VARIABLE INSURANCE FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-257-5872
Variable Insurance Funds (the "Trust") is an open-end management investment
company which currently offers seven separate diversified investment portfolios,
one of which, the BB&T Growth and Income Fund (the "Fund"), is offered through
this Prospectus.
Additional information about the Trust and the Fund, contained in a Statement of
Additional Information dated June 1, 1997, as amended or supplemented, has been
filed with the Securities and Exchange Commission and is available upon request
without charge by writing to the Trust at its address or by calling the Trust at
the telephone number shown above. The Statement of Additional Information is
incorporated herein by reference.
Shares of the Fund currently are sold to a segregated asset account ("Separate
Account") of Hartford Life Insurance Company ("Hartford") to serve as the
investment medium for variable annuity contracts ("Variable Contracts") issued
by Hartford. Shares of the Fund also are sold to qualified pension and
retirement plans outside of the separate account context. The Separate Account
invests in shares of the Fund in accordance with allocation instructions
received from owners of the Variable Contracts ("Variable Contract Owners").
Such allocation rights are described further in the accompanying Separate
Account prospectus.
Shares of the Fund are not deposits or obligations of, and are not endorsed,
insured or guaranteed by, any bank, the Federal Deposit Insurance Corporation,
or any other agency. An investment in the Fund involves investment risk,
including the possible loss of principal.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
SEPARATE ACCOUNT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH PROSPECTUSES SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 1, 1997.
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................................ 3
Shares Offered................................................... 3
Investment Objective............................................. 3
Investment Policies.............................................. 3
Risk Factors and Special Considerations.......................... 3
Investment Advisers.............................................. 4
Other Information................................................ 4
FUND EXPENSES............................................................. 5
INVESTMENT OBJECTIVE AND POLICIES ........................................ 6
INVESTMENT TECHNIQUES AND RISK FACTORS.................................... 6
VALUATION OF SHARES....................................................... 13
PURCHASING SHARES......................................................... 13
REDEEMING SHARES.......................................................... 14
MANAGEMENT OF THE FUND.................................................... 15
Trustees......................................................... 15
Investment Adviser............................................... 15
Administrator and Distributor.................................... 16
Other Service Providers.......................................... 16
Variable Contract Owner Servicing Agents......................... 17
Expenses......................................................... 17
Banking Laws..................................................... 17
TAXATION.................................................................. 17
GENERAL INFORMATION....................................................... 19
Description of the Trust and Its Shares.......................... 19
Performance Information.......................................... 19
Miscellaneous.................................................... 20
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PROSPECTUS SUMMARY
Shares Offered . . . . . . . . . . . . .Shares of beneficial interest (the
"Shares") of the BB&T Growth and Income
Fund (the "Fund"), a diversified
investment portfolio of Variable
Insurance Funds (the "Trust"), a
Massachusetts business trust which is
registered as an open-end management
investment company.
Shares of the Fund are offered currently
to a segregated asset account (a
"Separate Account") of Hartford Life
Insurance Company ("Hartford"). Shares
also are offered to qualified pension
and retirement plans. Shares of the Fund
may be offered in the future to other
separate accounts of Hartford, or to
separate accounts established by other
affiliated or unaffiliated insurance
companies, to serve as the underlying
investment medium for variable annuity
and variable life insurance contracts,
which may pose certain risks discussed
under "PURCHASING SHARES."
Investment Objective. . . . . . . . . The Fund seeks to provide capital
growth, current income, or both.
Investment Policies . . . . . . . . . Under normal market conditions, the Fund
will invest at least 65% of its total
assets in stocks, which may include
common stock, preferred stock, warrants,
or debt instruments that are convertible
into common stock. See "INVESTMENT
OBJECTIVE AND POLICIES."
Risk Factors and Special
Considerations . . . . . . . . . . . . An investment in the Fund involves a
certain amount of risk and may not be
suitable for all investors. See
"INVESTMENT TECHNIQUES AND RISK
FACTORS."
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Investment Adviser . . . . . . . . . . Branch Banking and Trust Company
("BB&T"), Raleigh, North Carolina,
serves as investment adviser to the
Fund. See "MANAGEMENT OF THE FUND -
Investment Adviser."
Other Information . . . . . . . . . . . Fifth Third Bank (the "Custodian") is
the custodian for the Fund. BISYS Fund
Services ("BISYS" or "Distributor" or
"Administrator") serves as the
distributor and administrator of the
Fund. BISYS Fund Services Ohio, Inc.
