<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------- ---------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS -- 94.2%
AIRCRAFT -- 2.8%
1,600 Lockheed Martin Corp.................... $ 165,700
-------------
APPAREL -- 1.9%
1,300 V F Corp................................ 110,663
-------------
BANKS -- 5.5%
1,400 JP Morgan & Co.......................... 146,125
3,000 Wachovia Corp........................... 174,938
-------------
321,063
-------------
BEVERAGES -- 3.2%
4,500 Anheuser-Busch Cos. Inc................. 188,719
-------------
BUSINESS EQUIPMENT & SERVICES -- 1.8%
1,500 Pitney Bowes, Inc....................... 106,875
-------------
CAPITAL EQUIPMENT -- 2.0%
1,900 Parker-Hannifin Corp. (b)............... 115,306
-------------
CHEMICALS - SPECIALTY -- 2.8%
2,100 Vulcan Materials Co..................... 164,850
-------------
COMMUNICATIONS EQUIPMENT -- 2.5%
1,700 Harris Corp............................. 142,800
-------------
COMPUTERS - MAIN & MINI -- 2.8%
2,900 Hewlett-Packard Co...................... 162,400
-------------
COMPUTER - PERIPHERALS -- 1.2%
2,000 Adobe Systems, Inc...................... 70,125
-------------
ELECTRICAL EQUIPMENT -- 2.6%
2,800 Emerson Electric Co..................... 154,175
-------------
ELECTRONIC COMPONENTS -- 1.6%
1,600 Avnet, Inc.............................. 92,000
-------------
ELECTRONIC INSTRUMENTS -- 1.8%
1,700 Tektronix, Inc.......................... 102,000
-------------
FOOD & RELATED -- 4.5%
2,600 Dean Foods Co........................... 104,975
4,500 SUPERVALU, Inc.......................... 155,250
-------------
260,225
-------------
FOREST & PAPER PRODUCTS -- 1.8%
2,000 Weyerhaeuser Co......................... 104,000
-------------
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------- ---------------------------------------- -------------
<C> <S> <C>
HEALTH CARE - DRUGS -- 5.8%
2,400 Abbott Laboratories..................... $ 160,200
1,600 Merck & Co.............................. 165,600
100 Rhone-Poulenc Rorer, Inc................ 9,087
-------------
334,887
-------------
HEALTH CARE - GENERAL -- 3.4%
5,000 Mallinckrodt Inc........................ 195,000
-------------
HOUSEHOLD - GENERAL PRODUCTS -- 1.9%
2,900 American Greetings...................... 107,662
-------------
HOUSEHOLD - MAJOR APPLIANCES -- 1.9%
2,000 Whirlpool Corp.......................... 109,125
-------------
INSURANCE - PROPERTY & CASUALTY -- 5.6%
2,500 Lincoln National Corp................... 160,937
3,500 SAFECO Corp............................. 163,406
-------------
324,343
-------------
LEISURE TIME INDUSTRY -- 1.7%
3,500 Hasbro, Inc............................. 99,313
-------------
METAL FABRICATION -- 1.8%
3,300 Trinity Industries, Inc................. 104,775
-------------
MINING -- 3.1%
1,200 Phelps Dodge Corp....................... 102,225
1,000 Potash Corp. of Saskatchewan, Inc....... 75,062
-------------
177,287
-------------
PETROLEUM - DOMESTIC -- 2.6%
3,500 Phillips Petroleum Co................... 153,125
-------------
PETROLEUM - INTERNATIONALS -- 5.4%
2,200 Chevron Corp............................ 162,663
600 Mobil Corp.............................. 41,925
2,000 Royal Dutch Petroleum................... 108,750
-------------
313,338
-------------
PUBLISHING -- 2.1%
3,300 Media General, Inc...................... 124,163
-------------
RAILROAD -- 1.7%
1,000 Norfolk Southern Corp................... 100,750
-------------
RETAIL - FOOD STORES -- 1.9%
3,000 Albertson's, Inc........................ 109,500
-------------
</TABLE>
-Continued-
B-1
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------- ---------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL - GENERAL MERCHANDISE -- 1.7%
2,100 May Department Stores Co................ $ 99,225
-------------
SECURITY & COMMISSION BROKERS -- 2.0%
2,700 A.G. Edwards, Inc....................... 116,438
-------------
TOBACCO -- 2.1%
4,500 UST, Inc................................ 124,875
-------------
UTILITIES - ELECTRIC -- 5.3%
3,700 Public Service Co. of Colorado.......... 153,550
4,700 Western Resources, Inc.................. 152,456
-------------
306,006
-------------
UTILITIES - GAS & PIPELINE -- 1.8%
2,900 Nicor, Inc.............................. 104,038
-------------
UTILITIES - TELEPHONE -- 3.6%
1,300 AT & T Corp............................. 45,581
2,600 SBC Communications, Inc................. 160,875
-------------
206,456
-------------
Total Common Stocks..................... 5,471,207
-------------
-------------
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ------------- ---------------------------------------- -------------
<C> <S> <C>
INVESTMENT COMPANIES -- 7.1%
149,762 Federated Short-Term U.S. Government
Trust Fund............................ $ 149,762
264,948 Provident Federal Fund.................. 264,948
-------------
Total Investment Companies.............. 414,710
-------------
Total (Cost - $5,681,025)(a)............................ $5,885,917
-------------
-------------
</TABLE>
- ------------------------------
Percentages indicated are based on net assets of $5,809,794.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................. $ 247,397
Unrealized depreciation.................. (42,505)
---------
Net unrealized appreciation.............. $ 204,892
---------
---------
</TABLE>
(b) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B-2
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $5,681,025)....................................... $ 5,885,917
Interest and dividends receivable............................................. 7,322
Prepaid expenses and other assets............................................. 10,620
-------------
Total Assets.............................................................. 5,903,859
-------------
LIABILITIES:
Dividends payable............................................................. 6,706
