia
Tax-Exempt Obligations").
For temporary defensive purposes, the Fund may increase its holdings in
tax-exempt obligations other than West Virginia tax-exempt obligations to
over 20% of its total assets.
ALL TAX-FREE BOND FUNDS -- Each Fund will invest in Tax-Exempt Obligations
which are rated at the time of purchase in one of the four highest categories
by an NRSRO in the case of bonds; one of the two highest categories by an
NRSRO in the case of notes; rated "SP-1" or higher by S&P or "MIG-2" or
higher by Moody's or rated at a comparable level of quality by another NRSRO
in the case of tax-exempt commercial paper; or rated "VMIG-1" or higher by
Moody's or rated at a comparable level of quality by another NRSRO in the
case of variable rate demand obligations or, if unrated, are determined by
the portfolio manager to be of comparable quality.
Each Fund may invest up to 20% of its net assets in taxable obligations or
debt securities, the interest income from which may be subject to the federal
alternative minimum tax for individual shareholders.
ALL BOND FUNDS: PORTFOLIO MATURITY -- Certain debt securities such as, but
not limited to, mortgage backed securities, CMOs and asset-backed securities,
as well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity
dates. As a result, the effective maturity of these securities is expected to
be shorter than the stated maturity. For purposes of calculating a Fund's
weighted average portfolio maturity, the effective maturity of these
securities will be used.
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND -- The Fund will not make investments that will
result in the concentration of its investments in the securities of issuers
primarily engaged in the same industry. Government securities, municipal
securities and bank instruments will not be deemed to constitute an industry.
Bank instruments include bank accounts, time deposits, certificates of
deposit, and banker's acceptances. As a matter of non-fundamental policy,
instruments of foreign banks will not be considered bank instruments for
purposes of the above-described exclusion from the above industry
concentration limit.
The Fund may invest in debt obligations of foreign corporations and banks
including Eurodollar Time Deposits and Yankee Certificates of Deposit.
The Prime Money Market Fund may purchase securities subject to credit
enhancement. Credit enhancement consists of an arrangement in which a company
agrees to pay amounts due on a fixed income security if the issuer defaults.
In some cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and liquidity
than the issuer. For this reason, the Sub-Adviser usually evaluates the
credit risk of a fixed income security based solely upon its credit
enhancement.
109
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The Fund will only purchase securities that present minimal credit risk as
determined by the Adviser pursuant to guidelines approved by the Board of
Trustees of BB&T Funds. Securities purchased by the Fund (or the issuers of
such securities) will be Eligible Securities. Applicable Eligible Securities
are:
- Securities that have short-term debt ratings at the time of purchase (or
which are guaranteed or in some cases otherwise supported by guarantees or
other credit supports with such ratings) in the two highest rating
categories by at least two unaffiliated NRSROs (or one NRSRO if the
security or guarantee was rated by only one NRSRO);
- securities that are issued or guaranteed by a person with such ratings;
- securities without such short-term ratings that have been determined to be
of comparable quality by the Adviser pursuant to guidelines approved by the
Board of Trustees; or
- shares of other open-end investment companies that invest in the type of
obligations in which the Fund may invest.
FUNDS OF FUNDS
The Funds of Funds' net asset values will fluctuate with changes in the
equity markets and the value of the Underlying Funds in which they invest.
Each Fund of Funds' investment return is diversified by its investment in the
Underlying Funds, which invest in growth and income stocks, foreign
securities, debt securities, and cash and cash equivalents.
With their remaining assets, the Funds of Funds may make direct investments
in any domestic and foreign securities and other instruments which the
Underlying Funds may purchase, as described in this prospectus. The Funds of
Funds and the Underlying Funds may also hold cash for liquidity purposes.
CAPITAL MANAGER EQUITY FUND -- Under normal circumstances, the Fund will
invest at least 80% of its net assets plus borrowings in Underlying Funds
that invest primarily in equity securities. This policy will not be changed
without 60 days' advance notice to shareholders.
ALL STOCK FUNDS, BOND FUNDS AND FUNDS OF FUNDS
TEMPORARY DEFENSIVE MEASURES -- If deemed appropriate under the
circumstances, each Stock Fund, Bond Fund, and Fund of Funds may increase its
holdings in short-term obligations to up to 100% of its total assets. Under
normal market conditions, the Stock Funds will limit their investment in
short-term obligations to 20% of its total assets. Such short-term
obligations may include money market instruments and repurchase agreements.
ALL FUNDS
FUNDAMENTAL POLICIES -- Any of the policies identified above as fundamental
may only be changed with respect to a particular Fund by a vote of a majority
of the outstanding shares of that Fund.
110
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the
main risks they pose. Equity securities are subject mainly to market risk.
Fixed income securities are primarily influenced by market, credit and
prepayment risks, although certain securities may be subject to additional
risks. FOLLOWING THE TABLE IS A MORE COMPLETE DISCUSSION OF RISK. You may
also consult the SAI for additional details regarding these and other
permissible investments.
<Table>
<Caption>
FUND NAME FUND CODE
--------- ---------
Large Cap Value Fund 1
Large Cap Growth Fund 2
Mid Cap Value Fund 3
Mid Cap Growth Fund 4
Small Cap Fund 5
International Equity Fund 6
Special Opportunities Equity Fund 7
Equity Income Fund 8
Short U.S. Government Fund 9
Intermediate U.S. Government Fund 10
Total Return Bond Fund 11
Kentucky Intermediate Tax-Free Fund 12
Maryland Intermediate Tax-Free Fund 13
North Carolina Intermediate Tax-Free Fund 14
South Carolina Intermediate Tax-Free Fund 15
Virginia Intermediate Tax-Free Fund 16
West Virginia Intermediate Tax-Free Fund 17
Prime Money Market Fund 18
U.S. Treasury Money Market Fund 19
</Table>
111
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<Table>
<Caption>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
AMERICAN DEPOSITARY RECEIPTS ("ADRS"): ADRs are foreign 1-8 Market
shares of a company held by a U.S. bank that issues a Political
receipt evidencing ownership. Foreign Investment
ASSET-BACKED SECURITIES: Securities secured by company 9-11, 18 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets. Interest Rate
Regulatory
Liquidity
Estimated Maturity
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 3, 4, 8-11, 18 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
Interest Rate
BANK INSTRUMENTS: Unsecured interest bearing deposits with 18 Credit
banks. Bank instruments include bank accounts, time Liquidity
deposits, certificates of deposit and banker's acceptances. Market
Yankee instruments are denominated in U.S. dollars and Interest Rate
issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by
non-U.S. branches of U.S. branches of U.S. or foreign banks.
For purposes of the Prime Money Market Fund's concentration
limitation, bank instruments also include fixed income
securities credit enhanced by a bank.
BONDS: Interest-bearing or discounted government or 6, 8-19 Market
corporate securities that obligate the issuer to pay the Credit
bondholder a specified sum of money, usually at specific Interest Rate
intervals, and to repay the principal amount of the loan at
maturity.
CALL AND PUT OPTIONS: A call option gives the buyer the 1-8 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1-8, 18 Market
stated maturity. Credit
Liquidity
Interest Rate
COMMERCIAL PAPER: Secured and unsecured short-term 1-11, 18 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
Interest Rate
COMMON STOCK: Shares of ownership of a company. 1-8 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-8, 11 Market
convert to common stock. Credit
</Table>
112
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<Table>
<Caption>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
DERIVATIVES: Instruments whose value is derived from an 1-17 Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some mortgage- Liquidity
backed securities. Leverage
Interest Rate
EMERGING MARKETS: Bonds issued by foreign companies in 6, 11 Market
countries that are defined as an emerging or developing Political
economy by any one of the International Bank for Liquidity
Reconstruction and Development (the World Bank), the Foreign Investment
International Finance Corporation or the United Nations or
its authorities.
EXCHANGE-TRADED FUNDS: Exchange-traded funds such as 1-17 Market
Standard & Poor's Depository Receipts ("SPDRs") and Liquidity
NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"), represent ETF
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, or a group of stocks in a
particular geographic area. Exchange-traded funds entitle a
holder to receive proportionate quarterly cash distributions
corresponding to the dividends that accrue to the stocks in
the underlying portfolio, less trust expenses. Unit
investment trusts are registered investment companies.
Therefore, a Fund's investment in exchange-traded funds is
subject to the limitations on investing in investment
company securities described below.
FOREIGN SECURITIES: Stocks issued by foreign companies, as 1-11, 18 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Foreign Investment
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to 6 Management
purchase or sell a specific amount of a currency at a fixed Liquidity
future date and price set by the parties involved at the Credit
time the contract is negotiated. Market
Political
Leverage
Foreign Investment
FUTURES AND RELATED OPTIONS: A contract providing for the 1-17 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
HIGH-YIELD/HIGH-RISK DEBT SECURITIES: High-yield/high-risk 11 Credit
debt securities are securities that are rated below Market
investment grade by the primary rating agencies (e.g., BB or Liquidity
lower by Standard & Poor's and Ba or lower by Moody's). Interest Rate
These securities are considered speculative and involve
greater risk of loss than investment grade debt securities.
Other terms commonly used to describe such securities
include "lower rated bonds," "non-investment grade bonds"
and "junk bonds."
</Table>
113
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<Table>
<Caption>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
INVESTMENT COMPANY SECURITIES: Shares of investment 1-19 Market
companies. Each Fund (except the Funds of Funds) may invest ETF
up to 5% of its total assets in the shares of any one
registered investment company, but may not own more than 3%
of the securities of any one registered investment company
or invest more than 10% of its total assets in the
securities of other registered investment companies. These
registered investment companies may include money market
funds of BB&T Funds and shares of other registered
investment companies for which the Adviser to a Fund or any
of their affiliates serves as investment adviser,
administrator or distributor. The Prime Money Market Fund
may only invest in shares of other investment companies with
similar objectives.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 9-11, 18 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations and real estate mortgage Credit
investment conduits. Regulatory
Estimated Maturity
MUNICIPAL SECURITIES: Securities issued by a state or 9-18 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include industrial Political
development bonds and other private activity bonds, as well Tax
as general obligation bonds, revenue bonds, tax anticipation Regulatory
notes, bond anticipation notes, revenue anticipation notes,
project notes, other short-term tax-exempt obligations,
municipal leases, obligations of municipal housing
authorities (single family revenue bonds) and obligations
issued on behalf of Section 501(c)(3) organizations.
There are two general types of municipal
bonds: General-obligations bonds, which are secured by the
taxing power of the issuer and revenue bonds, which take
many shapes and forms but are generally backed by revenue
from a specific project or tax. These include, but are not
limited to, certificates of participation ("COPs"); utility
and sales tax revenues; tax increment or tax allocations;
housing and special tax, including assessment district and
community facilities district issues which are secured by
specific real estate parcels; hospital revenue; and
industrial development bonds that are secured by a private
company.
PREFERRED STOCKS: Preferred Stocks are equity securities 1-8 Market
that generally pay dividends at a specified rate and have
preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a security and the 1-19 Market
simultaneous commitment to return the security to the seller Credit
at an agreed upon price on an agreed upon date. This is
treated as a loan.
RESTRICTED SECURITIES: Securities not registered under the 6, 8-18 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 5-7, 11 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.
</Table>
114
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<Table>
<Caption>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
SECURITIES LENDING: The lending of up to 33 1/3% of the 1-11, 18-19 Market
Fund's total assets. In return the Fund will receive cash, Leverage
other securities, and/or letters of credit. Liquidity
Credit
SHORT-TERM OBLIGATIONS: High quality U.S. dollar-denominated 1-19 Market
debt securities that have remaining maturities of one year Credit
or less. These securities may include U.S. government
obligations, domestic and foreign commercial paper
(including variable-amount master demand notes), bankers'
acceptances, certificates of deposit and demand and time
deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. These investments
are limited to those obligations which, at the time of
purchase, (i) possess one of the two highest short-term
ratings from at least two NRSROs (for example, commercial
paper rated "A-1" or "A-2" by S&P and "P-1" or "P-2" by
Moody's), or (ii) do not possess a rating (i.e., are
unrated) but are determined by the Adviser or Sub-Adviser to
be of comparable quality.
STRUCTURED PRODUCTS: Individually negotiated agreements 9-11 Credit
organized and operated to restructure the investment Market
characteristics of the underlying security, involving the Liquidity
deposit with or purchase by an entity, such as a corporation
or trust, of specified instruments (such as commercial bank
loans) and the issuance by that entity of one or more
classes of securities ("structured securities") backed by,
or representing interests in, the underlying instruments.
STAND-BY COMMITMENTS: The Funds may acquire "stand-by 12-18 Market
commitments" with respect to Municipal Securities held in
its portfolio. The Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity.
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 8, 18-19 Liquidity
exchange for the deposit of funds. Credit
Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-18 Interest Rate
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac. U.S. Gov't Agency
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1-19 Interest Rate
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured demand notes 9-19 Credit
that permit the indebtedness to vary and provide for Liquidity
periodic adjustments in the interest rate according to the Interest Rate
terms of the instrument. Because master demand notes are
direct lending arrangements between a Fund and the issuer,
they are not normally traded. Although there is no secondary
market in these notes, the Fund may demand payment of
principal and accrued interest at specified intervals.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 9-18 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WARRANTS: Securities, typically issued with preferred stock 1-8 Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 2-4, 7-18 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Under normal market conditions, Liquidity
when-issued purchases and forward commitments will not Credit
exceed 25% of the value of a Fund's total assets.
</Table>
115
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
<Table>
<Caption>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar 8-18 Market
denominated bonds issued by foreign corporations or Credit
governments. Sovereign bonds are those issued by the Interest Rate
government of a foreign country. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are those
issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt that pay 8-19 Credit
no interest, but are issued at a discount from their value Market
at maturity. When held to maturity, their entire return Interest Rate
equals the difference between their issue price and their
maturity value.
</Table>
INVESTMENT RISKS
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above as well as those risks
discussed in "Risk/Return Summary and Fund Expenses." Because of these risks,
the value of the securities held by the Funds may fluctuate, as will the
value of your investment in the Funds. Certain investments and Funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade
securities. The price of a security can be adversely affected prior to actual
default as its credit status deteriorates and the probability of default
rises.
EMERGING MARKETS RISK. The risks associated with foreign investments (see
"Foreign Investment Risk") are particularly pronounced in connection with
investments in emerging markets. In addition, profound social changes and
business practices that depart from norms in developed countries' economies
have hindered the orderly growth of emerging economies and their markets in
the past and have caused instability. High levels of debt tend to make
emerging economies heavily reliant on foreign capital and vulnerable to
capital flight. These countries are also more likely to experience high
levels of inflation, deflation or currency devaluation, which could also hurt
their economies and securities markets. For these and other reasons,
investments in emerging markets are often considered speculative.
ESTIMATED MATURITY RISK. The possibility that an underlying mortgage holder
will exercise its right to pay principal on an obligation (such as
mortgage-related securities) later than expected. This may happen when there
is a rise in interest rates. These events may lengthen the duration (i.e.
interest rate sensitivity) and potentially reduce the value of these
securities.
ETF RISK. The risk associated with the risks of owning the underlying
securities the ETF is designed to track. Lack of liquidity in an ETF could
result in being more volatile than the underlying portfolio of securities.
When a Fund invests in an ETF, in addition to directly bearing expenses
associated with its own operations, it will bear a pro rata portion of the
ETF's expenses. As a result, it may be more costly to own an ETF.
FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments.
This also includes the risk that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect an investment.
Adverse changes in exchange rates may erode or reverse any gains produced by
foreign currency denominated investments and may widen any losses. Exchange
rate volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk. Foreign securities may also
be affected by incomplete or inaccurate financial information on companies,
social upheavals or political actions ranging from tax code changes to
governmental collapse. These risks are more significant in emerging markets.
INTEREST RATE RISK. The risk that debt prices overall will decline over
short or even long periods due to rising interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Interest rate risk should be modest for shorter-term
securities, moderate for intermediate-term securities, and high for
longer-term securities. Generally, an increase in the average maturity of the
Fund will make it more sensitive to interest rate risk. The market prices of
securities structured as zero coupon or pay-in-kind securities are generally
affected to a greater extent by interest rate changes. These securities tend
to be more volatile than securities which pay interest periodically.
INVESTMENT STYLE RISK. The risk that returns from a particular class or
group of stocks (e.g., value, growth, small cap, large cap) will trail
returns from other asset classes or the overall stock market.
Groups or asset classes of stocks tend to go through cycles of doing
better -- or worse -- than common stocks in general. These periods can last
for periods as long as several years. Additionally, a particular asset class
or group of stocks could fall out of favor with the market, causing the Fund
to underperform funds that focus on other types of stocks.
116
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
LEVERAGE RISK. The risk associated with securities or practices that
multiply small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also may be
embedded directly in the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Portfolio also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
Hedges are sometimes subject to imperfect matching between the derivative
and underlying security, and there can be no assurance that a Portfolio's
hedging transactions will be effective.
SPECULATIVE. To the extent that a derivative is not used as a hedge, the
Portfolio is directly exposed to the risks of that derivative. Gains or
losses from speculative positions in a derivative may be substantially
greater than the derivatives original cost.
LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that would normally prevail in
the market. The seller may have to lower the price, sell other securities
instead or forego an investment opportunity, any of which could have a
negative effect on Portfolio management or performance. This includes the
risk of missing out on an investment opportunity because the assets necessary
to take advantage of it are tied up in less advantageous investments.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager
may fail to produce the intended result. This includes the risk that changes
in the value of a hedging instrument will not match those of the asset being
hedged. Incomplete matching can result in unanticipated risks.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than
it was worth at an earlier time. Market risk may affect a single issuer,
industrial sector of the economy or the market as a whole. There is also the
risk that the current interest rate may not accurately reflect existing
market rates. For fixed income securities, market risk is largely, but not
exclusively, influenced by changes in interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Finally, key information about a security or market
may be inaccurate or unavailable. This is particularly relevant to
investments in foreign securities.
POLITICAL RISK. The risk of losses attributable to unfavorable governmental
or political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security
will occur at an unexpected time. Prepayment risk is the chance that the
repayment of a mortgage will occur sooner than expected. Call risk is the
possibility that, during times of declining interest rates, a bond issuer
will "call" -- or repay -- higher yielding bonds before their stated
maturity. Changes in pre-payment rates can result in greater price and yield
volatility. Pre-payments and calls generally accelerate when interest rates
decline. When mortgage and other obligations are pre-paid or called, a Fund
may have to reinvest in securities with a lower yield. In this event, the
Fund would experience a decline in income -- and the potential for taxable
capital gains. Further, with early prepayment, a Fund may fail to recover any
premium paid, resulting in an unexpected capital loss. Prepayment/call risk
is generally low for securities with a short-term maturity, moderate for
securities with an intermediate-term maturity, and high for securities with a
long-term maturity.
REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a lender has when a borrower defaults on loans.
These laws include restrictions on foreclosures, redemption rights after
foreclosure, Federal and state bankruptcy and debtor relief laws,
restrictions on "due on sale" clauses, and state usury laws.
SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky
than stocks of larger companies and may be more vulnerable than larger
companies to adverse business or economic developments. Many of these
companies are young and have a limited track record. Small cap companies may
also have limited product lines, markets, or financial resources. Securities
of such companies may be less liquid and more volatile than securities of
larger companies or the market averages in general and, therefore, may
involve greater risk than investing in larger companies. In addition, small
cap companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate
growth prospects. If a Fund concentrates on small-capitalization companies,
its performance may be more volatile than that of a fund that invests
primarily in larger companies.
TAX RISK. The risk that the issuer of the securities will fail to comply
with certain requirements of the Internal Revenue Code, which would cause
adverse tax consequences.
U.S. GOVERNMENT AGENCY SECURITIES RISK. The risk associated with securities
issued by agencies of the U.S. government such as Fannie Mae, Ginnie Mae or
Freddie Mac. Although U.S. government securities issued directly by the U.S.
government are guaranteed by the U.S. Treasury, other U.S. government
securities issued by an agency or instrumentality of the U.S. government may
not be. No assurance can be given that the U.S. government would provide
financial support to its agencies and instrumentalities if not required to do
so by law.
117
[ICON]
FUND MANAGEMENT
THE INVESTMENT ADVISER
BB&T Asset Management, Inc. ("BB&T Asset Management" or the "Adviser") is the
adviser for the Funds. BB&T Asset Management, located at 434 Fayetteville
Street Mall, Raleigh, NC 27601, is a wholly-owned subsidiary of BB&T
Corporation ("BB&T"), a financial holding company that is a North Carolina
corporation, headquartered in Winston-Salem, North Carolina. As of December
31, 2005, BB&T had assets of approximately $109.2 billion. Through its
subsidiaries, BB&T operates over 1,400 banking offices in Alabama, Florida,
Georgia, Indiana, Kentucky, Tennessee, Maryland, North Carolina, South
Carolina, Virginia, West Virginia and Washington, D.C., providing a broad
range of financial services to individuals and businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment and retail and wholesale insurance services.
BB&T has provided investment management services through its Trust and
Investment Management Division since 1912. BB&T Asset Management 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 Asset Management and its predecessors have managed
common and collective investment funds for its fiduciary accounts for more
than 20 years. BB&T Asset Management currently manages discretionary assets
of more than $16 billion.
The Adviser may appoint one or more subadvisors to manage all or a portion of
the assets of the Funds. The Funds and the Adviser intend to seek exemptive
relief from the Securities and Exchange Commission (SEC) to permit the
Adviser, subject to certain conditions, including the one-time prior approval
of the Funds' Board of Trustees and shareholders, to appoint and replace
subadvisors, enter into subadvisory agreements, and amend and terminate
subadvisory agreements on behalf of the Fund without shareholder approval.
The Adviser has received the one-time approval from the Funds' Board of
Trustees and shareholders, and if the Adviser obtains an exemptive order from
the SEC, the Adviser will have the ability to change the fee payable to a
subadvisor or appoint a new subadvisor at a fee different than that paid to
the current subadvisor, which in turn may result in a different fee retained
by the Adviser. As of the date of this prospectus, the Funds and the Adviser
had not yet filed an exemptive application with the SEC. Once filed, there is
no guarantee that the SEC will grant exemptive relief.
Through its portfolio management team, BB&T Asset Management makes the
day-to-day investment decisions and continuously reviews, supervises and
administers the Funds' investment programs.
118
[ICON]
FUND MANAGEMENT
For these advisory services, the Funds paid as follows during their fiscal
year ended:
<Table>
<Caption>
PERCENTAGE OF AVERAGE NET
ASSETS FOR THE FISCAL YEAR
ENDED 09/30/05
------------------------------
Large Cap Value Fund
(formerly the Large Company Value Fund) 0.67%
------------------------------
Large Cap Growth Fund
(formerly the Large Company Growth Fund) 0.67%
------------------------------
Mid Cap Value Fund 0.67%
------------------------------
Mid Cap Growth Fund 0.67%
------------------------------
Small Cap Fund
(formerly the Small Company Value Fund) 0.80%
------------------------------
International Equity Fund 0.90%
------------------------------
Special Opportunities Equity Fund 0.80%
------------------------------
Equity Income Fund 0.50%
------------------------------
Short U.S. Government Fund 0.45%
------------------------------
Intermediate U.S. Government Fund 0.50%
------------------------------
Total Return Bond Fund
(formerly the Intermediate Corporate Bond Fund) 0.50%
------------------------------
Kentucky Intermediate Tax-Free Fund 0.34%
------------------------------
Maryland Intermediate Tax-Free Fund 0.18%
------------------------------
North Carolina Intermediate Tax-Free Fund 0.45%
------------------------------
South Carolina Intermediate Tax-Free Fund 0.44%
------------------------------
Virginia Intermediate Tax-Free Fund 0.45%
------------------------------
West Virginia Intermediate Tax-Free Fund 0.45%
------------------------------
Prime Money Market Fund 0.29%
------------------------------
U.S. Treasury Money Market Fund 0.28%
------------------------------
Capital Manager Conservative Growth Fund 0.05%
------------------------------
Capital Manager Moderate Growth Fund 0.05%
------------------------------
Capital Manager Growth Fund 0.03%
------------------------------
Capital Manager Equity Fund 0.01%
------------------------------
</Table>
A discussion regarding the basis for the board of trustees approving the
investment advisory agreement with BB&T Asset Management and sub-advisory
agreements with UBS Global AM, Scott & Stringfellow, Federated IMC, and
Sterling Capital is available in the Funds' annual report to shareholders for
the period ended September 30, 2005.
THE INVESTMENT SUB-ADVISERS
INTERNATIONAL EQUITY FUND. UBS Global Asset Management (Americas) Inc. ("UBS
Global AM") serves as the Sub-advisor to the International Equity Fund
pursuant to a Sub-advisory Agreement BB&T Asset Management. Under the
Sub-Advisory Agreement, UBS Global AM will provide investment management
sub-advisory services to the Fund, select investments and place all orders
for purchases and sales of the Fund's securities, subject to the direction
and supervision of the BB&T Funds' Board of Trustees and the Adviser, any
written guidelines adopted by the Fund's Board of Trustees or the Adviser and
furnished to UBS Global AM, and in accordance with the Fund's written
investment restrictions.
UBS Global AM, located at One North Wacker Drive, Chicago, IL 60606, began
managing institutional assets in 1974 through its predecessor entities,
including Brinson Partners, Inc. and First Chicago Investment Advisors. Swiss
Bank Corporation ("SBC") acquired the firm in 1995. In 1998, SBC merged with
Union Bank of Switzerland to form UBS AG. UBS Global AM is a member of the
UBS Global Asset Management business group (the "Group") of UBS AG.
119
FUND MANAGEMENT
As of September 30, 2005, UBS Global AM had approximately $66.8 billion in
assets under management and the Group had approximately $568.9 billion in
assets under management.
SPECIAL OPPORTUNITIES EQUITY FUND AND EQUITY INCOME FUND. Scott &
Stringfellow, Inc. ("Scott & Stringfellow" or the "Sub-Adviser") serves as
the sub-adviser to the Special Opportunities Equity Fund and the Equity
Income Fund pursuant to a Sub-Advisory Agreement with BB&T Asset Management.
Under the Sub-Advisory Agreement, Scott & Stringfellow manages the Funds,
selects their investments, and places all orders for purchases and sales of
the Funds' securities, subject to the general supervision of BB&T Funds'
Board of Trustees and BB&T Asset Management and in accordance with the Funds'
investment objectives.
Scott & Stringfellow's address is: 909 E. Main Street, Richmond, Virginia
23219. Scott & Stringfellow is a wholly-owned subsidiary of BB&T. As of
December 31, 2005, Scott & Stringfellow had over $18.6 billion in client
funds. Founded in 1893, Scott & Stringfellow operates as a full-service
regional brokerage and investment banking firm serving individual,
institutional, corporate and municipal clients.
PRIME MONEY MARKET FUND. Federated Investment Management Company ("Federated
IMC") serves as the Sub-Adviser to the Prime Money Market Fund pursuant to a
Sub-Advisory Agreement with BB&T Asset Management. Under the Sub-Advisory
Agreement, Federated IMC manages the Fund, selects its investments, and
places all orders for purchases and sales of the Fund's securities, subject
to the general supervision of the BB&T Funds' Board of Trustees and BB&T
Asset Management and in accordance with the Prime Money Market Fund's
investment objective, policies and restrictions.
Federated IMC's address is: Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779. Federated IMC and other subsidiaries of Federated
Investors, Inc. advise approximately 185 mutual funds and separate accounts,
which totaled approximately $213 billion in assets as of December 31, 2005.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with approximately 1,600 employees.
More than 4,000 investment professionals make Federated Funds available to
their customers.
MID CAP VALUE FUND AND TOTAL RETURN BOND FUND. Sterling Capital Management
LLC ("Sterling Capital") serves as the sub-adviser to the Mid Cap Value Fund
and the Total Return Bond Fund pursuant to a Sub-Advisory Agreement with BB&T
Asset Management. Under the Sub-Advisory Agreement, Sterling Capital manages
the Funds, selects their investments and places all orders for purchases and
sales of the Funds' securities, subject to the direction and supervision of
the Board of Trustees and BB&T Asset Management, any written guidelines
adopted by the Board of Trustees or BB&T Asset Management and furnished to
Sterling Capital, and in accordance with the Funds' written investment
restrictions.
Sterling Capital's address is: 4064 Colony Road, Suite 300, Charlotte, NC
28211. Sterling Capital was organized as a limited liability company on
January 27, 2005. Sterling Capital, originally founded in 1970, is an
affiliate of BB&T Asset Management because it is 70% owned by the parent of
BB&T Asset Management, BB&T Corporation. As of September 30, 2005, Sterling
Capital had over $8.5 billion in assets under management.
PORTFOLIO MANAGERS
LARGE CAP VALUE FUND. Rick Jones, CFA, has managed or has been a member of
the team that manages the Large Company Value Fund since February 1993. Mr.
Jones is a Senior Vice President and Director of Value Equity Management for
the Adviser. He has been with the Adviser and its predecessors since 1988.
LARGE CAP GROWTH FUND. Jeffrey J. Schappe, CFA, has headed the team that has
served as portfolio manager for the Large Company Growth Fund since March
2005. Mr. Schappe has served as Chief Investment Officer for BB&T Asset
Management, Inc. since April 2004. From 2002 through April 2004, he served as
Senior Vice President and Chief Investment Officer for Citizens Advisers. He
joined Citizens in 2001 as Director of Research. Before working at Citizens
Advisers, Schappe managed the research department at George K. Baum &
Company, a regional broker/dealer and investment bank. Prior to that, he
served as Vice President/Portfolio Manager and Director of Research for
Conseco Capital Management.
Effective March 27, 2006, David Nolan will become the portfolio manager of
the Large Cap Growth Fund. Mr. Nolan is a Senior Vice President and portfolio
manager with the Adviser. He has been with the Adviser and its predecessors
since 1985.
120
FUND MANAGEMENT
MID CAP VALUE FUND. Timothy P. Beyer has been the manager or co-portfolio
manager of the BB&T Mid Cap Value Fund since July 2005.
Mr. Beyer, CFA, joined Sterling Capital in 2004 and is currently an Executive
Director. From 2003-2004, Mr. Beyer served as Portfolio Manager of the AIM
Midcap Basic Value Fund for AIM Investments. From 2000-2002, Mr. Beyer worked
at USAA managing the USAA Value Fund and USAA Balanced Fund.
MID CAP GROWTH FUND. David Nolan has managed or has been a member of the
team that manages the Mid Cap Growth Fund since its inception. Mr. Nolan
managed the OVB Capital Appreciation Fund (predecessor to the BB&T Mid Cap
Growth Fund) since December 1993. Mr. Nolan is a Senior Vice President and
portfolio manager with the Adviser. He has been with the Adviser and its
predecessors since 1985.
SMALL CAP FUND. John Kvantas, CFA, has managed the Small Cap Fund since its
May 2003 inception. Mr. Kvantas is a Senior Vice President and portfolio
manager for the Adviser. He has been with the Advisor since March 2003. From
November 1997 to February 2003, he was a portfolio manager and equity analyst
with Wachovia.
INTERNATIONAL EQUITY FUND. Thomas Madsen has been the portfolio manager of
the BB&T International Equity Fund since April, 2003. Mr. Madsen is the
Global Head of Equities at UBS Global Asset Management and has been a
Managing Director of UBS Global Asset Management since February, 2000.
SPECIAL OPPORTUNITIES EQUITY FUND AND EQUITY INCOME FUND. George F. Shipp,
CFA, has been the portfolio manager of the Special Opportunities Equity Fund
and the Equity Income Fund since their inception. Mr. Shipp is the Senior
Managing Director of CHOICE Asset Management, a department of Scott &
Stringfellow, and serves as Chief Investment Officer of the CHOICE
portfolios, separate accounts sponsored by Scott & Stringfellow. Mr. Shipp
has been with Scott & Stringfellow since 1982.
SHORT U.S. GOVERNMENT FUND. Kevin McNair, CFA, has managed or has been a
member of the team that manages the Short U.S. Government Fund since 1994.
Mr. McNair is a Senior Vice President and portfolio manager with the Adviser.
INTERMEDIATE U.S. GOVERNMENT FUND. Brad D. Eppard, CFA, has been the
portfolio manager of the Intermediate U.S. Government Fund since July 2003.
Mr. Eppard is a Senior Vice President and portfolio manager with the Adviser,
positions which he has held since July 2003. From October 2000 to July 2003
Mr. Eppard was a senior fixed income strategist for Legg Mason Wood Walker.
From February 2000 to October 2000 Mr. Eppard was a senior fixed income
strategist for Wachovia Securities. Prior to that Mr. Eppard was a senior
portfolio manager and Director at Boatman's Capital Management from April
1997 to January 2000.
TOTAL RETURN BOND FUND. David M. Ralston has been the portfolio manager of
the BB&T Total Return Bond Fund since July, 2005. Mr. Ralston is a Managing
Director and CIO of Sterling Capital Management, and is a Fixed Income
Portfolio Manager and the head of Sterling's fixed income team. Mr. Ralston
co-founded Trinity Capital Advisors in 1989, which merged into Sterling
Capital Management in 1991.
TAX-FREE BOND FUNDS. Robert Millikan, CFA, has managed or has been a member
of the team that manages each of the Tax-Free Bond Funds since February 2000.
Mr. Millikan is a Senior Vice President and Director of Fixed Income
Management with the Adviser. He has been with the Adviser and its
predecessors since February 2000. From July 1990 to February 2000, he was an
investment officer with First Citizens Bank.
FUNDS OF FUNDS. All decisions for the Capital Manager Conservative Growth
Fund, Capital Manager Moderate Growth Fund, Capital Manager Growth Fund, and
Capital Manager Equity Fund are made by the BB&T Balanced Portfolio
Management Team, which includes Jeffrey J. Schappe, Richard B. Jones, Robert
F. Millikan, and Eric Farls.
Mr. Schappe, CFA, has been a member of the team that manages the Fund of
Funds since March 2005. Mr. Schappe has served as Chief Investment Officer
for BB&T Asset Management, Inc. since April 2004. From 2002 through April
2004, he served as Senior Vice President and Chief Investment Officer for
Citizens Advisers. He joined Citizens in 2001 as Director of Research. Before
working at Citizens Advisers, Schappe managed the research department at
George K. Baum & Company, a regional broker-dealer and investment bank. Prior
to that, he served as Vice President/Portfolio Manager and Director of
Research for Conseco Capital Management.
Mr. Jones, CFA, has been a member of the team that manages the Fund of Funds
since September 2004. Mr. Jones is a Senior Vice President and Director of
Value Equity Management for the Adviser. He has been with the Adviser and its
predecessors since 1988.
Mr. Millikan, CFA, has been a member of the team that manages the Fund of
Funds since September 2004. Mr. Millikan is a Senior Vice President and
Director of Fixed Income Management with the Adviser. He has been with the
Adviser and its predecessors since February 2000. From July 1990 to February
2000, he was an investment officer with First Citizens Bank.
121
FUND MANAGEMENT
Mr. Farls, CFA, has been a member of the team that manages the Fund of Funds
since September 2004. Mr. Farls is a Vice President and investment analyst
for the Adviser. He has been with the Adviser since July 2000.
Additional information regarding the portfolio managers' compensation, other
accounts managed by the portfolio managers, and the portfolio managers'
ownership of shares in Funds for which they are portfolio managers is
available in the Statement of Additional Information.
SCOTT & STRINGFELLOW-RELATED PERFORMANCE OF SEPARATELY MANAGED ACCOUNTS
In addition to acting as Sub-Adviser to the Special Opportunities Equity Fund
and the Equity Income Fund, Scott & Stringfellow manages a wrap fee program
pursuant to the multi-style investment strategy. The following table shows
the historical performance of all accounts managed by Scott & Stringfellow,
which have substantially similar investment objectives, policies, strategies
and risks to the Special Opportunities Equity Fund and Equity Income Fund,
respectively. These composites are provided to illustrate the past
performance of Scott & Stringfellow in managing accounts substantially
similar to the Special Opportunities Equity Fund and the Equity Income Fund.
THESE COMPOSITES DO NOT REPRESENT THE PERFORMANCE OF THE SPECIAL
OPPORTUNITIES EQUITY FUND OR THE EQUITY INCOME FUND. YOU SHOULD NOT CONSIDER
THIS PERFORMANCE DATA AS AN INDICATION OF FUTURE PERFORMANCE OF THE SPECIAL
OPPORTUNITIES EQUITY FUND, THE EQUITY INCOME FUND OR OF SCOTT & STRINGFELLOW.
The Sub-Adviser's composite performance data shown below was calculated on a
time weighted basis and includes all dividends and interest, accrued income
and realized and unrealized gains and losses. All returns reflect the
deduction of a 2.2% fee comprising advisory services, brokerage commissions
and execution costs, without provision for federal or state income taxes or
custody fees. This fee represents the highest account fee paid at the account
level by the underlying private accounts used to construct the composite.