("BISYS Ohio") serves as transfer agent
and dividend disbursing agent and
provides certain accounting services for
the Trust.
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FUND EXPENSES
The following expense table indicates costs and expenses that an investor should
anticipate incurring either directly or indirectly as a Shareholder of the Fund
during its first fiscal year of operation. The numbers reflect estimated levels
of operating expenses.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases..................................None
Maximum Sales Charge Imposed on Reinvested Dividends.......................None
Deferred Sales Charge......................................................None
Redemption Fees............................................................None
Exchange Fees..............................................................None
Annual Fund Operating Expenses
(as a percentage of average net assets annualized)
Management Fees After Waiver 1....................................... .....0.50%
Other Expenses.......................................................... ..0.47%
Total Fund Operating Expenses After Waiver 2...............................0.97%
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1 BB&T has agreed to temporarily waive a portion of its investment
advisory fee for the Fund. Waived fees cannot be recovered at a future
date. Absent the advisory fee waiver, "Management Fees" as a percentage
of average daily net assets would be 0.74% for the Fund. See
"MANAGEMENT OF THE FUND--Investment Adviser."
2 Absent the waiver of the investment advisory fee, "Total Fund Operating
Expenses" as a percentage of average daily net assets would be 1.21%
for the Fund.
The purpose of this table is to assist the prospective investor in understanding
the various costs and expenses that a Shareholder in the Fund will bear. The
following Example illustrates the expenses borne by Fund Shareholders.
Example*
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, and (2) redemption at the end of each time period:
Expenses
1 Year ...........................................................$10
3 Years ...........................................................$31
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* This example should not be considered a representation of future expenses,
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or
future annual return. Actual return may be greater or less than the assumed
amount.
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INVESTMENT OBJECTIVE AND POLICIES
Shareholders should be aware that the investments made by the Fund at any given
time are not expected to be the same as those made by other mutual funds for
which BB&T acts as investment adviser, including mutual funds with investment
objectives and policies similar to the Fund. Investors should carefully consider
their investment goals and willingness to tolerate investment risk before
allocating their investment to the Fund.
The Fund's investment objective is to seek capital growth, current income, or
both. Under normal market conditions, the Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock. The remainder of the Fund's assets, if not invested in stocks, will be
invested as described under "INVESTMENT TECHNIQUES AND RISK FACTORS."
Equity securities purchased by the Fund will be either traded on a domestic
securities exchange or quoted in the NASDAQ/NYSE system. While some stocks may
be purchased primarily to achieve the Fund's investment objective for income,
most stocks will be purchased by the Fund primarily in furtherance of its
investment objective for growth. The Fund will favor stocks of issuers which
over a five year period have achieved cumulative income in excess of the
cumulative dividends paid to shareholders.
The investment objective of the Fund is a fundamental policy and as such may not
be changed without a vote of the holders of a majority of the outstanding Shares
of the Fund. Other policies of the Fund may be changed without a vote of the
holders of a majority of outstanding Shares of the Fund unless (i) the policy is
expressly deemed to be a fundamental policy or (ii) the policy is expressly
deemed to be changeable only by such majority vote. There can be no assurance
that the investment objective of the Fund will be achieved.
INVESTMENT TECHNIQUES AND RISK FACTORS
Like any investment program, an investment in the Fund entails certain risks.
Put and Call Options
The Fund may purchase put and call options on securities, and may purchase put
and call options on foreign currencies, subject to its applicable investment
policies, for the purposes of hedging against market risks related to its
portfolio securities and adverse movements in exchange rates between currencies,
respectively. The Fund may also engage in writing covered call options (options
on securities or currencies owned by the Fund). When a portfolio security or
currency subject to a call option is sold, the Fund will effect a "closing
purchase transaction"--the purchase of a call option on the same security or
currency with the same exercise price and expiration date as the call option
which the Fund previously has written. If the Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security or
currency until the option expires or the Fund delivers the underlying security
or currency upon exercise. In addition, upon the exercise of a call option by
the holder thereof, the Fund will forego the potential benefit represented by
market appreciation over the exercise price. Under normal conditions, it is not
expected that the Fund will cause the underlying value of portfolio securities
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and/or currencies subject to such options to exceed 25% of its total assets. The
Fund will not purchase put and call options when the aggregate premiums on
outstanding options exceed 5% of its net assets at the time of purchase.