Payable for investments purchased............................................. 74,705
Accrued expenses and other payables:
Investment advisory fees.................................................... 141
Administration fees......................................................... 31
Accounting fees............................................................. 330
Registration and filing fees................................................ 4,984
Other....................................................................... 7,168
-------------
Total Liabilities......................................................... 94,065
-------------
NET ASSETS:
Capital....................................................................... 5,604,902
Net unrealized appreciation from investments.................................. 204,892
-------------
Net Assets................................................................ $ 5,809,794
-------------
-------------
Outstanding units of beneficial interest (shares)............................... 558,238
-------------
-------------
Net asset value -- offering and redemption price per share...................... $ 10.41
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B-3
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 3, 1997
THROUGH JUNE
30, 1997(a)
-------------
<S> <C>
INVESTMENT INCOME:
Interest income................................................................................ $ 2,049
Dividend income................................................................................ 9,894
-------------
Total Income................................................................................. 11,943
-------------
EXPENSES:
Investment advisory fees....................................................................... 2,944
Administration fees............................................................................ 796
Custodian fees................................................................................. 588
Accounting fees................................................................................ 2,441
Legal fees..................................................................................... 532
Audit fees..................................................................................... 1,120
Organization costs............................................................................. 924
Trustees' fees and expenses.................................................................... 1,988
Transfer agent fees............................................................................ 812
Registration and filing fees................................................................... 4,984
Printing costs................................................................................. 2,016
Other.......................................................................................... 644
-------------
Total expenses before reimbursements and voluntary reductions................................ 19,789
Expenses reimbursed and voluntarily reduced.................................................. (14,552)
-------------
Net Expenses................................................................................. 5,237
-------------
Net Investment Income............................................................................ 6,706
-------------
UNREALIZED GAINS FROM INVESTMENTS:
Net change in unrealized appreciation from investments......................................... 204,892
-------------
Net unrealized gains from investments.......................................................... 204,892
-------------
Change in net assets resulting from operations................................................... $ 211,598
-------------
-------------
</TABLE>
- ------------------------
(a) Period from commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
B-4
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 3, 1997
THROUGH
JUNE 30,
1997(a)
-------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.......................................................................... $ 6,706
Net change in unrealized appreciation from investments......................................... 204,892
-------------
Change in net assets resulting from operations................................................... 211,598
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income..................................................................... (6,706)
-------------
Change in net assets from shareholder distributions.............................................. (6,706)
-------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................................................................... 5,604,902
-------------
Change in net assets from capital transactions................................................... 5,604,902
-------------
Change in net assets............................................................................. 5,809,794
NET ASSETS:
Beginning of period............................................................................ --
-------------
End of period.................................................................................. $ 5,809,794
-------------
-------------
SHARE TRANSACTIONS:
Issued......................................................................................... 558,238
-------------
Change in shares................................................................................. 558,238
-------------
-------------
</TABLE>
- ------------------------
(a) Period from commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
B-5
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION:
The Variable Insurance Funds (the "Trust") was organized on July 20, 1994
and is registered under the Investment Company Act of 1940 (the "Act") as an
open-end management investment company established as a Massachusetts
business trust.
