0000950152-06-010108.txt : 20160426 0000950152-06-010108.hdr.sgml : 20160426 20061213172837 ACCESSION NUMBER: 0000950152-06-010108 CONFORMED SUBMISSION TYPE: N-14/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20061213 DATE AS OF CHANGE: 20061215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T Variable Insurance Funds CENTRAL INDEX KEY: 0001311261 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-14/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-138725 FILM NUMBER: 061275041 BUSINESS ADDRESS: STREET 1: 434 FAYETTEVILLE STREET MALL CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 800-228-1872 MAIL ADDRESS: STREET 1: 434 FAYETTEVILLE STREET MALL STREET 2: 5TH FLOOR CITY: RALEIGH STATE: NC ZIP: 27601 FORMER COMPANY: FORMER CONFORMED NAME: BB&T Variable Insurance Funds DATE OF NAME CHANGE: 20110228 FORMER COMPANY: FORMER CONFORMED NAME: Sterling Capital Variable Insurance Funds DATE OF NAME CHANGE: 20110224 FORMER COMPANY: FORMER CONFORMED NAME: BB&T Variable Insurance Funds DATE OF NAME CHANGE: 20041210 CENTRAL INDEX KEY: 0001311261 S000012130 BB&T LARGE CAP VARIABLE INSURANCE FUND C000033085 BB&T LARGE CAP VARIABLE INSURANCE FUND CENTRAL INDEX KEY: 0001311261 S000012133 BB&T LARGE CAP GROWTH VARIABLE INSURANCE FUND C000033088 BB&T LARGE CAP GROWTH VARIABLE INSURANCE FUND N-14/A 1 l23233dnv14za.txt BB&T VARIABLE INSURANCE FUNDS N-14/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 2006 REGISTRATION NO. 333-138725 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] [X] PRE-EFFECTIVE AMENDMENT NO. 2 [ ] POST-EFFECTIVE AMENDMENT NO. -- (Check appropriate box or boxes) BB&T FUNDS BB&T VARIABLE INSURANCE FUNDS (Exact Name of Registrant as Specified in Charter) 1-800-228-1872 (Area Code and Telephone Number) 3435 STELZER ROAD COLUMBUS, OH 43219 (Address of Principal Executive Offices) ------------ ALAN G. PRIEST, ESQUIRE ROPES & GRAY LLP ONE METRO CENTER 700 12(TH) STREET, N.W., SUITE 900 WASHINGTON, D.C. 20005 (Name and address of Agent for Service) ------------ APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this Registration Statement becomes effective. Title of securities being offered: Shares of BB&T Large Cap Fund and BB&T Large Cap VIF. An indefinite amount of the Registrant's securities has been registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at this time. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- IMPORTANT INFORMATION FOR SHAREHOLDERS INVESTED IN BB&T LARGE CAP GROWTH FUND AND OWNERS OF VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS INVESTED IN BB&T LARGE CAP GROWTH VIF The Combined Prospectus/Proxy Statement provides information for both the shareholders of the BB&T Large Cap Growth Fund, a retail fund, and for owners of variable annuity or life insurance contracts invested in the BB&T Large Cap Growth VIF, a variable insurance product. Any discussion below and in the Combined Prospectus/Proxy Statement relating to insurance companies and proportional voting applies only with respect to the BB&T Large Cap Growth VIF, not the BB&T Large Cap Growth Fund. The document you hold in your hands contains your Combined Prospectus/Proxy Statement and proxy card or voting instruction form. A proxy card is, in essence, a ballot. A voting instruction form tells your insurance company how to vote on your behalf with respect to the BB&T Large Cap Growth VIF. When you vote your proxy or complete your voting instruction form, you tell us how to vote on your behalf on important issues relating to your Fund. If you simply sign the proxy card or voting instruction form without specifying a vote, your shares will be voted in accordance with the recommendations of the Boards of Trustees of BB&T Funds and BB&T Variable Insurance Funds, as applicable (collectively, the "Board" or "Trustees"). If you do not return your voting instruction form or record your voting instructions by telephone or through the Internet with respect to the BB&T Large Cap Growth VIF, your insurance company will vote your shares in the same proportion as shares for which instructions have been received. We urge you to spend a few minutes with the Combined Prospectus/Proxy Statement, fill out your proxy card or voting instruction form, and return it (or vote by telephone or the Internet). By voting your proxy or completing your voting instruction form, and doing so promptly, you enable BB&T Funds and BB&T Variable Insurance Funds to avoid conducting additional mailings. Please take a few moments to exercise your right to vote. Thank you. BB&T FUNDS ---------- BB&T LARGE CAP GROWTH FUND BB&T LARGE CAP FUND BB&T VARIABLE INSURANCE FUNDS ----------------------------- BB&T LARGE CAP GROWTH VIF BB&T LARGE CAP VIF 3435 STELZER ROAD COLUMBUS, OHIO 43219 DECEMBER 15, 2006 Dear Investors: Enclosed you will find several documents being provided to you in connection with a joint special meeting of the shareholders of the BB&T Large Cap Growth Fund and BB&T Large Cap Growth VIF to be held January 24, 2007 at 9:00 a.m. at the offices of BISYS Fund Services Ohio, Inc., 100 Summer Street, Suite 1500, Boston, MA 02110. We hope this material will receive your immediate attention and that, if you cannot attend the meeting in person, you will vote your proxy or complete your voting instruction form promptly. The Combined Prospectus/Proxy Statement constitutes the Proxy Statement of BB&T Funds for the meeting of shareholders of the BB&T Large Cap Growth Fund (the "Large Cap Growth Fund") and of BB&T Variable Insurance Funds for the meeting of the shareholders of the BB&T Large Cap Growth VIF (the "Large Cap Growth VIF"). It also constitutes the Prospectus of (i) the BB&T Large Cap Fund (the "Large Cap Fund") which is to issue units of beneficial interest ("Shares") to be distributed to each of the Large Cap Growth Fund shareholders in connection with the proposed reorganization of the Large Cap Growth Fund with and into the Large Cap Fund, and (ii) the BB&T Large Cap VIF (the "Large Cap VIF") Shares to be distributed to each of the Large Cap Growth VIF shareholders in connection with the proposed reorganization of the Large Cap Growth VIF with and into the Large Cap VIF. The Board of Trustees of BB&T Funds (the "BB&T Trustees") is recommending that shareholders of the Large Cap Growth Fund approve a reorganization in which the Large Cap Growth Fund will transfer all of its assets to the Large Cap Fund in return for Institutional, Class A, Class B or Class C Shares of the Large Cap Fund. At the same time, the Large Cap Fund will assume all of the liabilities of the Large Cap Growth Fund. After the transfer, it is intended that Shares of the Large Cap Fund will be distributed to the shareholders of the Large Cap Growth Fund tax-free in liquidation of the Large Cap Growth Fund. As a result of these transactions, it is expected that Shares of the Large Cap Growth Fund will, in effect, be exchanged at net asset value and on a tax-free basis for Shares of the Large Cap Fund. Shareholders of the Large Cap Growth Fund holding Institutional, Class A, Class B or Class C Shares, will receive Institutional, Class A, Class B or Class C Shares, respectively, of the Large Cap Fund. The Board of Trustees of BB&T Variable Insurance Funds (the "VIF Trustees," and together with the BB&T Trustees, the "Trustees") is recommending that shareholders of the Large Cap Growth VIF approve a reorganization in which the Large Cap Growth VIF will transfer all of its assets to the Large Cap VIF in return for Shares of the Large Cap VIF. At the same time, the Large Cap VIF will assume all of the liabilities of the Large Cap Growth VIF. After the transfer, it is intended that Shares of the Large Cap VIF will be distributed to the shareholders of the Large Cap Growth VIF tax-free in liquidation of the Large Cap Growth VIF. As a result of these transactions, it is expected that Shares of the Large Cap Growth VIF will, in effect, be exchanged at net asset value and on a tax-free basis for Shares of the Large Cap VIF. These transactions will not result in recognition of any gain or loss for federal income tax purposes. BB&T Asset Management, Inc., the investment advisor to the Acquired and Acquiring Funds (the "Funds"), has advised the Trustees that it believes that the above-described transactions offer the shareholders of the Large Cap Growth Fund and Large Cap Growth VIF, respectively, enhanced investment management efficiencies, greater market leverage and market presence, economies of scale, and greater opportunities for asset growth. The Trustees believe that the proposed combinations of the Large Cap Growth Fund with the Large Cap Fund and Large Cap Growth VIF and Large Cap VIF are in the best interests of each of the Large Cap Fund and the Large Cap Growth Fund and its shareholders and Large Cap VIF and Large Cap Growth VIF and its shareholders, respectively, and recommend that you vote in favor of each proposal. While you are, of course, welcome to join us at the Joint Special Meeting, most Shareholders cast their votes by filling out and signing the enclosed proxy card (or vote by telephone or the Internet). In order to conduct the Joint Special Meeting, a majority of shares must be represented either in person or by proxy. Whether or not you plan to attend the Joint Special Meeting, we need your vote. Please mark, sign, and date the enclosed proxy card or voting instruction form and return it promptly in the enclosed, postage-paid envelope so that the maximum number of shares may be voted (or vote by telephone or the Internet). The Notice of Joint Special Meeting of shareholders, the accompanying Combined Prospectus/Proxy Statement, the form of proxy, and the form of voting instruction form are enclosed. Please read them carefully. If you are unable to attend the meeting in person, we urge you to sign, date, and return the proxy card (or vote by telephone or the Internet) so that your Shares may be voted in accordance with your instructions. SINCE THE MEETING IS LESS THAN SIX WEEKS AWAY, WE URGE YOU TO GIVE THE ENCLOSED MATERIAL YOUR PROMPT ATTENTION SO AS TO AVOID THE EXPENSE OF ADDITIONAL MAILINGS. Your vote is important to us. Thank you for taking the time to consider this important proposal. Sincerely yours, /s/ Keith F. Karlawish ---------------------------------------- Keith F. Karlawish President BB&T Funds BB&T Variable Insurance Funds BB&T LARGE CAP GROWTH FUND BB&T LARGE CAP GROWTH VIF NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS To the Shareholders of BB&T Large Cap Growth Fund and BB&T Large Cap Growth VIF: NOTICE IS HEREBY GIVEN that a Joint Special Meeting of shareholders of the BB&T Large Cap Growth Fund and BB&T Large Cap Growth VIF, will be held at the offices of BISYS Fund Services Ohio, Inc., 100 Summer Street, Suite 1500, Boston, MA 02110 on January 24, 2007 at 9:00 a.m. Eastern time, for the following purposes: 1. To consider and act upon an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Acquired Fund to the corresponding Acquiring Fund, as listed below:
ACQUIRED FUND ACQUIRING FUND ------------- -------------- BB&T Large Cap Growth Fund BB&T Large Cap Fund BB&T Large Cap Growth VIF BB&T Large Cap VIF
in exchange for Shares of the Acquiring Fund and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by the dissolution and liquidation of the Acquired Fund and the distribution of Shares of the Acquiring Fund to the shareholders of the Acquired Fund. 2. To transact such other business as may properly come before the Joint Special Meeting or any adjournment thereof. The proposed Agreements and Plans Reorganization (the "Reorganization Plans") are described in the attached Combined Prospectus/Proxy Statement. Copies of the Reorganization Plans are appended as Appendices A and B thereto. Pursuant to instructions of the Boards of Trustees of BB&T Funds and BB&T Variable Insurance Funds (the "Trustees"), the close of business on November 29, 2006, has been designated as the record date for determination of shareholders entitled to notice of, and to vote at, the Joint Special Meeting or any adjournment thereof. Shareholders and contract owners are requested to promptly vote by telephone or the Internet or to execute and return promptly in the enclosed envelope the accompanying proxy card or voting instruction form, as applicable, which is being solicited by BB&T Funds' and/or BB&T Variable Insurance Funds' Boards of Trustees. This is important to ensure a quorum at the special meeting. Proxies may be revoked at any time before they are exercised by submitting to BB&T Funds and/or BB&T Variable Insurance Funds a written notice of revocation or a subsequently executed proxy or by attending the Joint Special Meeting and voting in person. Contract owners should consult their insurance company regarding their ability to revoke voting instructions after such instructions have been provided to the insurance company. By Order of the Trustees /s/ James T. Gillespie ---------------------------------------- James T. Gillespie Secretary BB&T Funds BB&T Variable Insurance Funds Raleigh, North Carolina December 15, 2006 BB&T FUNDS BB&T VARIABLE INSURANCE FUNDS 3435 STELZER ROAD COLUMBUS, OHIO 43219 1-800-228-1872 December 15, 2006 COMBINED PROSPECTUS/PROXY STATEMENT This Combined Prospectus/Proxy Statement is furnished in connection with the solicitation of proxies from the holders of units of beneficial interest ("Shares") of BB&T Large Cap Growth Fund (the "Large Cap Growth Fund") and BB&T Large Cap Growth VIF (the "Large Cap Growth VIF," and together with the Large Cap Growth Fund, the "Acquired Funds") for use at a Joint Special Meeting of shareholders to approve the reorganization of the Large Cap Growth Fund with and into the BB&T Large Cap Fund (the "Large Cap Fund") and the reorganization of Large Cap Growth VIF with and into the BB&T Large Cap VIF (the "Large Cap VIF," and together with the Large Cap Fund, the "Acquiring Funds"). Acquired Fund shareholders of record on November 29, 2006 are entitled to receive notice of and to vote at the Joint Special Meeting. The reorganizations contemplate the transfer of all the assets and liabilities of each of the Acquired Funds to the corresponding Acquiring Fund in exchange for Acquiring Fund Shares, followed by the dissolution and liquidation of the Acquired Funds, and the distribution of Acquiring Fund Shares to shareholders of the Acquired Funds (the "Transactions"). As a result of the Transactions, each shareholder of the Acquired Funds will receive a number of full and fractional Shares of the corresponding Acquiring Fund equal in value at the date of the exchange to the net asset value of the Acquired Fund shares transferred by such shareholder to the corresponding Acquiring Fund. It is expected that the Transactions will not result in recognition of any gain or loss for federal income tax purposes. However, the Transactions will end the tax year of the Acquired Funds, likely accelerating taxable distributions from the Acquired Funds to shareholders. Large Cap Growth Fund shareholders holding Institutional, Class A, Class B or Class C Shares, will receive Institutional, Class A, Class B or Class C Shares, respectively, of the Large Cap Fund. Shares of the Large Cap Growth VIF are available exclusively as a pooled funding vehicle for variable life insurance policies and variable annuity contracts (each a "Contract") offered by the separate accounts, or sub-accounts thereof, of certain life insurance companies ("Participating Insurance Companies"). The Participating Insurance Companies own shares of the Large Cap Growth VIF as depositors for the owners of their respective Contracts (each a "Contract Owner"). Thus, individual Contract Owners are not the "shareholders" of the Large Cap Growth VIF. Rather, the Participating Insurance Companies and their separate accounts are the shareholders. To the extent required to be consistent with the interpretations of voting requirements by the staff of the Securities and Exchange Commission ("SEC"), each Participating Insurance Company will offer to Contract Owners the opportunity to instruct it as to how it should vote shares held by it and the separate accounts on the proposed merger. This Combined Prospectus/Proxy Statement is, therefore, furnished to Contract Owners entitled to give voting instructions with regard to the Large Cap Growth VIF. All persons entitled to direct the voting of shares of the Large Cap Growth VIF, whether or not they are shareholders, are described as voting for purposes of this Combined Prospectus/Proxy Statement. This Combined Prospectus/Proxy Statement, along with the Notice of a Joint Special Meeting of Shareholders and the proxy card or voting instruction form, is being mailed to shareholders and Contract Owners on or about December 19, 2006. It explains concisely what you should know before voting on the proposals described in this Combined Prospectus/Proxy Statement or investing in the Large Cap Growth VIF. Please read it carefully and keep it for future reference. The Large Cap Growth Fund and Large Cap Fund are portfolios ("series") of BB&T Funds, which is an open end management investment company consisting of 26 separate funds. The Large Cap Growth VIF and Large Cap VIF are portfolios ("series") of BB&T Variable Insurance Funds, which is an open end management investment company consisting of 6 separate funds. This Combined Prospectus/Proxy Statement explains concisely what you should know before investing in the Acquiring Funds. Please read it carefully and keep it for future reference. The current Prospectus of BB&T Funds for the Large Cap Growth Fund and the Large Cap Fund dated February 1, 2006, as supplemented (the "BB&T Prospectus"), the current Statement of Additional Information of BB&T Funds for the Large Cap Growth Fund and the Large Cap Fund dated February 1, 2006, as supplemented (the "BB&T SAI"), the current Prospectuses of BB&T Variable Insurance Funds for the Large Cap Growth VIF and Large Cap VIF dated May 1, 2006, as supplemented (collectively, the "VIF Prospectus"), and the current Statement of Additional Information of BB&T Variable Insurance Funds for the Large Cap Growth VIF and Large Cap VIF dated May 1, 2006, as supplemented (the "VIF SAI"), have been filed with the Securities and Exchange Commission and are incorporated by reference into this Combined Prospectus/Proxy Statement. The BB&T Prospectus and the BB&T Large Cap Growth VIF Prospectus will accompany this Combined Prospectus/Proxy Statement when furnished to shareholders. The BB&T Prospectus, VIF Prospectus, BB&T SAI and VIF SAI may be obtained, without charge, by contacting a broker or bank that sells the Acquired Funds and Acquiring Funds, by writing to BB&T Funds or BB&T Variable Insurance Funds at 3435 Stelzer Road, Columbus, Ohio 43219, by calling 1-800-228-1872, or, for the BB&T SAI only, by contacting BB&T Funds online at http://www.bbtfunds.com. In addition, a Statement of Additional Information dated December 15, 2006, relating to the Transactions described in this Combined Prospectus/Proxy Statement has been filed with the Securities and Exchange Commission and is also incorporated by reference into this Combined Prospectus/Proxy Statement. Such Statement of Additional Information may be obtained, without charge, by writing BB&T Funds or BB&T Variable Insurance Funds at the above-listed address or by calling 1-800-228-1872. BB&T Funds will furnish, without charge, a copy of the Annual Report dated September 30, 2006 to a shareholder upon written request to BB&T Funds at the above-listed address or by calling 1-800-228-1872. BB&T Variable Insurance Funds will furnish, without charge, a copy of the Annual Report dated December 31, 2005 and the Semi-Annual Report dated June 30, 2006 to a shareholder upon written request to BB&T Variable Insurance Funds at the above-listed address or by calling 1-800-228-1872. Investment Advisor -- BB&T Asset Management, Inc., 434 Fayetteville Street Mall, Raleigh, NC 27601. BB&T Funds Distributor -- BB&T Funds Distributor, Inc., 3435 Stelzer Road, Columbus, Ohio 43219. Administrator -- BB&T Asset Management, Inc., 434 Fayetteville Street Mall, Raleigh, NC 27601. Sub-Administrator -- BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219. AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME. LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A FUND. YOUR INVESTMENT IN A FUND IS NOT A DEPOSIT OR AN OBLIGATION OF BB&T, ITS AFFILIATES, OR ANY BANK. IT IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT IN CONNECTION WITH THE OFFERING MADE BY THIS COMBINED PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BB&T FUNDS OR BB&T VARIABLE INSURANCE FUNDS. THIS COMBINED PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFERING BY BB&T FUNDS OR BB&T VARIABLE INSURANCE FUNDS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. December 15, 2006 2 TABLE OF CONTENTS PROPOSAL (1) APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION................... 4 FEE TABLES...................................................................... 5 SYNOPSIS OF PROSPECTUS.......................................................... 8 PRINCIPAL RISK FACTORS.......................................................... 11 INFORMATION ABOUT THE TRANSACTIONS.............................................. 12 INFORMATION ABOUT THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS.................... 18 FINANCIAL HIGHLIGHTS............................................................ 19 VOTING INFORMATION.............................................................. 25 INTEREST OF CERTAIN PERSON IN THE TRANSACTIONS.................................. 27
3 PROPOSAL (1) APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION At a meeting held on August 29, 2006, the Boards of Trustees of BB&T Funds and BB&T Variable Insurance Funds (the "Trustees") unanimously approved Agreements and Plans of Reorganization (each a "Reorganization Plan," collectively the "Reorganization Plans") pursuant to which each Acquired Fund would be merged with and into the corresponding acquiring Fund on or about January 29, 2007 (the "Exchange Date"). On the Exchange Date, each Acquired Fund will transfer all of its assets and liabilities to the corresponding Acquiring Fund in exchange for Acquiring Fund Shares having an aggregate net asset value equal to the aggregate value of the net assets acquired from the Acquired Fund. The assets and liabilities of the Acquired Funds and the Acquiring Funds (the "Funds") will be valued as of the close of trading on the New York Stock Exchange on the business day preceding the Exchange Date. Following the transfer, each Acquired Fund will be dissolved and Shares of the corresponding Acquiring Fund received by each Acquired Fund will be distributed to that Acquired Fund's shareholders in liquidation of such Acquired Fund. As a result of the proposed Transactions, shareholders of each Acquired Fund will receive a number of full and fractional Shares equal in value at the date of the exchange to the value of the net assets of such Acquired Fund transferred to the corresponding Acquiring Fund attributable to the shareholder (based on the proportion of the outstanding Shares of the Acquired Fund owned at the time by the shareholder). It is expected that the Transactions will not result in any gain or loss for federal income tax purposes. However, the Transactions will end the tax year of the Acquired Funds, likely accelerating taxable distributions from the Acquired Funds to shareholders. All Large Cap Growth Fund shareholders will receive Shares of the BB&T class (Institutional, Class A, Class B or Class C) that corresponds to the class of Large Cap Growth Fund Shares that they hold (Institutional, Class A, Class B or Class C, respectively). For the reasons set forth below under "Reasons for the Proposed Transactions," the Trustees, including Trustees who are not "interested persons" of BB&T Funds and BB&T Variable Insurance Funds as defined in the Investment Company Act of 1940 (the "1940 Act") (the "Independent Trustees"), unanimously concluded that participation in the proposed Transactions is in the best interests of each of the Acquiring Funds, the Acquired Funds and their respective existing shareholders. In reaching this conclusion, the Trustees considered, among other things: (1) the compatibility of the objectives, strategies, restrictions and investment portfolios of each Acquiring Fund with those of the corresponding Acquired Fund; (2) the qualifications and experience of BB&T Asset Management, Inc. and Ronald T. Rimkus, CFA, the portfolio manager for both the Acquiring Funds, and the performance history of the Acquired and Acquiring Funds; (3) the investment management efficiencies that may be gained and the potential economies of scale which could be realized; (4) the continuation of all shareholder services currently provided to shareholders of the Acquired Funds; (5) the projected expense ratios of each Acquiring Fund as compared to the corresponding Acquired Fund; (6) the lack of adequate shareholder demand and the failure to accumulate assets experienced by the Acquired Funds over the past 2 years; (7) the limited demand for Acquired Fund shares, indicating limited prospects for growth; (8) the fact that the Transactions will result in a better use of resources; (9) the fact that any merger expense will be borne by BB&T Asset Management, Inc.; (10) the fact that the Transactions are expected to not result in a recognition of any gain or loss for federal income tax purposes; 4 (11) the fact that the potential benefits of the Transactions, including reduced volatility, reduced transaction costs and with respect to the Large Cap Growth VIF/Large Cap VIF Transaction, reduced expenses, are expected to outweigh any negative potential direct or indirect consequences of the Transactions, including direct or indirect federal income tax consequences and additional brokerage costs, to the shareholders of both Acquired Funds; (12) the fact that the economic interests of shareholders of the Funds will not be diluted as a result of the proposed Transactions; and (13) the recommendation of BB&T Asset Management, Inc. in favor of the Transactions. Acquired Fund shareholders who do not wish to be reorganized into the respective Acquiring Fund and have their Acquired Fund shares exchanged for shares of the Acquiring Fund should redeem their shares prior to the consummation of the Transactions. If you redeem your shares you may recognize a taxable gain or loss based on the difference between your tax basis in the shares and the amount you receive for them. FEE TABLES Fee tables showing the current fees as of September 30, 2006 for the Large Cap Growth Fund and the Large Cap Fund, as well as the pro forma fees annualized after the reorganization and after fee waivers and/or expense reimbursement, are below:
BB&T LARGE CAP GROWTH FUND BB&T LARGE CAP FUND ----------------------------------------------- ----------------------------------------------- INSTITUTIONAL CLASS A CLASS B CLASS C INSTITUTIONAL CLASS A CLASS B CLASS C ------------- ------- ------- ------- ------------- ------- ------- ------- Shareholder Fees (fees paid directly from your investment)(1) Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)...... None 5.75%(2) None None None 5.75%(2) None None Maximum Sales Charge on Reinvested Dividends............ None None None None None None None None Maximum Deferred Sales Load................. None None 5.00%(3) 1.00%(4) None None 5.00%(3) 1.00%(4) Redemption Fee (on Shares sold within 7 calendar days of purchase)(5)......... None None None None None None None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees........ 0.74% 0.74% 0.74% 0.74% 0.74% 0.74% 0.74% 0.74% Distribution/Service (12b-1) Fees......... None 0.50% 1.00% 1.00% None 0.50% 1.00% 1.00% Other Expenses......... 0.18% 0.18% 0.18% 0.18% 0.19% 0.19% 0.19% 0.19% Total Annual Fund Operating Expenses .. 0.92% 1.42% 1.92% 1.92% 0.93% 1.43% 1.93% 1.93% Fee Waiver and/or Expense Reimbursement(6)..... 0.04% 0.29% 0.04% 0.04% 0.04% 0.29% 0.04% 0.04% Net Expenses........... 0.88% 1.13% 1.88% 1.88% 0.89% 1.14% 1.89% 1.89%
-------- (1) Participating banks or other financial institutions may charge their customers account fees for automatic investment, exchanges and other cash management services provided in connection with investment in the Fund. 5 (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. (3) A CDSC on Class B shares declines over six years, starting with year one and ending on the sixth anniversary from: 5.00%, 4.00%, 3.00%, 3.00%, 2.00%, 1.00%. (4) The CDSC on Class C Shares is applicable only to redemption within one year of purchase. (5) A wire transfer fee of $7.00 may be deducted from the amount of your redemption, regardless of the date of purchase, if you request a wire transfer. This fee is currently being waived. (6) BB&T Asset Management, Inc. (the "Advisor") has contractually agreed to limit the management fees paid by the Fund to 0.70% for the period from February 1, 2006 through January 31, 2008. Additionally, BB&T Funds Distributor, Inc. (the "Fund's Distributor") has contractually agreed to limit the distribution and service fees for Class A shares of the Fund to 0.25% for the same period.