Futures Contracts
The Fund may also enter into contracts for the future delivery of securities or
foreign currencies and futures contracts based on a specific security, class of
securities, foreign currency or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index. The Fund may engage
in such futures contracts in an effort to hedge against market risks and to
manage its cash position, but not for leveraging purposes.
The value of each of the Fund's contracts may equal or exceed 100% of its total
assets, although it will not purchase or sell a futures contract unless
immediately following such sale or purchase the aggregate amount of margin
deposits on its existing futures positions plus the amount of premiums paid for
related futures options entered into for other than bona fide hedging purposes
is 5% or less of the Fund's net assets. Futures transactions will be limited to
the extent necessary to maintain the qualification of the Fund as a regulated
investment company.
Foreign Securities
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
If a security is denominated in foreign currency, the value of the security to
the Fund will be affected by changes in currency exchange rates and in exchange
control regulations, and costs will be incurred in connection with conversions
between currencies. Currency risks generally increase in lesser developed
markets. Exchange rate movements can be large and can endure for extended
periods of time, affecting either favorably or unfavorably the value of the
Fund's assets.
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For many foreign securities, U.S. dollar denominated American Depositary
Receipts ("ADRs"), which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers' stock. However, by investing in ADRs rather
than directly in foreign issuers' stock, the Fund can avoid currency risks
during the settlement period for either purchase or sales. The Fund may invest
in foreign securities through the purchase of ADRs or the purchase of securities
on the New York Stock Exchange ("NYSE").
Unsponsored ADR programs are organized independently and without the cooperation
of the issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, and the
prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.
The value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations.
U.S. Government Obligations
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Bureau or the Federal Home Loan Mortgage Corporation, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
The Stripped Treasury Obligations in which the Fund may invest do not include
Certificates of Accrual on Treasury Securities ("CATS") or Treasury Income
Growth Receipts ("TIGRs"). Stripped securities are issued at a discount to their
"face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
The Fund may also invest in "zero coupon" U.S. Government securities. These
securities tend to be more volatile than other types of U.S. Government
securities. Zero coupon securities are debt instruments that do not pay current
interest and are typically sold at prices greatly discounted from par value. The
return on a zero coupon obligation, when held to maturity, equals the difference
between the par value and the original purchase price.
Mortgage-Related and Asset-Backed Securities
Investments in these and other derivative securities will not be made for
purposes of leverage or speculation, but rather primarily for conventional
investment or hedging purposes, liquidity, flexibility and to capitalize on
market inefficiencies. Consistent with its investment objective, restrictions
and policies, the Fund may invest in mortgage-related securities, which are
securities representing interests in "pools" of mortgages in which payments of
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both interest and principal on the securities are made monthly.
Early repayment of principal on mortgage-related securities may expose the Fund
to a lower rate of return upon reinvestment of principal. Like other
fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. For this and other
reasons, the stated maturity of a mortgage-related security may be shortened by
unscheduled prepayments on the underlying mortgages. Alternatively, the rate of
prepayments on underlying mortgages may have the effect of extending the
effective maturity of the security beyond what was anticipated at the time of
purchase. To the extent that unanticipated rates of prepayment on underlying
mortgages increase the effective maturity of a mortgage-related security, the
volatility of such security can be expected to increase. Accordingly, it may not
be possible to predict accurately a security's return to the Fund.
Like mortgages underlying mortgage-backed securities, automobile sales contracts
or credit card receivables underlying asset-backed securities are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal prepayment rates tend not to vary much with interest
rates, and the short-term nature of the underlying car loans or other
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in prepayment on the certificates
if the full amounts due on underlying sales contracts or receivables are not
realized because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. In certain market
conditions, asset-backed securities may experience volatile fluctuations in
value and periods of illiquidity. If consistent with its investment objective
and policies, the Fund may invest in other asset-backed securities that may be
developed in the future.
The Fund may invest in Collateralized Mortgage Obligations. CMOs may include
stripped mortgage securities. Such securities are derivative multi-class
mortgage securities issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. Generally,
the market value of the PO class is unusually volatile in response to changes in
interest rates. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated in the
highest rating category.