Securities transactions are accounted for on the trade date and accrual
accounting is utilized. Cash and equivalents are included in performance
returns. Returns are calculated by geometrically linking the monthly and
quarterly returns respectively. There is no use of leverage or derivatives.
122
FUND MANAGEMENT
The accounts that are included in the Sub-Adviser's composites are not
subject to the same types of expenses to which the Special Opportunities
Equity Fund and the Equity Income Fund are subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds by the 1940 Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the Sub-Adviser's composites could
have been adversely affected if the accounts included in the composites had
been regulated as investment companies under the federal securities laws.
The investment results of the Sub-Adviser's composites presented below are
unaudited. The investment results of the Sub-Adviser's composites were not
calculated pursuant to the methodology established by the SEC that will be
used to calculate the performance results of the Special Opportunities Equity
Fund and the Equity Income Fund. Investors should also be aware that the use
of a methodology different from that used below to calculate performance
could result in different performance data.
<Table>
<Caption>
SUB-ADVISER'S SUB-ADVISER'S
COMPOSITE RELATED TO THE COMPOSITE RELATED TO THE S&P 500
CALENDAR YEAR SPECIAL OPPORTUNITIES EQUITY FUND(2) EQUITY INCOME FUND(3) INDEX(4)
--------------------------------------------------------------------------------------------------------
2001 8.45% 3.56% -11.88%
--------------------------------------------------------------------------------------------------------
2002 -18.39% -14.71% -22.12%
--------------------------------------------------------------------------------------------------------
2003 43.14% 29.16% 28.69%
--------------------------------------------------------------------------------------------------------
2004 27.69% 21.05% 10.87%
--------------------------------------------------------------------------------------------------------
2005 2.47% 7.93% 4.91%
--------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SUB-ADVISER'S SUB-ADVISER'S
COMPOSITE RELATED TO THE COMPOSITE RELATED TO THE S&P 500
ANNUALIZED PERIOD SPECIAL OPPORTUNITIES EQUITY FUND(2) EQUITY INCOME FUND(3) INDEX(4)
--------------------------------------------------------------------------------------------------------
1 Year Ended 12/31/05 2.47% 7.93% 4.91%
--------------------------------------------------------------------------------------------------------
2 Years Ended 12/31/05 14.39% 14.30% 7.60%
--------------------------------------------------------------------------------------------------------
3 Years Ended 12/31/05 23.26% 19.05% 14.38%
--------------------------------------------------------------------------------------------------------
Inception through
12/31/05(1) 10.64% 8.31% 0.54%
--------------------------------------------------------------------------------------------------------
</Table>
(1) Inception is 12/27/00 for the Sub-Adviser's composites for the Special
Opportunities Equity Fund and the Equity Income Fund.
(2) A 2.2% fee comprising advisory services, brokerage commissions and
execution costs was applied to the performance of the Sub-Adviser's composite
related to Special Opportunities Equity Fund. This represents the highest
account fee paid at the account level by the underlying private accounts used
to construct this composite. This fee is higher than the estimated total fund
operating expenses, both before and after contractual and voluntary waivers
are taken into account. Absent contractual and voluntary waivers, the
estimated total operating expenses would be 1.54%, 2.04% and 2.04% for the
Class A, Class B and Class C Shares of the Special Opportunities Equity Fund,
respectively. Including contractual and voluntary waivers, estimated total
operating expenses would be 1.29%, 2.04% and 2.04% for the Class A, Class B
and Class C Shares of the Special Opportunities Equity Fund, respectively.
The performance of the Sub-Adviser's composite related to Special
Opportunities Equity Fund does not take into account federal or state income
taxes.
(3) A 2.2% fee comprising advisory services, brokerage commissions and
execution costs was applied to the performance of the Sub-Adviser's composite
related to Equity Income Fund. This represents the highest account fee paid
at the account level by the underlying private accounts used to construct
this composite. This fee is higher than the estimated total fund operating
expenses, both before and after contractual and voluntary waivers are taken
into account. Absent contractual and voluntary waivers, the estimated total
operating expenses would be 1.54%, 2.04% and 2.04% for the Class A, Class B
and Class C Shares of the Equity Income Fund, respectively. Including
contractual and voluntary waivers, estimated total operating expenses would
be 1.29%, 2.04% and 2.04% for the Class A, Class B and Class C Shares of the
Equity Income Fund, respectively. The performance of the Sub-Adviser's
composite related to Equity Income Fund does not take into account federal or
state income taxes.
(4) The S&P 500 Index is a widely recognized, unmanaged index of common
stocks.
THE DISTRIBUTOR AND ADMINISTRATOR
BB&T Asset Management, Inc. (the "Administrator"), 434 Fayetteville Street
Mall, Raleigh, NC 27601, serves as each Fund's administrator. The
administrative services of the Administrator include providing office space,
equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend disbursing services.
BISYS Fund Services Ohio, Inc. (the "Sub-Administrator"), 3435 Stelzer Road,
Columbus, Ohio 43219, serves as each Fund's sub-administrator.
BB&T Funds Distributor, Inc. (the "Distributor") serves as the distributor of
each Fund's shares. The Distributor may provide financial assistance in
connection with pre-approved seminars, conferences and advertising to the
extent permitted by applicable state or self-regulatory agencies, such as the
National Association of Securities Dealers.
The SAI has more detailed information about the Adviser and other service
providers.
123
[ICON]
SHAREHOLDER INFORMATION
CHOOSING A SHARE CLASS
Class A Shares, Class B Shares, and Class C Shares have different expenses
and other characteristics, allowing you to choose the class that best suits
your needs. You should consider the amount you want to invest, how long you
plan to have it invested, and whether you plan to make additional
investments. Your financial representative can help you decide which share
class is best for you.
CLASS A SHARES
<Table>
- Stock Funds, Bond Funds and Funds of Funds: Front-end sales charges, as described on Page 134.
Money Market Funds: No sales charges.
- Distribution and service fees of 0.50% of (0.25% for the Mid Cap Growth Fund, the Mid Cap
average daily net assets. Value Fund, and the West Virginia Intermediate
Tax-Free Fund)
- OFFERED BY:
Large Cap Value Fund Kentucky Intermediate Tax-Free Fund
Large Cap Growth Fund Maryland Intermediate Tax-Free Fund
Mid Cap Value Fund North Carolina Intermediate Tax-Free Fund
Mid Cap Growth Fund South Carolina Intermediate Tax-Free Fund
Small Cap Fund Virginia Intermediate Tax-Free Fund
International Equity Fund West Virginia Intermediate Tax-Free Fund
Special Opportunities Equity Fund Prime Money Market Fund
Equity Income Fund U.S. Treasury Money Market Fund
Short U.S. Government Fund Capital Manager Conservative Growth Fund
Intermediate U.S. Government Fund Capital Manager Moderate Growth Fund
Total Return Bond Fund Capital Manager Growth Fund
Capital Manager Equity Fund
</Table>
CLASS B SHARES
- No front-end sales charge; all your money goes to work for you right away.
- Distribution and service (12b-1) fees of 1.00% of average daily net assets.
- A deferred sales charge, as described on page 135.
- Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.
- Maximum investment for all Class B purchases: $250,000.
<Table>
- OFFERED BY:
Large Cap Value Fund Intermediate U.S. Government Fund
Large Cap Growth Fund Total Return Bond Fund
Mid Cap Value Fund Prime Money Market Fund
Mid Cap Growth Fund U.S. Treasury Money Market Fund
Small Cap Fund Capital Manager Conservative Growth Fund
International Equity Fund Capital Manager Moderate Growth Fund
Special Opportunities Equity Fund Capital Manager Growth Fund
Equity Income Fund Capital Manager Equity Fund
</Table>
NOTE: Shareholders investing directly in Class B Shares of the Money Market
Funds, as opposed to Shareholders obtaining Class B Shares of a Money
Market Fund upon an exchange of Class B Shares of any other Funds, will
be requested to participate in the Auto Exchange Program in such a way
that their Class B Shares have been withdrawn from the Money Market
Fund within two years of purchase.
124
SHAREHOLDER INFORMATION
CLASS C SHARES
- No front-end sales charge; all your money goes to work for you right away.
- Distribution and service (12b-1) fees of 1.00% of average daily net assets.
- A deferred sales charge, as described on page 135.
- Maximum investment for all Class C purchases: None
<Table>
- OFFERED BY:
Large Cap Value Fund Intermediate U.S. Government Fund
Large Cap Growth Fund Total Return Bond Fund
Mid Cap Value Fund Prime Money Market Fund
Mid Cap Growth Fund U.S. Treasury Money Market Fund
Small Cap Fund Capital Manager Conservative Growth Fund
International Equity Fund Capital Manager Moderate Growth Fund
Special Opportunities Equity Fund Capital Manager Growth Fund
Equity Income Fund Capital Manager Equity Fund
</Table>
For actual past expenses of each share class, see the fund-by-fund
information earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could end up paying more expenses and receive lower dividends
over the long term than if they had paid a sales charge.
The Funds also offer Institutional Shares, which have their own expense
structure and are only available to investors who are not fiduciary clients
of Branch Banking and Trust Company, its affiliates and other financial
service providers approved by the Distributor for the investment of funds for
which they act in a fiduciary, advisory, agency, custodial or similar
capacity. Call the Distributor for more information (see back cover of this
prospectus).
Generally, expenses applicable to a Fund are allocated to each share class of
the Fund on the basis of the relative net assets of each class. Expenses
applicable to a particular share class, such as distribution and service
(12b-1) fees, are borne solely by that share class.
125
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of the
Fund's investments and other
assets, subtracting its
liabilities and then dividing
that figure by the number of
outstanding shares of the
Fund:
NAV =
Total Assets - Liabilities
-------------------------------
Number of Shares
Outstanding
Generally, for Funds other
than the Money Market Funds,
you can find the Fund's NAV
daily in The Wall Street
Journal and other newspapers.
NAV is calculated separately
for each class of shares.
------------------------------
MONEY MARKET FUNDS
The per share net asset value ("NAV") of
the Prime Money Market and U.S. Treasury
Money Market Funds will be determined at
3:00 p.m. Eastern Time on days the
Exchange and the Federal Reserve Bank of
New York are open. On days when the
Federal Reserve Bank of New York is
closed, the Funds may elect to be open,
in their discretion, if it is determined
to be in shareholders' best interests.
Your order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is received.
This is what is known as the offering
price.
Each Fund uses the amortized cost method
of valuing its investments, which does
not take into account unrealized gains or
losses. For further information regarding
the methods used in valuing the Fund's
investments, please see the SAI.
OTHER FUNDS
Per NAV for each Fund is determined and
its shares are priced at the close of
regular trading on the New York Stock
Exchange, normally at 4:00 p.m. Eastern
time on days the Exchange is open.
Your order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is accepted
by the Fund less any applicable sales
charge as noted in the section on
"Distribution Arrangements/Sales
Charges." This is what is known as the
offering price. For further information
regarding the methods used in valuing the
Fund's investments, please see the SAI.
A Fund's securities are generally valued
at current market prices. If market
quotations are not available, prices will
be based on fair value as determined by
BB&T Funds' Pricing Committee 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.
126
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Funds through the Distributor or through banks, brokers and
other investment representatives, which may charge additional fees and may
require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.
<Table>
<Caption>
MINIMUM INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
Class A, Class B or Class C
----------------------------------------------------------
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, money orders, credit card convenience checks,
cash and traveler's checks are not accepted. In addition, bank starter checks
are not accepted for initial purchase into the Funds.
A Fund may waive its minimum purchase requirement. The Distributor may reject a
purchase order if it considers it in the best interest of the Fund and its
shareholders.
--------------------------------------------------------------------------------
AVOID TAX WITHHOLDING
Each Fund is required to withhold a percentage of taxable dividends, capital
gains distributions and redemptions paid to shareholders who have not provided
the Fund with their certified taxpayer identification number or have otherwise
failed to comply with IRS rules. Shareholders are urged to read the additional
information concerning withholding provided in the SAI and provide a correct Tax
Identification Number (Social Security Number for most investors) on the account
application.
--------------------------------------------------------------------------------
127
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
If purchasing through your financial adviser or brokerage account, simply
tell your adviser or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check or bank draft 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.
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.
QUESTIONS?
Call 800-228-1872 or your
investment representative.
128
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:
Call 1-800-228-1872 to obtain a trade confirmation number and wire transfer
instructions.
AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-228-1872 TO ADVISE
US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK.
---------------------------------------------------------------------
YOU CAN ADD TO YOUR ACCOUNT BY USING THE CONVENIENT OPTIONS DESCRIBED BELOW.
THE FUND RESERVES THE RIGHT TO CHANGE OR ELIMINATE THESE PRIVILEGES AT ANY
TIME WITH 60 DAYS NOTICE.
---------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in
the Funds from your bank account,
through payroll deduction or from
your federal employment, Social
Security or other regular government
checks. Automatic investments can be
as little as $25, once you've
invested the $25 minimum required to
open the account.
To invest regularly from your bank
account:
- Complete the Automatic Investment
Plan portion on your Account
Application or the supplemental
sign-up form.
- Make sure you note:
- Your bank name, address and account number.
- The amount you wish to invest automatically (minimum $25).
- How often you want to invest (every month, 4 times a year, twice a year
or once a year).
- Attach a voided personal check.
Call 1-800-228-1872 for an enrollment form or consult the SAI for additional
information.
The Funds' transfer agent is required by law to obtain certain personal
information from you (or a person acting on your behalf) in order to verify
your (or such person's) identity. If this information is not provided, the
transfer agent may not be able to open your account. If the transfer agent is
unable to verify your identity (or that of another person authorized to act
on your behalf), or believes it has identified potentially criminal activity,
the Funds, the Distributor and the transfer agent each reserve the right to
close your account or to take such other action as they deem reasonable or
required by law.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital gains
and dividends) reinvested in another BB&T Fund without a sales charge. You must
maintain the minimum balance in each Fund into which you plan to reinvest
dividends or the reinvestment will be suspended and your dividends paid to you.
The Fund may modify or terminate this reinvestment option without notice. You
can change or terminate your participation in the reinvestment option at any
time.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Class A Shares have higher dividends than Class B Shares and Class C Shares,
because Class A Shares have lower distribution expenses than Class B Shares
and Class C Shares. Income dividends for the Money Market Funds and the Bond
Funds are declared daily and paid monthly. Income dividends for the Large Cap
Value Fund, Mid Cap Value Fund, and the Small Cap Fund are declared and paid
monthly. The Large Cap Growth Fund, Mid Cap Growth Fund, International Equity
Fund, the Special Opportunities Equity Fund, the Equity Income Fund, and the
Funds of Funds declare and pay income dividends quarterly. Capital gains are
distributed at least annually.
Distributions are made on a per share basis regardless of how long you've
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.
-----------------------------------------------------------------------------
129
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is received
by the Fund, its transfer
agent, or your investment
representative. Normally you
will receive your proceeds
within a week after your
request is received. See
section on "General Policies
on Selling Shares" below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you request a
withdrawal in cash. This is also known as
redeeming shares or a redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B or Class C Shares, you
will be charged a fee for any shares that
have not been held for a sufficient length of
time. These fees will be deducted from the
money paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial
adviser or broker, ask him or her for
redemption procedures. Your adviser and/or
broker may have transaction minimums and/or
transaction times which will affect your
redemption. For all other sales transactions,
follow the instructions below.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 1-800-228-1872 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below).
BY MAIL
1. Call 1-800-228-1872 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: BB&T Funds, P.O. Box 182533, Columbus, OH 43218-2533.
BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES -- REDEMPTIONS
IN WRITING REQUIRED" BELOW)
1. See instruction 1 above.
2. Send to: BB&T Funds, c/o BISYS Fund Services, Attn: T.A. Operations,
3435 Stelzer Road, Columbus, OH 43219.
130
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.
As of the date of this Prospectus, BB&T Funds has waived the $7 wire transfer
fee. This waiver is voluntary and may be discontinued at any time. 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 (3 p.m. for Money Market Funds), 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 (3 p.m. for Money Market Funds), the NAV
of your shares will normally be determined on the same day and the proceeds
credited within 7 days.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
- Complete the supplemental sign-up form which you may obtain by calling
1-800-228-1872.
- Include a voided personal check.
- Your account must have a value of $5,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- MONEY MARKET FUNDS ONLY
You may write checks in amounts of $100 or more on your account in the Prime
Money Market Fund or the U.S. Treasury Money Market Fund. To obtain checks,
complete the signature card section of the account application or contact the
Fund to obtain a signature card. Dividends and distributions will continue to
be paid up to the day the check is presented for payment. The check writing
feature may be modified or terminated upon 30 days' written notice. You must
maintain the minimum required account balance in the Fund of $1,000 and you
may not close your Fund account by writing a check.
131
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing if:
- Redemption from an Individual Retirement Account ("IRA").
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(s) of the account; or
- Your account address has changed within the last ten business days; or
- The redemption proceeds are being transferred to another Fund account
with different registration; or
- The redemption proceeds are being wired to bank instructions currently
not on your 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 BUSINESS DAYS OF INVESTMENT
When you have made an 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.
REDEMPTION FEES
The BB&T Funds will assess a redemption fee of 2.00% of the total redemption
amount if you sell your shares (of any class), including exchanging your
shares for the shares of another BB&T Fund, after holding them for less than
7 calendar days subject to certain exceptions or limitations described below.
The redemption fee will not be assessed on sales of shares or exchanges out
of the BB&T Money Market Funds. The redemption fee is paid directly to the
BB&T Funds and is designed to offset brokerage commissions, market impact and
other costs associated with short-term trading of Fund shares. For purposes
of determining whether the redemption fee applies, the shares that were held
the longest will be redeemed first. This redemption fee is in addition to any
contingent deferred sales charges that may be applicable at the time of sale.
Although the BB&T Funds will attempt to assess this redemption fee on all
applicable redemptions, there can be no guarantee that the Funds will be
successful in doing so, including instances when omnibus accounts or
retirement plans will not or cannot collect the redemption fee from their
underlying accounts. Further, the Funds will not apply the redemption fee to
certain types of redemptions that do not indicate market timing strategies,
such as redemptions of shares through automatic non-discretionary rebalancing
programs or systematic withdrawal plans, redemptions requested within 7
calendar days following the death or disability of the shareholder (or, if a
trust, its beneficiary), redemptions requested pursuant to minimum required
distributions from retirement plans or redemptions initiated by the Funds. If
you reinvest a dividend or capital gain and purchase more shares (in the same
fund) those shares will not be subject to the redemption fee upon the sale of
those shares or the exchange of those shares for shares of another fund.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
132
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.