The Trust is authorized to issue an unlimited number of shares which are
shares of beneficial interest without par value. The Trust presently offers
series of shares of the BB&T Growth & Income Fund (the "Fund"). Shares of
the Fund are offered to a separate account of Hartford Life Insurance
Company.
The Investment objective of the Fund is to seek to provide capital growth,
current income or both. Under normal market conditions, it seeks this
objective by investing primarily in stocks, which may include common stock,
preferred stock, warrants, or debt instruments that are convertible into
common stock.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Listed securities are valued at the closing sales price on that exchange on
the day of computation, or, if there have been no sales during such day, at
the latest bid quotation. Unlisted securities are valued at their latest bid
quotation in their principal market. If no such bid price is available, then
such securities are valued in good faith at their respective fair market
values using methods determined by or under the supervision of the Board of
Trustees. Portfolio securities with a remaining maturity of 60 days or less
are valued either at amortized cost or original cost plus accrued interest,
which approximates current value.
All other assets and securities, including securities for which market
quotations are not readily available, are valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium
or discount. Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS:
The Fund may acquire repurchase agreements from member banks of the Federal
Deposit Insurance Corporation and from registered broker/dealers that Branch
Banking and Trust Company ("BB&T") deems creditworthy under guidelines
approved by the Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase
-Continued-
B-6
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
price generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates, which may be more or less than the
rate on the underlying collateral. The seller, under a repurchase agreement,
is required to maintain the value of collateral held pursuant to the
agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Fund's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements may be considered
to be loans by the Fund under the Act.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid quarterly for the
Fund. Distributable net realized capital gains, if any, are declared and
distributed at least annually.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principals. These differences are primarily
due to differing treatments of foreign currency transactions and deferrals
of certain losses.
FEDERAL INCOME TAXES:
It is the intention of the Fund to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or substantially
all, federal income taxes.
OTHER:
Expenses that are directly related to the Fund are charged directly to the
Fund.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
period from June 3, 1997 (commencement of operations) through June 30, 1997
are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----
<S> <C> <C>
Growth & Income..................................................... $ 5,266,315 --
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Fund by BB&T. Under the
terms of the investment advisory agreement, BB&T is entitled to receive fees
based on a percentage of the average daily net assets of the Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
is an Ohio limited partnership. BISYS Fund Services Ohio, Inc. ("BISYS
Ohio"), and BISYS are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Trust are affiliated,
serves the Trust as Administrator. Such affiliated officers and trustees are
paid no fees directly by the Trust for serving as officers and trustees of
the Trust. Under the terms of the Management and Administration Agreement
between BISYS and the Trust, BISYS's fees are computed daily as a percentage
of the average net assets of the Fund. BISYS also serves as Distributor to
the Fund. BISYS Ohio serves the Fund as transfer agent and mutual fund
accountant.
-Continued-
B-7
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
Fees may be voluntarily reduced to assist the Fund in maintaining
competitive expense ratios.
Information regarding these transactions is as follows for the period ended
June 30, 1997:
<TABLE>
<S> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets) 0.74%
Voluntary fee reductions $ 2,803
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets) 0.20%
Voluntary fee reductions $ 554
EXPENSES REIMBURSED BY BB&T: $ 11,195
TRANSFER AGENT AND MUTUAL FUND ACCOUNTANT
FEES: $ 3,253
</TABLE>
B-8
<PAGE>
VARIABLE INSURANCE FUNDS
- ----------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 3, 1997
THROUGH
JUNE 30,
1997(a)
---------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................................. $ 10.00
-------
Investment Activities
Net investment income.......................................................................... 0.01
Net unrealized gains from investments.......................................................... 0.41
-------
Total from Investment Activities............................................................. 0.42
-------
Distributions
Net investment income.......................................................................... (0.01)
-------
Total Distributions.......................................................................... (0.01)
-------
NET ASSET VALUE, END OF PERIOD................................................................... $ 10.41
-------
-------
Total Return..................................................................................... 4.22%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, at end of period (000)............................................................. $ 5,810
Ratio of expenses to average net assets........................................................ 1.27%(c)
Ratio of net investment income to average net assets........................................... 1.62%(c)
Ratio of expenses to average net assets*....................................................... 4.79%(c)
Ratio of net investment income to average net assets*.......................................... (1.90%)(c)
Portfolio Turnover............................................................................. 0.00%
Average commission rate paid (d)............................................................... $ 0.0622
</TABLE>
- ------------------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by total number of shares purchased and sold by the Fund for which
commissions were charged.
* During the period certain fees were reimbursed and voluntarily reduced. If
such reimbursements and voluntary fee reductions has not occurred, the
ratios would have been as indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
B-9