Certain issuers of asset-backed securities are considered to be investment
companies under the Investment Company Act of 1940 (the "1940 Act"). The Fund
intends to conduct its operations so that it will invest its assets (when
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combined with investments in securities of other investment companies, if any)
in the obligations of such issuers within applicable regulatory limits.
Bankers' Acceptances
The Fund may invest in bankers' acceptances guaranteed by domestic and foreign
banks if at the time of investment the guarantor bank has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements).
Certificates of Deposit and Time Deposits
The Fund may invest in certificates of deposit and time deposits of domestic and
foreign banks and savings and loan associations if (a) at the time of investment
the depository institution has capital, surplus, and undivided profits in excess
of $100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
Commercial Paper
The Fund may, within the limitations described above, invest in short-term
promissory notes (including variable amount master demand notes) issued by
corporations and other entities, such as municipalities, rated at the time of
purchase within the two highest categories assigned by a nationally recognized
statistical rating organization ("NRSRO") (e.g., A-2 or better by Standard &
Poor's Corporation ("S&P"), Prime-2 or better by Moody's Investors Service, Inc.
("Moody's") or F-2 or better by Fitch Investors Service ("Fitch")) or, if not
rated, determined to be of comparable quality to instruments that are so rated.
The Fund may also invest in Canadian Commercial Paper, which is commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and in Europaper, which is U.S. dollar denominated commercial paper
of a foreign issuer.
The Fund may invest in variable amount master demand notes, which are unsecured
demand notes that permit the indebtedness thereunder to vary, and that provide
for periodic adjustments in the interest rate according to the terms of the
instrument. Although there is no secondary market in the notes, the Fund may
demand payment of principal and accrued interest at any time. While the notes
are not typically rated by credit rating agencies, issuers of variable amount
master demand notes (which are normally manufacturing, retail, financial, and
other business concerns) must satisfy the same criteria as set forth above for
commercial paper. BB&T will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand. A note will be
deemed to have a maturity equal to the period of time remaining until the
principal amount can be recovered from the issuer through demand. The period of
time remaining until the principal amount can be recovered under a variable
master demand note shall not exceed seven days.
Repurchase Agreements
Securities held by the Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, the Fund would acquire securities from
financial institutions, subject to theseller's agreement to repurchase such
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securities at a mutually agreed upon date and price, which includes interest
negotiated on the basis of current short-term rates. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If a seller defaults on its repurchase agreements,
the Fund may suffer a loss in disposing of the security subject to the
repurchase agreement. For further information about repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES--Additional Information on Portfolio
Instruments--Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Fund may also enter into dollar roll agreements in accordance with
applicable investment restrictions. Pursuant to such reverse repurchase
agreements, the Fund would sell certain of its securities to financial
institutions such as banks and broker-dealers, and agree to repurchase them, or
substantially similar securities in the case of a dollar roll agreement, at a
mutually agreed upon date and price. A dollar roll agreement is analogous to a
reverse repurchase agreement, with the Fund selling mortgage-backed securities
for delivery in the current month and simultaneously contracting to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. At the time the Fund enters into a reverse repurchase agreement or
dollar roll agreement, it will place in a segregated custodial account assets
such as U.S. Government securities or other liquid securities consistent with
its investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements and dollar roll agreements involve the risk that the
market value of securities to be purchased by the Fund may decline below the
price at which it is obligated to repurchase the securities, or that the other
party may default on its obligation, so that the Fund is delayed or prevented
from completing the transaction.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase securities on a when-issued or delayed-delivery basis. In
addition, the Fund may sell securities on a "forward commitment" basis. The Fund
will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies, not for investment leverage. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than that available in the market when delivery takes
place. The Fund will not pay for such securities or start earning interest on
them until they are received. When the Fund agrees to purchase such securities,
its Custodian will set aside in a segregated account cash or liquid securities
equal to the amount of the commitment. In when-issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss a price or yield considered
to be advantageous.
Lending of Portfolio Securities
In order to generate additional income the Fund may, from time to time, lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Fund must receive 100% collateral, in the form of cash or U.S.
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Government securities. This collateral must be valued daily, and should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the lender. During the time portfolio securities are on
loan, the borrower pays the lender any dividends or interest paid on such
securities. Loans are subject to termination by the lender or the borrower at
any time. While the Fund does not have the right to vote securities on loan, it
intends to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. In the event the borrower defaults on
its obligation to the Fund, it could experience delays in recovering its
securities and possible capital losses. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions determined to be
creditworthy under guidelines established by the relevant Board of Trustees that
permit the Fund to loan up to 33 1/3% of the value of its total assets.
