As filed with the Securities and Exchange Commission on December 19, 1997
File Nos. 33-81800
811-8644
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 3 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 5 /X/
VARIABLE INSURANCE FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: 1-800-257-5872
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Copies to:
Richard Ille Gregory Maddox
BISYS Fund Services BISYS Fund Services
3435 Stelzer Road 1230 Columbia Street, Suite 500
Columbus, Ohio 43219-3035 San Diego, CA 92101
It is proposed that this filing will become effective (check appropriate
box):
[] immediately upon filing pursuant to paragraph (b)
[X] on December 19, 1997 pursuant to paragraph (b)
[] 60 days after filing pursuant to paragraph (a)(1)
[] On (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[] on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 3 to the Registrant's registration
statement on Form N-1A (File Nos. 33-81800 and 811- 8644) is being filed
pursuant to Registrant's undertaking to file financial statements within four to
six months of the commencement of operation of the BB&T Growth and Income Fund,
the currently effective prospectus describing which is hereby incorporated by
reference from the most recent filing related to the same (File No. 33-81800)
under Rule 497 under the Securities Act of 1933. This amendment does not amend:
(1) the Registrant's currently effective prospectus describing the Variable
Insurance Allocated Conservative Fund, Variable Insurance Allocated Balanced
Fund, Variable Insurance Allocated Growth Fund, Variable Insurance Allocated
Aggressive Fund, Variable Insurance Money Market Fund, BB&T Growth and Income
Fund and BB&T Capital Manager Fund, which is hereby incorporated by reference
from pre-effective amendment no. 2 to Registrant's registration statement (File
Nos. 33-81800 and 811-8644) as filed on May 29, 1997; (2) the currently
effective prospectus describing the AmSouth Regional Equity Fund and the AmSouth
Equity Income Fund, which is hereby incorporated by reference from
post-effective amendment no.2 to Registrant's registration statement (File Nos.
33-81800 and 811-8644) as filed on September 15, 1997; or (3) the currently
effective prospectus describing the AmSouth Equity Income Fund, which is hereby
incorporated by reference from the most recent filing related to the same (File
No. 33-81800) under Rule 497 under the Securities Act of 1933.
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
VARIABLE INSURANCE ALLOCATED CONSERVATIVE FUND
VARIABLE INSURANCE ALLOCATED BALANCED FUND
VARIABLE INSURANCE ALLOCATED GROWTH FUND
VARIABLE INSURANCE ALLOCATED AGGRESSIVE FUND
VARIABLE INSURANCE MONEY MARKET FUND
BB&T GROWTH AND INCOME FUND
BB&T CAPITAL MANAGER FUND
Form N-1A Part A Item Prospectus Caption
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Summary; Fund Expenses
3. Condensed Financial
Information................. Not Applicable
4. General Description of
Registrant.................. Investment Objectives and
Policies; Investment Objectives
and Policies-Underlying Qualivest
Funds; Investment Objectives and
Policies-Underlying BB&T Funds;
Investment Techniques and Risk
Factors; General Information
5. Management of the Fund...... Management of the Funds
5A. Management's Discussion of
Fund Performance............ Not Applicable
6. Capital Stock and Other
Securities.................. Taxation; General Information
7. Purchase of Securities
Being Offered............... Valuation of Shares; Purchasing
Shares; Management of the Funds
8. Redemption or Repurchase.... Redeeming Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
BB&T GROWTH AND INCOME FUND
Form N-1A Part A Item Prospectus Caption
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Summary; Fund Expenses
3. Condensed Financial
Information................. Financial Highlights
4. General Description of
Registrant.................. Investment Objective and
Policies; Investment Techniques
and Risk Factors; General
Information
5. Management of the Fund...... Management of the Fund
5A. Management's Discussion of
Fund Performance............ Not Applicable
6. Capital Stock and Other
Securities.................. Taxation; General Information
7. Purchase of Securities
Being Offered............... Valuation of Shares; Purchasing
Shares; Management of the Fund
8. Redemption or Repurchase.... Redeeming Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
AMSOUTH REGIONAL EQUITY FUND
AMSOUTH EQUITY INCOME FUND
Form N-1A Part A Item Prospectus Caption
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Summary; Fund Expenses
3. Condensed Financial
Information................. Not Applicable
4. General Description of
Registrant.................. Investment Objectives and
Policies; Investment Techniques
and Risk Factors; General
Information
5. Management of the Fund...... Management of the Funds
5A. Management's Discussion of
Fund Performance............ Not Applicable
6. Capital Stock and Other
Securities.................. Taxation; General Information
7. Purchase of Securities
Being Offered............... Valuation of Shares; Purchasing
Shares; Management of the Funds
8. Redemption or Repurchase.... Redeeming Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
AMSOUTH EQUITY INCOME FUND
Form N-1A Part A Item Prospectus Caption
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Summary; Fund Expenses
3. Condensed Financial
Information................. Not Applicable
4. General Description of
Registrant.................. Investment Objectives and
Policies; Investment Techniques
and Risk Factors; General
Information
5. Management of the Fund...... Management of the Funds
5A. Management's Discussion of
Fund Performance............ Not Applicable
6. Capital Stock and Other
Securities.................. Taxation; General Information
7. Purchase of Securities
Being Offered............... Valuation of Shares; Purchasing
Shares; Management of the Funds
8. Redemption or Repurchase.... Redeeming Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
VARIABLE INSURANCE ALLOCATED CONSERVATIVE FUND
VARIABLE INSURANCE ALLOCATED BALANCED FUND
VARIABLE INSURANCE ALLOCATED GROWTH FUND
VARIABLE INSURANCE ALLOCATED AGGRESSIVE FUND
VARIABLE INSURANCE MONEY MARKET FUND
BB&T GROWTH AND INCOME FUND
BB&T CAPITAL MANAGER FUND
AMSOUTH REGIONAL EQUITY FUND
AMSOUTH EQUITY INCOME FUND
Statement of Additional
Form N-1A Part B Item Information Caption
10. Cover Page.................. Cover Page
11. Table of Contents........... Table of Contents
12. General Information and
History..................... Not Applicable
13. Investment Objectives and
Policies.................... Investment Objectives and Policies;
Investment Restrictions
14. Management of the Fund...... Management of the Trust - Trustees
and Officers
15. Control Persons and Principal
Holders of Securities........ Management of the Trust - Trustees
and Officers
16. Investment Advisory and Other
Services.................... Management of the Trust -Investment
Advisers; Management of the Trust -
Custodians, Transfer Agent and Fund
Accounting Services; Management of
the Trust - Auditors
17. Brokerage Allocation........ Management of the Trust - Portfolio
Transactions
<PAGE>
18. Capital Stock and Other
Securities.................. Additional Information -
Description of Shares; Additional
Information - Shareholder and
Trustee Liability
19. Purchase, Redemption and
Pricing of Securities
Being Offered............... Additional Purchase and Redemption
Information
20. Tax Status.................. Additional Information - Additional
Tax Information
21. Underwriters................ Management of the Trust -
Distributor
22. Calculation of Performance
Data........................ Performance Information
23. Financial Statements........ Financial Statements
<PAGE>
VARIABLE INSURANCE FUNDS
BB&T Growth and Income Fund
Supplement dated December 19, 1997
to Prospectus dated June 1, 1997
The following table is added to the Prospectus after the section
captioned "Fund Expenses".
FINANCIAL HIGHLIGHTS
The following table of selected financial information is included to
assist investors in evaluating the performance of the Fund since its
commencement of operations through November 30, 1997. This information
has not been audited, and it should be read in conjunction with the
Trust's financial statements relating to the Fund included in the
Trust's Statement of Additional Information, which is available upon
request and without charge.
<TABLE>
<S> <C>
June 3, 1997
to
For a Share outstanding throughout the period: November 30, 1997(a)
---------------------------------------------- -------------------
Net Asset Value, Beginning of Period $ 10.00
-------------------
Investment Activities:
Net investment income 0.08
Net realized and unrealized gains from investments 1.52
-------------------
Total from investment activities 1.60
-------------------
Distributions:
Net investment income (0.05)
-------------------
Total Distributions (0.05)
-------------------
Net Asset Value, End of Period $ 11.55
===================
Total Return 16.05%(c)
Ratios/Supplementary Data:
Net assets, at end of period (000) 27,081
Ratio of net expenses to average net assets 0.90%(d)
Ratio of net investment income to average net assets 1.80%(d)
Ratio of gross expenses to average net assets* 2.54%(d)
Ratio of gross investment income to average net
assets* 0.16%(d)
Portfolio turnover 2.04%
Average commission rate paid(b) $ 0.0708
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Represents the dollar amount of commission paid on portfolio transactions
divided by total number of shares purchased and sold by the Fund for which
commissions were charged.
(c) Not annualized.
(d) Annualized.
</TABLE>
INVESTORS SHOULD KEEP THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
(800) 257-5872
STATEMENT OF ADDITIONAL INFORMATION
June 1, 1997, as
supplemented September 16, 1997
and December 19, 1997
This Statement of Additional Information ("SAI") describes nine diversified
investment portfolios (the "Funds") of Variable Insurance Funds (the "Trust").
The Funds are:
o Variable Insurance Allocated Conservative Fund;
o Variable Insurance Allocated Balanced Fund;
o Variable Insurance Allocated Growth Fund;
o Variable Insurance Allocated Aggressive Fund;
o Variable Insurance Money Market Fund;
o BB&T Growth and Income Fund;
o BB&T Capital Manager Fund;
o AmSouth Regional Equity Fund; and
o AmSouth Equity Income Fund.
The Trust offers an indefinite number of transferable units ("Shares") of each
Fund. Shares of the Allocated Funds and the Variable Insurance Money Market Fund
currently are sold to a segregated asset account (a "Separate Account") of
Nationwide Life and Annuity Insurance Company ("Nationwide") to serve as the
investment medium for variable annuity contracts ("Variable Contracts") issued
by Nationwide, while Shares of the BB&T Growth and Income Fund, the BB&T Capital
Manager Fund, the AmSouth Regional Equity Fund and the AmSouth Equity Income
Fund currently are sold to a segregated asset account (also a "Separate
Account") of Hartford Life Insurance Company ("Hartford") to serve as the
investment medium for Variable Contracts issued by Hartford. Shares of the Funds
also are sold to qualified pension and retirement plans outside of the separate
account context. The Separate Accounts invest in Shares of the Funds in
accordance with allocation instructions received from owners of the Variable
Contracts ("Variable Contract Owners").
This SAI is not a Prospectus and is authorized for distribution only when
preceded or accompanied by a Prospectus of the Funds, dated or supplemented the
date hereof. This SAI contains more detailed information than that set forth in
the Prospectus and should be read in conjunction with the Prospectus. This SAI
is incorporated by reference in its entirety into each Prospectus. Copies of a
Prospectus may be obtained by writing the Trust at 3435 Stelzer Road, Columbus,
Ohio 43219-3035, or by telephoning toll free (800) 257-5872.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES............................................1
Additional Information on the Allocated Funds' and the Capital
Manager Fund's Investment Policies..................................1
Additional Information on Portfolio Instruments......................2
INVESTMENT RESTRICTIONS......................................................14
Portfolio Turnover..................................................16
NET ASSET VALUE..............................................................16
Valuation of the Money Market Fund..................................17
Valuation of Other Funds............................................17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................18
MANAGEMENT OF THE TRUST......................................................18
Trustees and Officers...............................................18
Investment Advisers.................................................20
Investment Sub-Adviser..............................................22
Portfolio Transactions..............................................23
Glass-Steagall Act..................................................24
Administrator.......................................................25
Expenses............................................................26
Distributor.........................................................26
Custodians, Transfer Agent and Fund Accounting Services.............26
Auditors............................................................27
Legal Counsel.......................................................27
ADDITIONAL INFORMATION.......................................................27
Description of Shares...............................................27
Vote of a Majority of the Outstanding Shares........................28
Principal Shareholders..............................................28
Shareholder and Trustee Liability...................................29
Additional Tax Information..........................................29
Performance Information.............................................31
Miscellaneous.......................................................32
FINANCIAL STATEMENTS.........................................................32
APPENDIX .................................................................... i
<PAGE>
The Trust is an open-end management investment company which currently offers
nine separate diversified Funds, each with different investment objectives. This
SAI contains information about the following five Funds which, along with the
"Underlying Qualivest Funds" described below, are advised by Qualivest Capital
Management, Inc. ("Qualivest"): the Variable Insurance Allocated Conservative
Fund (the "Conservative Fund"), the Variable Insurance Allocated Balanced Fund
(the "Balanced Fund"), the Variable Insurance Allocated Growth Fund (the "Growth
Fund"), the Variable Insurance Allocated Aggressive Fund (the "Aggressive Fund")
(collectively, the "Allocated Funds"), and Variable Insurance Money Market Fund
(the "Money Market Fund"). This SAI also contains information about the
following two Funds which, along with the "Underlying BB&T Funds" described
below, are advised by Branch Banking and Trust Company ("BB&T"): the BB&T Growth
and Income Fund (the "Growth and Income Fund") and the BB&T Capital Manager Fund
(the "Capital Manager Fund"). In addition, this SAI contains information about
the AmSouth Regional Equity Fund (the "Regional Equity Fund"), which is advised
by AmSouth Bank ("AmSouth"), and the AmSouth Equity Income Fund ("Equity Income
Fund"), which is advised by AmSouth, with Rockhaven Asset Management, LLC
("Rockhaven") serving as sub-adviser.