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 DISTRIBUTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund at the current NAV.
133
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A Shares are sold at their public offering price. This price equals NAV
plus the initial sales charge, if applicable. Therefore, part of the money
you invest will be used to pay the sales charge. The remainder is invested in
Fund shares. The sales charge decreases with larger purchases. There is no
sales charge on reinvested dividends and distributions.
The current sales charge rates are as follows:
FOR THE STOCK FUNDS, FUNDS OF FUNDS, INTERMEDIATE U.S. GOVERNMENT FUND, AND
TOTAL RETURN BOND FUND
<Table>
<Caption>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
Up to $49,999 5.75% 6.10%
------------------------------------------------------------------------
$50,000 to $99,999 4.50% 4.71%
------------------------------------------------------------------------
$100,000 up to $249,999 3.50% 3.63%
------------------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
------------------------------------------------------------------------
$500,000 up to $999,999 2.00% 2.04%
------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00%
------------------------------------------------------------------------
</Table>
FOR THE TAX-FREE BOND FUNDS AND THE SHORT U.S. GOVERNMENT FUND
<Table>
<Caption>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
Up to $49,999 3.00% 3.09%
------------------------------------------------------------------------
$50,000 to $99,999 2.50% 2.56%
------------------------------------------------------------------------
$100,000 up to $249,999 2.00% 2.04%
------------------------------------------------------------------------
$250,000 up to $499,999 1.50% 1.52%
------------------------------------------------------------------------
$500,000 up to $999,999 1.00% 1.01%
------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00%
------------------------------------------------------------------------
</Table>
(1) There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed in
the first year after purchase. This charge will be based on the lower of your
cost for the shares or their NAV at the time of redemption. There will be no
CDSC on reinvested distributions. For sales of over $1 million or more, the
Distributor pays broker-dealers out of its own assets, a fee of up to 1% of
the offering price of such shares up to $2.5 million, 0.5% of the offering
price from $2.5 million to $5 million, and 0.25% of the offering price over
$5 million.
FOR THE MONEY MARKET FUNDS
No sales charges.
134
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
Class B Shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class B Shares of the Fund before the sixth anniversary, you will have to
pay a contingent deferred sales charge at the time of redemption. The CDSC will
be based upon the lower of the NAV at the time of purchase or the NAV at the
time of redemption according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
<Table>
<Caption>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
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 C SHARES
Class C Shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class C Shares of the Fund before the first anniversary, you will have to
pay a 1% contingent deferred sales charge at the time of redemption. The CDSC
will be based upon the lower of the NAV at the time of purchase or the NAV at
the time of redemption. In any sale, certain shares not subject to the CDSC
(i.e., shares purchased with reinvested dividends or distributions) will be
redeemed first, followed by shares subject to the lowest CDSC (typically shares
held for the longest time).
135
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A Shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances.
- LETTER OF INTENT. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
- RIGHTS OF ACCUMULATION. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge. You must, at the time of purchase, give the Transfer Agent
or the Distributor sufficient information to permit confirmation of your
qualification for the right of accumulation.
- COMBINATION PRIVILEGE. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members
(spouse and children under 21) to achieve reduced sales charges.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
- Existing Shareholders of a Fund upon the reinvestment of dividend and
capital gain distributions;
- 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 Institutional Shares of any Fund of the
BB&T Funds;
- Investors who purchase Shares of a Fund through a payroll deduction plan,
a 401(k) plan or a 403(b) plan which by its terms permits purchase of
Shares; and
- 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.
The Distributor may also waive the sales charge at anytime in its own
discretion. Consult the SAI for more details concerning sales charges
waivers.
REINSTATEMENT PRIVILEGE
If you have sold Class A Shares or Class C Shares and decide to
reinvest in the Fund within a 90 day period, you will not be charged
the applicable sales charge on amounts up to the value of the shares
you sold. You must provide a written request for reinstatement and
payment within 90 days of the date your instructions to sell were
processed.
136
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B AND C 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.
- Returns of excess contributions to retirement plans.
- Distributions of less than 12% of the annual account value under the Auto
Withdrawal Plan.
- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
- Investors who purchased through the Cash Sweep Program at BB&T Treasury
Services Division (Class B Shares only).
CURRENT INFORMATION REGARDING EACH FUND'S SALES CHARGES AND BREAKPOINTS IS
AVAILABLE ON THE FUNDS' WEB SITE AT WWW.BBTFUNDS.COM.
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 (0.25% for the Mid Cap Growth Fund, the Mid Cap Value
Fund, and the West Virginia Intermediate Tax Free Fund).
- Class B Shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. This will cause expenses for Class B
Shares to be higher and dividends to be lower than for Class A Shares.
- Class C Shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. This will cause expenses for Class C
Shares to be higher and dividends to be lower than for Class A Shares.
- The higher 12b-1 fee on Class B and Class C Shares, together with the
CDSC, help the Distributor sell Class B and Class C Shares without an
"up-front" sales charge. In particular, these fees help to defray the
Distributor's costs of advancing brokerage commissions to investment
representatives.
- The Distributor may use up to 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.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS -- REVENUE SHARING
The Adviser and/or its affiliates may pay out of their own assets
compensation to broker-dealers and other persons for the sale and
distribution of the Shares and/or for the servicing of the Shares. These
additional cash incentives, sometimes referred to as "revenue sharing
arrangements" are payments over and above the sales charges (including Rule
12b-1 fees) and service fees paid by the Funds, which are disclosed elsewhere
in this prospectus. These additional cash payments made by the Adviser may be
made to supplement commissions reallowed to dealers, and may take the form of
(1) due diligence payments for a broker-dealer's examination of the Funds and
payments for employee training and education relating to the Funds; (2)
listing fees for the placement of the Funds on a broker-dealer's list of
mutual funds available for purchase by its clients; (3) marketing support
fees for providing assistance in promoting the sale of Shares; (4) payments
in connection with attendance at sales meetings for the promotion of the sale
of Shares; and (5) payments for the sale of shares and/or the maintenance of
share balances. These payments, which may be different for different
financial institutions, will not change the price an investor will pay for
Shares or the amount that a Fund will receive for the sale of Shares.
137
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of another
BB&T Fund, usually without paying additional sales charges (see "Notes" below).
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable. Class A Shares,
Class B Shares, and Class C Shares may also be exchanged for Institutional
Shares of the same Fund if you become eligible to purchase Institutional Shares.
Neither Class B Shares nor Class C Shares may be exchanged for Class A Shares.
Class C Shares may not be exchanged for Class B Shares. Please consult the
Institutional Shares prospectus for more information. No transaction fees are
currently charged for exchanges. However, the 2.00% redemption fee is charged on
exchanges made within 7 calendar days of a purchase or exchange transaction.
AUTOMATIC EXCHANGES -- CLASS B SHARES ONLY
You can use the Funds' Automatic Exchange feature to purchase Class B Shares of
the Funds at regular intervals through regular, automatic redemptions from the
your BB&T Fund account. Shareholders investing directly in Class B Shares of the
Money Market Funds, as opposed to Shareholders obtaining Class B Shares of the
Money Market Funds upon exchange of Class B Shares of any of the other Funds
will be requested to participate in the Auto Exchange Plan and to set the time
and amount of their regular, automatic withdrawal in such a way that all of the
Class B Shares have been withdrawn from the U.S. Treasury or Prime Money Market
Fund within 2 years of purchase. To participate in the Automatic Exchange Plan:
- Complete the appropriate section of the Account Application.
- Keep a minimum of $10,000 in your BB&T Funds account and $1,000 in the Fund
whose shares you are buying.
To change the Automatic Exchange instructions or to discontinue the feature, you
must send a written request to BB&T Funds, P.O. Box 182533, Columbus, Ohio
43218-2533.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to BB&T Funds, P.O. Box
182533, Columbus OH 43218-2533, or by calling 1-800-228-1872. Please provide the
following information:
- Your name and telephone number.
- The exact name on your account and account number.
- Taxpayer identification number (usually your Social Security number).
- Dollar value or number of shares to be exchanged.
- The name of the Fund from which the exchange is to be made.
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
MARKET TIMING
Excessive short-term trading or other abusive trading practices may disrupt
portfolio management strategies and hurt Fund performance. Such practices may
dilute the value of Fund shares, interfere with the efficient management of a
Fund's investments, and increase brokerage and administrative costs. To prevent
disruption in the management of the Funds due to market timing strategies, we
have adopted certain policies and procedures. To deter market timing, the Funds
impose redemption fees on shares sold within seven calendar days of purchase.
The redemption fees are in addition to any applicable contingent deferred sales
charges. Because money market funds are designed to accommodate frequent
trading, the redemption fee will not be assessed on sales of shares or exchanges
out of the money market funds. Redemption fees are also not charged on specified
types of redemptions that do not indicate market timing strategies, such as
redemptions of shares through automatic non-discretionary rebalancing programs
or systematic withdrawal plans. Further exceptions and information are found in
this prospectus under "Shareholder Information -- Redemption Fees."
We also reserve the right to close any account in which we have identified a
pattern of excessive or abusive trading.
We cannot guarantee that we will detect every market timer due to the
limitations inherent in our technological systems. In addition, although we will
attempt to assess the redemption fee on all applicable redemptions, we cannot
guarantee that we will succeed in doing so. For example, certain omnibus
accounts or retirement plans may be unable or unwilling to collect the
redemption fee from their underlying accounts. These types of accounts generally
include multiple investors and typically provide the Fund with a net purchase or
redemption request on any given day where purchasers of Fund shares and
redeemers of Fund shares are netted against one another and the identity of
individual purchasers and redeemers whose orders are aggregated are not known by
the Funds. The netting effect often makes it more difficult to apply redemption
fees and to identify market timing activity.
We will apply our policies and procedures consistently to all fund shareholders.
We reserve the right to modify our policies and procedures at any time without
prior notice as we deem in our sole discretion to be in the best interests of
fund shareholders, or to comply with state or Federal legal requirements.
138
SHAREHOLDER INFORMATION
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.
139
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Please consult your tax adviser regarding your specific questions about
federal, state and local income taxes. Below we have summarized some
important tax issues that affect the Funds and their shareholders. This
summary is based on current tax laws, which may change.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that distributions of long-term capital gains will be
taxed as such regardless of how long you have held your shares. Additionally,
distributions of investment income designated by the Fund as derived from
"qualified dividend income" will be taxed at the rates applicable to
long-term capital gains, provided holding period and other requirements are
met at both the Shareholder and Fund level. Long-term capital gains rates
applicable to individuals have been reduced to 15%, with lower rates
applicable to taxpayers in the 10% and 15% rates, through December 31, 2008.
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). The Money Market Funds do not expect a
significant portion of Fund distributions to be derived from qualified
dividend income.
For the Tax-Free Bond Funds, the income dividends that you receive are
expected to be exempt from federal income taxes, but may be subject to state
and local taxes. In the case of the Kentucky Intermediate Tax-Free Fund,
Maryland Intermediate Tax-Free Fund, North Carolina Intermediate Tax-Free
Fund, South Carolina Intermediate Tax-Free Fund, Virginia Intermediate
Tax-Free Fund, and West Virginia Intermediate Tax-Free Fund, dividend income
is expected to be exempt from Kentucky, Maryland, North Carolina, South
Carolina, Virginia, and West Virginia income taxes, respectively. However, if
you receive Social Security or railroad retirement benefits, you should
consult your tax adviser to determine what effect, if any, an investment in
the Tax-Free Bond Funds may have on the federal taxation of your benefits. In
addition, an investment in the Tax-Free Bond Funds may result in liability
for federal alternative minimum tax, both for individual and corporate
shareholders. Investments held in a Tax-Free Bond Fund which do not conform
to the Fund's primary goal of investing in securities which are exempt from
federal and state income taxes, whether for defensive reasons or otherwise,
may result in federal and/or state income or other taxes.
A Fund of Funds will not be able to offset gains realized by one Fund in
which it invests against losses realized by another Fund in which it invests.
The use of a fund of funds structure could therefore affect the amount,
timing and character of distributions to Shareholders, and may increase the
amount of taxes payable by Shareholders.
A Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, a Fund's yield on those securities would be
decreased. Except with respect to the International Equity Fund, shareholders
generally will not be entitled to claim a credit or deduction with respect to
foreign taxes. In addition, a Fund's investments in foreign securities or
foreign currencies may increase or accelerate a Fund's recognition of
ordinary income and may affect the timing or amount of a Fund's
distributions.
Any gain resulting from the sale or exchange of your Fund Shares (even if the
income from which is tax exempt) will generally be subject to tax. You should
consult your tax adviser for more information on your own tax situation,
including possible state and local taxes.
BB&T Funds will send you a statement each year showing the tax status of all
your distributions.
- For each Fund, other than the Tax-Free Bond Funds, the dividends and
short-term capital gains that you receive are considered ordinary income
for tax purposes. For the Tax-Free Bond Funds, any short-term capital gains
that you receive are taxable to you as ordinary dividend income for federal
income tax purposes.
- Any distributions of net long-term capital gains by a Fund are taxable to
you as long-term capital gains for tax purposes, no matter how long you've
owned shares in the Fund.
- Generally, the Funds' advisers do not consider taxes when deciding to buy
or sell securities. Capital gains are realized from time to time as
by-products of ordinary investment activities. Distributions may vary
considerably from year to year.
- If you sell or exchange shares, any gain or loss you have is a taxable
event. This means that you may have a capital gain to report as income, or
a capital loss to report as a deduction, when you complete your federal
income tax return.
- Distributions of dividends or capital gains, and capital gains or losses
from your sale or exchange of Fund shares, may be subject to state and
local income taxes as well.
140
SHAREHOLDER INFORMATION
SPECIAL CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS
Capital gain dividends will not be subject to withholding. In general,
dividends (other than capital gain dividends) paid to a shareholder that is
not a "U.S. person" within the meaning of the Code (such shareholder, a
"foreign person") are subject to withholding of U.S. federal income tax at a
rate of 30% (or lower applicable treaty rate). However, effective for taxable
years of a Fund beginning after December 31, 2004 and before January 1, 2008,
a Fund will not be required to withhold any amounts with respect to
distributions of (i) U.S.-source interest income that, in general, would not
be subject to U.S. federal income tax if earned directly by an individual
foreign person, and (ii) net short-term capital gains in excess of net
long-term capital losses, in each case to the extent such distributions are
properly designated by the Fund. If a Fund of Funds invests in an Underlying
Fund that pays distributions from such sources to the Fund of Funds, such
distributions will retain their character as not subject to withholding when
paid by the Fund of Funds to its foreign shareholders. This provision will
first apply to each Fund in its taxable year beginning October 1, 2005.
Recent legislation modifies the tax treatment of distributions from a Fund
that are paid to a foreign person and are attributable to gain from "U.S.
real property interests" ("USRPIs"), which the Code defines to include direct
holdings of U.S. real property and interests (other than solely as a
creditor) in "U.S. real property holding corporations" such as REITs.
Effective for and which applies to dividends paid or deemed paid on or before
December 31, 2007, distributions to foreign persons attributable to gains
from the sale or exchange of USRPIs ("USRPI Distributions") will give rise to
an obligation for those foreign persons to file a U.S. tax return and pay
tax, and may well be subject to withholding under future regulations. A Fund
of Funds will not, under current law, receive or pass through USRPI
Distributions as a result of its investment in an underlying Fund; this
result may be changed by future regulations.
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.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FAIR VALUE PRICING POLICIES
A Fund will fair value price its securities when market quotations are not
readily available. Generally, this would include securities for which trading
has been halted, securities whose value has been materially affected by the
occurrence of a significant event (as defined below), securities whose price
has become stale (i.e., the market price has remained unchanged for five
business days), and other securities where a market price is not available
from either a national pricing service or a broker. In addition, the Pricing
Committee will review exception priced securities (i.e., securities for which
the market value is provided by a quote from a single broker rather than a
national pricing service) on a quarterly basis. In these situations, the
Funds' Pricing Committee will employ certain Board-approved methodologies to
determine a fair value for the securities. Fair valuations will be reviewed
by the Board of Trustees on a quarterly basis. Fair value pricing should
result in a more accurate determination of a Fund's net asset value price,
which should eliminate the potential for arbitrage in a Fund.
A "significant event" is one that occurred prior to a Fund's valuation time,
is not reflected in the most recent market price of a security, and
materially affects the value of a security. Generally, such "significant
events" relate to developments in foreign securities that occur after the
close of trading in their respective markets. The Fund's accounting agent may
obtain fair value prices of foreign securities through utilization of a Fair
Value Pricing Service previously approved by the Board where a movement in
the U.S. equities market is sufficiently large to constitute a trigger
established by the Pricing Committee.
DISCLOSURE OF PORTFOLIO HOLDINGS
Information regarding the Funds' policies and procedures regarding the
disclosure of portfolio holdings is contained in our Statement of Additional
Information.
141
SHAREHOLDER INFORMATION
INVESTMENT IN EXCHANGE-TRADED FUNDS
The Capital Manager Conservative Growth Fund, Capital Manager Moderate Growth
Fund, Capital Manager Growth Fund, Capital Manager Equity Fund, Prime Money
Market Fund, Total Return Bond Fund, Large Cap Growth Fund, Large Cap Value
Fund, Small Cap Fund, International Equity Fund, Mid Cap Growth Fund, Mid Cap
Value Fund, Special Opportunities Fund, Equity Income Fund, Short U.S.
Government Fund, Intermediate U.S. Government Fund, Kentucky Intermediate
Tax-Free Fund, Maryland Intermediate Tax-Free Fund, North Carolina
Intermediate Tax-Free Fund, South Carolina Intermediate Tax-Free Fund,
Virginia Intermediate Tax-Free Fund, and West Virginia Intermediate Tax-Free
Fund may each invest in index-based exchange-traded funds, such as iShares(R)
Trust and iShares(R), Inc. ("iShares(R)*").
*iShares(R) is a registered trademark of Barclays Global Investors, N.A.
("BGI"). Neither BGI nor the iShares(R) Funds make any representations
regarding the advisability of investing in an iShares(R) fund.
iShares(R) is a registered investment company unaffiliated with the Funds
that offers several series of securities, each of which seeks to replicate
the performance of a stock market index or a group of stock markets in a
particular geographic area. Thus, investment in iShares(R) offers, among
other things, an efficient means to achieve diversification to a particular
industry that would otherwise only be possible through a series of
transactions and numerous holdings. Although similar diversification benefits
may be achieved through an investment in another investment company,
exchange-traded funds generally offer greater liquidity and lower expenses.