Short-Term Obligations
The Fund may invest in high quality, short-term obligations (with maturities of
12 months or less) such as domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and demand and time deposits of domestic and foreign branches of U.S.
banks and foreign banks, and repurchase agreements, in order to acquire interest
income combined with liquidity. Such investments will be limited to those
obligations which, at the time of purchase (i) possess one of the two highest
short-term ratings from NRSROs, or (ii) do not possess a rating (i.e., are
unrated) but are determined to be of comparable quality to rated instruments
eligible for purchase. Under normal market conditions, the Fund will limit its
investment in short-term obligations to 35% of its total assets. For temporary
defensive purposes, as determined by BB&T, these investments may constitute 100%
of the Fund's portfolio and, in such circumstances, will constitute a temporary
suspension of its attempts to achieve its investment objective.
Short-Term Trading
In order to generate income, the Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to increase the potential for capital appreciation and/or income of
the Fund in order to take advantage of what BB&T believes are changes in market,
industry or individual company conditions or outlook. Any such trading would
increase the portfolio turnover rate of the Fund and its transaction costs.
Securities Issued by Other Investment Companies
The Fund may invest up to 10% of its total assets in shares of money market
mutual funds for cash management purposes. The Fund will incur additional
expenses due to the duplication of expense as a result of investing in other
investment companies.
Restricted Securities
Securities in which the Fund may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
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investors such as the Fund which agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Trust, BB&T may determine Section 4(2) securities to be liquid
if such securities are readily marketable. These securities may include
securities eligible for resale under Rule 144A under the 1933 Act.
VALUATION OF SHARES
The net asset value of the Fund is determined and its Shares are priced as of
the closing of the NYSE (generally 4:00 p.m. Eastern Time) on each Business Day
("Valuation Time"). As used herein, Business Day is a day on which the NYSE is
open for trading, and any other day except days on which there are insufficient
changes in the value of the Fund's portfolio securities to materially affect the
Fund's net asset value or days on which no Shares are tendered for redemption
and no order to purchase any Shares is received. Currently, the NYSE is closed
on the following holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Net asset value per Share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
the Fund, less the liabilities charged to the Fund and any liabilities allocable
to the Fund, by the number of the Fund's outstanding Shares.
The net asset value per Share of the Fund will fluctuate as the value of the
investment portfolio of the Fund changes.
The securities in the Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. For further information about
valuation of investments, see "NET ASSET VALUE" in the Statement of Additional
Information.
PURCHASING SHARES
As of the date of this Prospectus, Shares of the Fund are offered for purchase
by the Separate Account to serve as an investment medium for the Variable
Contracts issued by Hartford, and to qualified pension and retirement plans
outside of the separate account context. Shares of the Fund may be offered in
the future to other separate accounts established by Hartford or sold to
separate accounts of other affiliated or unaffiliated insurance companies, and
may be offered in the future to serve as an investment medium for variable life
insurance policies.
While the Fund currently does not foresee any disadvantages to Variable Contract
Owners if the Fund serves as an investment medium for both variable annuity
contracts and variable life insurance policies, due to differences in tax
treatment or other considerations, it is theoretically possible that the
interest of owners of annuity contracts and insurance policies for which the
Fund served as an investment medium might at some time be in conflict. However,
the Trust's Board of Trustees and each insurance company with a separate account
allocating assets to the Fund would be required to monitor events to identify
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any material conflicts between variable annuity contract owners and variable
life insurance policy owners, and would have to determine what action, if any,
should be taken in the event of such a conflict. If such a conflict occurred, an
insurance company participating in the Fund might be required to redeem the
investment of one or more of its separate accounts from the Fund, which might
force the Fund to sell securities at disadvantageous prices.
Shares of the Fund are purchased at the net asset value per Share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor of an
order to purchase Shares. Purchases of Shares of the Fund will be effected only
on a Business Day of the Fund. An order received prior to the Valuation Time on
any Business Day will be executed at the net asset value determined as of the
Valuation Time on the date of receipt. An order received after the Valuation
Time on any Business Day will be executed at the net asset value determined as
of the Valuation Time on the next Business Day of the Fund.