Much of the information contained in this SAI expands upon subjects discussed in
the Prospectuses of the nine Funds described above. Capitalized terms not
defined herein are defined in such Prospectuses. No investment in a Fund should
be made without first reading the Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on the Allocated Funds' and the Capital Manager Fund's
Investment Policies
Each Allocated Fund seeks its investment objective by investing in a diversified
portfolio of one or more of the following funds (the "Underlying Qualivest
Funds"), all of which are series of Qualivest Funds, an affiliated open-end
management investment company: the Qualivest Large Companies Value Fund (the
"Qualivest Large Companies Fund"), the Qualivest Small Companies Value Fund (the
"Qualivest Small Companies Fund"), the Qualivest International Opportunities
Fund (the "Qualivest International Fund"), and the Qualivest Optimized Stock
Fund (the "Qualivest Optimized Fund") (collectively, the "Qualivest Equity
Funds"); the Qualivest Intermediate Bond Fund and the Qualivest Diversified Bond
Fund (the "Qualivest Bond Fund") (collectively, the "Qualivest Income Funds");
and the Qualivest U.S. Treasury Money Market Fund (the "Qualivest U.S. Treasury
Fund") and the Qualivest Money Market Fund (collectively, the "Qualivest Money
Funds"). Accordingly, the investment performance of each Allocated Fund is
directly related to the performance of the Underlying Qualivest Funds, which may
engage in the investment techniques described below. The Capital Manager Fund
seeks its investment objective by investing in a diversified portfolio of one or
more of the following funds (the "Underlying BB&T Funds" and collectively with
the Underlying Qualivest Funds, the "Underlying Funds") all of which are series
of The BB&T Mutual Funds Group, another affiliated open-end management
investment company: the BB&T Growth and Income Stock Fund (the "BB&T Growth and
Income Fund"), the BB&T Balanced Fund, the BB&T Small Company Growth Fund, the
BB&T International Equity Fund, the BB&T Short-Intermediate U.S. Government
Income Fund (the "BB&T Short-Intermediate Fund"), the BB&T Intermediate U.S.
Government Bond Fund (the "BB&T Intermediate Bond Fund"), and the BB&T U.S.
Treasury Money Market Fund (the "BB&T U.S. Treasury Fund"). Accordingly, the
investment performance of the Capital Manager Fund is directly related to the
performance of the Underlying BB&T Funds, which may engage in the investment
techniques described below. In addition to shares of the Underlying Funds, for
temporary cash management purposes, each Allocated Fund and the Capital Manager
Fund may invest in short-term obligations (with maturities of 12 months or less)
consisting of commercial paper (including variable amount master demand notes)
and obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. These investments are described below under "Additional
Information on Portfolio Instruments."
<PAGE>
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and policies of the
Funds and the Underlying Funds as set forth in the Prospectuses.
General. The Money Market Fund, Qualivest Equity Funds, Qualivest Income Funds
and Qualivest Money Funds will not acquire portfolio securities issued by, make
savings deposits in, or enter into repurchase, reverse repurchase, or dollar
roll agreements with affiliates of the Qualivest Funds, except that the
Qualivest Optimized Fund may invest in such securities if they are included in
the S&P 500 Index.
Bank Obligations. The Money Market Fund, the Growth and Income Fund, the
Regional Equity Fund, the Equity Income Fund and the Underlying Funds may invest
in bank obligations consisting of bankers' acceptances, certificates of deposit,
and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Bankers' acceptances invested in by
the Funds and the Underlying Funds will be those guaranteed by domestic and
foreign banks having, at the time of investment, capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those 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.
The Money Market Fund, the Regional Equity Fund, the Equity Income Fund and the
Underlying Qualivest Funds may also invest in Eurodollar Certificates of
Deposit, which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States; Yankee
Certificates of Deposit, which are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; and Canadian Time
Deposits, which are basically the same as ETDs except they are issued by
Canadian offices of major Canadian banks.
2
<PAGE>
Commercial Paper. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Variable Amount Master Demand Notes. Variable amount master demand notes, in
which the Funds and the Underlying Funds (except for the BB&T U.S. Treasury
Fund) may invest, are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Because master demand notes are direct
lending arrangements between a Fund or Underlying Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
or Underlying 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. Qualivest, BB&T, AmSouth and any
sub-adviser each 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. In determining dollar
weighted average portfolio maturity, a variable amount master demand note will
be deemed to have a maturity equal to the longer of the period of time remaining
until the next interest rate adjustment or the period of time remaining until
the principal amount can be recovered from the issuer through demand.
Foreign Investments. 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.
Because foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a U.S. company. Volume and liquidity in most
foreign bond markets are less than in the U.S., and securities of many foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on U.S. exchanges, although a Fund or an
Underlying Fund will endeavor to achieve the most favorable net results on
portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers, dealers and listed companies than
in the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement procedures, and in
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Such delays in settlement could result in temporary periods
when a portion of the assets of a Fund or Underlying Fund investing in foreign
markets is uninvested and no return is earned thereon. The inability of such a
Fund or Underlying Fund to make intended security purchases due to settlement
problems could cause the Fund or Underlying Fund to miss attractive investment
opportunities. Losses to a Fund or Underlying Fund due to subsequent declines in
the value of portfolio securities, or losses arising out of an inability to
fulfill a contract to sell such securities, could result in potential liability
to the Fund or Underlying Fund. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
the investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
3
<PAGE>
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Finally, in the event of a default of any such foreign debt
obligations, it may be more difficult to obtain or to enforce a judgment against
the issuers of such securities.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of securities
denominated in that currency. Such changes will also affect the income and
distributions to Shareholders of a Fund or an Underlying Fund investing in
foreign markets. In addition, although the a Fund or Underlying Fund will
receive income on foreign securities in such currencies, it will be required to
compute and distribute income in U.S. dollars. Therefore, if the exchange rate
for any such currency declines materially after income has been accrued and
translated into U.S. dollars, a Fund or Underlying Fund could be required to
liquidate portfolio securities to make required distributions. Similarly, if an
exchange rate declines between the time a Fund or Underlying Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater.
In general, there is a large, liquid market in the United States for many
American Depository Receipts ("ADRs"). The information available for ADRs is
subject to the accounting, auditing and financial reporting standards of the
domestic market or exchange on which they are traded, which standards are more
uniform and more exacting than those to which many foreign issuers may be
subject. Certain ADRs, typically those denominated as unsponsored, require the
holders thereof to bear most of the costs of such facilities, while issuers of
sponsored facilities normally pay more of the costs thereof. The depository of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through the voting rights to facility holders with respect to the
deposited securities, whereas the depository of a sponsored facility typically
distributes shareholder communications and passes through the voting rights.
Variable and Floating Rate Notes. The Money Market Fund and the Qualivest Money
Funds may acquire variable and floating rate notes, subject to the investment
objective, policies and restrictions applicable to each. A variable rate note is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate note is one whose terms provide
for the adjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such notes are frequently not rated by
credit rating agencies; however, unrated variable and floating rate notes will
be determined by Qualivest, under guidelines established by the Board of
Trustees of the Trust or Qualivest Funds, as appropriate, to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
the Money Market Fund's investment policies. In making such determinations, the
investment adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Money
Market Fund or Underlying Fund, it may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Money Market Fund or Underlying Fund to dispose of a variable
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Money Market Fund or Underlying Fund could, as a
result or for other reasons, suffer a loss to the extent of the default. To the
extent that the Money Market Fund or Underlying Fund is not entitled to receive
the principal amount of a note within seven days, such note will be treated as
an illiquid security for purposes of calculation of the limitation on investment
in illiquid securities as set forth in the Fund or Underlying Fund's investment
restrictions. Variable or floating rate notes may be secured by bank letters of
credit.
4
<PAGE>
Variable or floating rate notes invested in by the Money Market Fund or the
Qualivest Money Funds may have maturities of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the U.S. Government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 397 days will be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in 397 days or less, will be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature will be deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand.
As used above, a note is "subject to a demand feature" where the Money Market
Fund or an Underlying Fund is entitled to receive the principal amount of the
note either at any time on no more than 30 days' notice or at specified
intervals not exceeding 397 days.
Money Market Funds. Each of the Growth and Income Fund, the Regional Equity
Fund, the Equity Income Fund, the Qualivest Equity Funds, the Qualivest Income
Funds, and the Underlying BB&T Funds (except for the BB&T U.S. Treasury Fund)
may invest up to 5% of the value of its total assets in the securities of any
one money market fund (including shares of certain affiliated money market funds
pursuant to an order from the Securities and Exchange Commission), provided that
no more than 10% of such Fund's total assets may be invested in the securities
of money market funds in the aggregate. The Money Market Fund and each of the
Qualivest Money Funds may invest up to 25% of its total assets in the securities
of money market funds.
In order to avoid the imposition of additional fees as a result of investments
by the Growth and Income Fund, the Regional Equity Fund, the Equity Income Fund,
the Qualivest Equity Funds, the Qualivest Income Funds, and the Underlying BB&T
Funds (except for the BB&T U.S. Treasury Fund) in shares of affiliated money
market funds, Qualivest, BB&T, AmSouth, Rockhaven, BISYS Fund Services ("BISYS"
or "Distributor" or "Administrator"), and their affiliates will not retain any
portion of their usual service fees from the Funds that are attributable to
investments in shares of the affiliated money market funds. No sales charges,
contingent deferred sales charges, 12b-1 fees, or other underwriting or
distribution fees will be incurred in connection with their investments in the
affiliated money market funds. These Funds will vote their shares of each of the
affiliated money market funds in proportion to the vote by all other
shareholders of such fund. Moreover, no single Fund or Underlying Fund may own
more than 3% of the outstanding shares of a single affiliated money market fund.
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U.S. Government Obligations. The BB&T U.S. Treasury Fund may invest in U.S.
Government securities to the extent that they are obligations issued or
guaranteed by the U.S. Treasury. The Money Market Fund, the Growth and Income
Fund, the Regional Equity Fund, the Equity Income Fund, and each of the other
Underlying Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, including bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" U.S. Treasury obligations
such as Treasury Receipts issued by the U.S. Treasury representing either future
interest or principal payments. 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 stripped Treasury obligations in which the Funds and
Underlying Funds may invest do not include Certificates of Accrual on Treasury
Securities ("CATS") or Treasury Income Growth Receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the
creditworthiness 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. Each Fund or
Underlying Fund will invest in the obligations of such agencies or
instrumentalities only when Qualivest, BB&T, AmSouth, or a sub-adviser believes
that the credit risk with respect thereto is minimal.
Options Trading. The Growth and Income Fund, the Qualivest Equity Funds, the
Qualivest Income Funds, the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund may purchase put and call options. The Regional Equity
Fund and the Equity Income Fund may write (sell) "covered" call options and
purchase options to close out options previously written by it. A call option
gives the purchaser the right to buy, and a writer has the obligation to sell,
the underlying security or foreign currency at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price or
exchange rate of the security or foreign currency, as the case may be. The
premium paid to the writer is consideration for undertaking the obligations
under the option contract. A put option gives the purchaser the right to sell
the underlying security or foreign currency at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
or exchange rate of the security or foreign currency, as the case may be. Put
and call options will be valued at the last sale price, or in the absence of
such a price, at the mean between bid and asked price.
When a Fund or Underlying Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund or Underlying
Fund is included in the liability section of its statement of assets and
liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date, or if a Fund or Underlying
Fund enters into a closing purchase transaction, it will realize a gain (or a
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option is exercised, the Fund or Underlying Fund may
deliver the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received
and the Fund or Underlying Fund will realize a gain or loss.
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The Regional Equity Fund and the Equity Income Fund may write only covered call
options. This means that the Regional Equity Fund and the Equity Income Fund
will only write a call option on a security which it already owns. Such options
must be listed on a national securities exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional premium income for these Funds. This premium income will serve to
enhance the Fund's total return and will reduce the effect of any price decline
of the security involved in the option. Covered call options will generally be
written on securities which, in AmSouth's or Rockhaven's opinion, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for the Fund. Under normal
conditions, it is not expected that the Regional Equity Fund or the Equity
Income Fund will cause the underlying value of portfolio securities and/or
currencies subject to such options to exceed 25% of its total assets.
Once the decision to write a call option has been made, AmSouth or Rockhaven, in
determining whether a particular call option should be written on a particular
security, will consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those options. Closing
transactions will be effected in order to realize a profit on an outstanding
call option, to prevent an underlying security from being called, or to permit
the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that the Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Regional Equity Fund and the Equity Income Fund will
normally have expiration dates of less than nine months from the date written.
The exercise price of the options may be below, equal to, or above the current
market values of the underlying securities at the time the options are written.
From time to time, a Fund may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security from its portfolio. In such cases, additional costs
will be incurred. A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
The Qualivest Equity Funds, the Qualivest Income Funds, and the BB&T
International Equity Fund also may purchase or sell index options. Index options
(or options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
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When-Issued and Delayed-Delivery Securities. The Money Market Fund, the Growth
and Income Fund, the Regional Equity Fund, the Equity Income Fund, and the
Underlying Funds (except the BB&T U.S. Treasury Fund) may purchase securities on
a "when-issued" or "delayed-delivery" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When a Fund or Underlying
Fund agrees to purchase securities on a "when-issued" or "delayed-delivery"
basis, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Normally, the custodian will set
aside securities to satisfy the purchase commitment, and in such a case, the
Fund or Underlying Fund may be required subsequently to place additional assets
in the separate account in order to assure that the value of the account remains
equal to the amount of its commitment. It may be expected that a Fund or
Underlying Fund investing in securities on a when-issued or delayed delivery
basis, net assets will fluctuate to a greater degree when it sets aside
securities to cover such purchase commitments than when it sets aside cash. In
addition, because the Fund or Underlying Fund will set aside cash or liquid
securities to satisfy its purchase commitments in the manner described above,
its liquidity and the ability of its investment adviser to manage it might be
affected in the event its commitments to purchase "when-issued" or
"delayed-delivery" securities ever exceeded 25% of the value of its assets.