Because an exchange-traded fund charges its own fees and expenses, fund
shareholders will indirectly bear these costs. The Funds will also incur
brokerage commissions and related charges when purchasing shares in an
exchange-traded fund in secondary market transactions. Unlike typical
investment company shares, which are valued once daily, shares in an
exchange-traded fund may be purchased or sold on a listed securities exchange
throughout the trading day at market prices that are generally close to net
asset value. See "Additional Investment Strategies and Risks" for information
regarding the risks associated with investment in an exchange-traded fund.
Because exchange-traded funds are investment companies, investment in such
funds would, absent exemptive relief, be limited under applicable Federal
statutory provisions. Those provisions restrict a fund's investment in the
shares of another investment company to up to 5% of its assets (which may
represent no more than 3% of the securities of such other investment company)
and limit aggregate investments in all investment companies to 10% of assets.
The Funds may invest in iShares(R) in excess of the statutory limit in
reliance on an exemptive order issued to that entity, provided that certain
conditions are met.
142
[ICON]
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of the
Funds' operations. Certain information reflects financial results for a
single fund share. The total returns in the table represent the rate that an
investor would have earned [or lost] on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by KPMG LLP. This report, along with the Fund's financial statements,
is incorporated by reference in the SAI, which is available upon request.
The financial highlights for the Mid Cap Growth Fund, Mid Cap Value Fund and
West Virginia Intermediate Tax-Free Fund, for the periods ended January 31,
2001 and prior, were audited by other auditors whose report thereon dated
March 14, 2001 expressed an unqualified opinion on those financial
highlights.
143
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------- ----------
NET REALIZED/
UNREALIZED
NET ASSET NET GAINS (LOSSES)
VALUE, INVESTMENT ON INVESTMENTS TOTAL FROM NET
BEGINNING INCOME AND FOREIGN INVESTMENT INVESTMENT
OF PERIOD (LOSS) CURRENCIES ACTIVITIES INCOME
---------- ---------- -------------- ---------- ----------
LARGE CAP VALUE FUND
(formerly known as the Large Company Value Fund)
Year Ended September 30, 2005................... $17.26 0.28 2.22 2.50 (0.29)
Year Ended September 30, 2004................... $14.87 0.23 2.38 2.61 (0.22)
Year Ended September 30, 2003................... $12.84 0.23 2.03 2.26 (0.23)
Year Ended September 30, 2002................... $16.79 0.18 (3.47) (3.29) (0.18)
Year Ended September 30, 2001................... $18.57 0.22 (0.89) (0.67) (0.22)
LARGE CAP GROWTH FUND
(formerly known as the Large Company Growth
Fund)
Year Ended September 30, 2005................... $ 8.22 0.02(c) 0.77 0.79 (0.04)
Year Ended September 30, 2004................... $ 7.69 (0.01) 0.54 0.53 --
Year Ended September 30, 2003................... $ 6.60 (0.02) 1.11 1.09 --
Year Ended September 30, 2002................... $ 8.16 (0.06) (1.50) (1.56) --
Year Ended September 30, 2001................... $14.75 (0.05) (5.56) (5.61) --
MID CAP VALUE FUND
Year Ended September 30, 2005................... $15.40 0.13(c) 3.04 3.17 (0.13)
Year Ended September 30, 2004................... $12.98 0.18(c) 2.42 2.60 (0.18)
Year Ended September 30, 2003................... $10.93 0.16(c) 2.04 2.20 (0.15)
Year Ended September 30, 2002................... $13.12 0.17(c) (1.04) (0.87) (0.17)
February 1, 2001 to September 30, 2001 (a)...... $14.26 0.15 (1.15) (1.00) (0.14)
Year Ended January 31, 2001..................... $14.10 0.22 0.94 1.16 (0.21)
MID CAP GROWTH FUND
Year Ended September 30, 2005................... $10.95 (0.09)(c) 3.18 3.09 --
Year Ended September 30, 2004................... $ 9.84 (0.08) 1.19 1.11 --
Year Ended September 30, 2003................... $ 8.07 (0.09) 1.86 1.77 --
Year Ended September 30, 2002................... $ 9.80 (0.08) (1.02) (1.10) --
February 1, 2001 to September 30, 2001 (a)...... $14.42 (0.07) (4.55) (4.62) --
Year Ended January 31, 2001..................... $20.36 (0.13) (1.99) (2.12) --
SMALL CAP FUND
(formerly known as the Small Company Value Fund)
Year Ended September 30, 2005................... $14.21 0.11(c) 2.62 2.73 (0.14)
Year Ended September 30, 2004................... $11.44 --(c)(d) 2.90 2.90 (0.01)
May 19, 2003 to September 30, 2003 (b).......... $10.00 0.01(c) 1.43 1.44 --(d)
INTERNATIONAL EQUITY FUND
Year Ended September 30, 2005................... $ 8.12 0.10(c) 1.47 1.57 (0.11)
Year Ended September 30, 2004................... $ 6.88 0.07(c) 1.25 1.32 (0.08)
Year Ended September 30, 2003................... $ 6.31 0.06(c) 0.54 0.60 (0.03)
Year Ended September 30, 2002................... $ 7.43 (0.02)(c) (1.10) (1.12) --
Year Ended September 30, 2001................... $12.49 (0.05) (2.99) (3.04) --
SPECIAL OPPORTUNITIES EQUITY FUND
Year Ended September 30, 2005................... $13.08 (0.07) 2.68 2.61 --
Year Ended September 30, 2004................... $10.53 (0.06) 2.69 2.63 --
June 2, 2003 to September 30, 2003 (b).......... $10.00 (0.01) 0.54 0.53 --
EQUITY INCOME FUND
Year Ended September 30, 2005................... $10.35 0.24 1.77 2.01 (0.25)
June 30, 2004 to September 30, 2004 (b)......... $10.00 0.05(c) 0.34 0.39 (0.04)
SHORT U.S. GOVERNMENT FUND
Year Ended September 30, 2005................... $ 9.70 0.23 (0.14) 0.09 (0.29)
Year Ended September 30, 2004................... $ 9.89 0.17 (0.10) 0.07 (0.26)
Year Ended September 30, 2003................... $10.08 0.27 (0.11) 0.16 (0.35)
Year Ended September 30, 2002................... $10.04 0.43(e) 0.06(e) 0.49 (0.45)
Year Ended September 30, 2001................... $ 9.63 0.51 0.41 0.92 (0.51)
INTERMEDIATE U.S. GOVERNMENT FUND
Year Ended September 30, 2005................... $10.24 0.35(c) (0.15) 0.20 (0.38)
Year Ended September 30, 2004................... $10.57 0.32 (0.19) 0.13 (0.33)
Year Ended September 30, 2003................... $10.77 0.35 (0.07) 0.28 (0.39)
Year Ended September 30, 2002................... $10.38 0.47(f) 0.42(f) 0.89 (0.50)
Year Ended September 30, 2001................... $ 9.71 0.51 0.68 1.19 (0.52)
TOTAL RETURN BOND FUND
(formerly known as the Intermediate Corporate Bond Fund)
Year Ended September 30, 2005................... $10.59 0.38(c) (0.19) 0.19 (0.44)
Year Ended September 30, 2004................... $10.72 0.41 (0.08) 0.33 (0.46)
Year Ended September 30, 2003................... $10.33 0.47 0.41 0.88 (0.49)
Year Ended September 30, 2002................... $10.56 0.53(g) (0.04)(g) 0.49 (0.55)
Year Ended September 30, 2001................... $ 9.98 0.60 0.58 1.18 (0.60)
<Caption>
DIVIDENDS
------------------------
NET REALIZED
GAINS ON
INVESTMENTS
AND FOREIGN TOTAL
CURRENCIES DIVIDENDS
------------ ---------
LARGE CAP VALUE FUND
(formerly known as the Large Company Value Fund)
Year Ended September 30, 2005................... -- (0.29)
Year Ended September 30, 2004................... -- (0.22)
Year Ended September 30, 2003................... -- (0.23)
Year Ended September 30, 2002................... (0.48) (0.66)
Year Ended September 30, 2001................... (0.89) (1.11)
LARGE CAP GROWTH FUND
(formerly known as the Large Company Growth
Fund)
Year Ended September 30, 2005................... -- (0.04)
Year Ended September 30, 2004................... -- --
Year Ended September 30, 2003................... -- --
Year Ended September 30, 2002................... -- --
Year Ended September 30, 2001................... (0.98) (0.98)
MID CAP VALUE FUND
Year Ended September 30, 2005................... (5.09) (5.22)
Year Ended September 30, 2004................... -- (0.18)
Year Ended September 30, 2003................... -- (0.15)
Year Ended September 30, 2002................... (1.15) (1.32)
February 1, 2001 to September 30, 2001 (a)...... -- (0.14)
Year Ended January 31, 2001..................... (0.79) (1.00)
MID CAP GROWTH FUND
Year Ended September 30, 2005................... (0.14) (0.14)
Year Ended September 30, 2004................... -- --
Year Ended September 30, 2003................... -- --
Year Ended September 30, 2002................... (0.63) (0.63)
February 1, 2001 to September 30, 2001 (a)...... -- --
Year Ended January 31, 2001..................... (3.82) (3.82)
SMALL CAP FUND
(formerly known as the Small Company Value Fund)
Year Ended September 30, 2005................... (0.42) (0.56)
Year Ended September 30, 2004................... (0.12) (0.13)
May 19, 2003 to September 30, 2003 (b).......... -- --(d)
INTERNATIONAL EQUITY FUND
Year Ended September 30, 2005................... -- (0.11)
Year Ended September 30, 2004................... -- (0.08)
Year Ended September 30, 2003................... -- (0.03)
Year Ended September 30, 2002................... -- --
Year Ended September 30, 2001................... (2.02) (2.02)
SPECIAL OPPORTUNITIES EQUITY FUND
Year Ended September 30, 2005................... (0.12) (0.12)
Year Ended September 30, 2004................... (0.08) (0.08)
June 2, 2003 to September 30, 2003 (b).......... -- --
EQUITY INCOME FUND
Year Ended September 30, 2005................... (0.02) (0.27)
June 30, 2004 to September 30, 2004 (b)......... -- (0.04)
SHORT U.S. GOVERNMENT FUND
Year Ended September 30, 2005................... -- (0.29)
Year Ended September 30, 2004................... -- (0.26)
Year Ended September 30, 2003................... -- (0.35)
Year Ended September 30, 2002................... -- (0.45)
Year Ended September 30, 2001................... -- (0.51)
INTERMEDIATE U.S. GOVERNMENT FUND
Year Ended September 30, 2005................... (0.05) (0.43)
Year Ended September 30, 2004................... (0.13) (0.46)
Year Ended September 30, 2003................... (0.09) (0.48)
Year Ended September 30, 2002................... -- (0.50)
Year Ended September 30, 2001................... -- (0.52)
TOTAL RETURN BOND FUND
(formerly known as the Intermediate Corporate Bo
Year Ended September 30, 2005................... (0.03) (0.47)
Year Ended September 30, 2004................... -- (0.46)
Year Ended September 30, 2003................... -- (0.49)
Year Ended September 30, 2002................... (0.17) (0.72)
Year Ended September 30, 2001................... -- (0.60)
</Table>
---------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(a) For the period from February 1, 2001 to September 30, 2001. Upon
reorganizing as Funds of the BB&T Funds, the Mid Cap Value Fund and Mid
Cap Growth Fund changed their fiscal year end from January 31 to
September 30, 2001. The Financial Highlights for the periods prior to
February 1, 2001 represent the OVB Equity Income Portfolio and OVB
Capital Appreciation Portfolio, respectively.
(b) Period from commencement of operations.
(c) Per share net investment income (loss) has been calculated using the
daily average shares method.
(d) Amount is less than $0.005.
144
CLASS A SHARES
<Table>
<Caption>
RATIOS/SUPPLEMENTARY DATA
-----------------------------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
NET ASSET TOTAL RETURN NET ASSETS, EXPENSES TO INCOME RATIO OF
VALUE, (EXCLUDES END OF AVERAGE (LOSS) TO EXPENSES TO PORTFOLIO
END OF SALES PERIOD NET AVERAGE NET AVERAGE TURNOVER
PERIOD CHARGE)(H) (000) ASSETS(I) ASSETS(I) NET ASSETS*(I) RATE**
--------- ------------ ----------- ----------- ------------ --------------- ----------
$19.47 14.60% $39,756 1.14% 1.56% 1.48% 19.50%
$17.26 17.61% $31,783 1.20% 1.32% 1.56% 16.40%
$14.87 17.73% $25,397 1.17% 1.67% 1.55% 18.89%
$12.84 (20.57)% $22,222 1.23% 1.11% 1.62% 23.02%
$16.79 (3.77)% $29,942 1.24% 1.23% 1.63% 24.20%
$ 8.97 9.62% $ 9,116 1.14% 0.38% 1.49% 62.78%
$ 8.22 6.89% $ 8,784 1.22% (0.33)% 1.58% 127.47%
$ 7.69 16.52% $ 7,042 1.18% (0.35)% 1.57% 91.73%
$ 6.60 (19.12)% $ 6,240 1.28% (0.57)% 1.67% 100.46%
$ 8.16 (40.36)% $ 8,146 1.30% (0.48)% 1.69% 96.41%
$13.35 20.82% $12,361 1.15% 0.76% 1.25% 126.99%
$15.40 20.10% $ 9,423 1.23% 1.22% 1.35% 19.17%
$12.98 20.31% $ 6,841 1.20% 1.33% 1.35% 18.28%
$10.93 (8.24)% $ 5,070 1.15% 1.29% 1.38% 18.20%
$13.12 (7.09)% $ 4,554 1.20% 1.45% 1.37% 27.04%
$14.26 8.76% $ 5,691 1.21% 1.54% 1.36% 59.00%
$13.90 28.45% $10,444 1.14% (0.71)% 1.26% 92.74%
$10.95 11.28% $ 8,079 1.25% (0.90)% 1.36% 138.61%
$ 9.84 21.93% $ 6,486 1.19% (0.96)% 1.36% 125.97%
$ 8.07 (12.54)% $ 5,533 1.17% (0.88)% 1.44% 117.06%
$ 9.80 (32.04)% $ 7,386 1.25% (0.52)% 1.47% 90.11%
$14.42 (10.84)% $12,285 1.27% (0.37)% 1.48% 63.00%
$16.38 19.64% $ 1,604 1.29% 0.69% 1.77% 8.39%
$14.21 25.53% $ 353 1.48% (0.03)% 1.91% 11.25%
$11.44 14.43% $ 112 2.04% 0.35% 2.29% 48.84%
$ 9.58 19.46% $ 3,687 1.46% 1.15% 1.83% 44.96%
$ 8.12 19.25% $ 1,686 1.58% 0.91% 1.92% 50.68%
$ 6.88 9.58% $ 2,162 1.63% 0.95% 1.90% 199.78%
$ 6.31 (15.07)% $ 1,412 1.68% (0.24)% 1.93% 95.86%
$ 7.43 (28.52)% $ 2,557 1.74% (0.33)% 1.99% 144.35%
$15.57 20.05% $75,627 1.30% (0.41)% 1.57% 30.38%
$13.08 25.06% $28,903 1.42% (0.77)% 1.80% 32.06%
$10.53 5.30% $ 5,460 1.06% (0.42)% 2.02% 13.24%
$12.09 19.55% $40,825 1.10% 2.57% 1.57% 39.65%
$10.35 3.89% $ 6,342 1.54% 1.79% 2.14% 1.65%
$ 9.50 0.96% $ 7,980 0.91% 2.40% 1.34% 33.67%
$ 9.70 0.71% $ 8,456 0.99% 1.85% 1.41% 62.59%
$ 9.89 1.56% $ 9,619 1.00% 2.48% 1.40% 93.86%
$10.08 5.03% $ 5,286 1.03% 4.03%(e) 1.43% 73.93%
$10.04 9.73% $ 3,530 1.03% 5.12% 1.43% 101.28%
$10.01 1.98% $13,744 0.96% 3.41% 1.33% 107.04%
$10.24 1.30% $11,959 1.05% 2.90% 1.42% 98.35%
$10.57 2.62% $ 9,646 1.07% 3.13% 1.42% 209.07%
$10.77 8.85% $ 6,453 1.10% 4.56%(f) 1.45% 79.36%
$10.38 12.53% $ 4,450 1.11% 5.12% 1.46% 84.76%
$10.31 1.88% $ 7,254 0.96% 3.62% 1.33% 173.74%
$10.59 3.22% $ 4,786 1.07% 3.84% 1.44% 31.95%
$10.72 8.69% $ 4,308 1.08% 4.34% 1.44% 43.98%
$10.33 4.98% $ 2,042 1.11% 5.11%(g) 1.50% 69.15%
$10.56 12.10% $ 426 1.06% 5.76% 1.45% 142.35%
</Table>
---------------
(e) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting
Guide for Investment Companies, the amounts for net investment income,
net realized/unrealized gains (losses), and the net investment income
ratio would have been: $0.47, $0.02, and 4.38%, respectively.
(f) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting
Guide for Investment Companies, the amounts for net investment income,
net realized/unrealized gains (losses), and the net investment income
ratio would have been: $0.49, $0.40, and 4.74%, respectively.
(g) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting
Guide for Investment Companies, the amounts for net investment income,
net realized/unrealized gains (losses), and the net investment income
ratio would have been: $0.54, $(0.05), and 5.23%, respectively.
(h) Not Annualized for periods less than one year.
(i) Annualized for periods less than one year.