The Fund reserves the right to discontinue offering Shares at any time. In the
event that the Fund ceases offering its Shares, any investments allocated to the
Fund will, subject to any necessary regulatory approvals, be invested in another
fund of the Trust deemed appropriate by the Trustees.
Exchange Privilege
Shares of the Fund may be exchanged at net asset value for Shares offered by
other portfolios of the Trust. Exchanges are treated as a redemption of Shares
and a purchase of Shares of one or more of the other portfolios and are effected
at the respective net asset values per Share of the portfolios on the date of
the exchange. The Fund reserves the right to modify or discontinue the exchange
privilege at any time without notice.
REDEEMING SHARES
Shares may be redeemed without charge on any day that net asset value is
calculated (see "VALUATION OF SHARES"). All redemption orders are effected at
the net asset value per Share next determined after receipt by the Distributor
of a redemption request. Payment for Shares redeemed normally will be made
within seven days.
The Trust intends to pay cash for all Shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities at their then market value equal to the
redemption price. In such cases, a Shareholder may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the right of redemption may be suspended.
Variable Contract Owners do not deal directly with the Fund to purchase, redeem,
or exchange Shares, and Variable Contract Owners should refer to the prospectus
for the Separate Account for information on the allocation of premiums and on
transfers of accumulated value among sub-accounts of the Separate Account that
invests in the Fund.
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MANAGEMENT OF THE FUND
Trustees
Overall responsibility for management of the Trust rests with its Board of
Trustees. The Trust will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. The Trustees, in
turn, elect the officers of the Trust to supervise its day-to-day operations.
Investment Adviser
Branch Banking and Trust Company, 434 Fayetteville Street Mall, Raleigh, N.C.
27601, is the investment adviser of the Growth and Income Fund. BB&T is the
oldest bank in North Carolina. It is the principal bank affiliate of Southern
National Corporation ("SNC"), a bank holding company that is a North Carolina
corporation, headquartered in Winston-Salem, North Carolina, which merged with
Southern National Corporation, the former parent company of BB&T. As of
September 30, 1996, SNC had assets in excess of $21.1 billion. Through its
subsidiaries, SNC operates over 425 banking offices in North Carolina, South
Carolina and Virginia, providing a broad range of financial services to
individuals and businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the BB&T Mutual Funds
Group (the "Group") and the Trust, it has experience in managing collective
investment funds with investment portfolios and objectives comparable to those
of the Group and the Fund. BB&T employs an experienced staff of professional
portfolio managers and traders who use a disciplined investment process that
focuses on maximization of risk-adjusted investment returns. BB&T has managed
common and collective investment funds for its fiduciary accounts for more than
15 years and currently manages assets of more than $4.5 billion.
Under an investment advisory agreement between the Trust and BB&T, the Trust
pays BB&T an investment advisory fee, computed daily and payable monthly, at an
annual rate equal to the lessor of: (a) 0.74% of the Fund's average daily net
assets; or (b) such amount as may from time to time be agreed upon in writing by
the Trust and BB&T.
The person primarily responsible for the management of the Fund, as well as his
previous business experience, is as follows:
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Portfolio Manager Business Experience
Richard B. Jones Manager of the Growth and Income Fund since
inception. Since 1987, Mr. Jones has been a
portfolio manager in the BB&T Trust Division.
He holds a B.S. in Business Administration
from Miami (Ohio) University and M.B.A. from
Ohio State University.
Administrator and Distributor
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035, a division of
BISYS Group, Inc., is the administrator for the Fund, and also acts as the
Trust's principal underwriter and distributor.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Management and Administration Agreement with the Trust, the
Administrator receives a fee from the Fund equal to the lesser of an amount,
computed daily and paid periodically, at the annual rate of 0.20% of the Fund's
average daily net assets, or such other amount as may be agreed upon from time
to time by the Trust and the Administrator. The Administrator may periodically
voluntarily reduce all or a portion of its administrative fee with respect to
the Fund to increase the net income of the Fund available for distribution as
dividends. The voluntary fee reduction will cause the yield of the Fund to be
higher than it would otherwise be in the absence of such a reduction.
The Distributor acts as agent for the Fund in the distribution of its Shares
and, in such capacity, advertises and pays the cost of advertising, office space
and personnel involved in such activities. The Distributor serves in such
capacity without remuneration from the Fund.