PRO FORMA BB&T LARGE CAP FUND ------------------------------------------------------- INSTITUTIONAL CLASS A CLASS B CLASS C ------------- ------- ------- ------- Shareholder Fees (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).................................. None 5.00% None None Maximum Sales Charge on Reinvested Dividends............................... None None None None Maximum Deferred Sales Load............... None None 5.00%(2) 1.00%(3) Redemption Fee (on Shares sold within 7 calendar days of purchase).............. None None None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees........................... 0.74% 0.74% 0.74% 0.74% Distribution/Service (12b-1) Fees......... None 0.50% 1.00% 1.00% Other Expenses............................ 0.18% 0.18% 0.18% 0.18% Total Annual Fund Operating Expenses...... 0.92% 1.42% 1.92% 1.92% Fee Waiver and/or Expense Reimbursement... 0.04% 0.29% 0.04% 0.04% Net Expenses.............................. 0.88%(1) 1.13%(1) 1.88%(1) 1.88%(1)
-------- (1) The Fund's Advisor has contractually agreed to limit the management fees paid by the Fund to 0.70% for the period from December 8, 2006 through January 31, 2008. Additionally, the Fund's Distributor has contractually agreed to limit the distribution and service fees for Class A shares of the Fund to 0.25% for the same period. (2) A CDSC on Class B Shares declines over six years starting with year one and ending on the sixth anniversary from: 5.00%, 4.00%, 3.00%, 3.00%, 2.00%, 1.00%. (3) The CDSC for Class C Shares is applicable only to redemption within one year of purchase. Fee tables showing the current fees as of December 31, 2005 for the Large Cap Growth VIF and the Large Cap VIF, as well as the pro forma fees annualized after the reorganization and after fee waivers and/or expense reimbursement, are below. The table does not reflect separate account or insurance contract fees and charges. If they had been included, the expenses would have been higher.
BB&T LARGE CAP BB&T LARGE PRO FORMA BB&T GROWTH VIF CAP VIF LARGE CAP VIF -------------- ---------- -------------- ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees............................. 0.74%(1) 0.74%(1) 0.74%(3) Other Expenses.............................. 0.29%(2) 0.24%(2) 0.24% Total Annual Fund Operating Expenses........ 1.03%(1) 0.98%(1) 0.98%(3)
6 -------- (1) BB&T Asset Management currently limits its management fees to 0.50%. Total annual operating expenses, after fee waivers and expense reimbursements are limited to 0.79% for the Large Cap Growth VIF and 0.74% for the Large Cap VIF. Any fee waiver or expense reimbursement is voluntary and may be terminated at any time. (2) Expense information in the table has been restated to reflect changes in the contractual amounts of current fees. (3) It is expected that BB&T Asset Management will continue to voluntarily limit its management fees to 0.50%. Total annual operating expenses, after fee waivers and expense reimbursements are expected to be limited to 0.74% for the Fund. Any fee waiver or expense reimbursement is voluntary and may be terminated at any time. EXAMPLE: Use the tables below to compare fees and expenses with the fees and expenses of other mutual funds. The tables illustrate the amount of fees and expenses you and the Fund would pay, assuming a $10,000 initial investment, 5% annual return, payment of maximum sales charges, and no changes in the Fund's operating expenses. Because these examples are hypothetical and for comparison only, your actual costs may be different.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- BB&T Large Cap Fund(2) Institutional Shares.................... $ 91 $293 $ 514 $1,151 Class A Shares.......................... $685 $968 $1,279 $2,160 Class B Shares Assuming Redemption.................. $592 $901 $1,137 $2,120(1) Assuming No Redemption............... $192 $601 $1,037 $2,120(1) Class C Shares Assuming Redemption.................. $192 $601 $1,037 $2,250 Assuming No Redemption............... $192 $601 $1,037 $2,250 BB&T Large Cap Growth Fund(2) Institutional Shares.................... $ 90 $288 $ 504 $1,127 Class A Shares.......................... $684 $965 $1,274 $2,150 Class B Shares Assuming Redemption.................. $591 $898 $1,132 $2,110(1) Assuming No Redemption............... $191 $598 $1,032 $2,110(1) Class C Shares Assuming Redemption.................. $191 $598 $1,032 $2,239 Assuming No Redemption............... $191 $598 $1,032 $2,239 BB&T Large Cap Pro Forma(2) Institutional Shares.................... $ 90 $288 $ 504 $1,127 Class A Shares.......................... $684 $965 $1,274 $2,150 Class B Shares Assuming Redemption.................. $591 $898 $1,132 $2,110(1) Assuming No Redemption............... $191 $598 $1,032 $2,110(1) Class C Shares Assuming Redemption.................. $191 $598 $1,032 $2,239 Assuming No Redemption............... $191 $598 $1,032 $2,239 BB&T Large Cap Growth VIF(3).............. $105 $328 $ 569 $1,259 BB&T Large Cap VIF(3)..................... $100 $312 $ 542 $1,201 BB&T Large Cap VIF Pro Forma(3)........... $100 $312 $ 542 $1,201
-------- (1) Reflects automatic conversion of Class B Shares to Class A Shares after eight years. (2) The example assumes net expenses through January 31, 2008, and total annual operating expenses thereafter. (3) The example does not reflect separate account or insurance contract fees and charges. If they had been included, the fees and expenses would have been higher. 7 SYNOPSIS Summary. The following is a synopsis of certain information relating to the Transactions and is qualified by reference to the more complete information contained in this Combined Prospectus/Proxy Statement, the BB&T SAI, the VIF SAI, and the Appendices attached hereto. Key Features of Transaction. The shareholders of the Acquired Funds are being asked to approve or disapprove the Agreements and Plans of Reorganization adopted by the Trustees dated as of December 5, 2006 (the "Reorganization Plans"), copies of which are attached to this Combined Prospectus/Proxy Statement as Appendices A and B. The Reorganization Plans provide, among other things, for the transfer of all of the assets of each Acquired Fund into the corresponding Acquiring Fund in exchange for the assumption by that Acquiring Fund of all of the liabilities of the Acquired Fund and for a number of Shares of the designated class, if applicable, calculated based on the value of the net assets of the corresponding Acquired Fund acquired by that Acquiring Fund and the net asset value per Share of the Acquiring Fund, all as more fully described below under "Information about the Transactions." After receipt of Shares, each Acquired Fund will dissolve, distributing the Shares to its shareholders in complete liquidation, and each Acquired Fund will be terminated. Prior to the date of such transfer (the "Exchange Date"), each Acquired Fund will declare a distribution to its shareholders which, together with all previous distributions, will have the effect of distributing to its shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid), if any, and net realized capital gains, if any, through the Exchange Date. At a meeting held on August 29, 2006, the Trustees, including the Independent Trustees, voted unanimously to approve the Transactions and to recommend that shareholders of each Acquired Fund also approve the Transactions. Approval of each Reorganization Plan requires the affirmative vote of a majority of votes cast by the corresponding Acquired Fund. A shareholder of each Acquired Fund objecting to the proposed Transactions is not entitled under either Massachusetts law, BB&T Funds' Declaration of Trust or BB&T Variable Insurance Funds' Declaration of Trust to demand payment for or an appraisal of his or her particular Shares if the Transactions is consummated over his or her objection. However, Shares of each Acquired Fund are redeemable for cash at their net asset value on days on which the New York Stock Exchange is open for regular trading. If you redeem your Shares, you may recognize a taxable gain or loss based on the difference between your tax basis in the Shares and the amount you receive for them. In the event that this proposal is not approved by the shareholders of a Acquired Fund, such Acquired Fund will continue to be managed as a separate fund in accordance with its current investment objectives and policies, and the Trustees of the BB&T Funds and/or BB&T Variable Insurance Funds may consider alternatives in the best interests of the shareholders. Each Transaction is not contingent on the approval of the other Transaction. However, if approval of a Reorganization Plan is obtained, the reorganization of the corresponding Acquired Fund will be consummated. Comparison. Below is a brief comparison of the principal investment objectives and strategies of the Large Cap Growth Fund to the Large Cap Fund and the Large Cap Growth VIF and the Large Cap VIF. The following discussion is qualified in its entirety by the disclosure on such subjects contained in this Combined Prospectus/Proxy Statement, the BB&T SAI and the VIF SAI. For a full and detailed description of permitted investments, see such applicable documents. The proposed Transactions may result in higher than normal portfolio turnover. FUNDAMENTAL OBJECTIVE.
ACQUIRED FUND ACQUIRING FUND ------------- -------------- Large Cap Growth Fund. The Large Cap Large Cap Fund. The Large Cap Fund Growth Fund seeks long-term capital seeks capital growth, current income or appreciation by investing primarily in both, primarily through investment in a diversified portfolio of equity and stocks. equity-related securities of large capitalization growth companies. -------------------------------------------------------------------------------- Large Cap Growth VIF. The Large Cap Large Cap VIF. The Large Cap VIF seeks Growth VIF seeks capital growth. capital growth, current income, or both.
8 PRINCIPAL INVESTMENT STRATEGIES.
ACQUIRED FUND ACQUIRING FUND ------------- -------------- Large Cap Growth Fund. To pursue this Large Cap Fund. To pursue this goal, goal, the Fund invests primarily in the Fund invests primarily in common stocks, as well as American domestically traded U.S. common stocks Depositary Receipts ("ADRs"), of large of large U.S. companies and U.S. traded capitalization companies that the equity stocks of foreign companies portfolio manager believes have whose capitalization is within the attractive potential for growth. Large range of those companies in the S&P capitalization companies are those 500(R) Index. In managing the Fund, the companies whose market capitalization portfolio manager selects those stocks is within the range of those companies that he believes are undervalued and in the Russell 1000(R) Growth Index. In have a favorable outlook. In choosing managing the Fund's portfolio, the individual stocks, the portfolio manager uses a variety of economic manager uses quantitative and projections, quantitative techniques, qualitative processes to examine and earnings projections in formulating intrinsic value and the fundamental individual stock purchase and sale outlook of a particular issuer. The decisions. In choosing individual Fund may also invest in certain other stocks, the portfolio manager primarily equity securities in addition to those uses a fundamental investment process described above. Under normal to identify companies with a history of circumstances, the Fund will invest at above average growth or companies that least 80% of its net assets plus are expected to enter periods of above borrowings in the securities of large average growth. Some of the criteria companies. This policy will not be that the manager uses to select these changed without 60 days' advance notice companies are return on equity, price to shareholders. Large companies are and earnings momentum, earnings those companies with market surprise, the company's management and capitalizations within the range of the company's position within its those companies in the S&P 500(R) industry. The Fund may also invest in Index. These stocks may include common certain other equity securities in stock, preferred stock, warrants, or addition to those described above. debt instruments that are convertible Under normal circumstances, the Fund to common stock. will invest at least 80% of its net assets plus borrowings in the securities of large companies. This policy will not be changed without 60 days' advance notice to shareholders. Large companies are those companies with market capitalizations within the range of those companies in the Russell 1000(R) Growth Index. -------------------------------------------------------------------------------- Large Cap Growth VIF. Under normal Large Cap VIF. Under normal market market conditions, the Fund will invest conditions, the Fund will invest at at least 80% of its assets in a least 80% of its assets in equity diversified portfolio of equity securities issued by large securities issued by large capitalization companies, which may capitalization companies, and will include common stocks, preferred primarily invest in companies that BB&T stocks, warrants, or debt instruments Asset Management believes have the that are convertible into common potential to provide significant stocks. For purposes of this policy, capital growth. Large capitalization large capitalization companies are companies are those companies whose those companies with a capitalization market capitalization is within the within the range of those companies in range of those companies in the Russell the S&P 500(R) Index (as of May 31, 1000(R) Growth Index (as of March 31, 2006, $455 million to $371 billion), as 2006, $952 million to $368.9 billion). well as American Depositary Receipts A portion of the Fund's assets may be ("ADRs"). invested in preferred stock or bonds convertible into common stock.
Distribution, Purchase and Redemption Procedures and Exchange Rights. Distribution, purchase and redemption procedures and exchange rights are identical for each Acquired Fund and corresponding Acquiring Fund. Federal Tax Considerations. For federal income tax purposes, it is intended that each Transaction will qualify as a tax-free reorganization. Accordingly, the Transactions are expected not to result in the recognition of gain or loss for federal income tax purposes for any of the Funds or the shareholders of any Fund, and the aggregate tax basis of the Acquiring Fund shares received by a shareholder of an Acquired Fund are expected 9 to equal the aggregate tax basis of that shareholder's Acquired Fund shares. At any time prior to the consummation of the Transactions, a shareholder may redeem shares, likely resulting in recognition of gain or loss to such shareholder for federal income tax purposes. However, since the Transactions will end the tax year of each Acquired Fund, it may accelerate distributions from the Acquired Funds to shareholders. Specifically, each Acquired Fund will recognize any net investment company taxable income, any net tax-exempt investment income and any net capital gains, including those realized on disposition of portfolio securities in connection with the Transactions (after reduction by any available capital loss carryforwards) or net capital losses in the short tax year ending on the date of the reorganization, and will declare and pay a distribution of such income and any such net capital gains remaining after reduction by any available capital loss carryforwards to its shareholders on or before that date. A substantial portion of the portfolio assets of each Acquired Fund may be sold in connection with the Transactions. The actual tax impact of such sales will depend on the difference between the price at which such portfolio assets are sold and such Acquired Fund's basis in such assets. Any capital gains recognized in these sales, if any, will be distributed to such Acquired Fund's shareholders as capital gain dividends (to the extent of net realized long-term capital gains distributed) and/or ordinary dividends (to the extent of net realized short-term capital gains distributed) during or with respect to the year of sale, and such distributions in general will be taxable to shareholders. With regard to the Large Cap Growth VIF, as long as contracts funded through the separate accounts of the insurance company shareholder qualify as annuity contracts or life insurance contracts under Section 72 or Section 7702(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the Transactions will not create any tax liability for contract owners. The cost basis and holding period of shares in each Acquired Fund are expected to carry over to new shares in the respective Acquiring Fund. For more information about the federal income tax consequences of the Transactions, see "Information About the Transactions -- Federal Income Tax Consequences" below. 10 PRINCIPAL RISK FACTORS
ACQUIRED FUND ACQUIRING FUND ------------- -------------- Large Cap Growth Fund. Your investment Large Cap Fund. Your investment in the in the Fund may be subject to market Fund may be subject to market risk and risk and investment style risk. Market investment style risk. Market risk is risk is the possibility that the Fund's the possibility that the Fund's stock stock holdings will decline in price holdings will decline in price because because of a broad stock market decline. of a broad stock market decline. Markets Markets generally move in cycles, with generally move in cycles, with periods periods of rising prices followed by of rising prices followed by periods of periods of falling prices. The value of falling prices. The value of your your investment will tend to increase or investment will tend to increase or decrease in response to these movements. decrease in response to these movements. Investment style risk is the possibility Investment style risk is the possibility that the market segment on which this that the market segment on which this Fund focuses -- large cap growth Fund focuses -- large cap stocks -- will stocks -- will underperform other kinds underperform other kinds of investments of investments or market averages. The or market averages. The Fund may trade Fund may trade securities actively, securities actively, which could which could increase its transaction increase its transaction costs (thereby costs (thereby lowering its performance) lowering its performance) and may and may increase the amount of taxes increase the amount of taxes that you that you pay. If the Fund invests in pay. If the Fund invests in securities securities with additional risks, its with additional risks, its share price share price volatility accordingly could volatility accordingly could be greater be greater and its performance lower. and its performance lower. --------------------------------------------------------------------------------- Large Cap Growth VIF. An investment in Large Cap VIF. An investment in the the Fund entails investment risk, Fund entails investment risk, including including possible loss of the principal possible loss of the principal amount amount invested. The Fund is subject to invested. The Fund is subject to market market risk, which is the risk that the risk, which is the risk that the market market value of a portfolio security may value of a portfolio security may move move up and down, sometimes rapidly and up and down, sometimes rapidly and unpredictably. This risk may be greatest unpredictably. This risk may be greatest for the Fund's investments in common for the Fund's investments in stocks. stocks. Large-capitalization growth The Fund also is subject to interest stocks may fall out of favor with rate risk, which is the risk that investors, and may be particularly changes in interest rates will affect volatile in the event of earnings the value of the Fund's investments. In disappointments or other financial particular, the Fund's investments in difficulties. The market could favor fixed income securities, such as value stocks to the exclusion of growth convertible bonds and preferred stocks, stocks, or may not favor equities at generally will change in value inversely all. The Fund also is subject to with changes in interest rates. Also, interest rate risk, which is the risk the Fund's investments may expose it to that changes in interest rates will credit risk, which is the risk that the affect the value of the Fund's issuer of a security will default or not investments. In particular, the Fund's be able to meet its financial investments in fixed income securities, obligations. such as convertible bonds and preferred stocks, generally will change in value inversely with changes in interest rates. Also, the Fund's investments may expose it to credit risk, which is the risk that the issuer of a security will default or not be able to meet its financial obligations.