145
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------ -------------------------------------
NET ASSET NET NET REALIZED/
VALUE, INVESTMENT UNREALIZED GAINS TOTAL FROM NET NET REALIZED
BEGINNING INCOME (LOSSES) ON INVESTMENT INVESTMENT GAINS ON TOTAL
OF PERIOD (LOSS) INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS
--------- ---------- ---------------- ---------- ---------- ------------ ---------
KENTUCKY INTERMEDIATE TAX-FREE
FUND
Year Ended September 30, 2005... $10.22 0.27(c) (0.16) 0.11 (0.27) -- (0.27)
Year Ended September 30, 2004... $10.23 0.27(c) (0.01) 0.26 (0.27) -- (0.27)
February 24, 2003 to September
30, 2003 (a).................. $10.00 0.15(c) 0.35 0.50 (0.27) -- (0.27)
MARYLAND INTERMEDIATE TAX-FREE
FUND
Year Ended September 30, 2005... $10.15 0.26(c) (0.13) 0.13 (0.26) -- (0.26)
Year Ended September 30, 2004... $10.15 0.24 (0.00)(d) 0.24 (0.24) -- (0.24)
February 24, 2003 to September
30, 2003 (a).................. $10.00 0.18 0.15 0.33 (0.18) -- (0.18)
NORTH CAROLINA INTERMEDIATE
TAX-FREE FUND
Year Ended September 30, 2005... $10.67 0.35 (0.19) 0.16 (0.35) (0.02) (0.37)
Year Ended September 30, 2004... $10.81 0.32 (0.10) 0.22 (0.32) (0.04) (0.36)
Year Ended September 30, 2003... $10.86 0.33 (0.01) 0.32 (0.33) (0.04) (0.37)
Year Ended September 30, 2002... $10.54 0.36 0.40 0.76 (0.36) (0.08) (0.44)
Year Ended September 30, 2001... $ 9.97 0.38 0.57 0.95 (0.38) -- (0.38)
SOUTH CAROLINA INTERMEDIATE
TAX-FREE FUND
Year Ended September 30, 2005... $10.81 0.34 (0.19) 0.15 (0.34) (0.08) (0.42)
Year Ended September 30, 2004... $10.88 0.34 (0.07) 0.27 (0.33) (0.01) (0.34)
Year Ended September 30, 2003... $10.87 0.34 0.01 0.35 (0.34) -- (0.34)
Year Ended September 30, 2002... $10.46 0.37 0.41 0.78 (0.37) -- (0.37)
Year Ended September 30, 2001... $ 9.90 0.38 0.56 0.94 (0.38) -- (0.38)
VIRGINIA INTERMEDIATE TAX-FREE
FUND
Year Ended September 30, 2005... $11.74 0.39 (0.22) 0.17 (0.40) (0.02) (0.42)
Year Ended September 30, 2004... $11.96 0.38 (0.14) 0.24 (0.38) (0.08) (0.46)
Year Ended September 30, 2003... $11.99 0.37 0.01 0.38 (0.37) (0.04) (0.41)
Year Ended September 30, 2002... $11.57 0.41 0.42 0.83 (0.41) -- (0.41)
Year Ended September 30, 2001... $10.96 0.42 0.61 1.03 (0.42) -- (0.42)
WEST VIRGINIA INTERMEDIATE
TAX-FREE FUND
Year Ended September 30, 2005... $10.08 0.35(c) (0.15) 0.20 (0.35) (0.08) (0.43)
Year Ended September 30, 2004... $10.20 0.32 (0.07) 0.25 (0.33) (0.04) (0.37)
Year Ended September 30, 2003... $10.35 0.33(c) 0.01 0.34 (0.33) (0.16) (0.49)
Year Ended September 30, 2002... $10.01 0.43 0.31 0.74 (0.38) (0.02) (0.40)
February 1, 2001 to September
30, 2001 (b).................. $ 9.92 0.29 0.09 0.38 (0.29) -- (0.29)
Year Ended January 31, 2001..... $ 9.18 0.46 0.74 1.20 (0.46) -- (0.46)
PRIME MONEY MARKET FUND
Year Ended September 30, 2005... $ 1.00 0.02 --(d) 0.02 (0.02) -- (0.02)
Year Ended September 30, 2004... $ 1.00 --(d) --(d) --(d) --(d) -- --(d)
Year Ended September 30, 2003... $ 1.00 --(d) -- --(d) --(d) -- --(d)
Year Ended September 30, 2002... $ 1.00 0.01 -- 0.01 (0.01) -- (0.01)
Year Ended September 30, 2001... $ 1.00 0.04 -- 0.04 (0.04) -- (0.04)
U.S. TREASURY MONEY MARKET FUND
Year Ended September 30, 2005... $ 1.00 0.02 -- 0.02 (0.02) -- (0.02)
Year Ended September 30, 2004... $ 1.00 --(d) -- --(d) --(d) -- --(d)
Year Ended September 30, 2003... $ 1.00 --(d) -- --(d) --(d) -- --(d)
Year Ended September 30, 2002... $ 1.00 0.01 --(d) 0.01 (0.01) -- (0.01)
Year Ended September 30, 2001... $ 1.00 0.04 -- 0.04 (0.04) -- (0.04)
CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
Year Ended September 30, 2005... $ 9.30 0.23 0.45 0.68 (0.22) -- (0.22)
Year Ended September 30, 2004... $ 8.84 0.16(c) 0.46 0.62 (0.16) -- (0.16)
Year Ended September 30, 2003... $ 8.29 0.18 0.57 0.75 (0.16) (0.04) (0.20)
Year Ended September 30, 2002... $ 9.12 0.23 (0.68) (0.45) (0.20) (0.18) (0.38)
Year Ended September 30, 2001... $10.71 0.28 (0.99) (0.71) (0.30) (0.58) (0.88)
CAPITAL MANAGER MODERATE GROWTH
FUND
Year Ended September 30, 2005... $ 9.01 0.17(c) 0.76 0.93 (0.15) -- (0.15)
Year Ended September 30, 2004... $ 8.28 0.08(c) 0.73 0.81 (0.08) -- (0.08)
Year Ended September 30, 2003... $ 7.47 0.08 0.82 0.90 (0.08) (0.01) (0.09)
Year Ended September 30, 2002... $ 8.82 0.12 (0.99) (0.87) (0.11) (0.37) (0.48)
Year Ended September 30, 2001... $11.25 0.23 (1.70) (1.47) (0.24) (0.72) (0.96)
CAPITAL MANAGER GROWTH FUND
Year Ended September 30, 2005... $ 8.70 0.13 0.96 1.09 (0.11) -- (0.11)
Year Ended September 30, 2004... $ 7.81 0.05(c) 0.88 0.93 (0.04) -- (0.04)
Year Ended September 30, 2003... $ 6.87 0.04 0.94 0.98 (0.04) -- (0.04)
Year Ended September 30, 2002... $ 8.46 0.03 (1.20) (1.17) (0.02) (0.40) (0.42)
Year Ended September 30, 2001... $11.66 0.16 (2.43) (2.27) (0.16) (0.77) (0.93)
CAPITAL MANAGER EQUITY FUND
Year Ended September 30, 2005... $ 9.58 0.09(c) 1.34 1.43 (0.06) -- (0.06)
Year Ended September 30, 2004... $ 8.45 0.02(c) 1.12 1.14 (0.01) -- (0.01)
Year Ended September 30, 2003... $ 7.36 --(c)(d) 1.15 1.15 (0.01) (0.05) (0.06)
Year Ended September 30, 2002... $ 8.96 (0.02) (1.58) (1.60) -- -- --
March 19, 2001 to September 30,
2001 (a)...................... $10.00 --(d) (1.03) (1.03) (0.01) -- (0.01)
</Table>
------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) For the period from February 1, 2001 to September 30, 2001. Upon
reorganizing as a Fund of the BB&T Funds, the West Virginia Intermediate
Tax-Free Fund changed its fiscal year end from January 31 to September 30,
2001. The Financial Highlights for the periods prior to February 1, 2001
represent the OVB West Virginia Tax-Exempt Income Portfolio.
(c) Per share net investment income (loss) has been calculated using the average
daily shares method.
(d) Amount is less than $0.005.
(e) Not Annualized for periods less than one year.
(f) Annualized for periods less than one year.
146
CLASS A SHARES
<Table>
<Caption>
RATIOS/SUPPLEMENTARY DATA
--------------------------------------------------------------------
RATIO OF NET
NET ASSET TOTAL RETURN NET ASSETS, RATIO OF INVESTMENT RATIO OF
VALUE, (EXCLUDES END OF EXPENSES TO INCOME (LOSS) EXPENSES TO PORTFOLIO
END OF SALES PERIOD AVERAGE NET TO AVERAGE AVERAGE NET TURNOVER
PERIOD CHARGE)(E) (000) ASSETS(F) NET ASSETS(F) ASSETS*(F) RATE**
--------- ------------ ----------- ----------- ------------- ----------- ----------
$10.06 1.06% $ 2,566 0.89% 2.65% 1.47% 37.50%
$10.22 2.55% $ 2,746 0.78% 2.63% 1.57% 24.78%
$10.23 5.09% $ 1,877 0.62% 2.50% 1.65% 42.87%
$10.02 1.28% $ 1,609 0.81% 2.57% 1.52% 44.67%
$10.15 2.37% $ 667 0.75% 2.32% 1.73% 55.18%
$10.15 3.32% $ 482 0.72% 2.22% 2.24% 40.16%
$10.46 1.49% $ 21,600 0.90% 3.29% 1.36% 60.84%
$10.67 2.10% $ 22,689 0.90% 3.03% 1.42% 67.80%
$10.81 3.04% $ 25,323 0.92% 3.11% 1.42% 44.56%
$10.86 7.46% $ 23,828 0.93% 3.41% 1.43% 20.39%
$10.54 9.69% $ 18,718 0.93% 3.66% 1.43% 47.35%
$10.54 1.39% $ 4,072 0.92% 3.20% 1.40% 56.03%
$10.81 2.60% $ 4,149 0.90% 3.11% 1.44% 32.63%
$10.88 3.29% $ 4,680 0.86% 3.14% 1.43% 32.04%
$10.87 7.67% $ 4,128 0.83% 3.52% 1.48% 21.81%
$10.46 9.67% $ 2,143 0.87% 3.73% 1.52% 36.67%
$11.49 1.44% $ 13,145 0.89% 3.39% 1.36% 48.04%
$11.74 2.05% $ 13,005 0.91% 3.22% 1.43% 45.07%
$11.96 3.24% $ 7,447 0.92% 3.14% 1.42% 34.17%
$11.99 7.36% $ 3,041 0.96% 3.45% 1.46% 13.12%
$11.57 9.58% $ 714 0.90% 3.71% 1.40% 31.28%
$ 9.85 1.97% $ 13,911 0.93% 3.50% 0.96% 32.10%
$10.08 2.51% $ 10,815 1.01% 3.24% 1.03% 16.24%
$10.20 3.41% $ 11,541 0.98% 3.23% 1.01% 25.59%
$10.35 7.61% $ 10,029 0.97% 3.78% 1.13% 61.44%
$10.01 3.67% $ 7,992 0.88% 4.40% 1.05% 15.75%
$ 9.92 13.42% $ 9,235 0.97% 4.86% 1.08% 7.00%
$ 1.00 1.92% $493,282 0.91% 1.91% 1.13% --
$ 1.00 0.41% $426,217 0.86% 0.40% 1.20% --
$ 1.00 0.48% $459,375 0.98% 0.47% 1.19% --
$ 1.00 1.21% $416,782 1.05% 1.20% 1.23% --
$ 1.00 4.42% $396,119 1.01% 4.22% 1.24% --
$ 1.00 1.69% $114,260 0.89% 1.66% 1.14% --
$ 1.00 0.31% $122,500 0.79% 0.31% 1.21% --
$ 1.00 0.30% $135,059 0.99% 0.32% 1.20% --
$ 1.00 1.01% $197,830 1.05% 1.01% 1.24% --
$ 1.00 4.20% $208,914 1.03% 4.08% 1.23% --
$ 9.76 7.39% $ 8,646 0.43% 2.45% 1.01% 52.50%
$ 9.30 6.97% $ 5,242 0.69% 1.68% 1.14% 2.47%
$ 8.84 9.09% $ 2,579 0.78% 1.86% 1.23% 33.03%
$ 8.29 (5.18)% $ 1,198 0.79% 2.25% 1.24% 6.29%
$ 9.12 (7.10)% $ 555 0.78% 2.87% 1.23% 35.75%
$ 9.79 10.35% $ 28,912 0.48% 1.77% 1.05% 37.83%
$ 9.01 9.77% $ 20,428 0.74% 0.92% 1.19% 0.17%
$ 8.28 12.13% $ 8,054 0.75% 1.11% 1.20% 21,46%
$ 7.47 (10.76)% $ 3,194 0.81% 1.26% 1.26% 14.56%
$ 8.82 (14.00)% $ 2,206 0.78% 2.14% 1.23% 24.24%
$ 9.68 12.51% $ 17,219 0.48% 1.37% 1.07% 26.22%
$ 8.70 11.85% $ 12,007 0.75% 0.52% 1.23% 0.19%
$ 7.81 14.22% $ 4,660 0.80% 0.59% 1.25% 17.80%
$ 6.87 (14.82)% $ 2,700 0.87% 0.39% 1.32% 8.38%
$ 8.46 (20.86)% $ 2,511 0.84% 1.35% 1.29% 27.33%
$10.95 14.95% $ 6,183 0.45% 0.91% 1.09% 2.14%
$ 9.58 13.53% $ 3,557 0.77% 0.22% 1.31% 3.10%
$ 8.45 15.61% $ 1,225 0.95% 0.05% 1.40% 8.30%
$ 7.36 (17.86)% $ 645 0.90% (0.15)% 1.35% 5.75%
$ 8.96 (10.35)% $ 185 1.12% (0.28)% 1.57% 10.10%
</Table>
147
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
---------------------------------------- -------------------------------------
NET REALIZED/
UNREALIZED NET REALIZED
NET ASSET NET GAINS (LOSSES) GAINS ON
VALUE, INVESTMENT ON INVESTMENTS TOTAL FROM NET INVESTMENTS
BEGINNING INCOME AND FOREIGN INVESTMENT INVESTMENT AND FOREIGN TOTAL
OF PERIOD (LOSS) CURRENCIES ACTIVITIES INCOME CURRENCIES DIVIDENDS
--------- ---------- -------------- ---------- ---------- ------------ ---------
LARGE CAP VALUE FUND
(formerly known as the Large
Company Value Fund)
Year Ended September 30,
2005........................ $17.12 0.13 2.22 2.35 (0.16) -- (0.16)
Year Ended September 30,
2004........................ $14.75 0.09 2.38 2.47 (0.10) -- (0.10)
Year Ended September 30,
2003........................ $12.75 0.12 2.01 2.13 (0.13) -- (0.13)
Year Ended September 30,
2002........................ $16.68 0.06 (3.44) (3.38) (0.07) (0.48) (0.55)
Year Ended September 30,
2001........................ $18.47 0.09 (0.89) (0.80) (0.10) (0.89) (0.99)
LARGE CAP GROWTH FUND
(formerly known as the Large
Company Growth Fund)
Year Ended September 30,
2005........................ $ 7.80 (0.03)(b) 0.72 0.69 (0.02) -- (0.02)
Year Ended September 30,
2004........................ $ 7.36 (0.13) 0.57 0.44 -- -- --
Year Ended September 30,
2003........................ $ 6.36 (0.08)(b) 1.08 1.00 -- -- --
Year Ended September 30,
2002........................ $ 7.93 (0.12) (1.45) (1.57) -- -- --
Year Ended September 30,
2001........................ $14.47 (0.11) (5.45) (5.56) -- (0.98) (0.98)
MID CAP VALUE FUND
Year Ended September 30,
2005........................ $15.30 --(b)(g) 3.02 3.02 (0.07) (5.09) (5.16)
Year Ended September 30,
2004........................ $12.91 0.07(b) 2.42 2.49 (0.10) -- (0.10)
Year Ended September 30,
2003........................ $10.90 0.07 2.03 2.10 (0.09) -- (0.09)
Year Ended September 30,
2002........................ $13.10 0.08 (1.03) (0.95) (0.10) (1.15) (1.25)
July 25, 2001 to September 30,
2001 (a).................... $14.14 0.03 (1.02) (0.99) (0.05) -- (0.05)
MID CAP GROWTH FUND
Year Ended September 30,
2005........................ $10.70 (0.17)(b) 3.08 2.91 -- (0.14) (0.14)
Year Ended September 30,
2004........................ $ 9.68 (0.16) 1.18 1.02 -- -- --
Year Ended September 30,
2003........................ $ 8.00 (0.13) 1.81 1.68 -- -- --
Year Ended September 30,
2002........................ $ 9.79 (0.14)(b) (1.02) (1.16) -- (0.63) (0.63)
July 25, 2001 to September 30,
2001 (a).................... $11.20 (0.01) (1.40) (1.41) -- -- --
SMALL CAP FUND
(formerly known as the Small
Company Value Fund)
Year Ended September 30,
2005........................ $14.06 --(b)(g) 2.58 2.58 (0.11) (0.42) (0.53)
Year Ended September 30,
2004........................ $11.40 (0.10)(b) 2.88 2.78 -- (0.12) (0.12)
May 19, 2003 to September 30,
2003 (a).................... $10.00 (0.04)(b) 1.44 1.40 -- -- --
INTERNATIONAL EQUITY FUND
Year Ended September 30,
2005........................ $ 7.74 0.03(b) 1.38 1.41 (0.06) -- (0.06)
Year Ended September 30,
2004........................ $ 6.57 0.02(b) 1.19 1.21 (0.04) -- (0.04)
Year Ended September 30,
2003........................ $ 6.07 (0.02)(b) 0.54 0.52 (0.02) -- (0.02)
Year Ended September 30,
2002........................ $ 7.19 (0.07)(b) (1.05) (1.12) -- -- --
Year Ended September 30,
2001........................ $12.24 (0.07) (2.96) (3.03) -- (2.02) (2.02)
SPECIAL OPPORTUNITIES EQUITY
FUND
Year Ended September 30,
2005........................ $12.95 (0.13) 2.59 2.46 -- (0.12) (0.12)
Year Ended September 30,
2004........................ $10.50 (0.12) 2.65 2.53 -- (0.08) (0.08)
June 2, 2003 to September 30,
2003 (a).................... $10.00 (0.02) 0.52 0.50 -- -- --
EQUITY INCOME FUND
Year Ended September 30,
2005........................ $10.34 0.16 1.77 1.93 (0.17) (0.02) (0.19)
June 30, 2004 to September 30,
2004 (a).................... $10.00 0.03(b) 0.34 0.37 (0.03) -- (0.03)
INTERMEDIATE U.S. GOVERNMENT
FUND
Year Ended September 30,
2005........................ $10.20 0.27(b) (0.13) 0.14 (0.31) (0.05) (0.36)
Year Ended September 30,
2004........................ $10.53 0.21 (0.16) 0.05 (0.25) (0.13) (0.38)
Year Ended September 30,
2003........................ $10.73 0.27 (0.07) 0.20 (0.31) (0.09) (0.40)
Year Ended September 30,
2002........................ $10.35 0.39(c) 0.41(c) 0.80 (0.42) -- (0.42)
Year Ended September 30,
2001........................ $ 9.69 0.45 0.65 1.10 (0.44) -- (0.44)
TOTAL RETURN BOND FUND
(formerly known as the
Intermediate Corporate Bond
Fund)
Year Ended September 30,
2005........................ $10.59 0.30(b) (0.18) 0.12 (0.36) (0.03) (0.39)
Year Ended September 30,
2004........................ $10.72 0.32 (0.07) 0.25 (0.38) -- (0.38)
Year Ended September 30,
2003........................ $10.34 0.39 0.40 0.79 (0.41) -- (0.41)
Year Ended September 30,
2002........................ $10.57 0.45(d) (0.04)(d) 0.41 (0.47) (0.17) (0.64)
Year Ended September 30,
2001........................ $ 9.98 0.52 0.59 1.11 (0.52) -- (0.52)
</Table>
---------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a
whole without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) Per share net investment income (loss) has been calculated using the
average daily shares method.