Under normal market conditions, however, the Fund or Underlying Fund's
commitment to purchase "when-issued" or "delayed-delivery" securities will not
exceed 25% of the value of each Fund or Underlying Fund's total assets.
When a Fund or Underlying Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund or Underlying Fund incurring a loss or
missing the opportunity to obtain a price considered to be advantageous.
Mortgage-Related Securities. The Money Market Fund, the Growth and Income Fund,
the Regional Equity Fund, the Equity Income Fund, the Underlying Qualivest Funds
(except the Qualivest Optimized Fund and the Qualivest International Fund), the
BB&T Short-Intermediate Fund, the BB&T Intermediate Bond Fund, the BB&T Balanced
Fund, and the BB&T Small Company Growth Fund each may consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities. In
addition, each may invest in mortgage-related securities issued by
nongovernmental entities, provided, however, that to the extent the Fund or
Underlying Fund purchases mortgage-related securities from such issuers which
may, solely for purposes of the Investment Company Act of 1940, as amended
("1940 Act"), be deemed to be investment companies, the Fund or Underlying
Fund's investment in such securities will be subject to the limitations on its
investment in investment company securities.
Mortgage-related securities, for purposes of the Funds' Prospectus and this SAI,
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies such as the Government National Mortgage Association
("GNMA") and government-related organizations such as the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If a Fund or Underlying Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. When interest rates are rising, though, the rate
of prepayment tends to decrease, thereby lengthening the period of time over
which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return. In addition, regular payments received
in respect of mortgage-related securities include both interest and principal.
No assurance can be given as to the return the Funds or Underlying Funds will
receive when these amounts are reinvested.
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There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA and are not backed by or entitled to
the full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to the timely payment of the principal and interest by FNMA. Mortgage-related
securities issued by FHLMC include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to the timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or the timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Restricted Securities. "Section 4(2) securities" are securities which are issued
in reliance on the "private placement" exemption from registration which is
afforded by Section 4(2) of the Securities Act of 1933 (the "1933 Act"). The
Money Market Fund, the BB&T U.S. Treasury Fund, and each Qualivest Money Fund
will not purchase Section 4(2) securities which have not been determined to be
liquid in excess of 10% of its net assets. The Growth and Income Fund, the
Regional Equity Fund, the Equity Income Fund, the Underlying BB&T Funds other
than the BB&T U.S. Treasury Fund, and each Qualivest Equity Fund and Qualivest
Income Fund will not purchase section 4(2) securities which have not been
determined to be liquid in excess of 15% of its net assets. Qualivest, BB&T,
AmSouth, Rockhaven and each sub-adviser to an Underlying BB&T Fund has been
delegated the day-to-day authority to determine whether a particular issue of
Section 4(2) securities that are eligible for resale under Rule 144A under the
1933 Act should be treated as liquid. Rule 144A provides a safe-harbor exemption
from the registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in Rule 144A. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
Qualivest, BB&T, AmSouth, Rockhaven or any other sub-adviser may deem Section
4(2) securities liquid if it believes that, based on the trading markets for
such security, such security can be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund or
Underlying Fund has valued the security. In making such determination, the
following factors, among others, may be deemed relevant: (i) the credit quality
of the issuer; (ii) the frequency of trades and quotes for the security; (iii)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security; and (v) the nature of the security and the nature of market-place
trades.
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Treatment of Section 4(2) securities as liquid could have the effect of
decreasing the level of a Fund's or Underlying Fund's liquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Medium-Grade Debt Securities. The Regional Equity Fund, the Equity Income Fund,
Qualivest Large Companies Fund, the Qualivest Small Companies Fund, and each of
the Qualivest Income Funds may invest in debt securities which are within the
fourth highest rating group assigned by an NRSRO (e.g., including securities
rated BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's Investors
Service, Inc. ("Moody's")) or, if not rated, are determined to be of comparable
quality ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are subject to
credit risk and market risk. Market risk relates to changes in a security's
value as a result of changes in interest rates. Credit risk relates to the
ability of the issuer to make payments of principal and interest. Medium-Grade
Securities are considered by Moody's to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk than
comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets where the
number of potential purchasers and sellers, if any, is limited, the ability of
the Regional Equity Fund, the Equity Income Fund or the Underlying Qualivest
Funds to sell such securities at their fair market value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special concerns. The
prices of payment-in-kind or zero-coupon securities may react more strongly to
changes in interest rates than the prices of other Medium-Grade Securities. Some
Medium-Grade Securities in which the Regional Equity Fund, the Equity Income
Fund and the Underlying Qualivest Funds may invest may be subject to redemption
or call provisions that may limit increases in market value that might otherwise
result from lower interest rates while increasing the risk that the Regional
Equity Fund, the Equity Income Fund or the Underlying Qualivest Funds may be
required to reinvest redemption or call proceeds during a period of relatively
low interest rates.
The credit ratings issued by nationally recognized statistical rating
organizations ("NRSROs") are subject to various limitations. For example, while
such ratings evaluate credit risk, they ordinarily do not evaluate the market
risk of Medium-Grade Securities. In certain circumstances, the ratings may not
reflect in a timely fashion adverse developments affecting an issuer. For these
reasons, Qualivest, AmSouth and Rockhaven conduct their own independent credit
analysis of Medium-Grade Securities.
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High Yield Securities. The Equity Income Fund may invest in high yield
convertible securities. High yield securities are securities that are rated
below investment grade by an NRSRO (e.g., "BB" or lower by S&P and "Ba" or lower
by Moody's). Other terms used to describe such securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds." Generally, lower rated
securities provide a higher yield than higher rated securities of similar
maturity, but are subject to a greater degree of risk with respect to the
ability of the issuer to meet its principal and interest obligations. Issuers of
high yield securities may not be as strong financially as those issuing higher
rated securities. The securities are regarded as predominantly speculative. The
market value of high yield securities may fluctuate more than the market value
of higher rated securities, since high yield securities tend to reflect
short-term corporate and market developments to a greater extent than higher
rated securities, which fluctuate primarily in response to the general level of
interest rates, assuming that there has been no change in the fundamental
interest rates, assuming that there has been no change in the fundamental
quality of such securities. The market prices of fixed income securities
generally fall when interest rates rise. Conversely, the market prices of fixed
income securities generally rise when interest rates fall.
Additional risks of high yield securities include limited liquidity and
secondary market support. As a result, the prices of high yield securities may
decline rapidly in the event that a significant number of holders decide to
sell. Changes in expectations regarding an individual issuer, an industry or
high yield securities generally could reduce market liquidity for such
securities and make their sale by the Equity Income Fund more difficult, at
least in the absence of price concessions. Reduced liquidity also could
adversely affect the Equity Income Fund's ability to accurately value high yield
securities. Issuers of high yield securities also are more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Equity Income
Fund would experience a reduction of its income and could expect a decline in
the market value of the defaulted securities.
Guaranteed Investment Contracts. When investing in Guaranteed Investment
Contracts ("GICs"), the Money Market Fund and each of the Qualivest Income Funds
and the Qualivest Money Funds make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Qualivest Income Funds may invest in GICs without regard to the
ratings, if any, assigned to the issuing insurance companies' outstanding debt
securities. The Money Market Fund and Qualivest Money Funds may invest in GICs
issued by insurance companies whose outstanding debt securities are rated in the
first two rating categories by an NRSRO or, if not rated, that Qualivest deems
to be of comparable quality. Because the principal amount of a GIC may not be
received from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment, and, together with other instruments which
are deemed to be illiquid, will not exceed the Money Market Fund's or an
Underlying Qualivest Fund's restriction on investment in illiquid securities. In
determining average weighted portfolio maturity, GICs will be deemed to have a
maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
Repurchase Agreements. Securities held by the Money Market Fund, the Growth and
Income Fund, the Regional Equity Fund, the Equity Income Fund and the Underlying
Funds (except the Qualivest U.S. Treasury Fund) may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund or Underlying Fund
would acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers that Qualivest, BB&T, AmSouth or
Rockhaven 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. If the seller were to default on its repurchase
obligation or become insolvent, a Fund or Underlying Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement. Securities subject to repurchase agreements will be held by the
relevant Fund's or Underlying Fund's custodian or another qualified custodian,
as appropriate, or in the Federal Reserve/Treasury book-entry system.
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Futures Contracts. The Growth and Income Fund, the Qualivest Equity Funds, the
Qualivest Income Funds, the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund may enter into futures contracts. This investment
technique is designed primarily to hedge against anticipated future changes in
market conditions or foreign exchange rates which otherwise might adversely
affect the value of securities which a Fund or Underlying Fund holds or intends
to purchase. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, a Fund or an Underlying
Fund can seek through the sale of futures contracts to offset a decline in the
value of its portfolio securities. When interest rates are expected to fall or
market values are expected to rise, a Fund or Underlying Fund, through the
purchase of such contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund or an Underlying Fund the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercise of the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund or an Underlying
Fund to segregate liquid assets, such as cash, U.S. Government securities or
other liquid securities to cover its obligation under such contracts. A Fund or
an Underlying Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities and foreign currencies, limiting the Fund's ability to hedge
effectively against interest rate, foreign exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
Forward Foreign Currency Exchange Contracts. The Regional Equity Fund, the
Equity Income Fund, the Qualivest Equity Funds (other than the Qualivest
Optimized Fund) and the BB&T International Equity Fund may engage in foreign
currency exchange transactions. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days ("Term") from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers.
No Underlying Fund intends to enter into such forward contracts if it would have
more than 10% of the value of its total assets committed to such contracts on a
regular or continuous basis. An Underlying Fund also will not enter into such
forward contracts or maintain a net exposure in such contracts where it would be
obligated to deliver an amount of foreign currency in excess of the value of
such Underlying Fund's securities or other assets denominated in that currency.
An Underlying Fund's custodian bank segregates cash or liquid securities in an
amount not less than the value of the Underlying Fund's total assets committed
to forward foreign currency exchange contracts entered into for the purchase of
a foreign security. If the value of the securities segregated declines,
additional cash or securities are added so that the segregated amount is not
less than the amount of such Underlying Fund's commitments with respect to such
contracts. The Underlying Funds generally do not enter into a forward contract
with a Term longer than one year.
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Foreign Currency Options. A foreign currency option provides the Growth and
Income Fund, Qualivest Large Companies Fund, Qualivest Small Companies Fund,
Qualivest International Fund, BB&T Small Company Growth Fund, or BB&T
International Equity Fund, as the option buyer, with the right to buy or sell a
stated amount of foreign currency at the exercise price at a specified date or
during the option period. A call option gives its owner the right, but not the
obligation, to buy the currency, while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of the option sold if it is exercised. However,
either seller or buyer may close its position during the option period in the
secondary market for such options any time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect a Fund or Underlying Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if a Fund or Underlying Fund were holding securities denominated in an
appreciating foreign currency and had purchased a foreign currency put to hedge
against a decline in the value of the currency, it would not have to exercise
its put. Similarly, if a Fund or Underlying Fund has entered into a contract to
purchase a security denominated in a foreign currency and had purchased a
foreign currency call to hedge against a rise in the value of the currency but
instead the currency had depreciated in value between the date of purchase and
the settlement date, such Fund or Underlying Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
Foreign Currency Futures Transactions. As part of its financial futures
transactions, the Growth and Income Fund, each Qualivest Equity Fund (except the
Qualivest Optimized Fund), the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund may use foreign currency futures contracts and options
on such futures contracts. Through the purchase or sale of such contracts, a
Fund or Underlying Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and may be traded on boards of trade and
commodities exchanges or directly with a dealer which makes a market in such
contracts and options. It is anticipated that such contracts may provide greater
liquidity and lower cost than forward foreign currency exchange contracts.
Regulatory Restrictions. As required by the Securities and Exchange Commission,
when purchasing or selling a futures contract or writing a put or call option or
entering into a forward foreign currency exchange purchase, a Fund or an
Underlying Fund will maintain in a segregated account cash or liquid securities
equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being classified as a "commodity pool
operator," a Fund or an Underlying Fund will not enter into a futures contract
or purchase an option thereon if immediately thereafter the initial margin
deposits for futures contracts held by such Fund plus premiums paid by it for
open options on futures would exceed 5% of such Fund's total assets. Such Fund
or Underlying Fund will not engage in transactions in financial futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the values of securities which
such Fund holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 25% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash or
high quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.
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<PAGE>
INVESTMENT RESTRICTIONS
Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding Shares. In addition,
the following investment restrictions may be changed with respect to a
particular Fund only by a vote of a majority of the outstanding Shares of that
Fund (as defined under "ADDITIONAL INFORMATION -- Vote of a Majority of the
Outstanding Shares" in this SAI).
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit or bankers' acceptances
issued by United States branches of domestic banks (for the Money Market Fund),
and repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; (c) an Allocated
Fund and the Capital Manager Fund may invest more than 25% of its total assets
in investment companies, or portfolios thereof, that are Underlying Funds of
such Fund; and (d) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry.
2. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, or the Fund
would hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of a Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. In addition, there is no limit to the percentage of assets
that an Allocated Fund or the Capital Manager Fund may invest in any investment
company;
3. Borrow money or issue senior securities, except that a Fund may
borrow from banks or brokers, in amounts up to 10% of the value of its total
assets at the time of such borrowing. A Fund will not purchase securities while
its borrowings exceed 5% of its total assets;
4. Make loans, except that a Fund may purchase or hold debt
instruments and lend portfolio securities (in an amount not to exceed one-third
of its total assets), in accordance with its investment objective and policies,
make time deposits with financial institutions and enter into repurchase
agreements;
5. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
6. Purchase or sell commodities or commodities contracts, except to
the extent disclosed in the current Prospectus of the Fund; and
14
<PAGE>
7. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein, or in Underlying Funds investing in such
securities, are not prohibited by this restriction).
Irrespective of investment restriction number 2 above and pursuant to Rule 2a-7
under the 1940 Act, the Money Market Fund will, with respect to 100% of its
total assets, limit its investment in the securities of any one issuer in the
manner provided by such Rule.
The following additional investment restrictions are not fundamental policies
and therefore may be changed without the vote of a majority of the outstanding
Shares of a Fund. None of the Funds may:
1. Engage in any short sales (except for short sales "against the
box");
2. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, (b) to
the extent permitted by the 1940 Act or pursuant to any exemptions therefrom,
and (c) as consistent with the investment policies of an Allocated Fund or the
Capital Manager Fund;
3. Mortgage or hypothecate the Fund's assets in excess of one-third
of the Fund's total assets; and
4. Purchase or otherwise acquire any securities if, as a result,
more than 15% (10% of the case of the Money Market Fund) of the Fund's net
assets would be invested in securities that are illiquid.
If any percentage restriction described above is satisfied at the time of
purchase, a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
However, should a change in net asset value or other external events cause a
Fund's investments in illiquid securities to exceed the limitation set forth in
such Fund's Prospectus, that Fund will act to cause the aggregate amount of
illiquid securities to come within such limit as soon as reasonably practicable.
In such an event, however, that Fund would not be required to liquidate any
portfolio securities where the Fund would suffer a loss on the sale of such
securities.
Due to the investment policies of the Allocated Funds and the Capital Manager
Fund, each of these Funds will concentrate more than 25% of its total assets in
the investment company industry. However, no Underlying Fund in which such Funds
invest will concentrate more than 25% of its total assets in any one industry.
15
<PAGE>
Portfolio Turnover
Changes may be made in a Fund's portfolio consistent with the investment
objective and policies of the Fund whenever such changes are believed to be in
the best interests of the Fund and its Shareholders. The portfolio turnover
rates for all of the Funds may vary greatly from year to year as well as within
a particular year, and may be affected by cash requirements for redemptions of
Shares and by requirements which enable the Funds to receive certain favorable
tax treatments. High portfolio turnover rates will generally result in higher
transaction costs to a Fund, including brokerage commissions.
The portfolio turnover rate of each Allocated Fund and Capital Manager Fund is
expected to be low, as such Fund will purchase or sell shares of the Underlying
Qualivest Funds or Underlying BB&T Funds, respectively, to (i) accommodate
purchases and sales of such Fund's Shares, and (ii) change the percentage of its
assets invested in each Underlying Fund in which it invests in response to
market conditions. The Growth and Income Fund, the Regional Equity Fund and the
Equity Income Fund will be managed without regard to its portfolio turnover
rate. It is anticipated that the annual portfolio turnover rate for an
Underlying Fund normally will not exceed the amount stated in such Fund's
Prospectus.
The portfolio turnover rate for each of the Funds is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the securities. The Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less.
NET ASSET VALUE
The net asset value of each Fund is determined and the Shares of each Fund are
priced as of the Valuation Times on each Business Day of the Trust. A "Business
Day" is a day on which the New York Stock Exchange ("NYSE") is open for trading,
and any other day (other than a day on which there are insufficient changes in
the value of a Fund's portfolio securities to materially affect the Fund's net
asset value or days on which no Shares of the Fund 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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
16
<PAGE>
Valuation of the Money Market Fund
The Money Market Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if it sold the instrument. The value
of securities in this Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a dollar-weighted
average maturity appropriate for its objective of maintaining a stable net asset
value per Share, provided that the Money Market Fund will not purchase any
security with a remaining maturity of more than 397 days (thirteen months)
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average maturity which exceeds 90 days. The Board of
Trustees has also undertaken to establish procedures reasonably designed, taking
into account current market conditions and the investment objective of this
Fund, to stabilize the net asset value per share of the Money Market Fund for
purposes of sales and redemptions at $1.00. These procedures include review by
the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share of the Fund calculated by
using available market quotations deviates from $1.00 per Share. In the event
such deviation exceeds one-half of one percent, Rule 2a-7 requires that the
Board of Trustees promptly consider what action, if any, should be initiated. If
the Trustees believe that the extent of any deviation from the Money Market
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, they will take such steps as
they consider appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the dollar-weighted
average maturity, withholding or reducing dividends, reducing the number of the
Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share determined by using available market
quotations.
Valuation of Other Funds
Portfolio securities, the principal market for which is a securities exchange,
will be 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. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. If no such bid price is available, then such securities will
be valued in good faith at their respective fair market values using methods
determined by or under the supervision of the Board of Trustees. Foreign
securities are valued based on quotations from the primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. Portfolio securities with a remaining maturity of 60
days or less will be 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, will be valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees.
17
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Shares of each Fund are sold on a continuous basis by the Distributor, and
the Distributor has agreed to use appropriate efforts to solicit all purchase
orders. The public offering price of Shares of the Funds is their net asset
value per Share.
The Trust may suspend the right of redemption or postpone the date of payment
for Shares during any period when (a) trading on the NYSE is restricted by
applicable rules and regulations of the Securities and Exchange Commission, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the Securities and Exchange Commission has by order permitted such suspension,
or (d) an emergency exists as a result of which (i) disposal by the Trust of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Trust to determine the fair market value of its net assets.
Variable Contract Owners do not deal directly with the Funds to purchase,
redeem, or exchange Shares, and Variable Contract Owners should refer to the
prospectus for the applicable Separate Account for information on the allocation
of premiums and on transfers of accumulated value among sub-accounts of the
pertinent Separate Account that invests in the Funds.
Each Fund reserves the right to discontinue offering Shares at any time. In the
event that a Fund ceases offering its Shares, any investments allocated to the
Fund will, subject to any necessary regulatory approvals, be invested in another
portfolio of the Trust deemed appropriate by the Trustees.
MANAGEMENT OF THE TRUST
Trustees and Officers
Overall responsibility for management of the Trust rests with its Board of
Trustees, who are elected by the Shareholders of the Trust. The Trustees elect
the officers of the Trust to supervise actively its day-to-day operations.
The names of the Trustees, their addresses, ages, and principal occupations
during the past five years are set forth below:
Principal Occupation During
Name, Address, and Age Past 5 Years
- ---------------------- --------------------------
James H. Woodward Chancellor, University of North
University of North Carolina Carolina at Charlotte.
at Charlotte
Charlotte, NC 28223
Age: 57
Michael Van Buskirk Chief Executive Officer, Ohio Bankers
37 West Broad Street Association (industry trade association).
Suite 1001
Columbus, OH 43215
Age: 50
Walter B. Grimm* Employee of BISYS Fund Services
3435 Stelzer Road (6/92-present); President, Leigh
Columbus, Oh 43219 Investments (investment firm)
Age: 50 (7/87-6/92).
* Mr. Grimm is an "interested person" of the Trust as that term is defined in
the 1940 Act.
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<PAGE>
The Trust pays each Trustee who is not an employee of BISYS or its affiliates a
retainer fee at the rate of $500 per calendar quarter, reasonable out-of-pocket
expenses, $500 for each regular meeting of the Board of Trustees attended in
person, and $250 for each regular meeting of the Board of Trustees attended by
telephone. The Trust also pays each such Trustee $500 for each special meeting
of the Board of Trustees attended in telephone, and $250 for each special
meeting of the Board of Trustees attended by telephone. For the fiscal year
ending December 31, 1997, the Trust anticipates paying the following
compensation to the Trustees of the Trust:
Aggregate Compensation Total Compensation from
Name from Trust* Trust and Fund Complex**
James H. Woodward $3,000 $ 12,000
Michael Van Buskirk $3,000 $ 3,000
Walter B. Grimm $0 $ 0
* The Trust does not accrue pension or retirement benefits as part of Fund
expenses, and Trustees of the Trust are not entitled to benefits upon
retirement from the Board of Trustees.
** The Fund Complex consists of the Trust, Qualivest Funds, the Tax-Free Trust
of Oregon, The BB&T Mutual Funds Group and AmSouth Mutual Funds.
The officers of the Trust, their addresses, ages, and principal occupations
during the past five years are as follows (unless otherwise indicated, the
address of each officer is 3435 Stelzer Road, Columbus, OH 43219):
<TABLE>
<S> <C> <C>
Position(s) Held Principal Occupation
Name and Address With the Trust During Past 5 Years
- ---------------- ---------------- -------------------
Richard Ille President and Chief Employee of BISYS Fund
Age: 33 Executive Officer Services (7/90 - present).
Walter Grimm Vice President Employee of BISYS Fund
Age: 50 Services (6/92-present);
President, Leigh Investments
(investment firm)(7/87-6/92).
Carl Juckett Vice President Employee of BISYS Services
Age: 42 (7/94 - present); Manager,
Broker/Dealer and Investment
Accounting Systems,
Huntington Bank(1/89 - 7/94).
Frank Deutchki Vice President Employee of BISYS Fund
Age: 43 Services (4/96 - present);
Vice President, Audit
Director at Mutual Funds
Services Company, a
subsidiary of United States
Trust Company of New York
(2/89-3/96).
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<PAGE>
Dana Gentile Vice President and Employee of BISYS Fund
Age: 34 Secretary Services (1987-present).
Gregory Maddox Vice President and Employee of BISYS Fund
Columbia Square Assistant Secretary Services (4/91 - present).
Suite 500
1230 Columbia Street
San Diego, CA 92101
Age: 27
John Calvano Vice President and Employee of BISYS Fund
Age: 37 Assistant Secretary Services (10/94-present);
Investment Representative,
BA Investment Services
(7/92 - 8/94); Marketing
Manager, Great Western
Investment Management
(10/86-7/94).
William Tomko Treasurer, Comptroller, Employee of BISYS Fund
Age: 38 and Principal Financial Services (4/87-present).
and Accounting Officer
Alaina Metz Assistant Secretary Employee of BISYS Fund
Age: 29 Services (6/95 - present);
Supervisor, Mutual Fund
Legal Department, Alliance
Capital Management (5/89
- 6/95).
</TABLE>
The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. BISYS receives fees from the Trust for
acting as Administrator. BISYS Fund Services Ohio, Inc. receives fees from the
Trust for providing certain fund accounting services.
As of September 1, 1997, the Trustees and officers of the Trust, as a group,
owned less than one percent of the Shares of any Fund of the Trust.
Investment Advisers
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Allocated Funds and the Money Market Fund
by Qualivest, P.O. Box 2758, Portland, Oregon 97208, pursuant to an Investment
Advisory Agreement dated June 1, 1997 (the "Qualivest Investment Advisory
Agreement").
Qualivest is a wholly owned subsidiary of United States National Bank of Oregon,
which in turn is a wholly owned subsidiary of U.S. Bancorp, a publicly held bank
holding company.
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<PAGE>
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Growth and Income Fund and the Capital
Manager Fund by BB&T, 434 Fayetteville Street Mall, Raleigh, NC 27601, pursuant
to an Investment Advisory Agreement dated June 1, 1997 (the "BB&T Investment
Advisory Agreement").
BB&T is the oldest bank in North Carolina and 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.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Regional Equity Fund and the Equity Income
Fund by AmSouth, 1901 Sixth Avenue North, Birmingham, AL 35203, pursuant to an
Investment Advisory Agreement dated September 16, 1997 (the "AmSouth Investment
Advisory Agreement").
AmSouth is the principal bank affiliate of AmSouth Bancorporation, one of the
largest banking institutions headquartered in the mid-south region.
Under the Investment Advisory Agreements, Qualivest, BB&T and AmSouth (the
"Investment Advisers") have agreed to provide, either directly or through one or
more sub-advisers, investment advisory services for each of the Funds as
described in the Prospectus. For the services provided and expenses assumed
pursuant to the Qualivest Investment Advisory Agreement, each of the following
Funds pays Qualivest a fee, computed daily and paid monthly, at the following
annual rates calculated as a percentage of the average daily net assets of such
Fund: 0.35% for the Money Market Fund; 0.05% for the Conservative Fund; 0.05%
for the Balanced Fund; 0.05% for the Growth Fund; and 0.05% for the Aggressive
Fund. For the services provided and expenses assumed pursuant to the BB&T
Investment Advisory Agreement, each of the following Funds pays BB&T a fee,
computed daily and paid monthly, at the following annual rates, calculated as a
percentage of the average daily net assets of such Fund: 0.74% for the Growth
and Income Fund, and 0.25% for the Capital Manager Fund. For the services
provided and expenses assumed pursuant to the AmSouth Investment Advisory
Agreement, each of the Regional Equity Fund and the Equity Income Fund pays
AmSouth a fee, computed daily and paid monthly, at the annual rate of 0.60%,
calculated as a percentage of the average daily net assets of such Fund.