As shown in the table above, the principal risks of each Acquired Fund and the corresponding Acquiring Fund are similar, except that the Acquired Funds invest in large cap growth stocks and are subject to the additional risk that the market may not favor large cap growth stocks. The Acquiring Funds have the ability to invest in large cap stocks, including both large cap growth and large cap value stocks, allowing them to respond to market changes. 11 INFORMATION ABOUT THE TRANSACTIONS Reorganization Plan; Securities. The proposed Reorganization Plans provide that the Acquiring Funds will acquire all of the assets of the Acquired Funds in exchange for the assumption by the Acquiring Funds of all of the liabilities of the Acquired Funds, and for Shares, all as of the Exchange Date (defined in the Reorganization Plans to be on or about January 29, 2007, or such other date as determined by the Trustees.) The following discussion of the Reorganization Plans is qualified in its entirety by the full text of the Reorganization Plans, which is attached as Appendices A and B to this Combined Prospectus/Proxy Statement. As a result of the Transactions, each shareholder of an Acquired Fund will receive that number of full and fractional Shares equal in value at the Exchange Date to the value of the portion of the net assets of the Acquired Fund transferred to the corresponding Acquiring Fund attributable to the shareholder (based on the proportion of the outstanding Shares of that Acquired Fund owned by the shareholder as of the valuation time). The portfolio securities of each Acquired Fund will be valued in accordance with the generally employed valuation procedures of BB&T Funds and BB&T Variable Insurance Funds, as applicable. The reorganizations are being accounted for as tax-free business combinations. At a meeting held on August 29, 2006, all of the Trustees, including the Independent Trustees, unanimously determined that the reorganizations would be in the best interests of the Funds and existing shareholders, and that the economic interests of their existing shareholders would not be diluted as a result of effecting the reorganizations. Immediately following the Exchange Date, each Acquired Fund will distribute pro rata to its shareholders of record as of the close of business on the Exchange Date the full and fractional Shares received by it, and the Acquired Fund will be liquidated and dissolved. Such liquidation and distribution will be accomplished by the establishment of accounts on the Share records of the corresponding Acquiring Fund in the name of the Acquired Fund's shareholders, each account representing the corresponding number of full and fractional Shares due such shareholder. All Large Cap Growth Fund shareholders will receive Shares of the BB&T class (Institutional, Class A, Class B or Class C) that corresponds to the class of the Large Cap Growth Fund that they hold (Institutional, Class A, Class B or Class C, respectively). The consummation of the Transactions is subject to the conditions set forth in the Reorganization Plans. The Reorganization Plans may be terminated and the Transactions abandoned at any time, before or after approval by the shareholders, prior to the Exchange Date by consent of BB&T Funds or BB&T Variable Insurance Funds or, if any condition set forth in the Reorganization Plans has not been fulfilled and has not been waived by the party entitled to its benefits, by such party. If the Transactions are approved, Acquired Fund shareholders who do not wish to have their Acquired Fund Shares exchanged for Shares of the Acquiring Fund should redeem their shares prior to consummation of the Transactions. If you redeem your Shares you may recognize a taxable gain or loss based on the difference between your tax basis in the shares and the amount you received for them. All fees and expenses incurred by the Funds as a direct result of the Transactions contemplated by the Reorganization Plans, will be borne by BB&T Asset Management, Inc., including the costs of proxy materials, proxy solicitations and legal expenses. Aggregate costs of the Transactions are estimated to range between $150,000 and $225,000. Fees and expenses not incurred directly in connection with the consummation of the Transactions will be paid by the party directly incurring such expenses, and such fees and expenses will be paid by the party directly incurring such expenses if and to the extent that payment by the other party would result in the disqualification of any Fund, as the case may be, as a "regulated investment company" within the meaning of Section 851 of the Code. The Board has determined that the interests of the existing shareholders of the Funds will not be diluted as a result of the Transactions. Full and fractional Shares will be issued to each Acquired Fund's shareholders in accordance with the procedure under the Reorganization Plans as described above. Each Acquiring Fund Share will be fully paid and nonassessable when issued, will be transferable without restriction, and will have no preemptive or conversion rights. 12 BB&T Funds' Declaration of Trust permits BB&T Funds to divide its Shares of any series, without shareholder approval, into one or more classes of Shares having such variations as to dividend, redemption, and voting rights, net asset values, expenses borne by the classes, and other matters as the Trustees have authorized, provided that each Share of a class shall represent an equal proportionate interest in the assets and liabilities of the class with each other Share of the same class, none having priority or preference over another. Shares of certain of the BB&T Funds are currently divided into four classes: Class A, Class B, Class C, and Institutional Shares. Institutional, Class A, Class B or Class C Shares will be distributed as applicable by BB&T Funds in connection with the Large Cap Fund/Large Cap Growth Fund Transaction. Upon consummation of the Large Cap Fund/Large Cap Growth Fund Transaction, Large Cap Growth Fund shareholders holding Institutional, Class A, Class B or Class C Shares, will receive Institutional, Class A, Class B or Class C Shares, respectively, of the Large Cap Fund. Under Massachusetts law, BB&T Funds' and BB&T Variable Insurance Funds' shareholders, could, under certain circumstances, be held personally liable for the obligations of BB&T Funds and BB&T Variable Insurance Funds, respectively. However, the Declarations of Trust disclaim shareholder liability for acts or obligations of BB&T Funds and BB&T Variable Insurance Funds. The Declarations of Trust provide for indemnification out of BB&T Funds or BB&T Variable Insurance Funds property for all loss and expense of any shareholder held personally liable for the obligations of BB&T Funds or BB&T Variable Insurance Funds. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which BB&T Funds or BB&T Variable Insurance Funds would be unable to meet its obligations. The likelihood of such circumstances is remote. Reasons For The Proposed Transactions. A meeting was held on August 29, 2006, for the BB&T Funds' and BB&T Variable Insurance Funds' Trustees, at which meeting all of the Trustees, including the Independent Trustees, unanimously determined that the Transactions would be in the best interests of existing shareholders of the Funds. The Trustees also unanimously determined that the economic interests of such shareholders would not be diluted as a result of effecting the Transactions. At this same meeting, all of the Trustees, including the Independent Trustees, unanimously adopted the Reorganization Plans and recommended approval of the Transactions. In electing to approve each reorganization and recommend it to shareholders of the applicable Acquired Fund, the Trustees acted upon information provided to them, indicating that the proposed Transactions would operate in the best interests of the Funds' shareholders. In particular, the Trustees considered the following details: (1) The compatibility of the objectives, strategies, restrictions and investment portfolios of each Acquiring Fund with those of the corresponding Acquired Fund. As discussed under the "Synopsis," each Acquired Fund and its corresponding Acquiring Fund have substantially similar fundamental investment objectives. The Trustees considered that, over time, the Acquiring Funds' flexibility to invest in either value or growth stocks, depending upon prevailing market conditions, may provide greater value to shareholders of each Acquired Fund. The Acquired Funds and Acquiring Funds also share similar investment strategies. While both of the Acquiring Funds invest generally in large capitalization stocks, each of the Acquired Funds focuses on large capitalization "growth" stocks. The Trustees considered the overlap in the portfolio compositions of the Acquired Funds and Acquiring Funds. BB&T Asset Management, Inc. advised the Trustees and the Trustees came to the conclusion that the objectives, strategies, restrictions and investment portfolios of each Acquiring Fund are compatible with those of the corresponding Acquired Fund. (2) The qualifications and experience of BB&T Asset Management, Inc. and Ronald T. Rimkus, CFA, the portfolio manager for both the Acquiring Funds, and the performance history of the Acquired and Acquiring Funds. The proposed Transactions will allow investment management to remain in the current investment adviser, BB&T Asset Management, Inc., under the direction of Ronald T. Rimkus, CFA, who currently 13 manages the Acquiring Funds. The Trustees considered the benefits that this arrangement will provide to shareholders of the Acquired Funds, including Mr. Rimkus's expertise. Ronald T. Rimkus, CFA, has been primarily responsible for the management of the Acquiring Funds since March 2006. Mr. Rimkus joined BB&T Asset Management, Inc. in January 2006 as the Director of Core Equity. From 2000 to 2006, Mr. Rimkus managed a large cap core equity product for Mesirow Financial, Inc. The Trustees reviewed and compared the performance history of the Acquiring Funds and the Acquired Funds. The performance history of each Acquiring Fund generally compares favorably to the performance history of the corresponding Acquired Fund. (3) The investment management efficiencies that may be gained and the potential economies of scale which could be realized. (4) The continuation of all shareholder services currently provided to shareholders of the Acquired Funds. (5) The projected expense ratios of each Acquired Fund as compared to the corresponding Acquired Fund. The Trustees determined that the Large Cap Growth Fund shareholders will be subject to the same expenses after the Transaction, and the Large Cap Growth VIF shareholders will benefit from the lower expense ratio of the Large Cap VIF. (6) The Trustees considered the lack of adequate shareholder demand and the failure to accumulate assets of each Acquired Fund, while considering the investment similarities among the Acquired Funds and the Acquiring Funds. Over the past two (2) years, net assets of the Large Cap Growth Fund have declined from $359 million on July 31 2004 to $343 million on July 31, 2006, while net assets of the Large Cap Growth VIF have remained fairly constant from $22 million on July 31, 2004 to $23 million on July 31, 2006. The merger is expected to result in greater investment leverage and market presence for the Acquiring Funds. In addition, former Acquired Fund shareholders would benefit from the resulting economies of scale attributable to the larger asset size of the Acquiring Funds. (7) The limited demand for Acquired Fund shares, indicating limited prospects for growth. (8) The fact that the Transactions will result in a better use of resources. (9) The fact that any merger expense will be borne by BB&T Asset Management, Inc. The fees and expenses incurred directly in connection with the consummation of the Transactions that relate to the merger will be borne by BB&T Asset Management, Inc. (10) The fact that the Transactions are expected to not result in the recognition of any gain or loss for federal income tax purposes. The BB&T Funds' and BB&T Variable Insurance Funds' Trustees were informed that the proposed Transactions involving the Acquiring Funds would occur only if it could be accomplished without resulting in the imposition of federal income taxes on any of the Funds or any of their shareholders as a direct result of the Transactions. (11) The fact that the potential benefits of the Transactions will outweigh any negative potential direct or indirect consequences of the Transactions to the shareholders of the Acquired Funds. The BB&T Funds' and BB&T Variable Insurance Funds' Trustees considered the potentially negative consequences of the Transactions on the former shareholders of the Acquired Funds, as described below. 14 The Board determined that the potential benefits to be gained from the proposed Transactions, outweigh the potentially negative direct or indirect consequences of the Transactions on the former shareholders of the Acquired Funds. Benefits include reduced volatility, reduced or consistent expenses and reduced transaction costs, anticipated economies of scale from increased assets, potential for greater diversification based on broader investment strategy, a solid performance record, and the potential for greater growth through the sale of fund shares. Among potential negative direct or indirect consequences is the potential loss of net capital loss carryforwards by each Acquired Fund and additional brokerage costs associated with portfolio assets of the Acquired Funds being sold in connection with the Transactions. See "Federal Income Tax Consequences" for additional information. (12) The fact that the economic interests of shareholders of each of the Funds will not be diluted as a result of the proposed Transactions. The BB&T Funds' and BB&T Variable Insurance Funds' Trustees were informed that the interests of each Fund's shareholders would not be diluted as a result of the proposed Transactions, and that each Acquired Fund's shareholders would receive, in the aggregate, Shares of the corresponding Acquiring Fund equal in value to the market value of the assets of the Acquired Fund. (13) The recommendation of BB&T Asset Management, Inc. in favor of the Transactions. Federal Income Tax Consequences. The Transactions are intended to be tax- free reorganizations. As a condition to the relevant Funds' obligations to consummate the applicable Transaction, BB&T Funds or BB&T Variable Insurance Funds (as applicable), on behalf of such Funds, will receive an opinion, in a form reasonably acceptable to such Funds, in respect of such Transaction from Ropes & Gray LLP, counsel to BB&T Funds and BB&T Variable Insurance Funds, to the effect that, although not free from doubt, on the basis of the existing provisions of the Code, the Treasury Regulations promulgated thereunder, current administrative rules, and court decisions, generally for federal income tax purposes, except as noted below: (i) such Transaction will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) under Section 1032 of the Code no gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund; (iii) under Section 362(b) of the Code the basis in the hands of the Acquiring Fund of the assets of the Acquired Fund transferred to the Acquiring Fund in the Transaction will be the same as the basis of such assets in the hands of the Acquired Fund immediately prior to the transfer; (iv) under Section 1223(2) of the Code the holding periods of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the periods during which such assets were held by the Acquired Fund; (v) under Section 361 of the Code no gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund, or upon the distribution of Acquiring Fund Shares by the Acquired Fund to its shareholders in liquidation; (vi) under Section 354 of the Code no gain or loss will be recognized by the Acquired Fund's shareholders upon the exchange of their Shares for Acquiring Fund Shares; (vii) under Section 358 of the Code, the aggregate basis of Acquiring Fund Shares an Acquired Fund shareholder receives in connection with the Transaction will be the same as the aggregate basis of his or her Acquired Fund Shares exchanged therefor; (viii) under Section 1223(1) of the Code, an Acquired Fund shareholder's holding period for his or her Acquiring Fund Shares will be determined by including the period for which he or she held the Acquired Fund Shares exchanged therefor, provided that he or she held such Acquired Fund Shares as capital assets; and (ix) the Acquiring Fund will succeed to, and take into account the items of the Acquired Funds described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Treasury Regulations thereunder. Ropes & Gray LLP will express no view with respect to the effect of the Transactions on any transferred asset as to which any unrealized gain or loss is required to be recognized at the end of a taxable year (or on the termination or transfer thereof) under federal income tax principles. 15 The opinion will be based on certain factual certifications and representations made by the officers of the Funds and will also be based on customary assumptions. The opinion is not a guarantee that the tax consequences of the Transactions will be as described above. It is possible that each Acquiring Fund's ability to utilize either its own or the corresponding Acquired Fund's pre-Transaction losses to offset the post- Transaction gains of the combined fund will be limited as a result of the Transaction due to the application of loss limitation rules under federal tax law. In addition, for five years beginning after the closing date, the combined fund will not be allowed to offset gains "built in" to either the Acquired or Acquiring Fund at the time of the Transaction against capital losses (including capital loss carryforwards) built in to the other Fund. As a result of these limitations, under certain circumstances the shareholders of either the Acquired or Acquiring Fund could receive distributions that are taxable in the hands of taxable shareholders earlier than they would if the Transaction were not to have occurred. The effect of these limitations, however, will depend on the amount of losses in each Fund at the time of the Transaction, and, in any event, these limitations will only affect taxable shareholders. Because the shareholders of the Large Cap Growth VIF and the Large Cap VIF are Participating Insurance Companies and their separate accounts (which are not taxable shareholders), the impact (if any) of these loss limitation rules in connection with the reorganization of the Large Cap Growth VIF with and into the Large Cap VIF will be generally inconsequential to shareholders. If the reorganization of the Large Cap Growth Fund with and into the Large Cap Fund were to have taken place on September 30, 2006, the combined fund's use of the pre-Transaction losses (including capital loss carryforwards) of the Large Cap Growth Fund and the Large Cap Fund would not have been limited by the above- described rules. However, because, as a result of the Transaction, the shareholders of the Large Cap Growth Fund will receive Shares of the combined fund, such shareholders will be allocated a proportionate share of any built-in gains in the Large Cap Fund's assets, as well as any taxable gains realized by the Large Cap Fund but not distributed to its shareholders prior to the Transaction. Accordingly, distributions to shareholders' of the Large Cap Growth Fund may be increased or accelerated as a result of the Transaction. If the Transaction were to have taken place on September 30, 2006, the combined fund would have had higher built-in gains as a percentage of net assets than the Large Cap Growth Fund prior to the Transaction because as of that date the Large Cap Fund had higher built-in gains as a percentage of net assets than the Large Cap Growth Fund. A substantial portion of the portfolio assets of the Acquired Funds may be sold in connection with the Transactions. The actual tax impact of such sales will depend on the difference between the price at which such portfolio assets are sold and that Acquired Fund's basis in such assets. Any net capital gains recognized in these sales will be distributed to such Acquired Fund's shareholders as capital gain dividends (to the extent of net realized long-term capital gains) and/or ordinary dividends (to the extent of net realized short- term capital gains) during or with respect to the year of sale, and such distributions will be taxable to shareholders. At or before the closing of the Transactions, each Acquired Fund will, and each Acquiring Fund may, declare a distribution to shareholders, which together with all previous distributions, will have the effect of distributing to shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid) and net capital gains, including those realized on disposition of portfolio securities in connection with the Transactions (after reduction by any available capital loss carryforwards), if any, through the closing of the Transactions. Such distributions will be taxable to shareholders. With regard to the Large Cap Growth VIF, as long as contracts funded through the separate accounts of the insurance company qualify as annuity contracts shareholder or life insurance contracts under Section 72 or Section 7702(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the Transactions will not create any tax liability for contract owners. This description of the federal income tax consequences of the Transactions is made without regard to the particular facts and circumstances of any shareholder. Shareholders are urged to consult their own tax advisors as to the specific consequences to them of the Transactions, including the applicability and effect of state, local, non-U.S. and other tax laws. 16 Voting Rights. Each shareholder of the Acquired Funds is entitled to one vote per Share and a proportionate fractional vote for any fractional Share. The former shareholders of the Large Cap Growth Fund, as holders of Institutional, Class A, Class B or Class C Shares of the Large Cap Fund, will vote separately as a fund or a class on matters relating solely to that fund or class. On all other matters, they will vote in the aggregate with shareholders of the Large Cap Fund. The former shareholders of the Large Cap Growth VIF, as holders of Shares of the Large Cap VIF, will vote separately as a fund on matters relating solely to that fund. On all other matters, they will vote in the aggregate with shareholders of the Large Cap VIF. As shareholders of the considerably larger Acquiring Funds following the Transactions, the former shareholders of the Acquired Funds will possess less proportional voting power when they vote separately as Acquiring Fund shareholders, or shareholders of the classes thereof, than they had when they voted separately as shareholders of the smaller Acquired Fund. Capitalization. The following tables set forth as of November 30, 2006 (i) the capitalization of the Large Cap Growth Fund, (ii) the capitalization of the Large Cap Fund, and (iii) the pro forma capitalization of the Large Cap Fund as adjusted giving effect to the proposed acquisition of assets at net asset value:
BB&T LARGE CAP GROWTH FUND ----------------------------------------------- INSTITUTIONAL CLASS A CLASS B CLASS C ------------- --------- --------- ------- Net Assets ($)........................ 149,133,584 9,203,337 8,635,918 39,146 Shares................................ 15,655,995 982,727 984,198 4,460 Net Asset Value per Share ($)......... 9.53 9.37 8.77 8.78
BB&T LARGE CAP FUND BB&T LARGE CAP FUND PRO FORMA COMBINED ------------------------------------------------- ------------------------------------------------- INSTITUTIONAL CLASS A CLASS B CLASS C INSTITUTIONAL CLASS A CLASS B CLASS C ------------- ---------- ---------- ------- ------------- ---------- ---------- ------- Net Assets ($)..... 596,045,284 50,266,190 15,025,992 177,619 745,178,868 59,469,527 23,661,910 216,765 Shares (a)......... 27,670,086 2,339,522 705,671 8,358 34,593,283 2,767,870 1,111,243 10,200 Net Asset Value per Share ($)........ 21.54 21.49 21.29 21.25 21.54 21.49 21.29 21.25
------------ (a) The share adjustment for merger for the Institutional Shares is 8,732,798, for Class A Shares is 554,379, for Class B Shares is 578,626 and for Class C Shares is 2,618. The following table sets forth as of November 30, 2006 (i) the capitalization of the Large Cap Growth VIF, (ii) the capitalization of the Large Cap VIF, and (iii) the pro forma capitalization of the Large Cap VIF as adjusted giving effect to the proposed acquisition of assets at net asset value:
BB&T LARGE CAP BB&T LARGE ADJUSTMENT BB&T LARGE CAP VIF GROWTH VIF CAP VIF FOR MERGER PRO FORMA COMBINED -------------- ---------- ---------- ------------------ Net Assets ($).............. 13,693,565 92,483,256 -- 106,176,821 Shares...................... 1,284,887 5,608,430 (454,473) 6,438,844 Net Asset Value per Share ($)....................... 10.66 16.49 -- 16.49
17 INFORMATION ABOUT THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS LARGE CAP GROWTH FUND LARGE CAP FUND Information about the Large Cap Growth Fund and Large Cap Fund is incorporated by reference into this Combined Prospectus/Proxy Statement from the BB&T Prospectus forming a part of its Registration Statement on Form N-1A (File No. 33-49098). LARGE CAP GROWTH VIF LARGE CAP VIF Information about the Large Cap Growth VIF and Large Cap VIF is incorporated by reference into this Combined Prospectus/Proxy Statement from the VIF Prospectus forming a part of its Registration Statement on Form N-1A (File No. 333-121205). 18 FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Funds' financial performance for the past 5 years or the period of each Fund's operations, if shorter. Certain information reflects financial results for a single Fund Share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). All unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. In addition, all such adjustments are of a normal recurring nature. FINANCIAL HIGHLIGHTS, LARGE CAP FUND AND LARGE CAP GROWTH FUND The financial highlights table is intended to help you understand the Funds' financial performance for the past 5 years or, if shorter, the period of the Funds' operations. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned [or lost] on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by KPMG LLP, an independent registered public accounting firm. This report, along with the Fund's financial statements, is incorporated by reference in the SAI, which is available upon request. 19 FINANCIAL HIGHLIGHTS, CLASS A SHARES Selected data for a share of beneficial interest outstanding throughout the periods indicated.
INVESTMENT ACTIVITIES -------------------------------------- DIVIDENDS NET ASSET NET NET REALIZED/ ----------------------------------- NET ASSET VALUE, INVESTMENT UNREALIZED TOTAL FROM NET NET REALIZED VALUE, BEGINNING INCOME GAINS (LOSSES) INVESTMENT INVESTMENT GAINS ON TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS PERIOD --------- ---------- -------------- ---------- ---------- ------------ --------- --------- LARGE CAP FUND Year Ended September 30, 2006..................... $19.47 0.30(a) 2.30 2.60 (0.30) (1.44) (1.74) $20.33 Year Ended September 30, 2005..................... $17.26 0.28 2.22 2.50 (0.29) -- (0.29) $19.47 Year Ended September 30, 2004..................... $14.87 0.23 2.38 2.61 (0.22) -- (0.22) $17.26 Year Ended September 30, 2003..................... $12.84 0.23 2.03 2.26 (0.23) -- (0.23) $14.87 Year Ended September 30, 2002..................... $16.79 0.18 (3.47) (3.29) (0.18) (0.48) (0.66) $12.84 LARGE CAP GROWTH FUND Year Ended September 30, 2006..................... $ 8.97 0.02(a) (0.05) (0.03) (0.01) -- (0.01) $ 8.93 Year Ended September 30, 2005..................... $ 8.22 0.02(a) 0.77 0.79 (0.04) -- (0.04) $ 8.97 Year Ended September 30, 2004..................... $ 7.69 (0.01) 0.54 0.53 -- -- -- $ 8.22 Year Ended September 30, 2003..................... $ 6.60 (0.02) 1.11 1.09 -- -- -- $ 7.69 Year Ended September 30, 2002..................... $ 8.16 (0.06) (1.50) (1.56) -- -- -- $ 6.60
RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------- RATIO OF NET INVESTMENT TOTAL NET ASSETS, RATIO OF INCOME RATIO OF RETURN END OF NET EXPENSES (LOSS) TO EXPENSES TO (EXCLUDES PERIOD TO AVERAGE AVERAGE NET AVERAGE PORTFOLIO SALES CHARGE)(B) (000) NET ASSETS(C) ASSETS(C) NET ASSETS*(C) TURNOVER RATE** ---------------- ----------- ------------- ------------ -------------- --------------- LARGE CAP FUND Year Ended September 30, 2006..................... 14.29% $48,656 1.14% 1.53% 1.43% 34.83% Year Ended September 30, 2005..................... 14.60% $39,756 1.14% 1.56% 1.48% 19.50% Year Ended September 30, 2004..................... 17.61% $31,783 1.20% 1.32% 1.56% 16.40% Year Ended September 30, 2003..................... 17.73% $25,397 1.17% 1.67% 1.55% 18.89% Year Ended September 30, 2002..................... (20.57)% $22,222 1.23% 1.11% 1.62% 23.02% LARGE CAP GROWTH FUND Year Ended September 30, 2006..................... (0.31)% $ 9,446 1.13% 0.19% 1.43% 186.19% Year Ended September 30, 2005..................... 9.62% $ 9,116 1.14% 0.38% 1.49% 62.78% Year Ended September 30, 2004..................... 6.89% $ 8,784 1.22% (0.33)% 1.58% 127.47% Year Ended September 30, 2003..................... 16.52% $ 7,042 1.18% (0.35)% 1.57% 91.73% Year Ended September 30, 2002..................... (19.12)% $ 6,240 1.28% (0.57)% 1.67% 100.46%
-------- * During the period certain fees were reduced. If such reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (a) Per share net investment income (loss) has been calculated using the average daily shares method. (b) Not annualized for periods less than one year. (c) Annualized for periods less than one year. 20 FINANCIAL HIGHLIGHTS, CLASS B SHARES Selected data for a share of beneficial interest outstanding throughout the periods indicated.
INVESTMENT ACTIVITIES -------------------------------------- DIVIDENDS NET ASSET NET NET REALIZED/ ----------------------------------- NET ASSET VALUE, INVESTMENT UNREALIZED TOTAL FROM NET NET REALIZED VALUE, BEGINNING INCOME GAINS (LOSSES) INVESTMENT INVESTMENT GAINS ON TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS PERIOD --------- ---------- -------------- ---------- ---------- ------------ --------- --------- LARGE CAP FUND Year Ended September 30, 2006................. $19.31 0.16(a) 2.27 2.43 (0.15) (1.44) (1.59) $20.15 Year Ended September 30, 2005................. $17.12 0.13 2.22 2.35 (0.16) -- (0.16) $19.31 Year Ended September 30, 2004................. $14.75 0.09 2.38 2.47 (0.10) -- (0.10) $17.12 Year Ended September 30, 2003................. $12.75 0.12 2.01 2.13 (0.13) -- (0.13) $14.75 Year Ended September 30, 2002................. $16.68 0.06 (3.44) (3.38) (0.07) (0.48) (0.55) $12.75 LARGE CAP GROWTH FUND Year Ended September 30, 2006................. $ 8.47 (0.05)(a) (0.05) (0.10) -- -- -- $ 8.37 Year Ended September 30, 2005................. $ 7.80 (0.03)(a) 0.72 0.69 (0.02) -- (0.02) $ 8.47 Year Ended September 30, 2004................. $ 7.36 (0.13) 0.57 0.44 -- -- -- $ 7.80 Year Ended September 30, 2003................. $ 6.36 (0.08)(a) 1.08 1.00 -- -- -- $ 7.36 Year Ended September 30, 2002................. $ 7.93 (0.12) (1.45) (1.57) -- -- -- $ 6.36
RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------- RATIO OF NET INVESTMENT TOTAL NET ASSETS, RATIO OF NET INCOME RATIO OF RETURN END OF EXPENSES TO (LOSS) TO EXPENSES TO (EXCLUDES PERIOD AVERAGE AVERAGE NET AVERAGE PORTFOLIO SALES CHARGE)(B) (000) NET ASSETS(C) ASSETS(C) NET ASSETS*(C) TURNOVER RATE** ---------------- ----------- ------------- ------------ -------------- --------------- LARGE CAP FUND Year Ended September 30, 2006................. 13.45% $14,808 1.88% 0.85% 1.93% 34.83% Year Ended September 30, 2005................. 13.75% $22,148 1.89% 0.82% 1.99% 19.50% Year Ended September 30, 2004................. 16.75% $26,309 1.95% 0.58% 2.06% 16.40% Year Ended September 30, 2003................. 16.74% $26,215 1.91% 0.92% 2.05% 18.89% Year Ended September 30, 2002................. (21.14)% $24,849 1.98% 0.36% 2.12% 23.02% LARGE CAP GROWTH FUND Year Ended September 30, 2006................. (1.18)% $ 8,970 1.88% (0.58)% 1.93% 186.19% Year Ended September 30, 2005................. 8.89% $12,621 1.89% (0.36)% 1.99% 62.78% Year Ended September 30, 2004................. 5.98% $13,845 1.96% (1.08)% 2.08% 127.47% Year Ended September 30, 2003................. 15.72% $14,217 1.93% (1.10)% 2.07% 91.73% Year Ended September 30, 2002................. (19.80)% $13,040 2.03% (1.32)% 2.17% 100.46%
-------- * During the period certain fees were reduced. If such reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (a) Per share net investment income (loss) has been calculated using the average daily shares method. (b) Not annualized for periods less than one year. (c) Annualized for periods less than one year. 21 FINANCIAL HIGHLIGHTS, CLASS C SHARES Selected data for a share of beneficial interest outstanding throughout the periods indicated.
INVESTMENT ACTIVITIES -------------------------------------- DIVIDENDS NET ASSET NET NET REALIZED/ ----------------------------------- NET ASSET VALUE, INVESTMENT UNREALIZED TOTAL FROM NET NET REALIZED VALUE, BEGINNING INCOME GAINS (LOSSES) INVESTMENT INVESTMENT GAINS ON TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS PERIOD --------- ---------- -------------- ---------- ---------- ------------ --------- --------- LARGE CAP FUND Year Ended September 30, 2006................. $19.28 0.16(a) 2.26 2.42 (0.15) (1.44) (1.59) $20.11 Year Ended September 30, 2005................. $17.09 0.14 2.19 2.33 (0.14) -- (0.14) $19.28 Year Ended September 30, 2004................. $14.73 0.09 2.37 2.46 (0.10) -- (0.10) $17.09 Year Ended September 30, 2003................. $12.74 0.13 1.99 2.12 (0.13) -- (0.13) $14.73 Year Ended September 30, 2002................. $16.67 0.08 (3.45) (3.37) (0.08) (0.48) (0.56) $12.74 LARGE CAP GROWTH FUND Year Ended September 30, 2006................. $ 8.47 (0.05)(a) (0.04) (0.09) -- -- -- $ 8.38 Year Ended September 30, 2005................. $ 7.81 (0.04)(a) 0.73 0.69 (0.03) -- (0.03) $ 8.47 Year Ended September 30, 2004................. $ 7.37 (0.12) 0.56 0.44 -- -- -- $ 7.81 Year Ended September 30, 2003................. $ 6.37 (0.08)(a) 1.08 1.00 -- -- -- $ 7.37 Year Ended September 30, 2002................. $ 7.94 (0.10)(a) (1.47) (1.57) -- -- -- $ 6.37
RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------- RATIO OF NET INVESTMENT TOTAL NET ASSETS, RATIO OF NET INCOME RATIO OF RETURN END OF EXPENSES TO (LOSS) TO EXPENSES TO (EXCLUDES PERIOD AVERAGE AVERAGE NET AVERAGE PORTFOLIO SALES CHARGE)(B) (000) NET ASSETS(C) ASSETS(C) NET ASSETS*(C) TURNOVER RATE** ---------------- ----------- ------------- ------------ -------------- --------------- LARGE CAP FUND Year Ended September 30, 2006................. 13.42% $161 1.88% 0.82% 1.94% 34.83% Year Ended September 30, 2005................. 13.77% $176 1.88% 0.80% 1.98% 19.50% Year Ended September 30, 2004................. 16.72% $157 1.95% 0.57% 2.07% 16.40% Year Ended September 30, 2003................. 16.72% $122 1.92% 0.90% 2.06% 18.89% Year Ended September 30, 2002................. (21.10)% $ 52 1.94% 0.41% 2.08% 23.02% LARGE CAP GROWTH FUND Year Ended September 30, 2006................. (1.18)% $ 37 1.89% (0.56)% 1.93% 186.19% Year Ended September 30, 2005................. 8.90% $ 18 1.89% (0.43)% 1.98% 62.78% Year Ended September 30, 2004................. 5.97% $ 25 1.96% (1.08)% 2.08% 127.47% Year Ended September 30, 2003................. 15.70% $ 31 1.93% (1.10)% 2.06% 91.73% Year Ended September 30, 2002................. (19.77)% $ 37 1.98% (1.23)% 2.12% 100.46%
-------- * During the period certain fees were reduced. If such reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (a) Per share net investment income (loss) has been calculated using the average daily shares method. (b) Not annualized for periods less than one year. (c) Annualized for periods less than one year. 22 FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES Selected data for a share of beneficial interest outstanding throughout the periods indicated.