(c) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting
Guide for Investment Companies, the amounts for net investment income,
net realized/unrealized gains (losses), and the net investment income
ratio would have been: $0.41, $0.39 and 3.99%, respectively.
(d) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting
Guide for Investment Companies, the amounts for net investment income,
net realized/unrealized gains (losses), and the net investment income
ratio would have been: $0.46, $(0.05), and 4.51%, respectively.
(e) Not Annualized for periods less than one year.
(f) Annualized for periods less than one year.
(g) Amount is less than $0.005.
148
CLASS B SHARES
<Table>
<Caption>
RATIO/SUPPLEMENTARY DATA
----------------------------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
NET ASSET TOTAL RETURN NET ASSETS, EXPENSES TO INCOME RATIO OF
VALUE, (EXCLUDES END OF AVERAGE (LOSS) TO EXPENSES TO PORTFOLIO
END OF SALES PERIOD NET AVERAGE NET AVERAGE TURNOVER
PERIOD CHARGE)(E) (000) ASSETS(F) ASSETS(F) NET ASSETS*(F) RATE**
--------- ------------ ----------- ----------- ------------ -------------- ----------
$19.31 13.75% $22,148 1.89% 0.82% 1.99% 19.50%
$17.12 16.75% $26,309 1.95% 0.58% 2.06% 16.40%
$14.75 16.74% $26,215 1.91% 0.92% 2.05% 18.89%
$12.75 (21.14)% $24,849 1.98% 0.36% 2.12% 23.02%
$16.68 (4.51)% $33,489 1.99% 0.48% 2.13% 24.20%
$ 8.47 8.89% $12,621 1.89% (0.36)% 1.99% 62.78%
$ 7.80 5.98% $13,845 1.96% (1.08)% 2.08% 127.47%
$ 7.36 15.72% $14,217 1.93% (1.10)% 2.07% 91.73%
$ 6.36 (19.80)% $13,040 2.03% (1.32)% 2.17% 100.46%
$ 7.93 (40.82)% $17,089 2.05% (1.24)% 2.19% 96.41%
$13.16 19.94% $ 4,534 1.89% 0.02% 1.99% 126.99%
$15.30 19.31% $ 3,582 1.98% 0.47% 2.10% 19.17%
$12.91 19.31% $ 2,071 1.95% 0.58% 2.10% 18.28%
$10.90 (8.80)% $ 1,158 1.91% 0.63% 2.12% 18.20%
$13.10 (6.56)% $ 99 1.87% 2.22% 2.21% 27.04%
$13.47 27.42% $ 2,395 1.91% (1.46)% 2.01% 92.74%
$10.70 10.54% $ 1,973 2.00% (1.65)% 2.11% 138.61%
$ 9.68 21.00% $ 1,030 1.95% (1.73)% 2.11% 125.97%
$ 8.00 (13.20)% $ 507 1.76% (1.52)% 2.07% 117.06%
$ 9.79 (12.59)% $ 48 2.11% (1.91)% 2.33% 90.11%
$16.11 18.79% $ 259 2.05% 0.00% 2.27% 8.39%
$14.06 24.56% $ 136 2.22% (0.75)% 2.41% 11.25%
$11.40 14.00% $ 29 2.69% (0.93)% 2.69% 48.84%
$ 9.09 18.34% $ 2,007 2.20% 0.36% 2.33% 44.96%
$ 7.74 18.47% $ 2,140 2.33% 0.24% 2.42% 50.68%
$ 6.57 8.63% $ 2,012 2.40% (0.37)% 2.41% 199.78%
$ 6.07 (15.58)% $ 2,056 2.43% (1.01)% 2.43% 95.86%
$ 7.19 (29.11)% $ 2,680 2.49% (1.19)% 2.49% 144.35%
$15.29 19.09% $21,911 2.06% (1.18)% 2.08% 30.38%
$12.95 24.17% $13,215 2.15% (1.51)% 2.30% 32.06%
$10.50 5.00% $ 4,360 1.80% (1.16)% 2.50% 13.24%
$12.08 18.79% $ 5,611 1.87% 1.74% 2.09% 39.65%
$10.34 3.66% $ 1,672 2.29% 1.07% 2.65% 1.65%
$ 9.98 1.33% $ 5,725 1.71% 2.67% 1.84% 107.04%
$10.20 0.55% $ 6,883 1.80% 2.15% 1.92% 98.35%
$10.53 1.86% $ 7,869 1.82% 2.42% 1.92% 209.97%
$10.73 7.96% $ 5,981 1.85% 3.81%(c) 1.95% 79.36%
$10.35 11.61% $ 4,310 1.86% 4.38% 1.96% 84.76%
$10.32 1.21% $ 6,161 1.71% 2.87% 1.84% 173.14%
$10.59 2.45% $ 6,602 1.82% 3.09% 1.94% 31.95%
$10.72 7.77% $ 6,358 1.83% 3.61% 1.94% 43.98%
$10.34 4.18% $ 4,465 1.84% 4.39%(d) 1.99% 69.15%
$10.57 11.41% $ 1,976 1.73% 4.95% 1.90% 142.35%
</Table>
149
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------- ----------
NET ASSET NET REALIZED/
VALUE, NET UNREALIZED TOTAL FROM NET
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT
OF PERIOD INCOME (LOSS) ON INVESTMENTS ACTIVITIES INCOME
--------- ------------- -------------- ---------- ----------
PRIME MONEY MARKET FUND
Year Ended September 30, 2005................. $ 1.00 0.01 --(b) 0.01 (0.01)
Year Ended September 30, 2004................. $ 1.00 --(b) --(b) --(b) --(b)
Year Ended September 30, 2003................. $ 1.00 --(b) -- --(b) --(b)
Year Ended September 30, 2002................. $ 1.00 0.01 -- 0.01 (0.01)
Year Ended September 30, 2001................. $ 1.00 0.04 -- 0.04 (0.04)
U.S. TREASURY MONEY MARKET FUND
Year Ended September 30, 2005................. $ 1.00 0.01 -- 0.01 (0.01)
Year Ended September 30, 2004................. $ 1.00 --(b) -- --(b) --(b)
Year Ended September 30, 2003................. $ 1.00 --(b) -- --(b) --(b)
Year Ended September 30, 2002................. $ 1.00 0.01 -- 0.01 (0.01)
Year Ended September 30, 2001................. $ 1.00 0.04 -- 0.04 (0.04)
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
Year Ended September 30, 2005................. $ 9.30 0.16 0.45 0.61 (0.15)
Year Ended September 30, 2004................. $ 8.85 0.09(c) 0.45 0.54 (0.09)
Year Ended September 30, 2003................. $ 8.29 0.11 0.59 0.70 (0.10)
Year Ended September 30, 2002................. $ 9.13 0.15 (0.67) (0.52) (0.14)
Year Ended September 30, 2001................. $10.71 0.22 (0.98) (0.76) (0.24)
CAPITAL MANAGER MODERATE GROWTH FUND
Year Ended September 30, 2005................. $ 8.86 0.09(c) 0.77 0.86 (0.08)
Year Ended September 30, 2004................. $ 8.15 0.02(c) 0.71 0.73 (0.02)
Year Ended September 30, 2003................. $ 7.41 0.04 0.80 0.84 (0.09)
Year Ended September 30, 2002................. $ 8.75 0.05 (0.97) (0.92) (0.05)
Year Ended September 30, 2001................. $11.21 0.19 (1.74) (1.55) (0.19)
CAPITAL MANAGER GROWTH FUND
Year Ended September 30, 2005................. $ 8.55 0.05(c) 0.95 1.00 (0.04)
Year Ended September 30, 2004................. $ 7.70 (0.02)(c) 0.87 0.85 --
Year Ended September 30, 2003................. $ 6.80 (0.01) 0.91 0.90 --(b)
Year Ended September 30, 2002................. $ 8.42 (0.01) (1.21) (1.22) --
Year Ended September 30, 2001................. $11.64 0.09 (2.42) (2.33) (0.12)
CAPITAL MANAGER EQUITY FUND
Year Ended September 30, 2005................. $ 9.36 0.01(c) 1.31 1.32 (0.01)
Year Ended September 30, 2004................. $ 8.30 (0.05)(c) 1.11 1.06 --
Year Ended September 30, 2003................. $ 7.28 (0.05)(c) 1.12 1.07 --
Year Ended September 30, 2002................. $ 8.93 (0.04) (1.61) (1.65) --
March 19, 2001 to September 30, 2001 (a)...... $10.00 (0.02) (1.05) (1.07) --
<Caption>
DIVIDENDS
-----------------------
NET
REALIZED
GAINS ON TOTAL
INVESTMENTS DIVIDENDS
----------- ---------
PRIME MONEY MARKET FUND
Year Ended September 30, 2005................. -- (0.01)
Year Ended September 30, 2004................. -- --(b)
Year Ended September 30, 2003................. -- --(b)
Year Ended September 30, 2002................. -- (0.01)
Year Ended September 30, 2001................. -- (0.04)
U.S. TREASURY MONEY MARKET FUND
Year Ended September 30, 2005................. -- (0.01)
Year Ended September 30, 2004................. -- --(b)
Year Ended September 30, 2003................. -- --(b)
Year Ended September 30, 2002................. -- (0.01)
Year Ended September 30, 2001................. -- (0.04)
CAPITAL MANAGER CONSERVATIVE GROWTH FUND
Year Ended September 30, 2005................. -- (0.15)
Year Ended September 30, 2004................. -- (0.09)
Year Ended September 30, 2003................. (0.04) (0.14)
Year Ended September 30, 2002................. (0.18) (0.32)
Year Ended September 30, 2001................. (0.58) (0.82)
CAPITAL MANAGER MODERATE GROWTH FUND
Year Ended September 30, 2005................. -- (0.08)
Year Ended September 30, 2004................. -- (0.02)
Year Ended September 30, 2003................. (0.01) (0.10)
Year Ended September 30, 2002................. (0.37) (0.42)
Year Ended September 30, 2001................. (0.72) (0.91)
CAPITAL MANAGER GROWTH FUND
Year Ended September 30, 2005................. -- (0.04)
Year Ended September 30, 2004................. -- --
Year Ended September 30, 2003................. -- --(b)
Year Ended September 30, 2002................. (0.40) (0.40)
Year Ended September 30, 2001................. (0.77) (0.89)
CAPITAL MANAGER EQUITY FUND
Year Ended September 30, 2005................. -- (0.01)
Year Ended September 30, 2004................. -- --
Year Ended September 30, 2003................. (0.05) (0.05)
Year Ended September 30, 2002................. -- --
March 19, 2001 to September 30, 2001 (a)...... -- --
</Table>
------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) Amount is less than $0.005.
(c) Per share net investment income (loss) has been calculated using the
average daily shares method.
(d) Not Annualized for periods less than one year.
(e) Annualized for periods less than one year.
150
CLASS B SHARES
<Table>
<Caption>
RATIOS/SUPPLEMENTARY DATA
----------------------------------------------------------------------------------------
RATIO OF NET
TOTAL RETURN NET ASSETS, RATIO OF EXPENSES INVESTMENT INCOME RATIO OF EXPENSES PORTFOLIO
NET ASSET VALUE, (EXCLUDES END OF PERIOD TO AVERAGE (LOSS) TO AVERAGE TO AVERAGE TURNOVER
END OF PERIOD SALES CHARGE)(D) (000) NET ASSETS(E) NET ASSETS(E) NET ASSETS*(E) RATE**
---------------- ---------------- -------------- ----------------- ------------------ ----------------- ----------
$ 1.00 1.32% $ 1,790 1.49% 1.28% 1.63% --
$ 1.00 0.06% $ 2,280 1.20% 0.06% 1.70% --
$ 1.00 0.15% $ 2,543 1.32% 0.16% 1.69% --
$ 1.00 0.60% $ 2,730 1.67% 0.70% 1.77% --
$ 1.00 3.80% $84,446 1.61% 3.58% 1.74% --
$ 1.00 1.09% $ 807 1.48% 1.05% 1.64% --
$ 1.00 0.05% $ 887 1.05% 0.05% 1.71% --
$ 1.00 0.16% $ 1,126 1.12% 0.15% 1.70% --
$ 1.00 0.39% $ 1,121 1.69% 0.48% 1.77% --
$ 1.00 3.56% $18,449 1.63% 3.36% 1.73% --
$ 9.76 6.58% $ 4,992 1.20% 1.64% 1.51% 52.50%
$ 9.30 6.10% $ 4,857 1.44% 0.93% 1.64% 2.47%
$ 8.85 8.45% $ 3,150 1.53% 1.07% 1.73% 33.03%
$ 8.29 (5.94)% $ 1,682 1.53% 1.49% 1.73% 6.29%
$ 9.13 (7.50)% $ 916 1.58% 1.85% 1.78% 35.75%
$ 9.64 9.72% $21,909 1.24% 0.99% 1.55% 37.83%
$ 8.86 8.94% $19,049 1.49% 0.17% 1.69% 0.17%
$ 8.15 11.29% $ 8,929 1.50% 0.35% 1.70% 21.46%
$ 7.41 (11.35)% $ 4,384 1.56% 0.52% 1.76% 14.56%
$ 8.75 (14.82)% $ 3,096 1.55% 1.05% 1.75% 24.24%
$ 9.51 11.68% $17,141 1.23% 0.59% 1.57% 26.22%
$ 8.55 11.04% $13,730 1.50% (0.23)% 1.73% 0.19%
$ 7.70 13.31% $ 9,142 1.55% (0.16)% 1.75% 17.80%
$ 6.80 (15.53)% $ 5,712 1.62% (0.35)% 1.82% 8.38%
$ 8.42 (21.44)% $ 4,720 1.60% 0.45% 1.80% 27.33%
$10.67 14.11% $ 7,515 1.21% 0.11% 1.58% 2.14%
$ 9.36 12.77% $ 5,720 1.52% (0.54)% 1.81% 3.10%
$ 8.30 14.74% $ 2,475 1.70% (0.69)% 1.90% 8.30%
$ 7.28 (18.48)% $ 1,302 1.67% (0.94)% 1.87% 5.75%
$ 8.93 (10.70)% $ 754 1.93% (1.05)% 2.13% 10.10%
</Table>
151
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
-------------------------------------------- ----------
NET REALIZED/
UNREALIZED
NET ASSET NET GAINS (LOSSES)
VALUE, INVESTMENT ON INVESTMENTS TOTAL FROM NET
BEGINNING INCOME AND FOREIGN INVESTMENT INVESTMENT
OF PERIOD (LOSS) CURRENCIES ACTIVITIES INCOME
---------- ---------- -------------- ---------- ----------
LARGE CAP VALUE FUND
(formerly known as the Large Company Value
Fund)
Year Ended September 30, 2005.................. $17.09 0.14 2.19 2.33 (0.14)
Year Ended September 30, 2004.................. $14.73 0.09 2.37 2.46 (0.10)
Year Ended September 30, 2003.................. $12.74 0.13 1.99 2.12 (0.13)
Year Ended September 30, 2002.................. $16.67 0.08 (3.45) (3.37) (0.08)
February 1, 2001 to September 30, 2001 (a)..... $18.15 0.06 (1.47) (1.41) (0.07)
LARGE CAP GROWTH FUND
(formerly known as the Large Company Growth
Fund)
Year Ended September 30, 2005.................. $ 7.81 (0.04)(b) 0.73 0.69 (0.03)
Year Ended September 30, 2004.................. $ 7.37 (0.12) 0.56 0.44 --
Year Ended September 30, 2003.................. $ 6.37 (0.08)(b) 1.08 1.00 --
Year Ended September 30, 2002.................. $ 7.94 (0.10)(b) (1.47) (1.57) --
February 1, 2001 to September 30, 2001 (a)..... $11.75 (0.06) (3.75) (3.81) --
MID CAP VALUE FUND
Year Ended September 30, 2005.................. $15.30 --(b)(g) 3.02 3.02 (0.07)
Year Ended September 30, 2004.................. $12.92 0.07(b) 2.41 2.48 (0.10)
Year Ended September 30, 2003.................. $10.90 0.07(b) 2.04 2.11 (0.09)
Year Ended September 30, 2002.................. $13.11 0.08 (1.04) (0.96) (0.10)
July 25, 2001 to September 30, 2001 (a)........ $14.14 0.03 (1.03) (1.00) (0.03)
MID CAP GROWTH FUND
Year Ended September 30, 2005.................. $10.70 (0.17)(b) 3.08 2.91 --
Year Ended September 30, 2004.................. $ 9.69 (0.16) 1.17 1.01 --
Year Ended September 30, 2003.................. $ 8.00 (0.15) 1.84 1.69 --
Year Ended September 30, 2002.................. $ 9.79 (0.15)(b) (1.01) (1.16) --
July 25, 2001 to September 30, 2001 (a)........ $11.20 (0.01) (1.40) (1.41) --
SMALL CAP FUND
(formerly known as the Small Company Value
Fund)
Year Ended September 30, 2005.................. $14.06 (0.02)(b) 2.60 2.58 (0.12)
Year Ended September 30, 2004.................. $11.40 (0.12)(b) 2.90 2.78 --
May 19, 2003 to September 30, 2003 (a)......... $10.00 (0.05)(b) 1.45 1.40 --
INTERNATIONAL EQUITY FUND
Year Ended September 30, 2005.................. $ 7.74 0.06(b) 1.36 1.42 (0.09)
Year Ended September 30, 2004.................. $ 6.58 0.00(b) 1.20 1.20 (0.04)
Year Ended September 30, 2003.................. $ 6.07 (0.07)(b) 0.60 0.53 (0.02)
Year Ended September 30, 2002.................. $ 7.20 (0.07) (1.06) (1.13) --
February 1, 2001 to September 30, 2001 (a)..... $10.03 (0.02) (2.81) (2.83) --
EQUITY INCOME FUND
Year Ended September 30, 2005.................. $10.34 0.17 1.76 1.93 (0.18)
June 30, 2004 to September 30, 2004 (a)........ $10.00 0.03(b) 0.34 0.37 (0.03)
SPECIAL OPPORTUNITIES EQUITY FUND
Year Ended September 30, 2005.................. $12.95 (0.13) 2.60 2.47 --
Year Ended September 30, 2004.................. $10.50 (0.11) 2.64 2.53 --
June 2, 2003 to September 30, 2003 (a)......... $10.00 (0.02) 0.52 0.50 --
INTERMEDIATE U.S. GOVERNMENT FUND
Year Ended September 30, 2005.................. $10.20 0.27(b) (0.13) 0.14 (0.31)
Year Ended September 30, 2004.................. $10.53 0.17 (0.12) 0.05 (0.25)
Year Ended September 30, 2003.................. $10.74 0.26 (0.07) 0.19 (0.31)
Year Ended September 30, 2002.................. $10.35 0.38(c) 0.43(c) 0.81 (0.42)
February 1, 2001 to September 30, 2001 (a)..... $10.10 0.35 0.25 0.60 (0.35)
TOTAL RETURN BOND FUND
(formerly known as the Intermediate Corporate Bond Fund)
Year Ended September 30, 2005.................. $10.59 0.30(b) (0.18) 0.12 (0.36)
Year Ended September 30, 2004.................. $10.72 0.33 (0.08) 0.25 (0.38)
Year Ended September 30, 2003.................. $10.33 0.39 0.41 0.80 (0.41)
Year Ended September 30, 2002.................. $10.56 0.43(b)(d) --(d) 0.43 (0.49)
February 1, 2001 to September 30, 2001 (a)..... $10.39 0.35 0.17 0.52 (0.35)
<Caption>
DIVIDENDS
------------------------
NET REALIZED
GAINS ON
INVESTMENTS
AND FOREIGN TOTAL
CURRENCIES DIVIDENDS
------------ ---------
LARGE CAP VALUE FUND
(formerly known as the Large Company Value
Fund)
Year Ended September 30, 2005.................. -- (0.14)
Year Ended September 30, 2004.................. -- (0.10)
Year Ended September 30, 2003.................. -- (0.13)
Year Ended September 30, 2002.................. (0.48) (0.56)
February 1, 2001 to September 30, 2001 (a)..... -- (0.07)
LARGE CAP GROWTH FUND
(formerly known as the Large Company Growth
Fund)
Year Ended September 30, 2005.................. -- (0.03)
Year Ended September 30, 2004.................. -- --
Year Ended September 30, 2003.................. -- --
Year Ended September 30, 2002.................. -- --
February 1, 2001 to September 30, 2001 (a)..... -- --
MID CAP VALUE FUND
Year Ended September 30, 2005.................. (5.09) (5.16)
Year Ended September 30, 2004.................. -- (0.10)
Year Ended September 30, 2003.................. -- (0.09)
Year Ended September 30, 2002.................. (1.15) (1.25)
July 25, 2001 to September 30, 2001 (a)........ -- (0.03)
MID CAP GROWTH FUND
Year Ended September 30, 2005.................. (0.14) (0.14)
Year Ended September 30, 2004.................. -- --
Year Ended September 30, 2003.................. -- --
Year Ended September 30, 2002.................. (0.63) (0.63)
July 25, 2001 to September 30, 2001 (a)........ -- --
SMALL CAP FUND
(formerly known as the Small Company Value
Fund)
Year Ended September 30, 2005.................. (0.42) (0.54)
Year Ended September 30, 2004.................. (0.12) (0.12)
May 19, 2003 to September 30, 2003 (a)......... -- --
INTERNATIONAL EQUITY FUND
Year Ended September 30, 2005.................. -- (0.09)
Year Ended September 30, 2004.................. -- (0.04)
Year Ended September 30, 2003.................. -- (0.02)
Year Ended September 30, 2002.................. -- --
February 1, 2001 to September 30, 2001 (a)..... -- --
EQUITY INCOME FUND
Year Ended September 30, 2005.................. (0.02) (0.20)
June 30, 2004 to September 30, 2004 (a)........ -- (0.03)
SPECIAL OPPORTUNITIES EQUITY FUND
Year Ended September 30, 2005.................. (0.12) (0.12)
Year Ended September 30, 2004.................. (0.08) (0.08)
June 2, 2003 to September 30, 2003 (a)......... -- --
INTERMEDIATE U.S. GOVERNMENT FUND
Year Ended September 30, 2005.................. (0.05) (0.36)
Year Ended September 30, 2004.................. (0.13) (0.38)
Year Ended September 30, 2003.................. (0.09) (0.40)
Year Ended September 30, 2002.................. -- (0.42)
February 1, 2001 to September 30, 2001 (a)..... -- (0.35)
TOTAL RETURN BOND FUND
(formerly known as the Intermediate Corporate B
Year Ended September 30, 2005.................. (0.03) (0.39)
Year Ended September 30, 2004.................. -- (0.38)
Year Ended September 30, 2003.................. -- (0.41)
Year Ended September 30, 2002.................. (0.17) (0.66)
February 1, 2001 to September 30, 2001 (a)..... -- (0.35)
</Table>
------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) Per share net investment income (loss) has been calculated using the
average daily shares method.