Unless sooner terminated, each Investment Advisory Agreement continues in effect
as to a particular Fund for an initial term of two years, and thereafter for
successive one-year periods if such continuance is approved at least annually by
the Board of Trustees or by vote of a majority of the outstanding Shares of such
Fund and a majority of the Trustees who are not parties to the Investment
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
party to the Investment Advisory Agreement by votes cast in person at a meeting
called for such purpose. Each Investment Advisory Agreement is terminable as to
a particular Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Investment Adviser. Each Investment Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
21
<PAGE>
Each Investment Advisory Agreement provides that the Investment Adviser shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of its duties, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Investment Adviser or any
sub-advisers in the performance of their duties, or from reckless disregard of
their duties and obligations thereunder.
From time to time, advertisements, supplemental sales literature, and
information furnished to present or prospective Shareholders of the Funds may
include descriptions of an Investment Adviser including, but not limited to, (i)
descriptions of the Investment Adviser's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings related
to the Investment Adviser's operations.
Investment Sub-Adviser
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Fund's investment objective and restrictions, investment
sub-advisory services are provided to the Equity Income Fund by Rockhaven, 100
First Avenue, Suite 1050, Pittsburgh, PA 15222, pursuant to a sub-advisory
agreement with AmSouth dated September 16, 1997 (the "Sub-Advisory Agreement").
Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles.
Under the Sub-Advisory Agreement, Rockhaven (the "Sub-Adviser") has agreed to
provide investment advisory services for the Equity Income Fund as described in
the Prospectus. For its services and expenses incurred under the Sub-Advisory
Agreement, Rockhaven is entitled to a fee payable by AmSouth. The fee is
computed daily and paid monthly at an annual rate of 0.36% of the Fund's average
daily net assets or such lower fee as may be agreed upon in writing by AmSouth
and Rockhaven, provided that if AmSouth waives a portion of its investment
advisory fee, the Sub-Adviser has agreed that its sub-advisory fee shall not
exceed 60% of AmSouth's net investment advisory fee.
Unless sooner terminated, the Sub-Advisory Agreement shall continue with respect
to the Equity Income Fund for an initial term of two years, and thereafter for
successive one-year periods if such continuance is approved at least annually by
the Board of Trustees of the Trust or by vote of the holders of a majority of
the outstanding voting Shares of the Fund and a majority of the Trustees who are
not parties to the Sub-Advisory Agreement or interested persons (as defined in
the 1940 Act) of any party to the Sub-Advisory Agreement by vote cast in person
at a meeting called for such purpose. The Agreement may be terminated with
respect to the Fund by the Trust at any time without the payment of any penalty
by the Board of Trustees of the Trust, by vote of the holders of a majority of
the outstanding voting securities of the Fund, or by the Investment Advisor or
Sub-Advisor on 60 days' written notice. This Agreement will also immediately
terminate in the event of its assignment, as defined in the 1940 Act.
22
<PAGE>
The Sub-Advisory Agreement provides that Rockhaven shall not be liable for any
error of judgment or mistake of law or for any loss suffered by AmSouth, the
Trust or the Fund in connection with the performance of its duties, except that
Rockhaven shall be liable to AmSouth for a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Rockhaven in the performance of its duties or from reckless disregard by
it of its obligations or duties thereunder.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective Variable Contract Owners may include
descriptions of Rockhaven including, but not limited to, (i) descriptions of
Rockhaven's operations; (ii) descriptions of certain personnel and their
functions; and (iii) statistics and rankings relating to Rockhaven's operations.
Portfolio Transactions
The Investment Advisers and the Sub-Adviser determine, subject to the general
supervision of the Board of Trustees and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by a Fund, and which brokers or dealers are to be eligible to execute such
Fund's portfolio transactions.
Purchases and sales of portfolio securities which are debt securities usually
are principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various brokers and
dealers is determined by each Investment Adviser or Sub-Adviser in its best
judgment and in a manner deemed fair and reasonable to Shareholders. In
selecting a broker or dealer, each Investment Adviser or Sub-Adviser evaluates a
wide range of criteria, including the commission rate or dealer mark-up,
execution capability, the broker's/dealer's positioning and distribution
capabilities, back office efficiency, ability to handle difficult trades,
financial stability, reputation, prior performance, and, in the case of
brokerage commissions, research. The primary consideration is the broker's
ability to provide prompt execution of orders in an effective manner at the most
favorable price for the security. Subject to this consideration, brokers and
dealers who provide supplemental investment research to an Investment Adviser or
Sub-Adviser may receive orders for transactions on behalf of the Trust. Research
may include brokers' analyses of specific securities, performance and technical
statistics, and information databases. It may also include maintenance research,
which is the information that keeps an Investment Adviser or Sub-Adviser
informed concerning overall economic, market, political and legal trends. Under
some circumstances, an Investment Adviser's or Sub-Adviser's evaluation of
research and other broker selection criteria may result in one or a few brokers
executing a substantial percentage of a Fund's trades. This might occur, for
example, where a broker can provide best execution at a cost that is reasonable
in relation to its services and the broker offers unique or superior research
facilities, special knowledge or expertise in a Fund's relevant markets, or
access to proprietary information about companies that are a majority of a
Fund's investments.
23
<PAGE>
Research information so received is in addition to and not in lieu of services
required to be performed by each Investment Adviser or Sub-Adviser and does not
reduce the fees payable to an Investment Adviser or Sub-Adviser by the Trust.
Such information may be useful to an Investment Adviser or Sub-Adviser in
serving both the Trust and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
in carrying out its obligations to the Trust. While each Investment Adviser or
Sub-Adviser generally seeks competitive commissions, the Trust may not
necessarily pay the lowest commission available on each brokerage transaction
for reasons discussed above.
Investment decisions for each Fund are made independently from those for the
other Funds or any other portfolio, investment company or account managed by
Qualivest, BB&T, AmSouth or Rockhaven. Any such other portfolio, investment
company or account may also invest in the same securities as the Trust. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund, portfolio, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Investment Adviser or Sub-Adviser
believes to be equitable to the Fund(s) and such other portfolio, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
by a Fund. To the extent permitted by law, the Investment Adviser or Sub-Adviser
may aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for the other Funds or for other portfolio, investment
companies or accounts in order to obtain best execution. In making investment
recommendations for the Trust, an Investment Adviser or Sub-Adviser will not
inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by the Trust is a customer of the Investment Adviser, the
Sub-Adviser or BISYS, their parents or their subsidiaries or affiliates and, in
dealing with its customers, Qualivest, BB&T, AmSouth, Rockhaven, their parents,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
Glass-Steagall Act
In 1971, the United States Supreme Court held that the Federal statute commonly
referred to as the "Glass-Steagall Act" prohibits a national bank from operating
a mutual fund for the collective investment of managing agency accounts.
Subsequently, the Board of Governors of the Federal Reserve System (the "Board")
issued a regulation and interpretation to the effect that the Glass-Steagall Act
and such decision: (a) forbid a bank holding company registered under the
Federal Bank Holding Company Act of 1956 (the "Holding Company Act") or any
non-bank affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, but (b) do not prohibit such a holding company or affiliate from
acting as investment adviser, transfer agent, and custodian to such an
investment company. In 1981, the United States Supreme Court determined that the
Board did not exceed its authority under the Holding Company Act when it adopted
its regulation and interpretation authorizing bank holding companies and their
nonbank affiliates to act as investment advisers to registered closed-end
investment companies. The Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their nonbank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
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The Investment Advisers and the Sub-Adviser believe that they possess the legal
authority to perform the services for the Funds contemplated by the Prospectus,
this SAI, the Investment Advisory Agreements and the Sub-Advisory Agreement
without violation of applicable statutes and regulations. Future changes in
either federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent an
Investment Adviser or the Sub-Adviser from continuing to serve as investment
adviser to the Funds or could restrict the services which it is permitted to
perform for the Funds. In addition, such changes, decisions or interpretations
could prevent an Investment Adviser's or Sub-Adviser's affiliates from
performing Variable Contract Owner servicing activities or from receiving
compensation therefor or could restrict the types of services such entities are
permitted to provide and the amount of compensation they are permitted to
receive for such services. Depending upon the nature of any changes in the
services which could be provided by the Investment Advisers or the Sub-Adviser,
the Board of Trustees would review the Trust's relationship with the Investment
Advisers or the Sub-Adviser and consider taking all action necessary in the
circumstances.
Administrator
BISYS serves as general manager and administrator to the Trust pursuant to a
Management and Administration Agreement dated June 1, 1997 (the "Administration
Agreement"). The Administrator assists in supervising all operations of each
Fund (other than those performed by Qualivest, BB&T and AmSouth under the
Investment Advisory Agreements, by Rockhaven under the Sub-Advisory Agreement,
by BISYS Fund Services Ohio, Inc. as fund accountant and dividend disbursing
agent, and by the Trust's custodian(s)). The Administrator is a broker-dealer
registered with the Securities and Exchange Commission, and is a member of the
National Association of Securities Dealers, Inc. The Administrator provides
financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to maintain
office facilities for the Trust; furnish statistical and research data, clerical
and certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Securities and Exchange Commission on Form N-SAR or any
replacement forms therefor; compile data for, prepare for execution by the Funds
and file certain federal and state tax returns and required tax filings; prepare
compliance filings pursuant to state laws with the advice of the Trust's
counsel; keep and maintain the financial accounts and records of the Funds,
including calculation of daily expense accruals; in the case of the Money Market
Fund, determine the actual variance from $1.00 of its net asset value per Share;
and generally assist in all aspects of the Trust's operations other than those
performed by the Investment Advisers under the Investment Advisory Agreements,
by the Sub-Adviser under the Sub-Advisory Agreement, by the fund accountant and
dividend disbursing agent, and by the Trust's custodian(s). Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically, equal to the lesser of (a) the fee
calculated at the indicated annual rate of each Fund's average daily net assets,
or (b) such other fee as may from time to time be agreed upon by the Trust and
the Administrator: each Allocated Fund -- 0.07%; Money Market Fund -- 0.13%; and
Growth and Income Fund, Capital Manager Fund, Regional Equity Fund, and Equity
Income Fund -- 0.20%. The Administrator may voluntarily reduce all or a portion
of its fee with respect to any Fund in order to increase the net income of one
or more of the Funds available for distribution as dividends.
The Administration Agreement is terminable with respect to a particular Fund
upon mutual agreement of the parties to the Administration Agreement, upon
notice given at least 60 days prior to the expiration of the Agreement's
then-current term, and for cause (as defined in the Administration Agreement) by
the party alleging cause, on no less than 60 days' written notice by the Board
of Trustees or by the Administrator.
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The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
Expenses
Any expense reimbursements will be estimated daily and reconciled and paid on a
monthly basis. Fees imposed upon customer accounts for cash management services
are not included within Trust expenses for purposes of any such expense
limitation.
Distributor
BISYS serves as distributor to the Trust pursuant to the Distribution Agreement
dated June 1, 1997 (the "Distribution Agreement"). Unless otherwise terminated,
the Distribution Agreement will remain in effect for an initial term of two
years, and thereafter continues for successive one-year periods if approved at
least annually (i) by the Board of Trustees or by the vote of a majority of the
outstanding Shares of the Trust, and (ii) by the vote of a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
(as defined in the 1940 Act) of any party to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement may be terminated in the event of any assignment, as
defined in the 1940 Act.
Custodians, Transfer Agent and Fund Accounting Services
United States National Bank of Oregon, 321 S.W. 6th, Portland, Oregon 97204,
serves as custodian to the Trust with respect to each Allocated Fund and the
Money Market Fund pursuant to a Custody Agreement dated as of June 1, 1997.
Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, serves as
custodian to the Trust with respect to the Growth and Income Fund and the
Capital Manager Fund pursuant to a Custody Agreement dated as of May 21, 1997.
AmSouth serves as custodian to the Trust with respect to the Regional Equity
Fund and the Equity Income Fund pursuant to a Custody Agreement dated as of
September 16, 1997. Each custodian's responsibilities include safeguarding and
controlling the Funds' cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on such Funds' investments.
BISYS Fund Services Ohio Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as transfer agent and dividend disbursing agent for all Funds of the
Trust pursuant to an agreement dated as of June 1, 1997. Under this agreement,
BISYS Fund Services Ohio, Inc. performs the following services, among others:
maintenance of Shareholder records for each of the Trust's Shareholders of
record; processing Shareholder purchase and redemption orders; processing
transfers and exchanges of Shares on the Shareholder files and records;
processing dividend payments and reinvestments; and assistance in the mailing of
Shareholder reports and proxy solicitation materials.
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<PAGE>
In addition, BISYS Fund Services Ohio, Inc. provides certain fund accounting
services to the Trust pursuant to a Fund Accounting Agreement dated June 1,
1997. Under the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc.
maintains the accounting books and records for the Funds, including journals
containing an itemized daily record of all purchases and sales of portfolio
securities, all receipts and disbursements of cash and all other debits and
credits, general and auxiliary ledgers reflecting all asset, liability, reserve,
capital, income and expense accounts, including interest accrued and interest
received, and other required separate ledger accounts; maintains a monthly trial
balance of all ledger accounts; performs certain accounting services for the
Funds, including calculation of the daily net asset value per Share, calculation
of the dividend and capital gain distributions, if any, and of yield,
reconciliation of cash movements with custodians, affirmation to custodians of
portfolio trades and cash settlements, verification and reconciliation with
custodians of daily trade activity; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for the Funds.