INVESTMENT ACTIVITIES -------------------------------------- DIVIDENDS NET ASSET NET NET REALIZED/ ----------------------------------- NET ASSET VALUE, INVESTMENT UNREALIZED TOTAL FROM NET NET REALIZED VALUE, BEGINNING INCOME GAINS (LOSSES) INVESTMENT INVESTMENT GAINS ON TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS ACTIVITIES INCOME INVESTMENTS DIVIDENDS PERIOD --------- ---------- -------------- ---------- ---------- ------------ --------- --------- LARGE CAP FUND Year Ended September 30, 2006................... $19.51 0.35(a) 2.31 2.66 (0.35) (1.44) (1.79) $20.38 Year Ended September 30, 2005................... $17.29 0.34 2.22 2.56 (0.34) -- (0.34) $19.51 Year Ended September 30, 2004................... $14.90 0.26 2.39 2.65 (0.26) -- (0.26) $17.29 Year Ended September 30, 2003................... $12.87 0.27 2.03 2.30 (0.27) -- (0.27) $14.90 Year Ended September 30, 2002................... $16.82 0.22 (3.47) (3.25) (0.22) (0.48) (0.70) $12.87 LARGE CAP GROWTH FUND Year Ended September 30, 2006................... $ 9.12 0.04(a) (0.05) (0.01) (0.03) -- (0.03) $ 9.08 Year Ended September 30, 2005................... $ 8.35 0.06(a) 0.77 0.83 (0.06) -- (0.06) $ 9.12 Year Ended September 30, 2004................... $ 7.79 (0.01) 0.57 0.56 -- -- -- $ 8.35 Year Ended September 30, 2003................... $ 6.67 (0.01)(a) 1.13 1.12 -- -- -- $ 7.79 Year Ended September 30, 2002................... $ 8.23 (0.03) (1.53) (1.56) -- -- -- $ 6.67
RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------- RATIO OF NET INVESTMENT NET ASSETS, RATIO OF NET INCOME RATIO OF END OF EXPENSES TO (LOSS) TO EXPENSES TO TOTAL PERIOD AVERAGE AVERAGE NET AVERAGE PORTFOLIO RETURN(B) (000) NET ASSETS(C) ASSETS(C) NET ASSETS*(C) TURNOVER RATE** --------- ----------- ------------- ------------ -------------- --------------- LARGE CAP FUND Year Ended September 30, 2006................... 14.59% $660,667 0.89% 1.80% 0.93% 34.83% Year Ended September 30, 2005................... 14.92% $605,493 0.89% 1.82% 0.99% 19.50% Year Ended September 30, 2004................... 17.86% $620,186 0.95% 1.58% 1.06% 16.40% Year Ended September 30, 2003................... 17.98% $475,289 0.92% 1.90% 1.06% 18.89% Year Ended September 30, 2002................... (20.33)% $319,971 0.98% 1.37% 1.12% 23.02% LARGE CAP GROWTH FUND Year Ended September 30, 2006................... (0.10)% $207,384 0.88% 0.40% 0.93% 186.19% Year Ended September 30, 2005................... 9.92% $336,103 0.89% 0.63% 0.99% 62.78% Year Ended September 30, 2004................... 7.19% $346,061 0.97% (0.08)% 1.08% 127.47% Year Ended September 30, 2003................... 16.79% $272,961 0.93% (0.11)% 1.07% 91.73% Year Ended September 30, 2002................... (18.96)% $160,933 1.02% (0.30)% 1.16% 100.46%
-------- * During the period certain fees were reduced. If such reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (a) Per share net investment income (loss) has been calculated using the average daily shares method. (b) Not annualized for periods less than one year. (c) Annualized for periods less than one year. 23 FINANCIAL HIGHLIGHTS, LARGE CAP VIF AND LARGE CAP GROWTH VIF The following table is included to assist investors in evaluating the financial performance of the Funds for the five-year period ended December 31, 2005 or, if shorter, the period of the Funds' operation. Certain information reflects financial results of a single share. "Total Return" represents how much an investment in the Fund would have earned (or lost) during each period. This information has been audited by KPMG LLP, an independent registered public accounting firm, for the fiscal years ended December 31, 2005, December 31, 2004, December 31, 2003 and December 31, 2002, and by other auditors for the fiscal period ended December 31, 2001. The information does not reflect charges and fees associated with separate accounts that invest in the Funds or any insurance contract for which the Funds are an investment option. This information, along with the Funds' financial statements, is included in the annual report, which may be obtained free of charge upon request. Selected data for a share of beneficial interest outstanding throughout the periods indicated.
INVESTMENT ACTIVITIES DIVIDENDS ----------------------------------- ---------------------------- NET REALIZED/ NET ASSET NET UNREALIZED NET ASSET VALUE, INVESTMENT GAINS TOTAL FROM NET VALUE, BEGINNING INCOME (LOSSES) ON INVESTMENT INVESTMENT TOTAL END OF OF PERIOD (LOSS) INVESTMENTS ACTIVITIES INCOME DISTRIBUTIONS PERIOD --------- ---------- ------------- ---------- ---------- ------------- --------- BB&T LARGE CAP VIF For the Six Months Ended June 30, 2006 (Unaudited).................. $14.00 0.14 0.70 0.84 (0.14) (0.14) $14.70 Year Ended December 31, 2005...... $13.35 0.26 0.65 0.91 (0.26) (0.26) $14.00 Year Ended December 31, 2004...... $12.00 0.22 1.35 1.57 (0.22) (0.22) $13.35 Year Ended December 31, 2003...... $ 9.88 0.19 2.12 2.31 (0.19) (0.19) $12.00 Year Ended December 31, 2002...... $12.50 0.17 (2.62) (2.45) (0.17) (0.17) $ 9.88 Year Ended December 31, 2001...... $12.66 0.17 (0.16) 0.01 (0.17) (0.17) $12.50 BB&T LARGE CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited).................. $10.29 0.02 (0.19) (0.17) (0.02) (0.02) $10.10 Year Ended December 31, 2005...... $10.14 0.04 0.15 0.19 (0.04) (0.04) $10.29 Year Ended December 31, 2004...... $ 9.64 0.04 0.50 0.54 (0.04) (0.04) $10.14 Year Ended December 31, 2003...... $ 7.53 (0.02) 2.13 2.11 -- -- $ 9.64 Year Ended December 31, 2002...... $10.83 (0.06) (3.24) (3.30) -- -- $ 7.53 October 15, 2001 to December 31, 2001 (a).......................... $10.00 (0.01) 0.84 0.83 -- -- $10.83
RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------------ RATIO OF RATIO OF NET NET INVESTMENT RATIO OF NET ASSETS, EXPENSES TO INCOME (LOSS) EXPENSES TO PORTFOLIO TOTAL END OF AVERAGE NET TO AVERAGE AVERAGE NET TURNOVER RETURN**(B) PERIOD (000) ASSETS(C) NET ASSETS(C) ASSETS*(C) RATE ----------- ------------ ------------ -------------- ----------- --------- BB&T LARGE CAP VIF For the Six Months Ended June 30, 2006 (Unaudited).................. 6.02% $115,294 0.75% 1.89% 0.99% 27.87% Year Ended December 31, 2005...... 6.90% $113,648 0.79% 1.95% 1.05% 21.76% Year Ended December 31, 2004...... 13.18% $111,612 0.81% 1.77% 1.10% 12.91% Year Ended December 31, 2003...... 23.62% $ 94,683 0.88% 1.82% 1.17% 13.96% Year Ended December 31, 2002...... (19.64)% $ 63,667 0.84% 1.57% 1.13% 15.24% Year Ended December 31, 2001...... 0.16% $ 77,796 0.86% 1.17% 1.15% 14.47% BB&T LARGE CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited).................. (1.64)% $ 23,181 0.78% 0.42% 1.02% 73.55% Year Ended December 31, 2005...... 1.88% $ 23,523 0.79% 0.40% 1.14% 91.61% Year Ended December 31, 2004...... 5.63% $ 22,300 0.86% 0.46% 1.26% 119.90% Year Ended December 31, 2003...... 28.02% $ 18,464 1.04% (0.32)% 1.44% 90.57% Year Ended December 31, 2002...... (30.47)% $ 9,328 1.31% (0.73)% 1.71% 93.65% October 15, 2001 to December 31, 2001 (a).......................... 8.30% $ 10,876 1.19% (0.32)% 1.59% 16.20%
-------- * During the period certain fees were reduced. If such reductions had not occurred, the ratios would have been as indicated. ** Total return ratios are based on a share outstanding throughout the period and assume reinvestment of distributions at a net asset value. Total return ratios do not reflect changes pursuant to the terms of the insurance contracts funded by separate accounts that invest in the Fund's shares. (a) Period from commencement of operations. (b) Not annualized for periods less than one year. (c) Annualized for periods less than one year. 24 Information Filed With The Securities And Exchange Commission. BB&T Funds and BB&T Variable Insurance Funds are subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith file reports and other information with the SEC. Reports, proxy and information statements, registration statements and other information filed by BB&T Funds and BB&T Variable Insurance Funds can be inspected and copied at the public reference facilities of the SEC at 100 F Street, NE Washington, D.C. 20549. Copies of such materials can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates. VOTING INFORMATION Proxies are being solicited from shareholders of the Large Cap Growth Fund by the Trustees of BB&T Funds and the Large Cap Growth VIF by the Trustees of BB&T Variable Insurance Funds for the Joint Special Meeting of shareholders to be held on January 24, 2007, at the offices of BISYS Fund Services Ohio, Inc., 100 Summer Street, Suite 1500, Boston, MA 02110 at 9:00 a.m., Eastern time, or at such later time made necessary by adjournment. This Combined Prospectus/Proxy Statement and the enclosed form of proxy or voting instruction form are being mailed to shareholders and contract owners on or about December 19, 2006. The costs of the proxy materials and proxy solicitations will be borne by BB&T Asset Management, Inc. A proxy may be revoked at any time at or before the meeting by submitting to BB&T Funds or BB&T Variable Insurance Funds a subsequently dated proxy, delivering a written notice of revocation to BB&T Funds or BB&T Variable Insurance Funds at 3435 Stelzer Road, Columbus, Ohio 43219 or as otherwise described in the "Introduction" above. All properly executed proxies received in time for the Meeting will be voted as specified in the proxy, or, if no specification is made, FOR the proposals set forth in Proposals 1 and 2 of the Notice of Joint Special Meeting to implement the reorganizations of the Acquired Funds by the transfer of all of its assets to the Acquiring Funds, in exchange for Shares of the Acquiring Funds and the assumption by the Acquiring Funds of all of the liabilities of the Acquired Funds followed by the dissolution and liquidation of the Acquired Funds and the distribution of Shares to the shareholders of the Acquired Funds. All Large Cap Growth Fund shareholders will receive Shares of the BB&T Class (Institutional, Class A, Class B, or Class C) that corresponds to the Class of each of Large Cap Growth Fund Shares that they hold (Institutional, Class A, Class B, or Class C, respectively). Each Transaction contemplated by the Reorganization Plans will be consummated only if: (1) a quorum is present (except as otherwise provided by law, to constitute a quorum for the transaction of business at a shareholders' meeting, there must be present, in person or by proxy, holders of a majority of the total number of shares of an Acquired Fund then outstanding and entitled to vote at the meeting); (2) approved by the affirmative vote of a majority of votes cast by each Acquired Fund voting as a fund, as described below; and (3) the other closing conditions set forth in each Reorganization Plan are satisfied. In the event the shareholders do not approve one or both of the Transactions, the Trustees of BB&T Funds and/or BB&T Variable Insurance Funds will consider possible alternative arrangements in the best interests of BB&T Funds and/or BB&T Variable Insurance Funds and their shareholders. Each Transaction is not contingent on the approval of the other Transaction. Proxies are being solicited by mail. Shareholders of record of each Acquired Fund at the close of business on November 29, 2006, (the "Record Date"), will be entitled to vote at the Joint Special Meeting of shareholders or any adjournment thereof. Each Share is entitled to one vote as of the close of business on November 29, 2006. Approval of Proposal 1 requires the affirmative vote of the lesser of: (a) 67% or more of the outstanding shares of the Acquired Fund present at the Joint Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (b) more than 50% of the outstanding shares of the Acquired Fund. As discussed above, Shares of the Large Cap Growth VIF are offered only to Participating Insurance Companies to fund benefits under their Contracts. Accordingly, as of the close of business on November 29, 2006, Shares of the Large Cap Growth VIF were held by separate accounts, or sub-accounts thereof, of various Participating Insurance Companies. These Shares are owned by the Participating Insurance Companies as depositors for their respective Contracts issued to individual Contract Owners or to a group (e.g., a defined benefit plan) in which Contract Owners participate. Contract Owners have the right to instruct the Participating Insurance Companies on how to vote the Shares related to their interests through their Contracts (i.e., pass-through voting). A Participating Insurance Company must vote the Shares of the Large Cap Growth VIF held in its name as directed. In the absence of voting directions on any voting instruction form that is signed and returned, the 25 Participating Insurance Company will vote the interest represented thereby in favor of a Proposal. If a Participating Insurance Company does not receive voting instructions for all of the Shares of the Large Cap Growth VIF held under the Contracts, it will vote all of the Shares in the relevant separate accounts with respect to a Proposal, for, against, or abstaining, in the same proportion as the Shares of the Large Cap Growth VIF for which it has received instructions from Contract Owners (i.e., echo voting). Echo voting may lead to a small number of Contract Owners determining the outcome of the vote. This Combined Prospectus/Proxy Statement is used to solicit voting instructions from Contract Owners, as well as to solicit proxies from the Participating Insurance Companies, the actual shareholders of the Large Cap Growth VIF. All persons entitled to direct the voting of Shares, whether or not they are shareholders, are described as voting for purposes of this Combined Prospectus/Proxy Statement. Contract Owners should consult their Participating Insurance Company regarding their ability to revoke voting instructions after such instructions have been provided to the Participating Insurance Company. As of November 29, 2006, there were outstanding the following amount of Shares of Institutional, Class A, Class B or Class C Class of the Large Cap Growth Fund and Shares of the Large Cap Growth VIF: LARGE CAP GROWTH FUND: 15,665,940.899 Institutional Shares 983,770.741 Class A Shares 984,192.159 Class B Shares 4,459.924 Class C Shares LARGE CAP GROWTH VIF: 1,284,835.693 Shares
Votes cast by proxy, telephone, the Internet or in person at the meeting will be counted by the inspector of election appointed by BB&T Funds. The inspector of election will count the total number of votes cast "for" approval of the Proposal for purposes of determining whether sufficient affirmative votes have been cast. The inspector of election will count Shares represented by proxies that reflect abstentions as Shares that are present and entitled to vote on the matter for purposes of determining the presence of a quorum; however, the inspector of election will not count "broker non-votes" (i.e., Shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) as Shares that are present and entitled to vote on the matter for purposes of determining the presence of a quorum. For purposes of determining whether an issue has been approved, abstentions have the effect of a negative vote on the proposal, and broker non-votes are treated as "against" votes in those instances where approval of an issue requires a certain percentage of all votes outstanding, but are given no effect in those instances where approval of an issue requires a certain percentage of the votes constituting the quorum for such issue. BB&T Funds' and BB&T Variable Insurance Funds' Trustees know of no matters other than those set forth herein to be brought before the meeting. If, however, any other matters properly come before the meeting, it is the Trustees' intention that proxies will be voted on such matters in accordance with the judgment of the persons named in the enclosed form of proxy. As of November 29, 2006, the officers and Trustees of BB&T Funds as a group beneficially owned less than 1% of the outstanding Shares of Institutional, Class A, Class B or Class C Shares of any of the BB&T Funds. As of November 29, 2006, the officers and Trustees of BB&T Variable Insurance Funds as a group beneficially owned less than 1% of the outstanding Shares of any of the BB&T Variable Insurance Funds. The information in the following table shows, to the best of the knowledge of BB&T Funds and BB&T Variable Insurance Funds, the shareholders who owned of record or beneficially 5% or more of the indicated Fund and Class, if applicable. The table also shows, as far as practicable, the percentage of record and beneficial ownership of these same shareholders upon consummation of the Transactions calculated on the basis of holdings as of the November 29, 2006 record date. Those shareholders who beneficially own 25% or more of the outstanding shares of a fund may be deemed to be controlling persons of that fund under the 1940 Act. In this context, "control" shall mean (1) the beneficial ownership, either directly or through one or more controlled companies of more than 25% of the voting securities of 26 a company; (2) the acknowledgement or assertion by either the controlled or controlling party of the existence of control; or (3) an adjudication under sec.2(a)(9)of the 1940 Act which has become final, that control exists.