(c) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting Guide
for Investment Companies, the amounts for net investment income, net
realized/unrealized gains (losses), and the net investment income ratio
would have been: $0.40, $0.41, and 3.99%, respectively.
(d) Without the adoption of the change in amortization method as required by
the November 2000 revised version of the AICPA Audit and Accounting Guide
for Investment Companies, the amounts for net investment income, net
realized/unrealized gains (losses), and the net investment income ratio
would have been: $0.44, $(0.01), and 4.40%, respectively.
(e) Not annualized for periods less than one year.
(f) Annualized for periods less than one year.
(g) Amount is less than $0.005.
152
CLASS C SHARES
<Table>
<Caption>
RATIOS/SUPPLEMENTARY DATA
----------------------------------------------------------
RATIO OF NET
TOTAL RETURN NET ASSETS, RATIO OF EXPENSES INVESTMENT INCOME
NET ASSET VALUE, (EXCLUDES SALES END OF PERIOD TO AVERAGE (LOSS) TO AVERAGE NET
END OF PERIOD CHARGE)(E) (000) NET ASSETS(F) ASSETS(F)
---------------- ---------------- -------------- ----------------- ---------------------
$19.28 13.77% $ 176 1.88% 0.80%
$17.09 16.72% $ 157 1.95% 0.57%
$14.73 16.72% $ 122 1.92% 0.90%
$12.74 (21.10)% $ 52 1.94% 0.41%
$16.67 (7.80)% $ 13 2.03% 0.36%
$ 8.47 8.90% $ 18 1.89% (0.43)%
$ 7.81 5.97% $ 25 1.96% (1.08)%
$ 7.37 15.70% $ 31 1.93% (1.10)%
$ 6.37 (19.77)% $ 37 1.98% (1.23)%
$ 7.94 (32.43)% $ 8 2.04% (1.34)%
$13.16 19.97% $ 351 1.90% 0.01%
$15.30 19.20% $ 523 1.98% 0.45%
$12.92 19.40% $ 484 1.95% 0.61%
$10.90 (8.86)% $ 300 1.91% 0.65%
$13.11 (7.07)% $ 1 2.15% 1.08%
$13.47 27.42% $ 77 1.91% (1.46)%
$10.70 10.42% $ 208 2.00% (1.65)%
$ 9.69 21.13% $ 164 1.95% (1.71)%
$ 8.00 (13.20)% $ 143 1.81% (1.58)%
$ 9.79 (13.13)% $ 1 2.19% (1.91)%
$16.10 18.71% $ 4 2.04% (0.12)%
$14.06 24.56% $ 1 2.25% (0.89)%
$11.40 14.00% $ 1 2.64% (1.15)%
$ 9.07 18.38% $ 92 2.23% 0.70%
$ 7.74 18.30% $ 2 2.32% (0.04)%
$ 6.58 8.80% $ 2 2.40% (1.06)%
$ 6.07 (15.69)% $ 7 2.43% (0.98)%
$ 7.20 (28.22)% $ 6 2.40% (1.35)%
$12.07 18.74% $ 8,683 1.87% 1.77%
$10.34 3.66% $ 1,816 2.29% 1.14%
$15.30 19.16% $30,299 2.06% (1.17)%
$12.95 24.17% $15,611 2.15% (1.51)%
$10.50 5.00% $ 4,052 1.80% (1.17)%
$ 9.98 1.33% $ 274 1.71% 2.66%
$10.20 0.55% $ 607 1.80% 2.15%
$10.53 1.77% $ 836 1.82% 2.57%
$10.74 8.05% $ 1,313 1.79% 3.81%(c)
$10.35 6.01% $ 40 1.98% 4.26%
$10.32 1.21% $ 218 1.71% 2.88%
$10.59 2.44% $ 257 1.82% 3.09%
$10.72 7.86% $ 282 1.83% 3.61%
$10.33 4.37% $ 318 1.89% 4.28%(d)
$10.56 5.07% $ 11 1.71% 4.94%
<Caption>
RATIOS/SUPPLEMENTARY DATA
------------------------------------
RATIO OF EXPENSES PORTFOLIO
TO AVERAGE TURNOVER
NET ASSETS*(F) RATE**
-------------------- -------------
1.98% 19.50%
2.07% 16.40%
2.06% 18.89%
2.08% 23.02%
2.16% 24.20%
1.98% 62.78%
2.08% 127.47%
2.06% 91.73%
2.12% 100.46%
2.18% 96.41%
2.00% 126.99%
2.10% 19.17%
2.10% 18.28%
2.12% 18.20%
2.52% 27.04%
2.00% 92.74%
2.11% 138.61%
2.11% 125.97%
2.13% 117.06%
2.49% 90.11%
2.25% 8.39%
2.44% 11.25%
2.64% 48.84%
2.34% 44.96%
2.42% 50.68%
2.40% 199.78%
2.43% 95.86%
2.40% 144.35%
2.08% 39.65%
2.65% 1.65%
2.08% 30.38%
2.30% 32.06%
2.52% 13.24%
1.84% 107.04%
1.92% 98.35%
1.92% 209.07%
1.89% 79.36%
2.05% 84.76%
1.84% 173.74%
1.94% 31.95%
1.94% 43.98%
2.03% 69.15%
1.85% 142.35%
</Table>
153
OTHER INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
CONTINUED
<Table>
<Caption>
INVESTMENT ACTIVITIES DIVIDENDS
---------------------------------------- ---------------------------------------
NET ASSET NET NET REALIZED/
VALUE, INVESTMENT UNREALIZED TOTAL FROM NET NET REALIZED
BEGINNING INCOME GAINS (LOSSES) INVESTMENT INVESTMENT GAINS ON TOTAL
OF PERIOD (LOSS) ON INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS
--------- ---------- -------------- ---------- ---------- -------------- ---------
PRIME MONEY MARKET FUND
Year Ended September 30,
2005......................... $ 1.00 0.01 --(b) 0.01 (0.01) -- (0.01)
Year Ended September 30,
2004......................... $ 1.00 --(b) --(b) --(b) --(b) -- --(b)
Year Ended September 30,
2003......................... $ 1.00 --(b) -- --(b) --(b) -- --(b)
January 30, 2002 to September
30, 2002 (a)................. $ 1.00 0.01 -- 0.01 (0.01) -- (0.01)
U.S. TREASURY MONEY MARKET FUND
Year Ended September 30,
2005......................... $ 1.00 0.01 -- 0.01 (0.01) -- (0.01)
Year Ended September 30,
2004......................... $ 1.00 --(b) -- --(b) --(b) -- --(b)
Year Ended September 30,
2003......................... $ 1.00 --(b) -- --(b) --(b) -- --(b)
January 30, 2002 to September
30, 2002 (a)................. $ 1.00 --(b) -- --(b) --(b) -- --(b)
CAPITAL MANAGER CONSERVATIVE
GROWTH FUND
Year Ended September 30,
2005......................... $ 9.27 0.16 0.45 0.61 (0.15) -- (0.15)
Year Ended September 30,
2004......................... $ 8.82 0.09(c) 0.44 0.53 (0.08) -- (0.08)
Year Ended September 30,
2003......................... $ 8.26 0.09 0.61 0.70 (0.10) (0.04) (0.14)
Year Ended September 30,
2002......................... $ 9.10 0.17 (0.69) (0.52) (0.14) (0.18) (0.32)
February 1, 2001 to September
30, 2001 (a)................. $10.06 0.10 (0.93) (0.83) (0.13) -- (0.13)
CAPITAL MANAGER MODERATE GROWTH
FUND
Year Ended September 30,
2005......................... $ 8.91 0.09(c) 0.77 0.86 (0.08) -- (0.08)
Year Ended September 30,
2004......................... $ 8.18 0.01(c) 0.73 0.74 (0.01) -- (0.01)
Year Ended September 30,
2003......................... $ 7.42 0.03 0.82 0.85 (0.08) (0.01) (0.09)
Year Ended September 30,
2002......................... $ 8.77 0.04 (0.97) (0.93) (0.05) (0.37) (0.42)
February 1, 2001 to September
30, 2001 (a)................. $10.23 0.05 (1.45) (1.40) (0.06) -- (0.06)
CAPITAL MANAGER GROWTH FUND
Year Ended September 30,
2005......................... $ 8.56 0.04(c) 0.95 0.99 (0.03) -- (0.03)
Year Ended September 30,
2004......................... $ 7.71 (0.02)(c) 0.87 0.85 -- -- --
Year Ended September 30,
2003......................... $ 6.80 (0.01)(c) 0.93 0.92 (0.01) -- (0.01)
Year Ended September 30,
2002......................... $ 8.41 (0.02) (1.19) (1.21) -- (0.40) (0.40)
February 1, 2001 to September
30, 2001 (a)................. $10.41 (0.01) (1.98) (1.99) (0.01) -- (0.01)
CAPITAL MANAGER EQUITY FUND
Year Ended September 30,
2005......................... $ 9.33 (0.01)(c) 1.32 1.31 --(b) -- --(b)
Year Ended September 30,
2004......................... $ 8.28 (0.05)(c) 1.10 1.05 -- -- --
Year Ended September 30,
2003......................... $ 7.26 (0.05)(c) 1.12 1.07 --(b) (0.05) (0.05)
Year Ended September 30,
2002......................... $ 8.92 (0.12) (1.54) (1.66) -- -- --
March 19, 2001 to September 30,
2001 (a)..................... $10.00 (0.06) (1.02) (1.08) -- -- --
</Table>
---------------
* During the period certain fees were reduced. If such reductions had not
occurred, the ratios would have been as indicated.
** Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) Amount is less than $0.005.
(c) Per share net investment income (loss) has been calculated using the
average daily shares method.
(d) Not Annualized for periods less than one year.
(e) Annualized for periods less than one year.
154
CLASS C SHARES
<Table>
<Caption>
RATIOS/SUPPLEMENTARY DATA
-------------------------------------------------------------
RATIO OF
NET ASSET TOTAL RETURN NET ASSETS, RATIO OF NET INVESTMENT
VALUE, END (EXCLUDES SALES END OF PERIOD EXPENSES TO INCOME (LOSS) TO
OF PERIOD CHARGE)(D) (000) AVERAGE NET ASSETS(E) AVERAGE NET ASSETS(E)
---------- --------------- ------------- --------------------- ---------------------
$ 1.00 1.32% $326 1.49% 1.29%
$ 1.00 0.06% $453 1.20% 0.06%
$ 1.00 0.15% $555 1.30% 0.14%
$ 1.00 0.28% $314 1.60% 0.40%
$ 1.00 1.07% $ 38 1.50% 1.40%
$ 1.00 0.05% $ 5 1.02% 0.05%
$ 1.00 0.16% $ 8 1.12% 0.17%
$ 1.00 0.18% $ 10 1.60% 0.27%
$ 9.73 6.58% $155 1.20% 1.63%
$ 9.27 6.06% $180 1.44% 0.93%
$ 8.82 8.50% $148 1.53% 1.05%
$ 8.26 (5.98)% $ 62 1.52% 1.45%
$ 9.10 (8.30)% $ 2 1.71% 1.58%
$ 9.69 9.62% $122 1.25% 0.95%
$ 8.91 9.08% $178 1.49% 0.17%
$ 8.18 11.39% $182 1.51% 0.40%
$ 7.42 (11.40)% $307 1.58% 0.53%
$ 8.77 (13.75)% $178 1.55% 0.74%
$ 9.52 11.61% $ 37 1.26% 0.43%
$ 8.56 11.02% $ 63 1.50% (0.23)%
$ 7.71 13.48% $ 52 1.54% (0.14)%
$ 6.80 (15.43)% $ 12 1.61% (0.34)%
$ 8.41 (19.16)% $ 8 1.68% (0.30)%
$10.64 14.15% $ 19 1.27% (0.09)%
$ 9.33 12.68% $ 85 1.52% (0.54)%
$ 8.28 14.78% $ 28 1.73% (0.66)%
$ 7.26 (18.61)% $ 1 1.94% (1.31)%
$ 8.92 (10.80)% $ 1 1.87% (1.12)%
<Caption>
RATIOS/SUPPLEMENTARY DATA
----------------------------------
RATIO OF PORTFOLIO
EXPENSES TO TURNOVER
AVERAGE NET ASSETS*(E) RATE**
---------------------- ---------
1.64% --
1.70% --
1.69% --
1.65% --
1.66% --
1.71% --
1.70% --
1.64% --
1.52% 52.50%
1.64% 2.47%
1.73% 33.03%
1.72% 6.29%
1.73% 35.75%
1.56% 37.83%
1.69% 0.17%
1.71% 21.46%
1.78% 14.56%
1.75% 24.24%
1.59% 26.22%
1.73% 0.19%
1.74% 17.80%
1.81% 8.38%
1.86% 27.33%
1.63% 2.14%
1.81% 3.10%
1.92% 8.30%
1.94% 5.75%
1.87% 10.10%
</Table>
155
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For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of annual and semi-annual 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*
* The Funds' website is not a part of this Prospectus.
You can review the Fund's annual and semi-annual reports and SAIs at the Public
Reference Room of the Securities and Exchange Commission. You can get text-only
copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-06719.
BBT-PU-R 0206