Other Service Providers
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's transfer agent and dividend disbursing agent and provides
certain accounting services for the Fund. BISYS Ohio receives an annual fee of
$14 per Variable Contract Owner account, subject to certain per-Fund base fees,
for its services as transfer agent, and, for its services as fund accountant,
BISYS Ohio receives a fee, computed daily and paid periodically, at an annual
rate equal to the greater of 0.03% of average daily net assets or $30,000.
Coopers & Lybrand L.L.P. serves as independent auditors for the Trust. Fifth
Third Bank is the custodian for the Fund. See "MANAGEMENT OF THE TRUST" in the
Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Trust's
administrator and distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio is owned by substantially the same persons that directly or
indirectly own BISYS.
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Variable Contract Owner Servicing Agents
The Trust has adopted a plan under which up to 0.25% of the Fund's average daily
net assets may be expended to procure Variable Contract Owner services. Pursuant
to agreements with the Fund, certain financial institutions and their affiliates
serve as Variable Contract Owner Servicing Agents to the Fund. A Variable
Contract Owner Servicing Agent generally provides support services to its
clients who are Variable Contract Owners by establishing and maintaining
accounts and records, providing account information, arranging for bank wires,
responding to routine inquiries, forwarding Variable Contract Owner
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting Variable Contract Owners in changing account
designations and addresses. For expenses incurred and services provided, each
Variable Contract Owner Servicing Agent receives a fee from the Fund, computed
daily and paid monthly, at an annual rate of up to 0.25% of the average daily
net assets of the Fund allocable to Variable Contracts owned by customers of the
Variable Contract Owner Servicing Agent. A Variable Contract Owner Servicing
Agent may periodically waive all or a portion of its servicing fees with respect
to the Fund to increase the net income of the Fund available for distribution as
dividends.
Expenses
BB&T and the Administrator each bear all expenses in connection with the
performance of its services other than the cost of securities (including
brokerage commissions) purchased for the Fund. The Fund will bear the following
expenses relating to its operation: taxes, interest, fees of the Trustees of the
Trust, Securities and Exchange Commission fees, outside auditing and legal
expenses, advisory and administration fees, fees and out-of-pocket expenses of
the Custodian and fund accountant, certain insurance premiums, costs of
maintenance of the Trust's existence, costs of Shareholders' reports and
meetings, and any extraordinary expenses incurred in the Fund's operation.
Banking Laws
Federal banking laws and regulations presently restrict the ability of a bank
such as BB&T, or any affiliate thereof, from sponsoring, organizing or
controlling a registered open-end investment company continuously engaged in the
issuance of its shares, and generally from underwriting, selling or distributing
securities, such as Shares of the Fund.
BB&T believes that it may perform advisory services for the Fund as described
herein, and that it or its affiliates may perform Variable Contract Owner
servicing activities and may receive compensation without violating federal
banking laws and regulations.
In the event that, due to future events, BB&T is prohibited from acting as the
investment adviser of the Fund, it is probable that the Board of Trustees would
either recommend to Shareholders the selection of another qualified adviser or,
if that course of action appeared impractical, that the Fund be liquidated.
TAXATION
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). Accordingly, if the Fund
so qualifies, it generally will not be subject to federal income taxes to the
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extent that it distributes on a timely basis its investment company taxable
income and its net capital gains.
To comply with regulations under section 817(h) of the Code, the Fund is
required to diversify its investments. Generally, the Fund will be required to
diversify its investments so that on the last day of each quarter of a calendar
year no more than 55% of the value of its total assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments, and no more than 90% is represented
by any four investments. For this purpose, securities of a given issuer
generally are treated as one investment, but each U.S. Government agency and
instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
an agency or instrumentality of the U.S. is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
Compliance with the diversification rules under Section 817(h) of the Code
generally will limit the ability of the Fund to invest greater than 55% of its
total assets in direct obligations of the U.S. Treasury (or any other issuer) or
to invest primarily in securities issued by a single agency or instrumentality
of the U.S. Government. If the Fund fails to meet the diversification
requirement under Section 817(h) of the Code, income with respect to Variable
Contracts invested in the Fund at any time during the calendar quarter in which
the failure occurred could become currently taxable to the owners of such
Variable Contracts. Similarly, income for prior periods with respect to such
contracts also could be taxable, most likely in the year of the failure to
achieve the required diversification. Other adverse tax consequences could also
ensue. If the Fund failed to qualify as a regulated investment company, the
results would be substantially the same as a failure to meet the diversification
requirements under Section 817(h) of the Code.