APPROXIMATE APPROXIMATE PERCENT OF APPROXIMATE PERCENT OF PERCENT OF RECORD PERCENT OF RECORD BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OWNERSHIP AS OF OWNERSHIP AS UPON UPON NAME AND ADDRESS 11/29/2006 OF 11/29/2006 CONSUMMATION CONSUMMATION ---------------- ---------- ------------- ------------ ------------ BB&T Large Cap Growth Fund CLASS A SHARES PERSHING LLC PO BOX 2052 JERSEY CITY, NJ 07303-9998...... 10.28% 0% 16.11% 0% CLASS B SHARES PERSHING LLC PO BOX 2052 JERSEY CITY, NJ 07303-9998...... 5.04% 0% 5.95% 0% CLASS C SHARES A WAYNE ANNAS CAROLYN B ANNAS PO BOX 563 VALDESE, NC 28690............... 51.07% 51.07% 17.77% 17.77% TERESA L LUHN PO BOX 48525 CUMBERLAND, NC 28331............ 22.72% 22.72% 7.9% 7.9% RICHARD G BLAKE 3525 LEWIS LOOP SE BOLIVIA, NC 28422............... 11.90% 11.90% 4.14% 4.14% HEIDI P SCEARCE 60 BRICKHORN DR RIDGEWAY, VA 24148.............. 6.12% 6.12% 2.13% 2.13% DONALDSON LUFKIN JENRETTE SECURITIES CORPORATION INC PO BOX 2052 JERSEY CITY, NJ 07303-9998...... 5.94% 5.94% 2.06% 2.06% INSTITUTIONAL CLASS SHARES WILBRANCH & CO 223 NASH ST W WILSON, NC 27893-3801........... 51.29% 0% 42.84% 0% BRANCH BANKING & TRUST CO DAILY RECORDKEEPING PLANS 300 EAST WENDOVER AVENUE GREENSBORO, NC 27401............ 48.20% 0% 42.70% 0% BB&T Large Cap Fund CLASS A SHARES PERSHING LLC PO BOX 2052 JERSEY CITY, NJ 07303-9998...... 11.79% 0% 16.11% 0% CLASS B SHARES PERSHING LLC PO BOX 2052 JERSEY CITY, NJ 07303-9998...... 7.21% 0% 5.95% 0%
27
APPROXIMATE APPROXIMATE PERCENT OF APPROXIMATE PERCENT OF PERCENT OF RECORD PERCENT OF RECORD BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OWNERSHIP AS OF OWNERSHIP AS UPON UPON NAME AND ADDRESS 11/29/2006 OF 11/29/2006 CONSUMMATION CONSUMMATION ---------------- ---------- ------------- ------------ ------------ CLASS C SHARES MG TRUST CUSTODIAN OR TRUSTEE PRIME HEALTH INCORPORATED 401K 700 17TH ST STE 150 DENVER, CO 80202................ 55.73% 0% 36.34% 0% INSTITUTIONAL CLASS SHARES BRANCH BANKING & TRUST CO 300 EAST WENDOVER AVENUE GREENSBORO, NC 27401............ 39.59% 0% 42.75% 0% WILBRANCH CO PO BOX 2887 WILSON, NC 27894................ 38.07% 0% 42.84% 0% BB&T CAPITAL MGR MODERATE GROWTH FD 434 FAYETTEVILLE ST MALL 5TH FL RALEIGH, NC 27601............... 6.00% 6.00% 3.82% 3.82% BB&T CAPITAL MANAGER GROWTH FUND 434 FAYETTEVILLE ST MALL 5TH FL RALEIGH, NC 27601............... 5.69% 5.69% 3.63% 3.63% BB&T Large Cap Growth VIF HARTFORD LIFE 200 HOPMEADOW ST ATTN DAVID TEN-BROECK SIMSBURY, CT 06070........................ 86.20% 0% 91.77% 0% NATIONWIDE INSURANCE COMPANY PO BOX 182029 COLUMBUS, OH 43218-2029......... 12.14% 0% 2.26% 0% BB&T Large Cap VIF HARTFORD LIFE 200 HOPMEADOW ST SIMBURY, CT 06070............... 93.05% 0% 91.77% 0%
THE BOARDS OF TRUSTEES OF BB&T FUNDS AND BB&T VARIABLE INSURANCE FUNDS, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND APPROVAL OF THE REORGANIZATION PLANS. As demonstrated above, A. Wayne Annas and Carolyn B. Annas. may be deemed a controlling person of the Class C Shares of the BB&T Large Cap Growth Fund. With respect to the effect of this control on the voting rights of other security holders, such a controlling person's vote may determine the outcome of each proposal. 28 APPENDIX A BB&T FUNDS BB&T LARGE CAP GROWTH FUND AND BB&T LARGE CAP FUND AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization, having been approved by the Board of Trustees of BB&T Funds, is made as of December 5, 2006 between BB&T Funds, on behalf of BB&T Large Cap Growth Fund and BB&T Large Cap Fund, and BB&T Asset Management, Inc (the "Plan"). The capitalized terms used herein shall have the meaning ascribed to them in this Plan. 1. Overview of Plan of Reorganization (a) The BB&T Large Cap Growth Fund ("Large Cap Growth Fund") will sell, assign, convey, transfer and deliver to BB&T Large Cap Fund ("Large Cap Fund"), and Large Cap Fund will acquire, on the Exchange Date, all of the properties and assets existing at the Valuation Time in Large Cap Growth Fund, subject to liabilities. In consideration therefor, Large Cap Fund shall, on the Exchange Date, assume all of the liabilities of Large Cap Growth Fund existing at the Valuation Time and transfer to Large Cap Growth Fund a number of full and fractional units of beneficial interest ("Shares") (such Shares being Institutional, Class A, Class B or Class C Shares) of Large Cap Fund having an aggregate net asset value equal to the value of the assets of Large Cap Growth Fund transferred to Large Cap Fund on such date less the value of all of the liabilities of Large Cap Growth Fund assumed by Large Cap Fund on that date. It is intended that the reorganization described in this Plan shall be a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). (b) Upon consummation of the transaction described in paragraph 1(a) of this Plan, Large Cap Growth Fund in complete liquidation shall distribute to its respective shareholders of record as of the Exchange Date the Large Cap Fund Shares received by it, each shareholder being entitled to receive that number of such Large Cap Fund Shares equal to the total of (i) the proportion which the number of Shares of Large Cap Growth Fund held by such shareholder bears to the number of such Shares of Large Cap Growth Fund outstanding on such date multiplied by (ii) the total number of Large Cap Fund Shares received by the Large Cap Growth Fund, as of the Exchange Date. Large Cap Growth Fund shareholders of record holding Institutional, Class A, Class B or Class C Shares will receive Institutional, Class A, Class B or Class C Shares, respectively, of Large Cap Fund. 2. Representations and Warranties of BB&T Funds. Each of the BB&T Funds, Large Cap Fund and Large Cap Growth Fund warrant to and agree that: (a) BB&T Funds is a business trust duly established and validly existing under the laws of The Commonwealth of Massachusetts and has power to carry on its business as it is now being conducted and to carry out this Plan. Each of BB&T Funds, Large Cap Growth Fund and Large Cap Fund is not required to qualify as a foreign association in any jurisdiction. Each of BB&T Funds, Large Cap Growth Fund and Large Cap Fund has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on business as now being conducted and to fulfill the terms of this Plan, except as set forth in Section 2(i). (b) BB&T Funds is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The statements of assets and liabilities, statements of operations, statements of changes in net assets and schedules of investments (indicating their market values) for each of Large Cap Growth Fund and Large Cap Fund for the year ended September 30, 2006, fairly present the financial position of each of Large Cap Growth Fund and Large Cap Fund as of such date, and said statements of operations and changes in net assets and financial highlights fairly reflect the results of operations, changes in net assets and financial highlights for the periods covered thereby in conformity with generally accepted accounting principles. A-1 (d) The prospectuses of each of Large Cap Growth Fund and Large Cap Fund dated February 1, 2006, as amended, as filed with the Securities and Exchange Commission (the "Commission") (the "Prospectuses") and the Statement of Additional Information for BB&T Funds, dated February 1, 2006, as amended (the "Statement of Additional Information"), as filed with the Commission, did not as of such date, and will not as of the Exchange Date, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) There are no material legal, administrative or other proceedings pending or, to the knowledge of BB&T Funds, Large Cap Growth Fund or Large Cap Fund, overtly threatened against BB&T Funds, Large Cap Growth Fund or Large Cap Fund, which assert liability on the part of BB&T Funds, Large Cap Growth Fund or Large Cap Fund. (f) There are no material contracts outstanding to which BB&T Funds, Large Cap Growth Fund or Large Cap Fund is a party, other than as disclosed in BB&T's Prospectuses and Statement of Additional Information or in the Registration Statement. (g) Large Cap Growth Fund has no known liabilities of a material nature, contingent or otherwise, other than those shown on its statement of assets and liabilities as of September 30, 2006, referred to above and those incurred in the ordinary course of the business of BB&T Funds as an investment company or Large Cap Growth Fund since such date. Prior to the Exchange Date, Large Cap Growth Fund will advise Large Cap Fund of all known material liabilities, contingent or otherwise, incurred by it subsequent to September 30, 2006, whether or not incurred in the ordinary course of business. (h) As of the Exchange Date, BB&T Funds and each of Large Cap Growth Fund and Large Cap Fund will have filed all federal and other tax returns which, to the knowledge of BB&T Funds' officers, have been required to be filed by Large Cap Growth Fund or Large Cap Fund, respectively, and will have paid or will pay all federal and other taxes shown to be due on such returns or on any assessments received by Large Cap Growth Fund or Large Cap Fund, respectively. As of the Exchange Date, to such officers' knowledge, each of Large Cap Growth Fund and Large Cap Fund (i) will have adequately provided for all tax liabilities on its books, (ii) will not have had any tax deficiency or liability asserted against it, or question with respect thereto raised, and (iii) will not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. (i) As used in this Plan, the term "Investments" shall mean the Large Cap Growth Fund's investments shown on the schedule of its portfolio investments as of September 30, 2006, referred to in Section 2(c) hereof, as supplemented with such changes as BB&T Funds or the Large Cap Growth Fund shall make after September 30, 2006, which changes shall be disclosed to BB&T Funds and the Large Cap Fund, and changes resulting from stock dividends, stock split-ups, mergers and similar corporate actions. (j) Each of Large Cap Growth Fund and Large Cap Fund has elected to qualify and has qualified as, and has met the requirements of subchapter M of the Code for treatment as a "regulated investment company" within the meaning of Section 851 of the Code in respect of each taxable year since the commencement of operations, and will continue to so qualify and meet such requirements at all times through the Exchange Date. Neither Large Cap Growth Fund nor Large Cap Fund has at any time since its inception been liable (nor is now liable) for any material income or excise tax pursuant to Section 852 or 4982 of the Code. Each of Large Cap Growth Fund and Large Cap Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder. (k) No consent, approval, authorization or order of any governmental authority is required for the consummation by BB&T Funds, Large Cap Growth Fund or Large Cap Fund of the transaction contemplated by this Plan, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act, state securities or Blue Sky laws or the Hart-Scott-Rodino Antitrust Improvements Act of 1976. A-2 (l) As of both the Valuation Time and the Exchange Date and otherwise as described in Section 2(i), BB&T Funds on behalf of Large Cap Fund will have full right, power and authority to purchase the Investments and any other assets and assume the liabilities of Large Cap Growth Fund to be transferred to Large Cap Fund pursuant to this Plan. (m) The Registration Statement, the Prospectuses and the Proxy Statement, on the effective date of the Registration Statement and insofar as they relate to BB&T Funds, Large Cap Growth Fund and Large Cap Fund: (i) will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and at the time of the shareholders' meeting referred to in Section 8(a) and at the Exchange Date, the Prospectuses, as amended or supplemented by any amendments or supplements filed with the Commission by BB&T Funds, Large Cap Growth Fund or Large Cap Fund, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that none of the representations and warranties in this subsection shall apply to statements in or omissions from the Registration Statement, the Prospectuses or the Proxy Statement made in reliance upon and in conformity with information furnished by Large Cap Growth Fund or Large Cap Fund for use in the Registration Statement, the Prospectuses or the Proxy Statement. (n) Large Cap Fund Shares to be issued to each of Large Cap Growth Fund have been duly authorized and, when issued and delivered pursuant to this Plan and the Prospectuses, will be legally and validly issued and will be fully paid and nonassessable by BB&T Funds and no shareholder of BB&T Funds will have any preemptive right of subscription or purchase in respect thereof. (o) The issuance of Large Cap Fund Shares pursuant to this Plan will be in compliance with all applicable federal and state securities laws. 3. Reorganization. (a) Subject to the requisite approval of the shareholders of Large Cap Growth Fund (in respect of the Large Cap Growth Fund Reorganization, as hereafter defined) and to the other terms and conditions contained herein (including Large Cap Growth Fund's obligation described in Section 9(j) hereof to distribute to its respective shareholders all of its undistributed investment company taxable income (as defined in Section 852 of the Code), if any, and net capital gain (as defined in Section 1222 of the Code)), Large Cap Growth Fund will agree to sell, assign, convey, transfer and deliver to Large Cap Fund, and Large Cap Fund will agree to acquire from Large Cap Growth Fund, on the Exchange Date all of the Investments and all of the cash and other assets of Large Cap Growth Fund, subject to liabilities, in exchange for that number of Shares of Large Cap Fund provided for in Section 4 and the assumption by Large Cap Fund of all of the liabilities of Large Cap Growth Fund. Pursuant to this Plan, Large Cap Growth Fund will, as soon as practicable after the Exchange Date, distribute in liquidation all of the Large Cap Fund Shares received by it to its shareholders in exchange for their respective Shares of Large Cap Growth Fund. (b) BB&T Funds, on behalf of Large Cap Growth Fund, will pay or cause to be paid to Large Cap Fund any interest and cash dividends received by it on or after the Exchange Date with respect to the Investments transferred to Large Cap Fund hereunder. BB&T Funds, on behalf of Large Cap Growth Fund, will transfer to Large Cap Fund any rights, stock dividends, or other securities received by Large Cap Growth Fund after the Exchange Date as stock dividends or other distributions on or with respect to the Investments transferred, which rights, stock dividends, and other securities shall be deemed included in the assets transferred to Large Cap Fund at the Exchange Date and shall not be separately valued, in which case any such distribution that remains unpaid as of the Exchange Date shall be included in the determination of the value of the assets of Large Cap Growth Fund acquired by Large Cap Fund. 4. Exchange Date; Valuation Time. On the Exchange Date, Large Cap Fund will deliver to Large Cap Growth Fund a number of Large Cap Fund Shares having an aggregate net asset value equal to the value of the assets attributable to each corresponding class of Shares of Large Cap Growth Fund acquired by Large Cap Fund, less the value of the liabilities of Large Cap Growth Fund assumed, determined as hereafter provided in this Section 4. A-3 (a) Subject to Section 4(d) hereof, the value of Large Cap Growth Fund's net assets will be computed as of the Valuation Time using the valuation procedures for Large Cap Fund set forth in the BB&T Prospectuses and BB&T Statement of Additional Information. In no event shall the same security held by the Large Cap Growth Fund and BB&T Funds be valued at different prices. (b) Subject to Section 4(d) hereof, the net asset value of a Share of Large Cap Fund will be determined to the nearest full cent as of the Valuation Time, using the valuation procedures set forth in the BB&T Prospectuses for Large Cap Fund. (c) Subject to Section 4(d), the Valuation Time shall be 4:00 p.m. Eastern Standard time on January 26, 2007, or such earlier or later days as may be established by the proper officers of BB&T Funds (the "Valuation Time"). (d) No formula will be used to adjust the net asset value of Large Cap Growth Fund or Large Cap Fund to take into account differences in realized and unrealized gains and losses. (e) Large Cap Fund shall issue its Shares to Large Cap Growth Fund on one share deposit receipt registered in the name of Large Cap Growth Fund. Large Cap Growth Fund shall distribute in liquidation the Large Cap Fund Shares received by it hereunder pro rata to its shareholders by redelivering such share deposit receipt to BB&T Funds' transfer agent which will as soon as practicable set up open accounts for each Large Cap Growth Fund shareholder, in accordance with written instructions furnished by Large Cap Growth Fund. (f) Large Cap Fund shall assume all liabilities of Large Cap Growth Fund, whether accrued or contingent, in connection with the acquisition of assets and subsequent dissolution of Large Cap Growth Fund or otherwise, except that recourse for assumed liabilities relating to Large Cap Growth Fund will be limited to Large Cap Fund. 5. Expenses, Fees, etc. (a) All fees and expenses incurred by Large Cap Growth Fund, Large Cap Fund and/or BB&T Asset Management, Inc. (the investment adviser of both Large Cap Growth Fund and Large Cap Fund) directly in connection with the consummation the transaction contemplated by this Plan will be borne by BB&T Asset Management, Inc., including the costs of proxy materials, proxy solicitations and legal expenses. All such fees and expenses incurred and so borne by BB&T Asset Management, Inc. will be solely and directly related to the transaction contemplated by this Plan and will be paid directly by BB&T Asset Management, Inc. to the relevant providers of services or other payees, in accordance with the principles set forth in Revenue Ruling 73-54, 1973-1 C.B. 187. Fees and expenses not incurred directly in connection with the consummation of the transaction contemplated by this Plan will be paid by the party directly incurring such expenses. Notwithstanding any of the foregoing, fees and expenses shall in any event be paid by the party directly incurring such fees and expenses if and to the extent that the payment by BB&T Asset Management, Inc. of such fees and expenses would result in the disqualification of such party as a regulated investment company within the meaning of Section 851 of the Code. Large Cap Growth Fund shareholders will pay their respective expenses, if any, incurred in connection with the transaction contemplated by this Plan. Neither BB&T Asset Management, Inc. nor Large Cap Growth Fund nor Large Cap Fund will pay Large Cap Growth Fund shareholders' expenses. (b) Notwithstanding any other provisions of this Plan, if for any reason the transaction contemplated by this Plan is not consummated, no party shall be liable to the other party for any damages resulting therefrom, including without limitation consequential damages. 6. Permitted Assets. BB&T Funds and Large Cap Growth Fund will agree to review the assets of Large Cap Growth Fund to ensure that at any time prior to the Exchange Date the assets of Large Cap Growth Fund do not include any assets that Large Cap Fund is not permitted, or reasonably believes to be unsuitable for it, to acquire, including without limitation any security that, prior to its acquisition by Large Cap Growth Fund, is unsuitable for Large Cap Fund to acquire. 7. Exchange Date. Delivery of the assets of Large Cap Growth Fund to be transferred, assumption of the liabilities of Large Cap Growth Fund to be assumed, and the delivery of Large Cap Fund Shares to be issued shall be made at the offices of BB&T Funds, 3435 Stelzer Road, Columbus, OH 43219, at 9:00 a.m. Eastern standard time on January 29, 2007, or at such other times and dates established by the proper officers of BB&T Funds, the date and time upon which such delivery is to take place being referred to herein as the "Exchange Date." A-4 8. Special Meeting of Shareholders; Dissolution. (a) Large Cap Growth Fund will agree to call a special meeting of the shareholders as soon as is practicable after the effective date of the Registration Statement for the purpose of considering the sale of all of the assets of Large Cap Growth Fund to and the assumption of all of the liabilities of Large Cap Growth Fund by Large Cap Fund as herein provided, and approving this Plan, and it shall be a condition to the obligations of each of the parties hereto that the holders of the Shares of Large Cap Growth Fund shall have approved this Plan and the transaction contemplated herein in the manner required by law and BB&T Funds' Declaration of Trust and Bylaws at such a meeting on or before the Valuation Time. 9. Conditions to Be Met Regarding the Transaction. The consummation by the Large Cap Growth Fund and Large Cap Fund of the reorganization of the Large Cap Growth Fund with and into the Large Cap Fund ("Large Cap Growth Fund Reorganization") shall be subject to the following conditions: (a) This Plan shall have been adopted and the transaction contemplated hereby, shall have been approved by the shareholders of Large Cap Growth Fund in the manner required by law. (b) Large Cap Growth Fund shall have furnished to Large Cap Fund a statement of each of Large Cap Growth Fund's assets and liabilities, with values determined as provided in Section 3 of this Plan, together with a list of Investments with their respective tax costs, all as of the Valuation Time, certified on Large Cap Growth Fund's behalf by its President (or any Vice President) and Treasurer, and a certificate of both such officers, dated the Exchange Date, to the effect that as of the Valuation Time and as of the Exchange Date there has been no material adverse change in the financial position of Large Cap Growth Fund since September 30, 2006, other than changes in the Investments since that date or changes in the market value of the Investments, or changes due to net redemptions of Shares of Large Cap Growth Fund, dividends paid or losses from operations. (c) As of the Valuation Time and as of the Exchange Date, all representations and warranties of BB&T Funds, Large Cap Fund and Large Cap Growth Fund made in Section 2 of this Plan are true and correct in all material respects as if made at and as of such dates, Large Cap Growth Fund has complied with all requirements of this Plan to be performed or satisfied at or prior to each of such dates, and Large Cap Growth Fund shall have furnished to Large Cap Fund a statement, dated the Exchange Date, signed by BB&T Funds' President (or any Vice President) and Treasurer certifying those facts as of such dates. (d) There shall not be any material litigation pending with respect to the matters contemplated by this Plan. (e) BB&T Funds shall have received an opinion of Ropes & Gray LLP dated the Exchange Date to the effect that: (i) BB&T Funds is a business trust duly established and validly existing under the laws of the Commonwealth of Massachusetts, and neither BB&T Funds, Large Cap Growth Fund nor Large Cap Fund is, to the knowledge of such counsel, required to qualify to do business as a foreign association in any jurisdiction; (ii) BB&T Funds and Large Cap Growth Fund have power to sell, assign, convey, transfer and deliver the Investments and other assets contemplated hereby and, upon consummation of the transaction contemplated hereby in accordance with the terms of this Plan, BB&T Funds and Large Cap Growth Fund will have duly sold, assigned, conveyed, transferred and delivered such Investments and other assets to Large Cap Fund; (iii) the adoption of this Plan did not, and the consummation of the transaction contemplated hereby will not, violate BB&T Funds' Declaration of Trust or Bylaws, as amended, or any provision of any agreement known to such counsel to which BB&T Funds is a party or by which it is bound; (iv) no consent, approval, authorization or order of any court or governmental authority is required for the consummation by BB&T Funds of the transaction contemplated hereby, except such as have been obtained under the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of 1934 ("the 1934 Act") and the 1940 Act; (v) this Plan has been duly authorized by BB&T Funds and is a valid and binding obligation of BB&T Funds; and (vi) the Shares of Large Cap Fund to be delivered to Large Cap Growth Fund as provided for by this Plan are duly authorized and upon such delivery will be validly issued and will be fully paid and nonassessable by BB&T Funds and no shareholder of BB&T Funds has any preemptive right to subscription or purchase in respect thereof. A-5 (f) With respect to the Large Cap Growth Fund Reorganization, BB&T Funds, on behalf of Large Cap Growth Fund and Large Cap Fund shall have received an opinion of Ropes & Gray LLP addressed to Large Cap Growth Fund and Large Cap Fund and dated the Exchange Date (which opinion will be based upon certain factual representations and subject to certain qualifications) to the effect that, on the basis of the existing provisions of the Code, Treasury Regulations, current administrative rules and court decisions, generally for federal income tax purposes, except as noted below: (i) the transaction contemplated by this Plan will constitute a reorganization within the meaning of Section 368(a) of the Code, and Large Cap Fund and Large Cap Growth Fund will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by Large Cap Fund upon the receipt of the assets of Large Cap Growth Fund in exchange for Large Cap Fund Shares and the assumption by Large Cap Fund of the liabilities of Large Cap Growth Fund; (iii) the basis in the hands of Large Cap Fund of the assets of Large Cap Growth Fund transferred to Large Cap Fund in the transaction contemplated by this Plan will be the same as the basis of such assets in the hands of Large Cap Growth Fund immediately prior to the transfer; (iv) the holding periods of the assets of Large Cap Growth Fund in the hands of Large Cap Fund will include the periods during which such assets were held by Large Cap Growth Fund; (v) no gain or loss will be recognized by Large Cap Growth Fund upon the transfer of Large Cap Growth Fund's assets to Large Cap Fund in exchange for Large Cap Fund Shares and the assumption by Large Cap Fund of the liabilities of Large Cap Growth Fund, or upon the distribution of Large Cap Fund Shares by Large Cap Growth Fund to its shareholders in liquidation; (vi) no gain or loss will be recognized by Large Cap Growth Fund shareholders upon the exchange of their Large Cap Growth Fund Shares for Large Cap Fund Shares; (vii) the aggregate basis of Large Cap Fund Shares a Large Cap Growth Fund shareholder receives in connection with the transaction contemplated by this Plan will be the same as the aggregate basis of his or her Large Cap Growth Fund exchanged therefor; (viii) a Large Cap Growth Fund shareholder's holding period for his or her Large Cap Fund Shares will be determined by including the period for which he or she held the Large Cap Growth Fund Shares exchanged therefor, provided that he or she held such Large Cap Growth Fund Shares as capital assets; and (ix) Large Cap Fund will succeed to, and take into account the items of Large Cap Growth Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Treasury regulations thereunder. The opinion will express no view with respect to the effect of the reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized at the end of a taxable year (or on the termination or transfer thereof) under federal income tax principles. (g) The assets of Large Cap Growth Fund to be acquired by Large Cap Fund will include no assets which Large Cap Fund, by reason of limitations contained in its Declaration of Trust or of investment restrictions disclosed in BB&T Prospectuses and SAI in effect on the Exchange Date, may not properly acquire. BB&T Funds shall not change BB&T Funds' Declaration of Trust and BB&T Prospectuses so as to restrict permitted investments for Large Cap Fund except as required by the Commission or any state regulatory authority. (h) The Registration Statement shall have become effective under the 1933 Act and applicable Blue Sky provisions, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of BB&T Funds, contemplated by the Commission and or any state regulatory authority. (i) BB&T Funds shall have received from the Commission such order or orders as Ropes & Gray LLP deems reasonably necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act in connection with the transaction contemplated hereby, and that all such orders shall be in full force and effect. (j) Prior to the Exchange Date, the Large Cap Growth Fund shall have declared a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders (a) all of the excess of (x) its investment income excludable from gross income under Section 103 of the Code over (y) its deductions disallowed under Section 265 and 171 of the Code, (b) all of its investment company taxable income (in each case computed without regard to any deduction for dividends paid), and (c) all of its net capital gain realized (after reduction for any capital loss carryover), in each case for both the current taxable year (which will end on the Exchange Date) and the immediately preceding taxable year. (k) With respect to the Large Cap Growth Fund Reorganization, Large Cap Growth Fund shall have furnished to Large Cap Fund a certificate, signed by the President (or any Vice President) and the Treasurer of A-6 BB&T Funds, as to the tax cost to Large Cap Growth Fund of the securities delivered to Large Cap Fund pursuant to this Plan, together with any such other evidence as to such tax cost as Large Cap Fund may reasonably request. (l) BB&T Funds shall have received from the custodian of BB&T Funds a certificate identifying all of the assets of Large Cap Growth Fund held by such custodian as of the Valuation Time. (m) The transfer agent of BB&T Funds shall have provided to BB&T Funds (i) a record specifying the number of Shares of Large Cap Growth Fund outstanding as of the Valuation Time and (iii) a record specifying the name and address of each holder of record of any such Shares of Large Cap Growth Fund and the number of Large Cap Growth Fund Shares held of record by each such shareholder as of the Valuation Time. Large Cap Growth Fund's transfer agent shall also have provided BB&T Funds with a certificate confirming that the acts specified in the preceding sentence have been taken and that the information so supplied is complete and accurate to the best knowledge of the transfer agent. (n) BB&T Funds, on behalf of Large Cap Fund, shall have executed and delivered an Assumption of Liabilities dated as of the Exchange Date pursuant to which Large Cap Fund will assume all of the liabilities of Large Cap Growth Fund existing at the Valuation Time in connection with the transaction contemplated by this Plan, other than liabilities pursuant to this Plan. (o) BB&T Funds, on behalf of Large Cap Growth Fund, shall have executed and delivered an instrument of transfer ("Transfer Document") and any other certificates or documents BB&T Funds may deem necessary or desirable to transfer Large Cap Growth Fund's entire right, title and interest in and to the Investments and all other assets of Large Cap Growth Fund. 10. No Broker, etc. There is no person who has dealt with BB&T Funds, Large Cap Growth Fund or Large Cap Fund who by reason of such dealings is entitled to any broker's or finder's or other similar fee or commission arising out of the transaction contemplated by this Plan. 11. Termination. BB&T Funds may, by consent of its Trustees, terminate this Plan, and BB&T Funds, after consultation with counsel, may modify this Plan in any manner deemed necessary or desirable. 