Auditors
The firm of Coopers & Lybrand L.L.P., 100 East Broad Street, Columbus, Ohio
43215, serves as independent auditors for the Trust. Its services comprise
auditing the Trust's financial statements and advising the Trust as to certain
accounting and tax matters.
Legal Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005 is counsel
to the Trust and has passed upon the legality of the Shares offered hereby.
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Massachusetts business trust. The Trust was organized on July 20,
1994, and the Trust's Declaration of Trust was filed with the Secretary of State
of the Commonwealth of Massachusetts on the same date. The Declaration of Trust,
as amended and restated, authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest, without par value. The
Trust currently has nine series of Shares which represent interests in each
series of the Trust. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide or redivide any unissued Shares of the Trust into one or more
additional series or classes by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting power,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
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Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this SAI, the Trust's
Shares will be fully paid and non-assessable by the Trust. In the event of a
liquidation or dissolution of the Trust, Shareholders of a Fund are entitled to
receive the assets available for distribution belonging to that Fund, and a
proportionate distribution, based upon the relative asset values of the
respective series, of any general assets not belonging to any particular series
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding Shares of each Fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding Shares of a Fund will be required in connection with
a matter, a Fund will be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are identical, or that the matter
does not affect any interest of the Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in investment policy submitted to
Shareholders would be effectively acted upon with respect to a series only if
approved by a majority of the outstanding Shares of such Fund. However, Rule
18f-2 also provides that the ratification of independent public accountants, the
approval of principal underwriting contracts, and the election of Trustees may
be effectively acted upon by Shareholders of the Trust voting without regard to
Fund.
Vote of a Majority of the Outstanding Shares
As used in the Funds' Prospectuses and the SAI, "vote of a majority of the
outstanding Shares of the Trust or the Fund" means the affirmative vote, at an
annual or special meeting of Shareholders duly called, of the lesser of (a) 67%
or more of the votes of Shareholders of the Trust or the Fund present at such
meeting at which the holders of more than 50% of the votes attributable to the
Shareholders of record of the Trust or the Fund are represented in person or by
proxy, or (b) the holders of more than 50% of the outstanding votes of
Shareholders of the Trust or the Fund.
Principal Shareholders
As of September 1, 1997, Hartford Life Insurance Company Separate Account Two,
200 Hopmeadow Street, Simsbury, Connecticut 06070 owned 68.6% and Wilbranch,
P.O. Box 2887, Wilson, North Carolina 27894 owned 31.4% of the outstanding
Shares of the Growth and Income Fund, the sole operational Fund as of that date,
and thus may be deemed to be able to control the outcome of any matter submitted
to a vote of the Shareholders of the Trust or of that Fund.
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Shareholder and Trustee Liability
Under Massachusetts law, holders of units of interest in a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that Shareholders shall not be subject to any personal liability for the
obligations of the Trust. The Declaration of Trust provides for indemnification
out of the trust property of any Shareholder held personally liable solely by
reason of his or her being or having been a Shareholder. The Declaration of
Trust also provides that the Trust shall, upon request, reimburse any
Shareholder for all legal and other expenses reasonably incurred in the defense
of any claim made against the Shareholder for any act or obligation of the
Trust, and shall satisfy any judgment thereon. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or agent of
the Trust shall be personally liable in connection with the administration or
preservation of the assets of the Trust or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Declaration of Trust
also provides that all persons having any claim against the Trustees or the
Trust shall look solely to the assets of the Trust for payment.
Additional Tax Information
The following discussion summarizes certain U.S. federal tax considerations
incidental to an investment in a Fund. Each Fund intends to qualify annually and
to elect to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund generally must, among
other things: (i) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business in such stock, securities
or currencies; (ii) derive in each taxable year less than 30% of its gross
income from the sale or other disposition of certain assets held less than three
months including stocks, securities, and certain foreign currencies, futures,
options, and forward contracts; (iii) diversify its holdings so that, at the end
of each quarter of the taxable year (a) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (b) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies); and (iv) distribute at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest,
and net short-term capital gains in excess of any net long-term capital losses)
each taxable year.
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<PAGE>
As a regulated investment company, a Fund generally will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years), if any, that it
distributes to Shareholders. Each Fund intends to distribute to its
Shareholders, at least annually, substantially all of its investment company
taxable income and any net capital gains. In addition, amounts not distributed
by a Fund on a timely basis in accordance with a calendar year distribution
requirement may be subject to a nondeductible 4% excise tax. To avoid the tax, a
Fund may be required to distribute (or be deemed to have distributed) during
each calendar year, (i) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (ii) at least 98% of
its capital gains in excess of its capital losses for the twelve month period
ending on October 31 of the calendar year (adjusted for certain ordinary
losses), and (iii) all ordinary income and capital gains for previous years that
were not distributed during such years. To avoid application of the excise tax,
each Fund intends to make its distributions in accordance with the calendar year
distribution requirement. A distribution will be treated as paid on December 31
of the calendar year if it is declared by a Fund during October, November, or
December of that year to Shareholders of record on a date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to Shareholders (such as the Separate Accounts)
for the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are actually received.
If a Fund invests in shares of a foreign investment company, the Fund may be
subject to U.S. federal income tax on a portion of an "excess distribution"
from, or of the gain from the sale of part or all of the shares in, such
company. In addition, an interest charge may be imposed with respect to deferred
taxes arising from such distributions or gains.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time that Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts, and options, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Fund's investment company taxable income to be distributed to its
Shareholders as ordinary income.
Distributions
Distributions of any investment company taxable income (which includes among
other items, dividends, interest, and any net realized short-term capital gains
in excess of net realized long-term capital losses) are treated as ordinary
income for tax purposes in the hands of a Shareholder (such as a Separate
Account). Net capital gains (the excess of any net long-term capital gains over
net short term capital losses) will, to the extend distributed, be treated as
long-term capital gains in the hands of the Separate Accounts regardless of the
length of time a Separate Account may have held the Shares.
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Hedging Transactions
The 30% limitation and the diversification requirements applicable to a Fund's
assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, or forward contracts.
Other Taxes
Distributions may also be subject to additional state, foreign and local taxes,
depending on each shareholder's situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in a Fund.
Performance Information
Each Fund may, from time to time, include its yield or total return in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Funds will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Funds offer their Shares.
Standardized seven-day yield for the Money Market Fund is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in that Fund having a balance of one Share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from Shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/base period). The
net change in the account value of the Money Market Fund includes the value of
additional Shares purchased with dividends from the original Share, dividends
declared on both the original Share and any such additional Shares, and all
fees, other than nonrecurring account charges, that are charged to all
Shareholder accounts in proportion to the length of the base period and assuming
that Fund's average account size. The capital changes to be excluded from the
calculation of the net change in account value are net realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
30-day yield is calculated as described above except that the base period is 30
days rather than seven days.
Yields of the other Funds are computed by analyzing net investment income per
Share for a recent 30-day period and dividing that amount by a Share's maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the stated dividend
rate of dividend paying portfolio securities. The yield of each of these Funds
will vary from time to time depending upon market conditions, the composition of
a Fund's portfolio and operating expenses of the Trust allocated to each Fund.
Yield should also be considered relative to changes in the value of a Fund's
Shares and to the relative risks associated with the investment objective and
policies of each of the Funds.
At any time in the future, yields may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
Standardized quotations of average annual total return for Fund Shares will be
expressed in terms of the average annual compounded rate of return for a
hypothetical investment in Shares over periods of 1, 5 and 10 years or up to the
life of the Fund), calculated pursuant to the following formula: P(1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of expenses (on an annual basis), and
assume that all dividends and distributions on Shares are reinvested when paid.
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Performance information for the Funds may be compared in reports and promotional
literature to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such as
those prepared by Dow Jones & Co., Inc., S&P, Shearson Lehman Brothers, Inc. and
The Russell 2000 Index and to data prepared by Lipper Analytical Services, Inc.,
a widely recognized independent service which monitors the performance of mutual
funds, Morningstar, Inc. and the Consumer Price Index. Comparisons may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The Bond Buyer's Weekly 20-Bond Index, The Bond Buyer's Index,
The Bond Buyer, The New York Times, Business Week, Pensions and Investments, and
U.S.A. Today. In addition to performance information, general information about
these Funds that appears in a publication such as those mentioned above may be
included in advertisements and in reports to Variable Contract Owners.
Each Fund may also compute aggregate total return for specified periods. The
aggregate total return is determined by dividing the net asset value of this
account at the end of the specified period by the value of the initial
investment and is expressed as a percentage. Calculation of aggregate total
return assumes reinvestment of all income dividends and capital gain
distributions during the period.
The Funds also may quote annual, average annual and annualized total return and
aggregate total return performance data for various periods other than those
noted above. Such data will be computed as described above, except that the
rates of return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return.
Quotations of yield or total return for the Funds will not take into account
charges and deductions against a Separate Account to which the Funds' Shares are
sold or charges and deductions against the Variable Contracts. The Funds' 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 Accounts or the Variable Contracts. Performance information for any
Fund reflects only the performance of a hypothetical investment in the Fund
during the particular time period in which the calculations are based.
Performance information should be considered in light of the Funds' investment
objectives and policies, characteristics and quality of the portfolios and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
Miscellaneous
Individual Trustees are elected by the Shareholders and, subject to removal by
the vote of two-thirds of the Board of Trustees, serve for a term lasting until
the next meeting of Shareholders at which Trustees are elected. Such meetings
are not required to be held at any specific intervals. Individual Trustees may
be removed by vote of the Shareholders voting not less than a majority of the
Shares then outstanding, cast in person or by proxy at any meeting called for
that purpose, or by a written declaration signed by Shareholders voting not less
than two-thirds of the Shares then outstanding. In accordance with current laws,
it is anticipated that an insurance company issuing a variable contract that
participates in the Funds 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 Accounts
and qualified pension and retirement plans currently are the only Shareholders
of the Funds, although other separate accounts of Nationwide or Hartford, or
other insurance companies, may become Shareholders in the future.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Securities and Exchange Commission of the management or policies of the
Trust.
The Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the Securities and Exchange Commission. Copies
of such information may be obtained from the Securities and Exchange Commission
upon payment of the prescribed fee.
The Prospectus and this SAI are not an offering of the securities herein
described in any state in which such offering may not lawfully be made. No
salesman, dealer, or other person is authorized to give any information or make
any representation other than those contained in the Prospectus and this SAI.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the Funds, including the related
notes thereto, dated as of May 21, 1997, and the Trust's unaudited financial
statements for the Growth and Income Fund, including the related notes thereto,
dated as of November 30, 1997, are included herein.
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Report of Independent Accountants
To the Trustees of the Variable Insurance Funds:
We have audited the accompanying statement of assets and liabilities of the
BB&T Growth and Income Fund as of May 21, 1997. This financial statement is the
responsibility of the Variable Insurance Fund's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the BB&T Growth and Income
Fund as of May 21, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 22, 1997
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VARIABLE INSURANCE FUNDS
BB&T Growth and Income Fund
Statement of Assets and Liabilities
As of May 21, 1997
ASSETS:
Cash $100,000
Deferred organization expenses 15,000
Total Assets 115,000
LIABILITIES:
Accrued organization expenses 15,000
NET ASSETS: $100,000
NET ASSETS CONSIST OF:
Capital - 10,000 shares of beneficial interest issued and outstanding;
unlimited shared authorized [par value $0.001]
- Institutional Service Class $100,000
NET ASSET VALUE:
Institutional Service Shares ($100,000/10,000 shares issued
and outstanding) - offering and redemption price per share $10.00
See notes to financial statements.
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VARIABLE INSURANCE FUNDS
BB&T Growth and Income Fund
NOTES TO FINANCIAL STATEMENTS
May 21, 1997
1. ORGANIZATION
Variable Insurance Funds (the "Trust"), an open-end management
investment company established as a Massachusetts business trust, is
registered under the Investment Company Act of 1940 (the "1940 Act").
The Company offers shares of the following funds: Variable Insurance
Allocated Conservative Fund, Variable Insurance Allocated Balanced
Fund, Variable Insurance Allocated Growth Fund, Variable Insurance
Allocated Aggressive Fund (collectively, the "Allocated Funds"),
Variable Insurance Money Market Fund, BB&T Growth and Income Fund and
BB&T Capital Manager Fund (collectively, the "Funds") each of which
offers Institutional Shares. The accompanying financial statement
relates only to the BB&T Growth and Income Fund (the "Fund"). The Fund
had no operations other than those actions relating to organizational
matters. As of May 21, 1997, all outstanding shares of the Fund are
owned by Branch Banking and Trust Company.
The investment objective of the Fund is to seek to provide capital
growth, current income or both by investing in stocks, which may
include common stock, preferred stock, warrants, or debt instruments
that are convertible into common stocks.
2. ORGANIZATION EXPENSES
All costs incurred by the Trust in connection with the organization of
the Fund and the initial public offering of shares of the Fund,
principally professional fees and printing, have been deferred. Upon
commencement of operations of the Fund, the deferred organization
expenses will be amortized on a straight-line basis over a period of
two years. In the event that any of the initial shares of the Fund are
redeemed during the amortization period by any holder thereof, the
redemption proceeds will be reduced by any unamortized organization
expenses in the same proportion as the number of said shares being
redeemed bears to the number of initial shares that are outstanding at
the time of the redemption.