The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable contract owner's
control of the investments of the separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the assets held
by the separate account. If the contract owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It
is not known what standards will be set forth in the regulations or rulings.
In the event that rules or regulations are adopted, there can be no assurance
that the Fund will be able to operate as currently described, or that the Trust
will not have to change the Fund's investment objective or investment policies.
While the Fund's investment objective is fundamental and may be changed only by
a vote of a majority of its outstanding Shares, the investment policies of the
Fund may be modified as necessary to prevent any such prospective rules and
regulations from causing Variable Contract Owners to be considered the owners of
the Shares of the Fund.
Reference is made to the prospectus for the Separate Account and Variable
Contract for information regarding the federal income tax treatment of
distributions to the Separate Account. See "ADDITIONAL INFORMATION - Additional
Tax Information" in the Statement of Additional Information for more information
on taxes.
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GENERAL INFORMATION
Description of the Trust and Its Shares
The Trust was organized as a Massachusetts business trust in 1994 and consists
currently of seven portfolios. Each Share represents an equal proportionate
interest in the Fund with other Shares of the Fund, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that fund as are declared at the discretion of the Trustees. Shares are without
par value. Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested. Shareholders will vote in the aggregate and not by portfolio except as
otherwise expressly required by law.
An annual or special meeting of Shareholders to conduct necessary business is
not required by the Trust's Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve an investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Trust may elect not to have an annual or special meeting.
The Trust will call a special meeting of Shareholders for purposes of
considering the removal of one or more Trustees upon written request therefor
from Shareholders holding not less than 10% of the outstanding votes of the
Trust. At such a meeting, a quorum of Shareholders (constituting a majority of
votes attributable to all outstanding Shares of the Trust), by majority vote,
has the power to remove one or more Trustees. In accordance with current laws,
it is anticipated that an insurance company issuing a variable contract that
participates in the Fund will request voting instructions from variable contract
owners and will vote shares or other voting interests in the separate account in
proportion of the voting instructions received. The Separate Account and
qualified pension and retirement plans are currently the only Shareholders of
the Fund, although other separate accounts of Hartford, or of other insurance
companies, may become Shareholders in the future.
Performance Information
From time to time performance information for the Fund showing its average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of the Fund will be calculated for the
period since the establishment of the Fund. Average annual total return is
measured by comparing the value of an investment in the Fund at the beginning of
the relevant period to the redemption value of the investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions and analyzing the result). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield of the Fund
will be computed by dividing the net investment income per Share earned during a
recent one-month period by the per Share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and analyzing the result. Performance information for the Fund
will not be advertised or included in sales literature unless accompanied by
comparable performance information for the Separate Account.
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In addition, from time to time the Fund may present its distribution rate in
supplemental sales literature which is accompanied or preceded by a prospectus
and in Shareholder reports. The distribution rate will be computed by dividing
the distribution per Share made by the Fund over a twelve-month period by the
maximum offering price per Share. The calculation of income in the distribution
rate includes both income and capital gain dividends and does not reflect
unrealized gains or losses, although the Fund may also present a distribution
rate excluding the effect of capital gains. The distribution rate differs from
the yield, because it includes capital gains which are often non-recurring in
nature, whereas yield does not include such items.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Quotations of yield or total return for the Fund will not take into
account charges or deductions against the Separate Account or Variable Contract
specific deductions for cost of insurance charges, premium load, administrative
fees, maintenance fees, premium tax, mortality and expense risks, or other
charges that may be incurred under a Variable Contract for which the Fund serves
as an underlying investment vehicle. The Fund's yield and total return should
not be compared with mutual funds that sell their shares directly to the public
since the figures provided do not reflect charges against the Separate Account
or the Variable Contracts. Performance information for the Fund reflects only
the performance of a hypothetical investment in the Fund during the particular
time period on which the calculations are based. In addition, if BB&T or BISYS
voluntarily reduce all or a part of their respective fees, the total return of
the Fund will be higher than it would otherwise be in the absence of such
voluntary fee reductions.
Miscellaneous
Inquiries regarding the Trust may be directed in writing to Variable Insurance
Funds at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or by calling toll free
(800) 257-5872.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by its Distributor in any jurisdiction in which such offering may not be
lawfully made.
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