12. Covenants, etc. Deemed Material. All covenants, agreements, representations and warranties made under this Plan and any certificates delivered pursuant to this Plan shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf. 13. Sole Plan; Amendments. This Plan supersedes all previous correspondence and oral communications between the parties regarding the subject matter hereof, constitutes the only understanding with respect to such subject matter, may be changed only by duly adopted resolution of the Board of Trustees of BB&T Funds, and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. 14. Rule 145. Pursuant to Rule 145 under the 1933 Act, BB&T Funds will, in connection with the issuance of any Shares of the Large Cap Fund to any person who at the time of the transaction contemplated hereby is deemed to be an affiliate of a party to the transaction pursuant to Rule 145(c), cause to be affixed upon the certificates issued to such person (if any) a legend as follows: THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO BB&T FUNDS OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO BB&T FUNDS SUCH REGISTRATION IS NOT REQUIRED. 15. BB&T Funds' Declaration of Trust. BB&T Funds is a business trust organized under Massachusetts law and under a Declaration of Trust, to which reference is hereby made and a copy of which is on file at the office of the Secretary of The Commonwealth of Massachusetts and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The obligations of "BB&T Funds" entered into in the name or on behalf thereof by any of the Trustees, officers, employees or agents are made not individually, but in such A-7 capacities, and are not binding upon any of the Trustees, officers, employees, agents or shareholders of BB&T Funds personally, but bind only the assets of BB&T Funds and all persons dealing with any series or funds of BB&T Funds, such as Large Cap Fund, must look solely to the assets of BB&T Funds belonging to such series or funds for the enforcement of any claims against BB&T Funds. [Signature Page Follow] A-8 This Agreement may be executed in any number of counter-parts, each of which, when executed and delivered, shall be deemed to be an original. BB&T FUNDS, on behalf of BB&T Large Cap Fund and BB&T Large Cap Growth Fund By: /s/ Todd Miller ------------------------------------ Name: Todd Miller Title: Vice President BB&T ASSET MANAGEMENT, INC., with respect to Section 5 only By: /s/ E.G. Purcell, III ------------------------------------ Name: E.G. Purcell, III Title: Senior Vice President A-9 APPENDIX B BB&T VARIABLE INSURANCE FUNDS BB&T LARGE CAP GROWTH VIF AND BB&T LARGE CAP VIF AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization, having been approved by the Board of Trustees of BB&T Variable Insurance Funds, is made as of December 5, 2006 between BB&T Variable Insurance Funds, on behalf of BB&T Large Cap Growth VIF and BB&T Large Cap VIF, and BB&T Asset Management, Inc. (the "Plan"). The capitalized terms used herein shall have the meaning ascribed to them in this Plan. 1. Overview of Plan of Reorganization (a) The BB&T Large Cap Growth VIF ("Large Cap Growth VIF") will sell, assign, convey, transfer and deliver to BB&T Large Cap VIF ("Large Cap VIF"), and Large Cap VIF will acquire, on the Exchange Date, all of the properties and assets existing at the Valuation Time in Large Cap Growth VIF, subject to liabilities. In consideration therefor, Large Cap VIF shall, on the Exchange Date, assume all of the liabilities of Large Cap Growth VIF existing at the Valuation Time and transfer to Large Cap Growth VIF a number of full and fractional units of beneficial interest ("Shares") of Large Cap VIF having an aggregate net asset value equal to the value of the assets of Large Cap Growth VIF transferred to Large Cap VIF on such date less the value of all of the liabilities of Large Cap Growth VIF assumed by Large Cap VIF on that date. It is intended that the reorganization described in this Plan shall be a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). (b) Upon consummation of the transaction described in paragraph 1(a) of this Plan, Large Cap Growth VIF in complete liquidation shall distribute to its respective shareholders of record as of the Exchange Date the Large Cap VIF Shares received by it, each shareholder being entitled to receive that number of such Large Cap VIF Shares equal to the total of (i) the proportion which the number of Shares of Large Cap Growth VIF held by such shareholder bears to the number of such Shares of Large Cap Growth VIF outstanding on such date multiplied by (ii) the total number of Large Cap VIF Shares received by the Large Cap Growth VIF, as of the Exchange Date. Large Cap Growth VIF shareholders of record will receive Shares of Large Cap VIF. 2. Representations and Warranties of BB&T Variable Insurance Funds. Each of BB&T Variable Insurance Funds, Large Cap VIF and Large Cap Growth VIF warrant to and agree that: (a) BB&T Variable Insurance Funds is a business trust duly established and validly existing under the laws of The Commonwealth of Massachusetts and has power to carry on its business as it is now being conducted and to carry out this Plan. Each of BB&T Variable Insurance Funds, Large Cap Growth VIF and Large Cap VIF is not required to qualify as a foreign association in any jurisdiction. Each of BB&T Variable Insurance Funds, Large Cap Growth VIF and Large Cap VIF has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on business as now being conducted and to fulfill the terms of this Plan, except as set forth in Section 2(i). (b) BB&T Variable Insurance Funds is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The statements of assets and liabilities, statements of operations, statements of changes in net assets and schedules of investments (indicating their market values) for each of Large Cap Growth VIF and Large Cap VIF for the year ended December 31, 2005 and six-month period ended June 30, 2006, fairly present the financial position of each of Large Cap Growth VIF and Large Cap VIF as of such date, and said statements of operations and changes in net assets and financial highlights fairly reflect the results of operations, changes in net assets and financial highlights for the periods covered thereby in conformity with generally accepted accounting principles. B-1 (d) The prospectuses of each of Large Cap Growth VIF and Large Cap VIF dated May 1, 2006, as amended, as filed with the Securities and Exchange Commission (the "Commission") (the "Prospectuses") and the Statement of Additional Information for BB&T Variable Insurance Funds, dated May 1, 2006, as amended (the "Statement of Additional Information"), as filed with the Commission, did not as of such date, and will not as of the Exchange Date, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) There are no material legal, administrative or other proceedings pending or, to the knowledge of BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF, overtly threatened against BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF, which assert liability on the part of BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF. (f) There are no material contracts outstanding to which BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF is a party, other than as disclosed in BB&T's Prospectuses and Statement of Additional Information or in the Registration Statement. (g) Large Cap Growth VIF has no known liabilities of a material nature, contingent or otherwise, other than those shown on its statement of assets and liabilities as of June 30, 2006, referred to above and those incurred in the ordinary course of the business of BB&T Variable Insurance Funds as an investment company or Large Cap Growth VIF since such date. Prior to the Exchange Date, Large Cap Growth VIF will advise Large Cap VIF of all known material liabilities, contingent or otherwise, incurred by it subsequent to June 30, 2006, whether or not incurred in the ordinary course of business. (h) As of the Exchange Date, BB&T Variable Insurance Funds and each of Large Cap Growth VIF and Large Cap VIF will have filed all federal and other tax returns which, to the knowledge of BB&T Variable Insurance Funds' officers, have been required to be filed by Large Cap Growth VIF or Large Cap VIF, respectively, and will have paid or will pay all federal and other taxes shown to be due on such returns or on any assessments received by Large Cap Growth VIF or Large Cap VIF, respectively. As of the Exchange Date, to such officers' knowledge, each of Large Cap Growth VIF and Large Cap VIF (i) will have adequately provided for all tax liabilities on its books, (ii) will not have had any tax deficiency or liability asserted against it, or question with respect thereto raised, and (iii) will not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. (i) As used in this Plan, the term "Investments" shall mean the Large Cap Growth VIF's investments shown on the schedule of its portfolio investments as of June 30, 2006, referred to in Section 2(c) hereof, as supplemented with such changes as BB&T Variable Insurance Funds or the Large Cap Growth VIF shall make after June 30, 2006, which changes shall be disclosed to BB&T Variable Insurance Funds and the Large Cap VIF, and changes resulting from stock dividends, stock split-ups, mergers and similar corporate actions. (j) Each of Large Cap Growth VIF and Large Cap VIF has elected to qualify and has qualified as, and has met the requirements of subchapter M of the Code for treatment as, a "regulated investment company" within the meaning of Section 851 of the Code in respect of each taxable year since the commencement of operations, and will continue to meet such requirements at all times through the Exchange Date. Neither Large Cap Growth VIF nor Large Cap VIF has at any time since its inception been liable (nor is now liable) for any material income or excise tax pursuant to Section 852 or 4982 of the Code. Each of Large Cap Growth VIF and Large Cap VIF is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder. (k) For all taxable years and all applicable quarters of Large Cap Growth VIF from the date of its inception, the assets of Large Cap Growth VIF have been sufficiently diversified that each segregated asset account investing all its assets in Large Cap Growth VIF was adequately diversified within the meaning of Section 817(h) of the Code and applicable regulations thereunder. For all taxable years and all applicable quarters of Large Cap VIF from the date of its inception, the assets of Large Cap VIF have been sufficiently B-2 diversified that each segregated asset account investing all its assets in Large Cap VIF was adequately diversified within the meaning of Section 817(h) of the Code and applicable regulations thereunder. (l) No consent, approval, authorization or order of any governmental authority is required for the consummation by BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF of the transaction contemplated by this Plan, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act, state securities or Blue Sky laws or the Hart-Scott-Rodino Antitrust Improvements Act of 1976. (m) As of both the Valuation Time and the Exchange Date and otherwise as described in Section 2(i), BB&T Variable Insurance Funds on behalf of Large Cap VIF will have full right, power and authority to purchase the Investments and any other assets and assume the liabilities of Large Cap Growth VIF to be transferred to Large Cap VIF pursuant to this Plan. (n) The Registration Statement, the Prospectuses and the Proxy Statement, on the effective date of the Registration Statement and insofar as they relate to BB&T Variable Insurance Funds, Large Cap Growth VIF and Large Cap VIF: (i) will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and at the time of the shareholders' meeting referred to in Section 8(a) and at the Exchange Date, the Prospectuses, as amended or supplemented by any amendments or supplements filed with the Commission by BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that none of the representations and warranties in this subsection shall apply to statements in or omissions from the Registration Statement, the Prospectuses or the Proxy Statement made in reliance upon and in conformity with information furnished by Large Cap Growth VIF or Large Cap VIF for use in the Registration Statement, the Prospectuses or the Proxy Statement. (o) Large Cap VIF Shares to be issued to each of Large Cap Growth VIF have been duly authorized and, when issued and delivered pursuant to this Plan and the Prospectuses, will be legally and validly issued and will be fully paid and nonassessable by BB&T Variable Insurance Funds and no shareholder of BB&T Variable Insurance Funds will have any preemptive right of subscription or purchase in respect thereof. (p) The issuance of Large Cap VIF Shares pursuant to this Plan will be in compliance with all applicable federal and state securities laws. 3. Reorganization. (a) Subject to the requisite approval of the shareholders of Large Cap Growth VIF (in respect of the Large Cap Growth VIF Reorganization, as hereafter defined) and to the other terms and conditions contained herein (including Large Cap Growth VIF's obligation described in Section 9(j) hereof to distribute to its respective shareholders all of its undistributed investment company taxable income (as defined in Section 852 of the Code), if any, and net capital gain (as defined Section 1222 of the Code)), Large Cap Growth VIF will agree to sell, assign, convey, transfer and deliver to Large Cap VIF, and Large Cap VIF will agree to acquire from Large Cap Growth VIF, on the Exchange Date all of the Investments and all of the cash and other assets of Large Cap Growth VIF, subject to liabilities, in exchange for that number of Shares of Large Cap VIF provided for in Section 4 and the assumption by Large Cap VIF of all of the liabilities of Large Cap Growth VIF. Pursuant to this Plan, Large Cap Growth VIF will, as soon as practicable after the Exchange Date, distribute in liquidation all of the Large Cap VIF Shares received by it to its shareholders in exchange for their respective Shares of Large Cap Growth VIF. (b) BB&T Variable Insurance Funds, on behalf of Large Cap Growth VIF, will pay or cause to be paid to Large Cap VIF any interest and cash dividends received by it on or after the Exchange Date with respect to the Investments transferred to Large Cap VIF hereunder. BB&T Variable Insurance Funds, on behalf of Large Cap Growth VIF, will transfer to Large Cap VIF any rights, stock dividends, or other securities received by Large Cap Growth VIF after the Exchange Date as stock dividends or other distributions on or with respect to the Investments transferred, which rights, stock dividends, and other securities shall be deemed included in the assets transferred to Large Cap VIF at the Exchange Date and shall not be separately valued, in which case any such distribution that B-3 remains unpaid as of the Exchange Date shall be included in the determination of the value of the assets of Large Cap Growth VIF acquired by Large Cap VIF. 4. Exchange Date; Valuation Time. On the Exchange Date, Large Cap VIF will deliver to Large Cap Growth VIF a number of Large Cap VIF Shares having an aggregate net asset value equal to the value of the assets attributable to each corresponding class of Shares of Large Cap Growth VIF acquired by Large Cap VIF, less the value of the liabilities of Large Cap Growth VIF assumed, determined as hereafter provided in this Section 4. (a) Subject to Section 4(d) hereof, the value of Large Cap Growth VIF's net assets will be computed as of the Valuation Time using the valuation procedures for Large Cap VIF set forth in the BB&T Prospectuses and BB&T Statement of Additional Information. In no event shall the same security held by the Large Cap Growth VIF and BB&T Variable Insurance Funds be valued at different prices. (b) Subject to Section 4(d) hereof, the net asset value of a Share of Large Cap VIF will be determined to the nearest full cent as of the Valuation Time, using the valuation procedures set forth in the BB&T Prospectuses for Large Cap VIF. (c) Subject to Section 4(d), the Valuation Time shall be 4:00 p.m. Eastern Standard time on January 26, 2007, or such earlier or later days as may be established by the proper officers of BB&T Variable Insurance Funds (the "Valuation Time"). (d) No formula will be used to adjust the net asset value of Large Cap Growth VIF or Large Cap VIF to take into account differences in realized and unrealized gains and losses. (e) Large Cap VIF shall issue its Shares to Large Cap Growth VIF on one share deposit receipt registered in the name of Large Cap Growth VIF. Large Cap Growth VIF shall distribute in liquidation the Large Cap VIF Shares received by it hereunder pro rata to its shareholders by redelivering such share deposit receipt to BB&T Variable Insurance Funds' transfer agent which will as soon as practicable set up open accounts for each Large Cap Growth VIF shareholder, in accordance with written instructions furnished by Large Cap Growth VIF. (f) Large Cap VIF shall assume all liabilities of Large Cap Growth VIF, whether accrued or contingent, in connection with the acquisition of assets and subsequent dissolution of Large Cap Growth VIF or otherwise, except that recourse for assumed liabilities relating to Large Cap Growth VIF will be limited to Large Cap VIF. 5. Expenses, Fees, etc. (a) All fees and expenses incurred by Large Cap Growth VIF, Large Cap VIF and/or BB&T Asset Management, Inc. (the investment adviser of both Large Cap Growth VIF and Large Cap VIF) directly in connection with the consummation of the transaction contemplated by this Plan will be borne by BB&T Asset Management, Inc., including the costs of proxy materials, proxy solicitations and legal expenses. All such fees and expenses incurred and so borne by BB&T Asset Management, Inc. will be solely and directly related to the transaction contemplated by this Plan and will be paid directly by BB&T Asset Management, Inc. to the relevant providers of services or other payees, in accordance with the principles set forth in Revenue Ruling 73-54, 1973-1 C.B. 187. Fees and expenses not incurred directly in connection with the consummation of the transaction contemplated by this Plan will be paid by the party directly incurring such expenses. Notwithstanding any of the foregoing, fees and expenses shall in any event be paid by the party directly incurring such fees and expenses if and to the extent that the payment by BB&T Asset Management, Inc. of such fees and expenses would result in the disqualification of such party as a regulated investment company within the meaning of Section 851 of the Code. Large Cap Growth VIF shareholders will pay their respective expenses, if any, incurred in connection with the transaction contemplated by this Plan. BB&T Asset Management, Inc. nor Large Cap Growth VIF nor Large Cap VIF will pay Large Cap Growth VIF shareholders' expenses. (b) Notwithstanding any other provisions of this Plan, if for any reason the transaction contemplated by this Plan is not consummated, no party shall be liable to the other party for any damages resulting therefrom, including without limitation consequential damages. 6. Permitted Assets. BB&T Variable Insurance Funds and Large Cap Growth VIF will agree to review the assets of Large Cap Growth VIF to ensure that at any time prior to the Exchange Date the assets of Large Cap Growth VIF do not include any assets that Large Cap VIF is not permitted, or reasonably believes to be unsuitable B-4 for it, to acquire, including without limitation any security that, prior to its acquisition by Large Cap Growth VIF, is unsuitable for Large Cap VIF to acquire. 7. Exchange Date. Delivery of the assets of Large Cap Growth VIF to be transferred, assumption of the liabilities of Large Cap Growth VIF to be assumed, and the delivery of Large Cap VIF Shares to be issued shall be made at the offices of BB&T Variable Insurance Funds, 3435 Stelzer Road, Columbus, OH 43219, at 9:00 a.m. Eastern standard time on January 29, 2007, or at such other times and dates established by the proper officers of BB&T Variable Insurance Funds, the date and time upon which such delivery is to take place being referred to herein as the "Exchange Date." 8. Special Meeting of Shareholders; Dissolution. (a) Large Cap Growth VIF will agree to call a special meeting of the shareholders as soon as is practicable after the effective date of the Registration Statement for the purpose of considering the sale of all of the assets of Large Cap Growth VIF to and the assumption of all of the liabilities of Large Cap Growth VIF by Large Cap VIF as herein provided, and approving this Plan, and it shall be a condition to the obligations of each of the parties hereto that the holders of the Shares of Large Cap Growth VIF shall have approved this Plan and the transaction contemplated herein in the manner required by law and BB&T Variable Insurance Funds' Declaration of Trust and Bylaws at such a meeting on or before the Valuation Time. 9. Conditions to Be Met Regarding the Transaction. The consummation by the Large Cap Growth VIF and Large Cap VIF of the reorganization of the Large Cap Growth VIF with and into the Large Cap VIF ("Large Cap Growth VIF Reorganization") shall be subject to the following conditions: (a) This Plan shall have been adopted and the transaction contemplated hereby, shall have been approved by the shareholders of Large Cap Growth VIF in the manner required by law. (b) Large Cap Growth VIF shall have furnished to Large Cap VIF a statement of each of Large Cap Growth VIF's assets and liabilities, with values determined as provided in Section 3 of this Plan, together with a list of Investments with their respective tax costs, all as of the Valuation Time, certified on Large Cap Growth VIF's behalf by its President (or any Vice President) and Treasurer, and a certificate of both such officers, dated the Exchange Date, to the effect that as of the Valuation Time and as of the Exchange Date there has been no material adverse change in the financial position of Large Cap Growth VIF since June 30, 2006, other than changes in the Investments since that date or changes in the market value of the Investments, or changes due to net redemptions of Shares of Large Cap Growth VIF, dividends paid or losses from operations. (c) As of the Valuation Time and as of the Exchange Date, all representations and warranties of BB&T Variable Insurance Funds, Large Cap VIF and Large Cap Growth VIF made in Section 2 of this Plan are true and correct in all material respects as if made at and as of such dates, Large Cap Growth VIF has complied with all requirements of this Plan to be performed or satisfied at or prior to each of such dates, and Large Cap Growth VIF shall have furnished to Large Cap VIF a statement, dated the Exchange Date, signed by BB&T Variable Insurance Funds' President (or any Vice President) and Treasurer certifying those facts as of such dates. (d) There shall not be any material litigation pending with respect to the matters contemplated by this Plan. (e) BB&T Variable Insurance Funds shall have received an opinion of Ropes & Gray LLP dated the Exchange Date to the effect that: (i) BB&T Variable Insurance Funds is a business trust duly established and validly existing under the laws of the Commonwealth of Massachusetts, and neither BB&T Variable Insurance Funds, Large Cap Growth VIF nor Large Cap VIF is, to the knowledge of such counsel, required to qualify to do business as a foreign association in any jurisdiction; (ii) BB&T Variable Insurance Funds and Large Cap Growth VIF have power to sell, assign, convey, transfer and deliver the Investments and other assets contemplated hereby and, upon consummation of the transaction contemplated hereby in accordance with the terms of this Plan, BB&T Variable Insurance Funds and Large Cap Growth VIF will have duly sold, assigned, conveyed, transferred and delivered such Investments and other assets to Large Cap VIF; (iii) the adoption of this Plan did not, and the consummation of the transaction contemplated hereby will not, violate BB&T Variable Insurance Funds' Declaration of Trust or Bylaws, as amended, or any provision of any agreement known to such counsel