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3. RELATED PARTY TRANSACTIONS
Branch Banking and Trust Company ("BB&T") serves as the Investment
Advisor for the Growth and Income Fund. Under an advisory agreement
with the Fund, BB&T is entitled to receive fees at an annual rate equal
to the lessor of : (a) 0.74% of the Fund's average daily net assets; or
(b) such fee as may from time to time be agreed upon in writing by the
Trust and BB&T. BISYS Fund Services ("BISYS") serves the Fund as
Administrator. For its services as Administrator, BISYS receives a fee
at an amount of 0.20% of the Fund's average daily net assets. BISYS
also serves as Distributor for the Fund's shares. BISYS Fund Services
Ohio, Inc., an affiliate of BISYS, serves as the Trust's transfer agent
and dividend disbursing agent.
Certain officers of the Trust are affiliated with BISYS. Such persons
are not paid directly by the Trust for serving in those capacities.
4. ESTIMATES
The preparation of this financial statement requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statement. Actual results
could differ from those estimates.
36
<PAGE>
BB&T Variable Insurance Fund
Statement of Assets and Liabilities
November 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Growth & Income
Fund
--------------------------
ASSETS:
Investments at value (cost $26,166,165) $ 27,219,793
Interest and dividends receivable 73,636
Unamortized organization costs 10,319
Prepaid expenses and other assets 69,442
--------------------------
Total assets 27,373,190
LIABILITIES
Payable for investments purchased 196,975
Accrued expenses and other payables:
Investment advisory fees 19,345
Administration fees 1,172
Accounting fees 2,570
Audit fees 7,240
Legal fees 3,439
Trustees fees 12,847
Transfer agent fees 830
Registration and filing fees 32,218
Printing fees 11,450
Other 4,163
--------------------------
Total Liabilities 292,249
--------------------------
NET ASSETS:
Paid - in capital 25,924,247
Accumulated undistributed (distributions in excess of)
net investment income 77,080
Net unrealized appreciation (depreciation) from
investments 1,053,628
Accumulated undistributed net realized gains (losses)
from investment transactions 25,986
--------------------------
Net Assets $ 27,080,941
==========================
Outstanding units of beneficial interest (shares) 2,345,032
==========================
Net asset value - offering and redemption price per share
$ 11.55
==========================
See notes to financial statements.
</TABLE>
<PAGE>
BBT&T Variable Insurance Fund
Statement of Operations (Unaudited)
For the period from June 3, 1997 through November 30, 1997(a)
<TABLE>
<S> <C>
Growth &
Income Fund
--------------
INVESTMENT INCOME:
Interest income $ 12,134
Dividend income 162,638
--------------
Total income 174,772
--------------
EXPENSES:
Investment advisory fees 47,412
Administration fees 12,814
Custodian fees 3,801
Accounting fees 15,781
Legal fees 3,439
Audit fees 7,240
Organization costs 5,973
Trustees' fees and expenses 12,851
Transfer agent fees 5,249
Registration and filing fees 32,218
Printing costs 13,032
Other 4,163
--------------
Total expenses 163,973
Expenses reimbursed and voluntarily reduced (105,427)
--------------
Net Expenses 58,546
--------------
Net Investment Income 116,226
--------------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net unrealized gains (losses) from investment transactions 25,986
Net change in unrealized appreciation (depreciation) from investments 1,053,628
--------------
Net realized/unrealized gains (losses) from investments 1,079,614
--------------
Change in net assets resulting from operations $ 1,195,840
==============
(a) Period from commencement of operations.
See notes to financial statements.
</TABLE>
<PAGE>
BB&T Variable Insurance Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<S> <C>
Growth & Income Fund
-----------------------
For the Period Ended
November 30, 1997(a)
-----------------------
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ 116,226
Net realized gains (losses) from investment
transactions 25,986
Net change in unrealized appreciation
(depreciation) from investments 1,053,628
-----------------------
Change in net assets results from operations 1,195,840
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (39,146)
-----------------------
Change in net assets for shareholder distributions (39,146)
-----------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 25,885,101
Dividends reinvested 39,146
-----------------------
Change in net assets from capital transactions 25,924,247
-----------------------
Change in net assets 27,080,941
NET ASSETS:
Beginning of period --
-----------------------
End of period $ 27,080,941
=======================
SHARE TRANSACTIONS:
Issued 2,341,532
Reinvested 3,500
Redeemed --
-----------------------
Change in shares 2,345,032
=======================
(a) For the period from June 3, 1997 (commencement of operations) through
November 30, 1997.
See notes to financial statements.
</TABLE>
<PAGE>
BB&T Variable Insurance Fund
Growth & Income Fund
Schedule of Investments
November 30, 1997 (Unaudited)
Shares or
Principal
Amount Security Description Market Value
- --------------- ----------------------------------------- ----------------
Common Stocks (96.3%):
Aerospace/Defense (3.5%):
4,700 Lockheed Martin Corp. (b) $ 458,544
10,800 Parker-Hannifin Corp. 485,050
----------------
943,594
----------------
Apparel (0.8%):
4,600 VF Corp. 212,462
----------------
Banks (7.4%):
5,800 Central Carolina Bank Financial Corp. 556,800
(b)
5,200 JP Morgan & Co. 593,775
5,400 Old Kent Financial Corp. 365,175
6,200 Wachovia Corp. 477,400
----------------
1,993,150
----------------
Beverages (2.3%):
14,400 Anheuser-Busch Cos. Inc. (b) 621,900
----------------
Chemicals-Specialty (3.4%)
7,900 Great Lakes Chemical Corp. 354,512
5,600 Vulcan Materials Co. 569,450
----------------
923,962
----------------
Communications Equipment (1.9%):
6,000 Pitney Bowes, Inc. 504,375
----------------
Computers-Main & Mini (3.3%)
8,600 Hewlett-Packard Co. 525,137
3,400 International Business Machines 372,512
----------------
897,649
----------------
Computers Peripherals (0.9%):
6,000 Adobe Systems, Inc. (b) 252,000
----------------
Containers (0.5%):
4,000 Sonoco Products Co. 131,250
----------------
Defense (2.3%)
11,100 Raytheon Co. 620,906
----------------
<PAGE>
Electrical Equipment (2.1%):
10,500 Emerson Electric Co. 577,500
----------------
Electronic Components (2.0%):
8,100 Avnet, Inc. 536,625
----------------
Electronic Instruments (1.0%):
6,750 Tektronix, Inc. 283,078
----------------
Financial Statements (1.1%):
8,650 A.G. Edwards, Inc. 293,019
----------------
Food & Related (4.4%):
11,300 Dean Foods Co. 600,312
15,200 SUPERVALU, Inc. 597,550
----------------
1,197,862
----------------
Forest & Paper Products (1.2%):
6,000 Weyerhaeuser Co. 316,875
----------------
Health Care-Drugs (1.7%):
4,800 Bristol Myers Squibb Co. 449,400
----------------
Health Care-General (0.7%):
5,000 Bausch & Lomb 198,125
----------------
Household-General Products (1.6%):
7,600 Unilever 441,275
----------------
Household-Maj Appliances (1.2%):
6,100 Whirlpool Corp. 334,356
----------------
Insurance-Property & Casualty (7.5%)
7,100 Lincoln National Corp. 506,763
8,600 Safeco Corp. 420,325
8,800 Saint Paul Companies, Inc. 704,000
5,500 Transatlantic Hldgs. Inc. 392,906
----------------
2,023,994
----------------
Metals-Diversified (0.8%):
3,200 Phelps Dodge Corp. 212,000
----------------
<PAGE>
Machinery And Equipment (1.5%):
9,100 Trinity Industries 412,913
----------------
Medical Equipment And Supplies (2.1%):
15,100 Mallirickrodt, Inc. 558,700
----------------
Oil & Gas (4.0%):
5,300 Mobil Corp. 381,269
10,700 Phillips Petroleum Co. 518,281
3,500 Royal Dutch Petroleum 184,406
----------------
1,083,956
Petroleum-Domestic (2.1%):
12,100 Ashland, Inc. 564,919
----------------
Petroleum-Internationals (1.7%):
5,900 Chevron Corp. 473,106
----------------
Pharmaceuticals (6.2%):
7,800 Abbott Laboratories 507,000
9,700 Johnson & Johnson 610,494
6,000 Merck & Co. 567,375
----------------
1,684,869
----------------
Publishing (5.7%):
15,000 American Greetings 551,250
15,800 Deluxe Corporation 557,938
10,100 Media General, Inc. 430,513
----------------
1,539,701
----------------
Railroad (1.2%):
10,200 Norfolk & Southern Corp. 324,488
----------------
Retail-Food Stores (2.4%):
14,400 Albertson's, Inc. 639,000
----------------
Retail-Gen. Merchandise (1.5%):
7,600 May Department Stores Co. 408,500
----------------
Tobacco (2.0%):
17,200 UST, Inc. 531,050
----------------
Toys (1.5%):
14,200 Hasbro, Inc. 412,688
----------------
<PAGE>
Trucking & Shipping (0.3%):
3,000 Alexander & Baldwin 81,000
----------------
Utilities-Electric (2.6%):
7,200 New Century Energies, Inc. (b) 318,600
10,100 Western Resources, Inc. 394,531
----------------
713,131
----------------
Utilities-Gas & Pipeline (1.2%):
7,900 Nicor, Inc. 317,975
----------------
Utilities-Telephone (6.4%):
9,100 AT&T Corp. 508,463
9,400 Bellsouth Corp. 514,650
9,700 SBC Communications, Inc. 706,281
----------------
1,729,394
----------------
Telecommunications (2.3%):
13,200 Harris Corp. 626,175
----------------
Total Common Stocks $26,066,922
----------------
Investment Companies (4.2%):
1,152,871 Provident Federal Fund (b) 1,152,871
----------------
Total (cost $26,166,165)(a) $ 27,219,793
----------------
Percentages indicated are based on net assets of $27,080,941
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation $1,671,054
Unrealized depreciation (617,426)
----------------
Net unrealized appreciation $1,053,628
================
(b) Represents non-income producing security.
<PAGE>
BB&T VARIABLE INSURANCE FUNDS
Notes to Financial Statements
November 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.
<PAGE>
BB&T VARIABLE INSURANCE FUNDS
Notes to Financial Statements, Continued
November 30, 1997
(Unaudited)
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 price generally
equals the price paid by the Trust 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 Trust'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
November 30, 1997 are as follows:
Purchases Sales
Growth & Income $25,253,663 $266,356
<PAGE>
BB&T VARIABLE INSURANCE FUNDS
Notes to Financial Statements, Continued
November 30, 1997
(Unaudited)
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 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.
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 November 30, 1997:
Investment Advisory Fees:
Annual fee before voluntary fee reductions
(percentage of average net assets) 0.74%
Voluntary fee reductions $ 27,926
Administration Fees:
Annual fee before voluntary fee reductions
(percentage of average net assets) 0.20%
Voluntary fee reductions $ 9,568
Expenses reimbursed by BB&T: $ 67,933
Transfer Agent and Mutual
Fund Accountant Fees: $ 21,030
<PAGE>
BB&T Variable Insurance Fund
Financial Highlights (Unaudited)
<TABLE>
<S> <C>
Growth &
Income Fund
-------------------
June 3, 1997
to
November 30, 1997(a)
-------------------
Net Asset Value, Beginning of Period $ 10.00
-------------------
Investment Activities:
Net investment income 0.08
Net realized and unrealized gains from investments 1.52
-------------------
Total from investment activities 1.60
-------------------
Distributions:
Net investment income (0.05)
-------------------
Total Distributions (0.05)
-------------------
Net Asset Value, End of Period $ 11.55
===================
Total Return 16.05%(c)
Ratios/Supplementary Data:
Net assets, at end of period (000) 27,081
Ratio of net expenses to average net assets 0.90%(d)
Ratio of net investment income to average net assets 1.80%(d)
Ratio of gross expenses to average net assets* 2.54%(d)
Ratio of gross investment income to average net 0.16%(d)
assets*
Portfolio turnover 2.04%
Average commission rate paid(b) $ 0.0708
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Represents the dollar amount of commission paid on portfolio transactions
divided by total number of shares purchased and sold by the Fund for which
commissions were charged.
(c) Not annualized.
(d) Annualized.
See notes to financial statements.
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Description of Moody's bond ratings:
Excerpts from Moody's description of its bond ratings are listed as
follows: Aaa - judged to be the best quality and they carry the smallest degree
of investment risk; Aa - judged to be of high quality by all standards -
together with the Aaa group, they comprise what are generally known as
high-grade bonds; A - possess many favorable investment attributes and are to be
considered as "upper medium grade obligations"; Baa - considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured
- -interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time; Ba - judged to have speculative
elements, their future cannot be considered as well assured; B - generally lack
characteristics of the desirable investment; Caa - are of poor standing - such
issues may be in default or there may be present elements of danger with respect
to principal or interest; Ca - speculative in a high degree, often in default; C
- - lowest rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
Description of S&P's bond ratings:
Excerpts from S&P's description of its bond ratings are listed as
follows: AAA - highest grade obligations, in which capacity to pay interest and
repay principal is extremely strong; AA - has a very strong capacity to pay
interest and repay principal, and differs from AAA issues only in a small
degree; A - has a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories; BBB
- - regarded as having an adequate capacity to pay interest and repay principal;
whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. This group is the lowest which qualifies for commercial
bank investment. BB, B, CCC, CC, C - predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligations; BB indicates the highest grade and C the lowest within the
speculative rating categories. D interest or principal payments are in default.
S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
i
<PAGE>
Description of Moody's ratings of short-term municipal obligations:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity. Ratings categories for securities in these groups
are as follows: MIG 1/VMIG 1 - denotes best quality, there is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing; MIG 2/VMIG 2 - denotes high
quality, margins of protection are ample although not as large as in the
preceding group; MIG 3/VMIG 3 - denotes high quality, all security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades; MIG 4/VMIG 4 - denotes adequate quality, protection commonly regarded as
required of an investment security is present, but there is specific risk; SQ -
denotes speculative quality, instruments in this category lack margins of
protection.
Description of Moody's commercial paper ratings:
Excerpts from Moody's commercial paper ratings are listed as follows:
Prime - 1 - issuers (or supporting institutions) have a superior ability for
repayment of senior short-term promissory obligations; Prime - 2 - issuers (or
supporting institutions) have a strong ability for repayment of senior
short-term promissory obligations; Prime - 3 - issuers (or supporting
institutions) have an acceptable ability for repayment of senior short-term
promissory obligations; Not Prime - issuers do not fall within any of the Prime
categories.
Description of S&P's ratings for corporate and municipal bonds:
Investment grade ratings: AAA - the highest rating assigned by S&P,
capacity to pay interest and repay principal is extremely strong; AA - has a
very strong capacity to pay interest and repay principal and differs from the
highest rated issues only in a small degree; A - has strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories; BBB - regarded as having an adequate capacity to pay
interest and repay principal - whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative grade ratings: BB, B, CCC, CC, C - debt rated in these
categories is regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal - while such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; CI - reserved
for income bonds on which no interest is being paid; D -in default, and payment
of interest and/or repayment of principal is in arrears. Plus (+) or Minus (-) -
the ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
ii
<PAGE>
Description of S&P's rating for municipal notes and short-term municipal demand
obligations:
Rating categories are as follows: SP-1 - has a very strong or strong
capacity to pay principal and interest - those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation; SP-2 -
has a satisfactory capacity to pay principal and interest; SP-3 - issues
carrying this designation have a speculative capacity to pay principal and
interest.
Description of S&P's ratings for short-term corporate demand obligations and
commercial paper:
An S&P commercial paper rating is a current assessment of the
likelihood of timely repayment of debt having an original maturity of no more
than 365 days. Excerpts from S&P's description of its commercial paper ratings
are listed as follows: A-1 - the degree of safety regarding timely payment is
strong - those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) designation; A-2 capacity for
timely payment is satisfactory - however, the relative degree of safety is not
as high as for issues designated "A-1;" A-3 - has adequate capacity for timely
payment - however, is more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations; B - regarded as
having only speculative capacity for timely payment; C - a doubtful capacity for
payment; D - in payment default - the "D" rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
iii
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Included in Part A:
Included in Part B:
Report of Independent Accountants dated May 22, 1997
Statement of Assets and Liabilities as of May 21, 1997
Notes to Financial Statements dated May 21, 1997
Unaudited financial statements relating to the BB&T Growth and
Income Fund as of November 30, 1997, including:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Schedule of Investments
Notes to Financial Statements
Financial Highlights
(b) Exhibits
(1) (a) Amended and Restated Declaration of Trust dated July 20,
1994, as amended and restated February 5, 1997(1)
(b) Establishment and Designation of Series effective
February 5, 1997(1)
(c) Redesignation of Two Existing Series and Establishment
and Designation of Two Additional Series effective
August 13, 1997(3)
(2) By-Laws(1)
(3) Not Applicable
(4) Articles V and VI of the Registrant's Amended and Restated
Declaration of Trust define rights of holders of Shares.
(5) (a) Form of Investment Advisory Agreement between Registrant
and Qualivest Capital Management Inc.(2)
(b) Form of Investment Advisory Agreement between
Registrant and Branch Banking and Trust Company(2)
(c) Form of Investment Advisory Agreement between
Registrant and AmSouth Bank(4)
(d) Form of Sub-Advisory Agreement between AmSouth Bank and
Rockhaven Asset Management, LLC(4)
(6) Form of Distribution Agreement between Registrant and BISYS
Fund Services(3)
(7) Not Applicable
(8) (a) Form of Custodian Agreement between Registrant and
United States National Bank of Oregon(2)
(b) Form of Custodian Agreement between Registrant and
Fifth Third Bank(2)
(c) Form of Custodian Agreement between Registrant and
AmSouth Bank(4)
(9) (a) Form of Management and Administration Agreement between
the Registrant and BISYS Fund Services(3)
C-1
<PAGE>
(b) Form of Fund Accounting Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.(3)
(c) Form of Transfer Agency Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.(3)
(d) Form of Fund Participation Agreement with Hartford Life
Insurance Company(4)
(e) Form of Participation Agreement with Nationwide Life
and Annuity Insurance Company*
(f) Form of Variable Contract Owner Servicing Agreement(3)
(10) Opinion and Consent of Counsel(2)
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Purchase Agreement(2)
(14) Not Applicable
(15) Not Applicable
(16) Schedule of Computation of Performance Information*
(17) Financial Data Schedule Pursuant to Rule 483 (filed as
Exhibit 27)
(18) Not Applicable
(19) (a) Secretary's Certificate Pursuant to Rule 483(b)(2)
(b) Powers of Attorney(2)
- ----------
* To be filed by amendment.
1 Filed with Pre-Effective Amendment No. 2 to Registrant's Registration
Statement on February 5, 1997.
2 Filed with Pre-Effective Amendment No.2 to Registrant's Registration
Statement on May 29, 1997.
3 Filed with Post-Effective Amendment No. 1 to Registrant's Registration
Statement on July 3, 1997.
4 Filed with Post-Effective Amendment No. 2 to Registrant's Registration
Statement on September 15, 1997.
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
Not applicable
Item 26. Number of Record Holders
There are two shareholders of record as of the date of this filing.
Item 27. Indemnification
Reference is made to Article IV of the Registrant's Agreement and
Declaration of Trust (Exhibit 1(a)) which is incorporated by reference
herein.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant by the Registrant pursuant to the Fund's
Declaration of Trust, its By-Laws or otherwise, the Registrant is aware
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and,
therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with shares being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisers and their
Officers and Directors
The business of each of the Investment Advisers is summarized under
"MANAGEMENT OF THE TRUST" in the Prospectuses constituting Part A of
this Registration Statement, which summaries are incorporated herein by
reference. The business or other connections of each director and
officer of Qualivest Capital Management, Inc. are currently listed in
its investment adviser registration on Form ADV (File No. 801-22741)
and are hereby incorporated herein by reference thereto.
C-3
<PAGE>
Set forth below is information as to any other business, vocation or
employment of a substantial nature (other than service in wholly owned
subsidiaries or the parent corporation of Branch Banking and Trust
Company) in which each director or senior officer of Branch Banking and
Trust Company is, or at any time during the past two fiscal years has
been, engaged for his own account or in the capacity of director,
officer, employee, partner or trustee.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
John A. Allison IV None
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive Officer
Director Coastal Lumber Company
Weldon, N.C.
W. R. Cuthbertson, Jr. None
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence & Parker
Director Lexington, S.C.
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President
Director Standard Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce,
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
Director Greenville, S.C.
Dr. Lloyd Vincent Hackley President NC System of Community
Director Colleges
Raleigh, N.C.
C-4
<PAGE>
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, VA
James A. Hardison None
Director
Dr. Richard Janeway Executive Vice President for Healthirs
Director Affairs
Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist, Prostate/Diagnostics
Director Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and Director
Director Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc.,
McCauley Moving & Storage of
Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean, P.A.
Lumberton, N.C.
Charles E. Nichols Attorney at Law, North Carolina Trust
Center
Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco Company
Director Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
C-5
<PAGE>
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
A. Tab Williams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
Set forth below is information as to any other business, vocation or
employment of a substantial nature (other than service in wholly owned
subsidiaries or the parent corporation of AmSouth Bank) in which each
director or senior officer of AmSouth Bank is, or at any time during
the past two fiscal years has been, engaged for his own account or in
the capacity of director, officer, employee, partner or trustee.
Name and Position with Other business, profession, AmSouth Bank vocation,
AmSouth Bank or employment
George W. Barber, Jr. Chairman of the Board, Barber Dairies, Inc.,
Director 39 Barber Ct., Birmingham, Alabama
William D. Biggs Real Estate Investments
Director
William J. Cabaniss, Jr. President, Precision Grinding Inc.,
Director P.O. Box 19925, Birmingham, Alabama
M. Miller Gorrie President and Chief Executive Officer,
Director Brasfield and Gorrie General Contractor Inc.,
729 30th Street South, Birmingham, Alabama
James I. Harrison, Jr. President and Chief Executive Officer,
Director Harco, Inc., 3925 Rice Mine Road,
Tuscaloosa, Alabama
Mrs. H. Taylor Morrisette HTM Investment & Development, Inc.,
Director 3 Taylor Place, Mobile, Alabama
C-6
<PAGE>
C. Dowd Ritter None
Director, Chairman,
President and Chief
Executive Officer
Michael C. Baker None
Senior Executive Vice
President
David B. Edmonds None
Executive Vice President
James W. Emison None
Executive Vice President
Sloan D. Gibson, IV None
Senior Executive Vice
President
O.B. Grayson Hall, Jr. None
Executive Vice President
Kristen M. Hudak None
Senior Executive Vice
President and Chief
Financial Officer
John D. Kottmeyer None
Executive Vice President
and Treasurer
W. Charles Mayer, III None
Director and Senior
Executive Vice President
Candice W. Rogers None
Senior Executive Vice
President
Robert R. Windelspecht None
Executive Vice President
and Controller
Stephen A. Yoder None
Executive Vice President
and General Counsel
C-7
<PAGE>
Item 29. Principal Underwriter
(a) BISYS Fund Services ("BISYS") acts as distributor and
administrator for Registrant. BISYS also distributes the
securities of Qualivest Funds, The Victory Portfolios, The
Highmark Group, The AmSouth Mutual Funds, The Sessions
Group, The Coventry Group, The BB&T Mutual Funds Group, The
American Performance Funds, The ARCH Funds, Inc., MMA Praxis
Mutual Funds, The MarketWatch Funds, The Pacific Capital
Funds, The Parkstone Group of Funds, The Riverfront Funds,
Inc., The Summit Investment Trust, The Fountain Square
Funds, The Kent Group of Funds, The HSBC Funds, The Infinity
Mutual Funds, Inc., The Time Horizon Funds, Pegasus Funds,
The Parkstone Advantage Funds, SBSF Funds, Inc. d.b.a. Key
Mutual Funds, Inc., The Republic Funds and First Choice
Funds Trust, each of which is an investment management
company.
(b) Partners of BISYS Fund Services are as follows:
Positions and Positions and
Name and Principal Offices with Offices with
Business Address BISYS Fund Services Registrant
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
WC Subsidiary Corporation Sole Limited Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
(c) Not Applicable
C-8
<PAGE>
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of
Qualivest Capital Management, Inc. 111 S.W. Fifth Avenue, Portland,
Oregon 97204, Branch Banking and Trust Company, 434 Fayetteville Street
Mall, Raleigh, NC 27601, and AmSouth Bank, 1901 Sixth Avenue North,
Birmingham, Alabama 35203 (records relating to their functions as
advisers for Registrant), BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219-3035 (records relating to its functions as general
manager, administrator and distributor), and BISYS Fund Services Ohio,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035 (records relating to
its functions as transfer agent).
Item 31. Management Services
Not Applicable
Item 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the latter of the effective date of Registrant's
Registration Statement under the Securities Act of 1933 or the
date of which shares of the Trust are first offered (other than
for initial capital).
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report
to Shareholders, upon request and without charge.
(d) Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Trustee or
Trustees when requested to do so by the holders of at least 10%
of the Registrant's outstanding shares of beneficial interest and
in connection with such meeting to comply with the shareholders
communications provisions of Section 16(c) of the Investment
Company Act of 1940.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No.3 to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the city of Washington,
D.C. on the 19th day of December, 1997.
VARIABLE INSURANCE FUNDS
By: ________*_________
Richard Ille
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons on behalf of Variable Insurance Funds in the capacity and on the date
indicated:
Signatures Title Date
________*__________ President (Prin- December 19, 1997
Richard Ille cipal Executive Officer)
________*__________ Treasurer (Prin- December 19, 1997
William Tomko cipal Accounting
Officer), and
Chief Financial Officer
________*__________ Trustee December 19, 1997
Walter Grimm
________*__________ Trustee December 19, 1997
Michael Van Buskirk
________*________ Trustee December 19, 1997
James Woodward
* By: /s/ Keith T. Robinson
Keith T. Robinson as attorney-in-fact, pursuant to powers of attorney
filed as Exhibit 19(b) to Pre-Effective Amendment No.2 to the
Registrant's Registration Statement.
C-10
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name EDGAR Exhibit No.
11 Consent of Independent EX-99.B11
Auditors
27 Financial Data Schedule EX-27
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in this Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-81800) of the Variable
Insurance Funds, of our report dated May 22, 1997 on our audit of the financial
statement of the BB&T Growth and Income Fund which report is included in the
Statement of Additional Information. We also consent to the reference to our
Firm under the caption "Auditors" in the Statement of Additional Information
relating to the Variable Insurance Funds in this Post-Effective Amendment No. 3
to the Registration Statement on Form N-1A (File No. 33-81800).
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 19, 1997
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<PERIOD-START> MAY-20-1997
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