to which BB&T Variable Insurance Funds is a party or by which it is bound; B-5 (iv) no consent, approval, authorization or order of any court or governmental authority is required for the consummation by BB&T Variable Insurance Funds of the transaction contemplated hereby, except such as have been obtained under the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of 1934 ("the 1934 Act") and the 1940 Act; (v) this Plan has been duly authorized by BB&T Variable Insurance Funds and is a valid and binding obligation of BB&T Variable Insurance Funds; and (vi) the Shares of Large Cap VIF to be delivered to Large Cap Growth VIF as provided for by this Plan are duly authorized and upon such delivery will be validly issued and will be fully paid and nonassessable by BB&T Variable Insurance Funds and no shareholder of BB&T Variable Insurance Funds has any preemptive right to subscription or purchase in respect thereof. (f) With respect to the Large Cap Growth VIF Reorganization, BB&T Variable Insurance Funds, on behalf of Large Cap Growth VIF and Large Cap VIF shall have received an opinion of Ropes & Gray LLP addressed to Large Cap Growth VIF and Large Cap VIF and dated the Exchange Date (which opinion will be based upon certain factual representations and subject to certain qualifications) to the effect that, on the basis of the existing provisions of the Code, Treasury Regulations, current administrative rules and court decisions, generally for federal income tax purposes, except as noted below: (i) the transaction contemplated by this Plan will constitute a reorganization within the meaning of Section 368(a) of the Code, and Large Cap VIF and Large Cap Growth VIF will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by Large Cap VIF upon the receipt of the assets of Large Cap Growth VIF in exchange for Large Cap VIF Shares and the assumption by Large Cap VIF of the liabilities of Large Cap Growth VIF; (iii) the basis in the hands of Large Cap VIF of the assets of Large Cap Growth VIF transferred to Large Cap VIF in the transaction contemplated by this Plan will be the same as the basis of such assets in the hands of Large Cap Growth VIF immediately prior to the transfer; (iv) the holding periods of the assets of Large Cap Growth VIF in the hands of Large Cap VIF will include the periods during which such assets were held by Large Cap Growth VIF; (v) no gain or loss will be recognized by Large Cap Growth VIF upon the transfer of Large Cap Growth VIF's assets to Large Cap VIF in exchange for Large Cap VIF Shares and the assumption by Large Cap VIF of the liabilities of Large Cap Growth VIF, or upon the distribution of Large Cap VIF Shares by Large Cap Growth VIF to its shareholders in liquidation; (vi) no gain or loss will be recognized by Large Cap Growth VIF shareholders upon the exchange of their Large Cap Growth VIF Shares for Large Cap VIF Shares; (vii) the aggregate basis of Large Cap VIF Shares a Large Cap Growth VIF shareholder receives in connection with the transaction contemplated by this Plan will be the same as the aggregate basis of his or her Large Cap Growth VIF exchanged therefor; (viii) a Large Cap Growth VIF shareholder's holding period for his or her Large Cap VIF Shares will be determined by including the period for which he or she held the Large Cap Growth VIF Shares exchanged therefor, provided that he or she held such Large Cap Growth VIF Shares as capital assets; and (ix) Large Cap VIF will succeed to, and take into account the items of Large Cap Growth VIF described in Section 318(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Treasury regulations thereunder. The opinion will express no view with respect to the effect of the reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized at the end of a taxable year (or on the termination or transfer thereof) under federal income tax principles. (g) The assets of Large Cap Growth VIF to be acquired by Large Cap VIF will include no assets which Large Cap VIF, by reason of limitations contained in its Declaration of Trust or of investment restrictions disclosed in BB&T Prospectuses and SAI in effect on the Exchange Date, may not properly acquire. BB&T Variable Insurance Funds shall not change BB&T Variable Insurance Funds' Declaration of Trust and BB&T Prospectuses so as to restrict permitted investments for Large Cap VIF except as required by the Commission or any state regulatory authority. (h) The Registration Statement shall have become effective under the 1933 Act and applicable Blue Sky provisions, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of BB&T Variable Insurance Funds, contemplated by the Commission and or any state regulatory authority. (i) BB&T Variable Insurance Funds shall have received from the Commission such order or orders as Ropes & Gray LLP deems reasonably necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act in connection with the transaction contemplated hereby, and that all such orders shall be in full force and effect. B-6 (j) Prior to the Exchange Date, the Large Cap Growth VIF shall have declared a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders (a) all of the excess of (x) its investment income excludable from gross income under Section 103 of the Code over (y) its deductions disallowed under Section 265 and 171 of the Code, (b) all of its investment company taxable income (in each case computed without regard to any deduction for dividends paid), and (c) all of its net capital gain realized (after reduction for any capital loss carryover), in each case for both the current taxable year (which will end on the Exchange Date) and the immediately preceding taxable year. (k) With respect to the Large Cap Growth VIF Reorganization, Large Cap Growth VIF shall have furnished to Large Cap VIF a certificate, signed by the President (or any Vice President) and the Treasurer of BB&T Variable Insurance Funds, as to the tax cost to Large Cap Growth VIF of the securities delivered to Large Cap VIF pursuant to this Plan, together with any such other evidence as to such tax cost as Large Cap VIF may reasonably request. (l) BB&T Variable Insurance Funds shall have received from the custodian of BB&T Variable Insurance Funds a certificate identifying all of the assets of Large Cap Growth VIF held by such custodian as of the Valuation Time. (m) The transfer agent of BB&T Variable Insurance Funds shall have provided to BB&T Variable Insurance Funds (i) a record specifying the number of Shares of Large Cap Growth VIF outstanding as of the Valuation Time and (iii) a record specifying the name and address of each holder of record of any such Shares of Large Cap Growth VIF and the number of Large Cap Growth VIF Shares held of record by each such shareholder as of the Valuation Time. Large Cap Growth VIF's transfer agent shall also have provided BB&T Variable Insurance Funds with a certificate confirming that the acts specified in the preceding sentence have been taken and that the information so supplied is complete and accurate to the best knowledge of the transfer agent. (n) BB&T Variable Insurance Funds, on behalf of Large Cap VIF, shall have executed and delivered an Assumption of Liabilities dated as of the Exchange Date pursuant to which Large Cap VIF will assume all of the liabilities of Large Cap Growth VIF existing at the Valuation Time in connection with the transaction contemplated by this Plan, other than liabilities pursuant to this Plan. (o) BB&T Variable Insurance Funds, on behalf of Large Cap Growth VIF, shall have executed and delivered an instrument of transfer ("Transfer Document") and any other certificates or documents BB&T Variable Insurance Funds may deem necessary or desirable to transfer Large Cap Growth VIF's entire right, title and interest in and to the Investments and all other assets of Large Cap Growth VIF. 10. No Broker, etc. There is no person who has dealt with BB&T Variable Insurance Funds, Large Cap Growth VIF or Large Cap VIF who by reason of such dealings is entitled to any broker's or finder's or other similar fee or commission arising out of the transaction contemplated by this Plan. 11. Termination. BB&T Variable Insurance Funds may, by consent of its Trustees, terminate this Plan, and BB&T Variable Insurance Funds, after consultation with counsel, may modify this Plan in any manner deemed necessary or desirable. 12. Covenants, etc. Deemed Material. All covenants, agreements, representations and warranties made under this Plan and any certificates delivered pursuant to this Plan shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf. 13. Sole Plan; Amendments. This Plan supersedes all previous correspondence and oral communications between the parties regarding the subject matter hereof, constitutes the only understanding with respect to such subject matter, may be changed only by duly adopted resolution of the Board of Trustees of BB&T Variable Insurance Funds, and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. 14. Rule 145. Pursuant to Rule 145 under the 1933 Act, BB&T Variable Insurance Funds will, in connection with the issuance of any Shares of the Large Cap VIF to any person who at the time of the transaction contemplated B-7 hereby is deemed to be an affiliate of a party to the transaction pursuant to Rule 145(c), cause to be affixed upon the certificates issued to such person (if any) a legend as follows: THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO BB&T VARIABLE INSURANCE FUNDS OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO BB&T FUNDS SUCH REGISTRATION IS NOT REQUIRED. 15. BB&T Variable Insurance Funds' Declaration of Trust. BB&T Variable Insurance Funds is a business trust organized under Massachusetts law and under a Declaration of Trust, to which reference is hereby made and a copy of which is on file at the office of the Secretary of The Commonwealth of Massachusetts and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The obligations of "BB&T Variable Insurance Funds" entered into in the name or on behalf thereof by any of the Trustees, officers, employees or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, officers, employees, agents or shareholders of BB&T Variable Insurance Funds personally, but bind only the assets of BB&T Variable Insurance Funds and all persons dealing with any series or funds of BB&T Variable Insurance Funds, such as Large Cap VIF, must look solely to the assets of BB&T Variable Insurance Funds belonging to such series or funds for the enforcement of any claims against BB&T Variable Insurance Funds. [Signature Page Follows] B-8 This Agreement may be executed in any number of counter-parts, each of which, when executed and delivered, shall be deemed to be an original. BB&T VARIABLE INSURANCE FUNDS, on behalf of BB&T Large Cap VIF and BB&T Large Cap Growth VIF By: /s/ Todd Miller ------------------------------------ Name: Todd Miller Title: Vice President BB&T ASSET MANAGEMENT, INC., with respect to Section 5 only By: /s/ E.G. Purcell, III ------------------------------------ Name: E.G. Purcell, III Title: Senior Vice President B-9 APPENDIX C STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information contains information which may be of interest to investors but which is not included in the Combined Prospectus/Proxy Statement of BB&T Funds and BB&T Variable Insurance Funds dated December 15, 2006 relating to the transfer of all assets of the BB&T Large Cap Growth Fund to BB&T Large Cap Fund and all of the assets of BB&T Large Cap Growth VIF to BB&T Large Cap VIF. The Statement of Additional Information for the BB&T Large Cap Growth Fund and BB&T Large Cap Fund, series of BB&T Funds (the "BB&T Large Cap Funds"), dated February 1, 2006, and the Annual Report for the BB&T Large Cap Funds for the period ended September 30, 2006 have been filed with the Securities and Exchange Commission and are incorporated herein by reference. The Statement of Additional Information for the BB&T Large Cap Growth VIF and BB&T Large Cap VIF, series of BB&T Variable Insurance Funds (the "VIF Funds"), dated May 1, 2006, the Annual Report for VIF Funds for the period ended December 31, 2005, and the Semi-Annual Report for the VIF Funds for the period ended June 30, 2006, have been filed with the Securities and Exchange Commission and are incorporated herein by reference. This Statement of Additional Information is not a prospectus and is authorized for distribution only when it accompanies or follows delivery of the Combined Prospectus/Proxy Statement. This Statement of Additional Information should be read in conjunction with the Combined Prospectus/Proxy Statement. A copy of the Combined Prospectus/Proxy Statement may be obtained, without charge, by writing BB&T Funds or BB&T Variable Insurance Funds, 3435 Stelzer Road, Columbus, OH 43219 or by calling 1-800-228- 1872. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Prospectus/Proxy Statement. The audited financial statements and related independent accountants' report for the BB&T Funds contained in the Annual Report dated September 30, 2006 are hereby incorporated herein by reference and no other parts of such Annual Report are incorporated by reference herein. The audited financial statements and related independent accountants' report for the VIF Funds contained in the Annual Report dated December 31, 2005 are hereby incorporated herein by reference and no other parts of the Annual Report are incorporated by reference herein. The unaudited financial statements for the VIF Funds contained in the Semi-Annual Report dated June 30, 2006 are hereby incorporated herein by reference and no other parts of the Semi-Annual Report are incorporated by reference herein. All unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. In addition, all such adjustments are of a normal recurring nature. This Statement of Additional Information is dated December 15, 2006. C-1 TABLE OF CONTENTS Financial Statements of the Large Cap Fund on a pro forma basis as of and for the period ended September 30, 2006........................................... C-3 Financial Statements of the Large Cap VIF on a pro forma basis as of and for the periods ended December 31, 2005 and June 30, 2006............................. C-16
C-2 BB&T LARGE CAP FUND PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 2006 (UNAUDITED)
PRO FORMA LARGE CAP LARGE CAP PRO FORMA LARGE CAP LARGE CAP COMBINED FUND GROWTH FUND COMBINED FUND GROWTH FUND FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE (C) VALUE ------------ ------------ ------------ -------------------- ------------ -------------- -------------- COMMON STOCKS (93.9%) Consumer Discretionary (11.9%) 65,600 65,600 American Eagle Outfitters, $ $ 2,875,248 $ 2,875,248 Inc. (b) 59,800 59,800 Best Buy, Inc. (b) 3,202,888 3,202,888 113,100 113,100 Coach, Inc. (a) (b) 3,890,640 3,890,640 98,800 98,800 Comcast Corp., Class A (a) 3,640,780 3,640,780 (b) 68,200 68,200 Federated Department Stores, 2,946,922 2,946,922 Inc. (b) 282,000 282,000 Gannett Co., Inc. (b) 16,026,060 16,026,060 120,900 120,900 Hilton Hotels Corp. (b) 3,367,065 3,367,065 42,200 42,200 J. C. Penney, Inc. (b) 2,886,058 2,886,058 434,800 434,800 Mattel, Inc. 8,565,560 8,565,560 38,300 38,300 Polo Ralph Lauren Corp. 2,477,627 2,477,627 93,600 93,600 Starbucks Corp. (a) (b) 3,187,080 3,187,080 168,111 168,111 Target Corp. (b) 9,288,133 9,288,133 706,381 706,381 Tiffany & Co. (b) 23,451,848 23,451,848 103,250 103,250 V.F. Corp. 7,532,088 7,532,088 650,000 650,000 Walt Disney Co. (The) 20,091,500 20,091,500 ------------ ------------ -------------- 84,955,189 28,474,308 113,429,497 ------------ ------------ -------------- Consumer Staples (5.5%) 138,590 138,590 Altria Group, Inc. 10,609,065 10,609,065 85,800 85,800 Archer-Daniels-Midland Co. 3,250,104 3,250,104 29,900 29,900 Fomento Economico Mexicano 2,898,506 2,898,506 SA, ADR 85,100 85,100 Hansen Natural Corp. (a) (b) 2,764,048 2,764,048 276,500 276,500 Kimberly-Clark Corp. (b) 18,072,039 18,072,039 43,500 43,500 PepsiCo, Inc. 2,838,810 2,838,810 39,600 39,600 Procter & Gamble Co. 2,454,408 2,454,408 568,010 568,010 Sara Lee Corp. 9,127,921 9,127,921 ------------ ------------ -------------- 37,809,025 14,205,876 52,014,901 ------------ ------------ -------------- Energy (9.2%) 219,000 219,000 Anadarko Petroleum Corp. (b) 9,598,770 9,598,770 81,900 81,900 Cameco Corp. (b) 2,995,083 2,995,083 329,460 329,460 ChevronTexaco Corp. 21,368,776 21,368,776 265,347 265,347 ConocoPhillips 15,796,107 15,796,107 242,000 242,000 Duke Energy Corp. (b) 7,308,400 7,308,400 290,000 290,000 Exxon Mobil Corp. (b) 19,459,000 19,459,000 66,300 66,300 McDermott International, Inc. 2,771,340 2,771,340 (b) 96,000 39,600 135,600 Schlumberger, Ltd. (b) 5,954,880 2,456,388 8,411,268 ------------ ------------ -------------- 79,485,933 8,222,811 87,708,744 ------------ ------------ --------------
C-3
PRO FORMA LARGE CAP LARGE CAP PRO FORMA LARGE CAP LARGE CAP COMBINED FUND GROWTH FUND COMBINED FUND GROWTH FUND FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE (C) VALUE ------------ ------------ ------------ -------------------- ------------ -------------- -------------- Financials (18.8%) 33,800 33,800 Affiliated Managers Group, 3,383,718 3,383,718 Inc. (a) (b) 93,100 93,100 AMBAC Financial Group, Inc. 7,704,025 7,704,025 182,000 39,300 221,300 American International Group, 12,059,320 2,604,018 14,663,338 Inc. 250,000 250,000 Bank of New York Co., Inc. 8,815,000 8,815,000 (The) 18,200 18,200 Bear Stearns Cos., Inc. (The) 2,549,820 2,549,820 (b) 139,700 139,700 Charles Schwab Corp. (The) 2,500,630 2,500,630 (b) 7,400 7,400 Chicago Mercantile Exchange 3,539,050 3,539,050 Holdings, Inc. (b) 405,666 405,666 CitiGroup, Inc. 20,149,430 20,149,430 206,000 206,000 Fannie Mae (b) 11,517,460 11,517,460 20,000 20,000 Goldman Sachs Group, Inc. 3,383,400 3,383,400 (The) (b) 507,772 507,772 JPMorgan Chase & Co. 23,844,973 23,844,973 118,600 118,600 Lincoln National Corp. 7,362,688 7,362,688 190,000 43,000 233,000 Merrill Lynch & Co., Inc. (b) 14,861,800 3,363,460 18,225,260 257,718 257,718 Northern Trust Corp. (b) 15,058,463 15,058,463 298,500 298,500 St. Paul Travelers Cos., Inc. 13,996,665 13,996,665 (The) 318,000 318,000 Washington Mutual, Inc. (b) 13,823,460 13,823,460 217,600 217,600 Wells Fargo & Co. 7,872,768 7,872,768 ------------ ------------ -------------- 157,066,052 21,324,096 178,390,148 ------------ ------------ -------------- Health Care (15.4%) 186,000 186,000 Abbott Laboratories 9,032,160 9,032,160 52,600 52,600 AmerisourceBergen Corp. (b) 2,377,520 2,377,520 312,984 31,762 344,746 Amgen, Inc. (a) (b) 22,387,745 2,271,936 24,659,681 72,800 72,800 Amylin Pharmaceuticals, Inc. 3,208,296 3,208,296 (a) (b) 233,080 233,080 Bristol-Myers Squibb Co. 5,808,354 5,808,354 80,600 80,600 Celgene Corp. (a) (b) 3,489,980 3,489,980 33,100 33,100 Fisher Scientific 2,589,744 2,589,744 International, Inc. (a) 29,900 29,900 Genentech, Inc. (a) (b) 2,472,730 2,472,730 53,000 53,000 Gilead Sciences, Inc. (a) 3,641,100 3,641,100 65,600 65,600 Humana, Inc. (a) 4,335,504 4,335,504 285,806 285,806 Johnson & Johnson 18,560,242 18,560,242 37,500 37,500 Medco Health Solutions, Inc. 2,254,125 2,254,125 (a) 507,821 507,821 Merck & Co., Inc. (b) 21,277,699 21,277,699 74,100 74,100 Novartis AG, ADR 4,330,404 4,330,404 724,402 724,402 Pfizer, Inc. 20,544,041 20,544,041 104,000 104,000 Schering-Plough Corp. 2,297,360 2,297,360 41,900 41,900 Stericycle, Inc. (a) (b) 2,924,201 2,924,201 29,200 29,200 Wellpoint, Inc. (a) 2,249,860 2,249,860 145,000 64,700 209,700 Wyeth 7,371,800 3,289,348 10,661,148 ------------ ------------ -------------- 104,982,041 41,732,108 146,714,149 ------------ ------------ --------------
C-4
PRO FORMA LARGE CAP LARGE CAP PRO FORMA LARGE CAP LARGE CAP COMBINED FUND GROWTH FUND COMBINED FUND GROWTH FUND FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE (C) VALUE ------------ ------------ ------------ -------------------- ------------ -------------- -------------- Industrials (4.4%) 53,481 53,481 Danaher Corp. (b) 3,672,540 3,672,540 41,370 41,370 Emerson Electric Co. (The) 3,469,288 3,469,288 23,812 23,812 FedEx Corp. 2,587,888 2,587,888 105,000 68,200 173,200 General Electric Co. 3,706,500 2,407,460 6,113,960 76,000 76,000 Monster Worldwide, Inc. (a) 2,750,440 2,750,440 117,000 117,000 Parker-Hannifin Corp. 9,094,410 9,094,410 176,800 176,800 Pitney Bowes, Inc. (b) 7,844,616 7,844,616 39,000 39,000 Precision Castparts Corp. (b) 2,463,240 2,463,240 56,500 56,500 United Technologies Corp. 3,579,275 3,579,275 ------------ ------------ -------------- 24,114,814 17,460,843 41,575,657 ------------ ------------ -------------- Information Technology (16.3%) 91,000 91,000 Advanced Micro Devices, Inc. 2,261,350 2,261,350 (a) (b) 68,900 68,900 Agilent Technologies, Inc. 2,252,341 2,252,341 (a) 75,000 75,000 Akamai Technologies, Inc. (a) 3,749,250 3,749,250 (b) 74,700 74,700 Amphenol Corp., Class A (b) 4,626,171 4,626,171 49,400 49,400 Apple Computer, Inc. (a) (b) 3,805,282 3,805,282 142,400 142,400 Automatic Data Processing, 6,741,216 6,741,216 Inc. 1,046,516 112,400 1,158,916 Cisco Systems, Inc. (a) (b) 24,069,868 2,585,200 26,655,068 47,800 47,800 Cognizant Technology 3,540,068 3,540,068 Solutions Corp., Class A (a) 844,202 844,202 Dell, Inc. (a) (b) 19,281,574 19,281,574 152,000 152,000 First Data Corp. 6,384,000 6,384,000 6,800 6,800 Google, Inc. (a) (b) 2,732,920 2,732,920 123,000 123,000 Hewlett-Packard Co. 4,512,870 4,512,870 1,407,693 1,407,693 Intel Corp. 28,956,245 28,956,245 100,100 100,100 MEMC Electronic Materials, 3,666,663 3,666,663 Inc. (a) (b) 245,000 245,000 Micron Technology, Inc. (a) 4,263,000 4,263,000 (b) 243,000 128,000 371,000 Microsoft Corp. 6,641,190 3,498,240 10,139,430 143,000 143,000 Motorola, Inc. 3,575,000 3,575,000 291,200 291,200 Oracle Corp. (a) (b) 5,165,889 5,165,889 57,800 57,800 QUALCOMM, Inc. 2,101,030 2,101,030 564,000 564,000 Time Warner, Inc. 10,281,720 10,281,720 ------------ ------------ -------------- 102,355,813 52,335,274 154,691,087 ------------ ------------ -------------- Materials (2.9%) 129,700 129,700 Air Products & Chemicals, 8,608,189 8,608,189 Inc. 252,000 252,000 Alcoa, Inc. 7,066,080 7,066,080 186,500 186,500 Weyerhaeuser Co. (b) 11,475,345 11,475,345 ------------ -------------- 27,149,614 27,149,614 ------------ --------------
C-5
PRO FORMA LARGE CAP LARGE CAP PRO FORMA LARGE CAP LARGE CAP COMBINED FUND GROWTH FUND COMBINED FUND GROWTH FUND FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE (C) VALUE ------------ ------------ ------------ -------------------- ------------ -------------- -------------- Telecommunication Services (7.1%) 111,100 111,100 America Movil SA de CV, 4,374,007 4,374,007 Series L, ADR (b) 108,500 108,500 American Tower Corp., Class A 3,960,250 3,960,250 (a) (b) 421,837 94,600 516,437 AT&T, Inc. (b) 13,735,013 3,080,176 16,815,189 180,000 180,000 BellSouth Corp. 7,695,000 7,695,000 72,800 72,800 NII Holdings, Inc. (a) (b) 4,525,248 4,525,248 550,000 160,500 710,500 Nokia Corp., ADR (b) 10,829,500 3,160,245 13,989,745 427,000 427,000 Verizon Communications, Inc. 15,854,510 15,854,510 ------------ ------------ -------------- 48,114,023 19,099,926 67,213,949 ------------ ------------ -------------- Utilities (2.4%) 29,900 29,900 FirstEnergy Corp. (b) 1,670,214 1,670,214 37,700 37,700 FPL Group, Inc. (b) 1,696,500 1,696,500 538,100 538,100 NiSource, Inc. (b) 11,698,294 11,698,294 87,467 87,467 SCANA Corp. (b) 3,522,296 3,522,296 231,275 231,275 Xcel Energy, Inc. 4,775,829 4,775,829 ------------ ------------ ------------ ------------ ------------ -------------- Cost $525,464,176 $173,798,922 $699,263,098 19,996,419 3,366,714 23,363,133 ------------ ------------ -------------- Total Common Stocks 686,028,923 206,221,956 892,250,879 ------------ ------------ -------------- EXCHANGE TRADED FUNDS (1.1%) 195,000 195,000 iShares Russell 1000 10,171,200 10,171,200 Growth Index Fund (b) ------------ ------------ ------------ -------------- Cost $ 9,911,034 $ 9,911,034 Total Exchange Traded Funds 10,171,200 10,171,200 ------------ -------------- WARRANT (0.0%) 7,110 7,110 Raytheon Co. (a) 101,460 101,460 ------------ ------------ ------------ -------------- Cost $ 0 $ 0 Total Warrant 101,460 101,460 ------------ -------------- REPURCHASE AGREEMENT (4.8%) $ 38,405,481 $ 6,880,178 $ 45,285,659 U.S. Bank N.A., 5.05%, dated 38,405,481 6,880,178 45,285,659 9/29/06, maturing 10/2/06, with a maturity value of $45,304,716 (Collateralized fully by U.S. Government Agencies) ------------ ------------ ------------ ------------ ------------ -------------- Cost $ 38,405,481 $ 6,880,178 $ 45,285,659 Total Repurchase Agreement 38,405,481 6,880,178 45,285,659 ------------ ------------ --------------
C-6
PRO FORMA LARGE CAP LARGE CAP PRO FORMA LARGE CAP LARGE CAP COMBINED FUND GROWTH FUND COMBINED FUND GROWTH FUND FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE (C) VALUE ------------ ------------ ------------ -------------------- ------------ -------------- -------------- SECURITIES HELD AS COLLATERAL FOR SECURITIES ON LOAN (23.9%) $126,591,112 $101,006,062 $227,597,174 Pool of Various Securities 126,591,112 101,006,062 227,597,174 for BB&T Funds -- Note 3 - Security Loans ------------ ------------ ------------ ------------ ------------ -------------- Cost $126,591,112 $101,006,062 $227,597,174 Total Securities Held as Collateral for Securities on Loan 126,591,112 101,006,062 227,597,174 ------------ ------------ -------------- TOTAL INVESTMENTS -- 123.7% $851,126,976 $324,279,396 $1,175,406,372 COST $690,460,769 $291,596,196 $982,056,965 ============ ============ ============ ============ ============ ==============
-------- Percentages indicated are based on combined net assets of $950,127,972. (a) Represents non-income producing security. (b) Represents that all or a portion of the security was on loan as of September 30, 2006. (c) None of the securities held by the Large Cap Growth Fund on September 30, 2006 would be violative of the current investment guidelines or restrictions of the Large Cap Fund. ADR -- American Depositary Receipt. See accompanying notes to the Pro Forma financial statements. C-7 BB&T LARGE CAP FUND PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 2006 (UNAUDITED)
LARGE CAP PRO FORMA PRO FORMA GROWTH FUND LARGE CAP FUND ADJUSTMENTS COMBINED ------------ -------------- ------------ -------------- ASSETS: Investments, at cost................. $284,716,018 $652,055,288 $ -- $ 936,771,306 Unrealized appreciation (depreciation).................. 32,683,200 160,666,207 -- 193,349,407 ------------ ------------ ------------ -------------- Investments, at fair value*........ 317,399,218 812,721,495 -- 1,130,120,713 Repurchase agreements, at cost....... 6,880,178 38,405,481 -- 45,285,659 Interest and dividends receivable.... 281,220 964,315 -- 1,245,335 Receivable for capital shares issued............................. 1,117 190,567 -- 191,684 Receivable for investments sold...... 7,864,285 -- -- 7,864,285 Prepaid and other expenses........... 5,619 11,107 -- 16,726 ------------ ------------ ------------ -------------- Total Assets:........................ 332,431,637 852,292,965 -- 1,184,724,602 ------------ ------------ ------------ -------------- LIABILITIES: Cash Overdraft....................... 3,710 -- -- 3,710 Dividends payable.................... 131,054 270,220 -- 401,274 Payable for investments purchased.... 4,929,053 -- -- 4,929,053 Payable for capital shares redeemed.. 242,032 550,374 -- 792,406 Payable for collateral received on loaned securities.................. 101,006,062 126,591,112 -- 227,597,174 Accrued expenses and other payables.. -- Investment advisory fees........... 194,151 409,740 -- 603,891 Administration fees................ 31,296 66,111 -- 97,407 Fund accounting fees............... 2,950 6,014 -- 8,964 Transfer agency fees............... 9,636 19,828 -- 29,464 Distribution fees.................. 9,325 22,181 -- 31,506 Compliance service fees............ 481 979 -- 1,460 Trustee fees....................... 156 317 -- 473 Other.............................. 35,419 64,429 -- 99,848 ------------ ------------ ------------ -------------- Total Liabilities:................... 106,595,325 128,001,305 -- 234,596,630 ------------ ------------ ------------ -------------- NET ASSETS: Capital.............................. 200,780,840 488,293,326 -- 689,074,166 Accumulated (distributions in excess of) net investment income.......... 230,874 (104,143) -- 126,731 Accumulated realized gains/(losses) from investment transactions....... (7,858,602) 75,436,270 -- 67,577,668 Net unrealized appreciation/depreciation on investments........................ 32,683,200 160,666,207 -- 193,349,407 ------------ ------------ ------------ -------------- Net Assets........................... $225,836,312 $724,291,660 $ -- $ 950,127,972 ============ ============ ------------ ==============
C-8
LARGE CAP PRO FORMA PRO FORMA GROWTH FUND LARGE CAP FUND ADJUSTMENTS COMBINED ------------ -------------- ------------ -------------- NET ASSETS Class A Shares.................. $ 9,445,810 $ 48,656,168 -- $ 58,101,978 Class B Shares.................. 8,970,050 14,807,596 -- 23,777,646 Class C Shares.................. 36,886 161,325 -- 198,211 Institutional Shares............ 207,383,566 660,666,571 -- 868,050,137 ------------ ------------ ------------ -------------- Total................................ $225,836,312 $724,291,660 $ -- $ 950,127,972 ============ ============ ------------ ============== SHARES OF BENEFICIAL INTEREST OUTSTANDING (UNLIMITED NUMBER OF SHARES AUTHORIZED, NO PAR VALUE) (A) Class A Shares.................. 1,058,076 2,393,513 (593,414) 2,858,175 Class B Shares.................. 1,071,062 734,971 (625,836) 1,180,197 Class C Shares.................. 4,403 8,023 (2,569) 9,857 Institutional Shares............ 22,850,209 32,417,350 (12,674,383) 42,593,176 ------------ ------------ ------------ -------------- Total................................ 24,983,750 35,553,857 (13,896,202) 46,641,105 ============ ============ ------------ ============== NET ASSET VALUE (A) Class A Shares -- redemption price per share............... $ 8.93 $ 20.33 $ 20.33 ============ ============ ============== Class B Shares -- offering price per share**................... $ 8.37 $ 20.15 $ 20.15 ============ ============ ============== Class C Shares -- offering price per share**................... $ 8.38 $ 20.11 $ 20.11 ============ ============ ============== Institutional Shares -- offering and redemption price per share......................... $ 9.08 $ 20.38 $ 20.38 ============ ============ ============== Maximum Sales Charge -- Class A Shares............................. $ 5.75% 5.75% 5.75% ============ ============ ============== Maximum Offering Price (100%/100% -- Maximum Sales Charge) of net asset value adjusted to the nearest cent per share -- Class A Shares............................. $ 9.47 $ 21.57 $ 21.57 ============ ============ ==============
-------- (A) Class A, Class B, Class C, and Institutional Class Shares of the Large Cap Growth Fund are exchanged for new Class A, Class B, Class C, and Institutional Class Shares of the Large Cap Fund, to commence operations upon consummation of the merger. * The Large Cap Growth Fund and Large Cap Fund include securities on loan of $97,859,740 and $122,511,470, respectively. ** Redemption price per share varies by length of time shares are held. See accompanying notes to the Pro Forma financial statements. C-9 BB&T LARGE CAP FUND PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 (UNAUDITED)
LARGE CAP PRO FORMA PRO FORMA GROWTH FUND LARGE CAP FUND ADJUSTMENTS COMBINED ------------ -------------- ----------- ------------ INVESTMENT INCOME: Interest Income..................... $ 459,645 $ 1,230,665 $ -- $ 1,690,310 Dividend Income..................... 4,089,284 17,070,769 -- 21,160,053 Income from securities lending...... 71,297 125,434 -- 196,731 ------------ ----------- -------- ------------ Total Investment Income............. 4,620,226 18,426,868 -- 23,047,094 ------------ ----------- -------- ------------ EXPENSES: Investment advisory fees............ 2,669,370 5,075,497 -- 7,744,867 Administration fees................. 407,694 775,253 -- 1,182,947 Fund accounting fees................ 46,905 86,724 (4,800) 128,829 Transfer agency fees................ 76,221 145,019 (4,000) 217,240 Distribution fees -- Class A Shares............................ 45,932 218,866 -- 264,798 Distribution fees -- Class B Shares............................ 111,680 189,381 -- 301,061 Distribution fees -- Class C Shares............................ 277 1,607 -- 1,884 Compliance service fees............. 6,757 11,970 -- 18,727 Custodian fees...................... 35,486 69,727 -- 105,213 Legal fees.......................... 28,434 57,871 -- 86,305 Printing fees....................... 32,068 65,274 (3,000) 94,342 Trustee fees........................ 13,917 25,552 -- 39,469 Other............................... 43,306 97,955 (16,000) 125,261 ------------ ----------- -------- ------------ Total expenses before waivers....... 3,518,047 6,820,696 (27,800) 10,310,943 Less expenses waived by the Investment Advisor................ (180,419) (340,766) -- (521,185) Less expenses waived by the Distributor....................... (22,966) (109,433) -- (132,399) ------------ ----------- -------- ------------ Net Expenses........................ 3,314,662 6,370,497 (27,800) 9,657,359 ------------ ----------- -------- ------------ Net Investment Income (Loss)........ 1,305,564 12,056,371 27,800 13,389,735 ------------ ----------- -------- ------------ REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from investment transactions........... 16,243,812 88,409,170 -- 104,652,982 Change in unrealized appreciation/depreciation of investment securities............. (18,517,591) (7,600,664) -- (26,118,255) ------------ ----------- -------- ------------ Net realized/unrealized gains (losses) on investments........... (2,273,779) 80,808,506 -- 78,534,727 ------------ ----------- -------- ------------ Change in net assets from operations........................ $ (968,215) $92,864,877 $ 27,800 $ 91,924,462 ============ =========== ======== ============
See accompanying notes to the Pro Forma financial statements. C-10 BB&T LARGE CAP FUND PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS SEPTEMBER 30, 2006 (UNAUDITED) 1. DESCRIPTION OF THE FUND: The BB&T Large Cap Fund, ('Large Cap Fund") a series of the BB&T Funds (the "Trust"), is registered under the Investment Company Act of 1940, as amended ("the 1940 Act"), as a diversified, open-end investment company established as a Massachusetts business trust. The BB&T Funds are authorized to issue an unlimited amount of shares without par value. The Large Cap Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares and Institutional Shares. The Class A Shares of the Large Cap Fund, have a maximum sales charge of 5.75% as a percentage of original purchase price. Certain purchases of Class A Shares will not be subject to a front-end sales charge, but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% of the purchase price if redeemed less than one year after purchase. The Class B Shares of the Funds are offered without any front-end sales charge but will be subject to a maximum CDSC of 5.00% if redeemed less than one year after purchase and 1.00% if redeemed less than six years after purchase. The Class C Shares of the Funds are offered without any front-end sales charge but will be subject to a maximum CDSC of 1.00% if redeemed less than one year after purchase. Each class of shares has identical rights and privileges except with respect to the fees paid under the distribution plan, voting rights on matters affecting a single class of shares and the exchange privilege of each class of shares. The pro forma adjustments and pro forma combined columns of the Statement of Operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Funds were combined for the periods ended September 30, 2006. Investment advisory, administration and 12b-1 fees in the pro forma combined column are calculated at the projected rates in effect for the Large Cap Fund based upon the combined net assets of the corresponding Large Cap Fund and the Large Cap Growth Fund. Certain pro forma adjustments were made to estimate the benefit of combining operations of separate funds into one survivor fund. 2. BASIS OF COMBINATION: The accompanying pro forma financial statements are presented to show the effect of the proposed acquisition of the BB&T Large Cap Growth Fund, ("Large Growth Fund") a series of the Trust, by Large Cap Fund as if such acquisition had taken place as of October 1, 2005. Under the terms of the Plan of Reorganization, the combination of Large Growth Fund and Large Cap Fund will be accounted for by the method of accounting for tax-free mergers of investment companies. The acquisition would be accomplished by an acquisition of the net assets of Large Growth Fund in exchange for shares of Large Cap Fund at the September 30, 2006 net asset value. The statement of assets and liabilities and the related statement of operation of Large Growth Fund and Large Cap Fund have been combined as of and for the year ended September 30, 2006. Following the acquisition, the Large Cap Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the Large Cap Fund and the results of operations for pre-combination periods of the Large Cap Fund will not be restated. The accompanying pro forma financial statements should be read in conjunction with the financial statements of Large Cap Fund and Large Growth Fund included in their respective annual report dated September 30, 2006. The following notes refer to the accompanying pro forma financial statements as if the above-mentioned acquisition of Large Growth Fund by Large Cap Fund had taken place as of October 1, 2005. 3. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United C-11 BB&T LARGE CAP FUND PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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: Investments in common stocks, the principal market for which is a securities exchange or an over-the-counter market, are valued at their latest available sale price (except for those securities that are traded on NASDAQ, which will be valued at the NASDAQ official closing price) or in the absence of such a price, by reference to the latest available bid price in the principal market in which such securities are normally traded. The Large Cap Fund may also use an independent pricing service approved by the Board of Trustees to value certain securities. Such prices reflect fair values which may be established through the use of electronic and matrix techniques. Short-term obligations that mature in 60 days or less are valued at either amortized cost or original cost plus interest, which approximates current value. Investments in open-end investment companies, including the Funds of Funds, are valued at their respective net asset values as reported by such companies. Investments in closed-end investment companies are valued at their fair values based upon the latest available bid prices in the principal market in which such securities are normally traded. The differences between cost and fair values of investments are reflected as either unrealized appreciation or depreciation. Securities for which market quotations are not readily available will be valued at fair value using methods determined in good faith by the Pricing Committee under the supervision of the Board of Trustees. SECURITIES TRANSACTIONS AND RELATED INCOME: During the period, security transactions are accounted for no later than one business day after trade date. For financial reporting purposes, however, security transactions are accounted for on trade date of the last business day of the reporting period. Interest income is recognized on the accrual basis and includes, where applicable, the pro-rata amortization/accretion of premium or discount. Dividend income is recorded on the ex-dividend date. Gains or losses realized from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. REPURCHASE AGREEMENTS AND COLLATERALIZED LOAN AGREEMENTS: The Funds may enter into agreements with member banks of the Federal Deposit Insurance Corporation and with registered broker/dealers that BB&T Asset Management, Inc. ("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 Fund plus interest negotiated on the basis of current short-term rates, which may be more or less than the rate on the underlying Fund securities. The seller, under these types of agreements, 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 are held by the Funds' custodian, another qualified custodian, or in the Federal Reserve/Treasury book-entry system. In the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. There is potential for loss to the Fund in the event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the fair value of the underlying securities during the period while the Fund seeks to assert its rights. SECURITY LOANS: To generate additional income, the Funds may lend up to 33 1/3% of their respective total assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, U.S. Government or U.S. Government agency securities, equal at all times to at least 100% of the fair value. C-12 BB&T LARGE CAP FUND PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to an exemptive order from the Securities and Exchange Commission, the cash collateral received by the Funds was pooled and at September 30, 2006 was invested in Commercial Paper, Corporate Bonds, Mutual Funds, and Repurchase Agreements (with interest rates ranging from 5.30% to 5.48% and maturity dates ranging from October 2006 through December 2015) these investments are managed by U.S. Bank National Association. The Funds receive payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of collateral. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities lent. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by BB&T Funds to be of good standing and creditworthy under guidelines established by the Board of Trustees and when, in the judgment of BB&T Funds, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Funds or the borrower at any time and are, therefore, not considered to be illiquid investments. As of September 30, 2006, the following Funds had loans outstanding:
AVERAGE VALUE ON LOAN FOR THE VALUE OF PERIOD ENDED LOANED SEPTEMBER 30, SECURITIES VALUE OF COLLATERAL 2006 ------------ ------------------- --------------- Large Cap Fund........................ $122,511,470 $126,591,112 $179,921,206 Large Cap Growth Fund................. 97,859,740 101,006,062 113,851,334
ALLOCATION METHODOLOGY: Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionately among all Funds daily in relation to the net assets of each Fund or on another reasonable basis. Each class of shares bears its pro-rata portion of expenses attributable to its series, except that each class separately bears expenses related specifically to that class, such as distribution fees. Expenses, which are attributable to more than one Trust are allocated across the BB&T Funds and BB&T Variable Insurance Funds, based upon relative net assets or on another reasonable basis. BB&T serves as the Investment Advisor for each of the BB&T Funds. Income and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets or another appropriate basis. DIVIDENDS TO SHAREHOLDERS: Dividends from net investment income are declared and paid monthly for the Large Cap Fund. Dividends from net investment income are declared and paid quarterly for the Large Cap Growth Fund. Distributable net realized gains, if any, are declared and distributed at least annually. The character of income and gains distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g. reclass of market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends to shareholders which exceed net investment income and net realized gains for tax purposes are reported as distributions of capital. 4. CAPITAL SHARES: The pro forma net asset value per share assumes the issuance of shares of the Large Cap Fund that would have been issued at September 30, 2006, in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of Large Growth Fund, as of September 30, 2006, divided by the C-13 BB&T LARGE CAP FUND PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) net asset value per share of the shares of Large Cap Fund as of September 30, 2006. The pro forma number of shares outstanding, by class, for the combined fund consists of the following at September 30, 2006:
SHARES OF LARGE CAP GROWTH SHARES ASSUMED TOTAL OUTSTANDING FUND ISSUED IN SHARES CLASS OF SHARES PRE-COMBINATION REORGANIZATION POST-COMBINATION --------------- ---------------- -------------- ----------------- CAPITAL SHARES Class A Shares...................... 1,058,076 1,800,099 2,858,175 Class B Shares...................... 1,071,062 109,135 1,180,197 Class C Shares...................... 4,403 5,454 9,857 Institutional Shares................ 22,850,209 19,742,967 42,593,176
LARGE CAP PRO FORMA GROWTH FUND LARGE CAP FUND COMBINED ------------ -------------- ------------ CAPITALIZATION NET ASSETS Class A Shares......................... $ 9,445,810 $ 48,656,168 $ 58,101,978 Class B Shares......................... 8,970,050 14,807,596 23,777,646 Class C Shares......................... 36,886 161,325 198,211 Institutional Shares................... 207,383,566 660,666,571 868,050,137 ------------ ------------ ------------ Total.................................. $225,836,312 $724,291,660 $950,127,972 ============ ============ ============ NET ASSET VALUE PER SHARE Class A Shares......................... $ 8.93 $ 20.33 $ 20.33 Class B Shares......................... $ 8.37 $ 20.15 $ 20.15 Class C Shares......................... $ 8.38 $ 20.11 $ 20.11 Institutional Shares................... $ 9.08 $ 20.38 $ 20.38 SHARES OUTSTANDING Class A Shares......................... 1,058,076 2,393,513 2,858,175 Class B Shares......................... 1,071,062 734,971 1,180,197 Class C Shares......................... 4,403 8,023 9,857 Institutional Shares................... 22,850,209 32,417,350 42,593,176 RATIO OF EXPENSES TO AVERAGE NET ASSETS A Before Fee Waivers Class A Shares......................... 1.43% 1.43% 1.43% Class B Shares......................... 1.93% 1.93% 1.93% Class C Shares......................... 1.93% 1.94% 1.94% Institutional Shares................... 0.93% 0.93% 0.93% After Fee Waivers Class A Shares......................... 1.13% 1.14% 1.14% Class B Shares......................... 1.88% 1.88% 1.88% Class C Shares......................... 1.89% 1.88% 1.88% Institutional Shares................... 0.88% 0.89% 0.89%
C-14 BB&T LARGE CAP FUND PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) 5. FEDERAL INCOME TAXES: It is the policy of the Large Cap Fund to continue to qualify as a regulated investment company, after the acquisition, 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. Accordingly, no provision for federal income tax is required. At September 30, 2006, the Large Growth Fund had net capital loss carryforwards to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
AMOUNT EXPIRES ---------- ------- Large Cap Growth Fund.................................. $7,019,454 2011
At September 30, 2006 the cost, gross unrealized appreciation and gross unrealized depreciation on securities for federal income tax purposes were as follows:
TAX UNREALIZED TAX UNREALIZED NET UNREALIZED TAX COST APPRECIATION DEPRECIATION APPRECIATION (DEPRECIATION) ------------ -------------- -------------- --------------------------- Large Cap Fund......... $983,236,083 $198,883,898 $(6,713,609) $192,170,289
C-15 BB&T LARGE CAP VIF PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
PROFORMA LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP COMBINED VIF GROWTH VIF COMBINED VIF GROWTH VIF FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) VALUE ---------------- ----------- ------------ -------------------- ------------ ------------- ------------ COMMON STOCKS (97.1)% Consumer Discretionary (8.0)% 3,397 3,397 Chico's FAS, Inc.(a) $ $ 149,230 $ 149,230 3,671 3,671 Coach, Inc.(a) 122,391 122,391 2,300 2,300 eBay, Inc.(a) 99,475 99,475 8,223 8,223 Federated Department Stores, 545,432 545,432 Inc. 45,000 45,000 Gannett Co., Inc. 2,725,649 2,725,649 3,933 3,933 Hershey Co. (The) 217,298 217,298 5,814 5,814 Home Depot, Inc. 235,351 235,351 6,410 6,410 Kohl's Corp. 311,526 311,526 1,855 1,855 Lowe's Companies, Inc. 123,654 123,654 70,000 70,000 Mattel, Inc. 1,107,400 1,107,400 1,594 1,594 Nike, Inc., Class B 138,343 138,343 17,297 17,297 Starbucks Corp. (a) 519,084 519,084 2,174 2,174 Target Corp. 119,505 119,505 17,475 17,475 V.F. Corp. 967,067 967,067 99,000 99,000 Walt Disney Co. (The) 2,373,030 2,373,030 13,100 13,100 Whirlpool Corp. 1,097,256 1,097,256 3,049 3,049 Williams Sonoma, Inc.(a) 131,564 131,564 ------------ ----------- ------------ 8,815,834 2,167,421 10,983,255 ------------ ----------- ------------ Consumer Staples (6.6)% 55,400 55,400 Albertson's, Inc. 1,182,790 1,182,790 24,000 3,182 27,182 Altria Group, Inc. 1,793,280 237,759 2,031,039 5,749 5,749 Coca-Cola Co. 231,742 231,742 38,000 38,000 Kimberly-Clark Corp. 2,266,700 2,266,700 8,753 8,753 PepsiCo, Inc. 517,127 517,127 9,033 9,033 Procter & Gamble Co. 522,830 522,830 90,452 90,452 Sara Lee Corp. 1,709,543 1,709,543 11,936 11,936 Wal-Mart Stores, Inc. 558,605 558,605 ------------ ----------- ------------ 6,952,313 2,068,063 9,020,376 ------------ ----------- ------------ Energy (11.7)% 19,000 3,737 22,737 Anadarko Petroleum Corp. 1,800,250 354,081 2,154,331 5,136 5,136 Apache Corp. 351,919 351,919 6,270 6,270 Baker Hughes, Inc. 381,090 381,090 9,000 9,000 Burlington Resources, Inc. 775,800 775,800 50,800 50,800 ChevronTexaco Corp. 2,883,916 2,883,916 53,400 3,842 57,242 ConocoPhillips 3,106,812 223,528 3,330,340 47,632 47,632 Exxon Mobil Corp. 2,675,489 2,675,489 38,500 38,500 Royal Dutch Shell PLC, A 2,367,365 2,367,365 Shares, ADR 12,000 12,000 Schlumberger, Ltd. 1,165,800 1,165,800 ------------ ----------- ------------ 14,775,432 1,310,618 16,086,050 ------------ ----------- ------------
C-16
PROFORMA LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP COMBINED VIF GROWTH VIF COMBINED VIF GROWTH VIF FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) VALUE ---------------- ----------- ------------ -------------------- ------------ ------------- ------------ Financials (26.1)% 6,000 6,000 Ambac Financial Group, Inc. 462,360 462,360 17,000 4,399 21,399 American International Group, 1,159,910 300,143 1,460,053 Inc. 76,000 76,000 Bank of America Corp. 3,507,400 3,507,400 37,000 37,000 Bank of New York Company, 1,178,450 1,178,450 Inc. (The) 2,355 2,355 CIT Group, Inc. 121,942 121,942 62,333 62,333 Citigroup, Inc. 3,025,020 3,025,020 15,000 15,000 Equity Residential, REIT 586,800 586,800 34,000 34,000 Fannie Mae 1,659,540 1,659,540 11,500 2,553 14,053 Franklin Resources, Inc. 1,081,115 240,008 1,321,123 1,890 1,890 Goldman Sachs Group, Inc. 241,372 241,372 (The) 44,677 44,677 ING Groep NV, ADR 1,555,653 1,555,653 74,490 74,490 J.P. Morgan Chase & Co. 2,956,508 2,956,508 23,200 23,200 Lincoln National Corp. 1,230,296 1,230,296 30,000 30,000 Merrill Lynch & Company, Inc. 2,031,900 2,031,900 37,000 37,000 Northern Trust Corp. 1,917,340 1,917,340 45,000 45,000 Old Republic International 1,181,700 1,181,700 Corp. 38,000 3,699 41,699 PNC Financial Services Group, 2,349,540 228,709 2,578,249 Inc. 56,600 56,600 St. Paul Travelers Cos, Inc. 2,528,322 2,528,322 (The) 26,000 26,000 SunTrust Banks, Inc. 1,891,760 1,891,760 52,000 52,000 Washington Mutual, Inc. 2,262,000 2,262,000 22,900 22,900 Wells Fargo & Co. 1,438,807 1,438,807 16,400 16,400 Willis Group Holdings, Ltd. 605,816 605,816 ------------ ----------- ------------ 34,610,237 1,132,174 35,742,411 ------------ ----------- ------------ Health Care (10.9)% 29,200 6,940 36,140 Abbott Laboratories 1,151,356 273,644 1,425,000 6,253 6,253 Amgen, Inc.(a) 493,112 493,112 43,600 43,600 Bristol-Myers Squibb Co. 1,001,928 1,001,928 5,865 5,865 Caremark Rx, Inc. 303,748 303,748 17,000 17,000 Cigna Corp. 1,898,900 1,898,900 2,385 2,385 Genentech, Inc.(a) 220,613 220,613 2,870 2,870 Genzyme Corp.(a) 203,139 203,139 5,502 5,502 Gilead Sciences, Inc.(a) 289,570 289,570 25,000 25,000 HCA, Inc. 1,262,500 1,262,500 17,400 11,846 29,246 Johnson & Johnson 1,045,740 711,944 1,757,684 4,449 4,449 Medco Health Solutions, 248,254 248,254 Inc.(a) 8,608 8,608 Medtronic, Inc. 495,562 495,562 61,000 61,000 Merck & Co., Inc. 1,940,410 1,940,410 5,400 5,400 Novartis AG, ADR 283,392 283,392 51,000 9,865 60,865 Pfizer, Inc. 1,189,320 230,052 1,419,372 6,811 6,811 UnitedHealth Group, Inc. 423,236 423,236 3,056 3,056 Wellpoint, Inc.(a) 243,838 243,838 15,000 7,140 22,140 Wyeth 691,050 328,940 1,019,990 ------------ ----------- ------------ 10,181,204 4,749,044 14,930,248 ------------ ----------- ------------
C-17
PROFORMA LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP COMBINED VIF GROWTH VIF COMBINED VIF GROWTH VIF FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) VALUE ---------------- ----------- ------------ -------------------- ------------ ------------- ------------ Industrials (9.1)% 4,514 4,514 Boeing Co. 317,063 317,063 6,201 6,201 Caterpillar, Inc. 358,232 358,232 15,000 15,000 CSX Corp. 761,550 761,550 2,245 2,245 Danaher Corp. 125,226 125,226 6,296 6,296 Dow Chemical Co. (The) 275,891 275,891 9,500 9,500 Emerson Electric Co. 709,650 709,650 1,406 1,406 Fedex Corp. 145,366 145,366 31,000 28,213 59,213 General Electric Co. 1,086,550 988,866 2,075,416 3,300 3,300 Honeywell International, Inc. 122,925 122,925 2,892 2,892 Illinois Tool Works, Inc. 254,467 254,467 11,774 11,774 National Semiconductor Corp. 305,889 305,889 18,900 18,900 Parker-Hannifin Corp. 1,246,644 1,246,644 3,500 2,415 5,915 Phelps Dodge Corp. 503,545 347,446 850,991 27,600 27,600 Pitney Bowes, Inc. 1,166,100 1,166,100 4,661 4,661 Precision Castparts Corp. 241,486 241,486 47,000 47,000 Raytheon Co. 1,887,050 1,887,050 14,000 14,000 Textron, Inc. 1,077,720 1,077,720 3,158 3,158 United Parcel Service, Inc., 237,324 237,324 Class B 6,096 6,096 United Technologies Corp. 340,827 340,827 ------------ ----------- ------------ 8,438,809 4,061,008 12,499,817 ------------ ----------- ------------ Information Technology (11.9)% 4,941 4,941 3M Co. 382,928 382,928 1,887 1,887 Apple Computer, Inc.(a) 135,656 135,656 25,400 25,400 Automatic Data Processing, 1,165,606 1,165,606 Inc. 30,747 30,747 Cisco Systems, Inc.(a) 526,389 526,389 12,768 12,768 Corning, Inc.(a) 251,019 251,019 7,767 7,767 Dell, Inc.(a) 232,932 232,932 8,530 8,530 EMC Corp.(a) 116,179 116,179 29,000 29,000 First Data Corp. 1,247,290 1,247,290 605 605 Google, Inc.(a) 250,990 250,990 82,200 82,200 Hewlett-Packard Co. 2,353,386 2,353,386 4,800 6,442 11,242 IBM Corp. 394,560 529,532 924,092 31,504 31,504 Intel Corp. 786,340 786,340 40,000 37,536 77,536 Microsoft Corp. 1,046,000 981,567 2,027,567 9,956 9,956 Monster Worldwide, Inc.(a) 406,404 406,404 19,939 19,939 Motorola, Inc. 450,422 450,422 87,000 10,094 97,094 Nokia Corp., ADR 1,592,100 184,720 1,776,820 30,800 30,800 Oracle Corp.(a) 376,068 376,068 6,100 6,100 QUALCOMM, Inc. 262,788 262,788 11,579 11,579 Texas Instruments, Inc. 371,339 371,339 96,000 23,776 119,776 Time Warner, Inc. 1,674,240 414,653 2,088,893 3,116 3,116 Yahoo!, Inc. 122,085 122,085 ------------ ----------- ------------ 9,473,182 6,782,011 16,255,193 ------------ ----------- ------------
C-18
PROFORMA LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP COMBINED VIF GROWTH VIF COMBINED VIF GROWTH VIF FAIR SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) VALUE ---------------- ----------- ------------ -------------------- ------------ ------------- ------------ Materials (4.1)% 17,000 17,000 Air Products & Chemical, Inc. 1,006,230 1,006,230 41,000 41,000 Alcoa, Inc. 1,212,370 1,212,370 5,000 5,000 E.I. DuPont de Nemours & Co. 212,500 212,500 39,800 39,800 Sonoco Products Co. 1,170,120 1,170,120 30,000 30,000 Weyerhaeuser Co. 1,990,200 1,990,200 ------------ ------------ 5,591,420 5,591,420 ------------ ------------ Telecommunication Services (4.3)% 72,399 72,399 AT&T, Inc. 1,773,052 1,773,052 36,800 36,800 BellSouth Corp. 997,280 997,280 60,000 9,423 69,423 Sprint Nextel Corp. 1,401,600 220,121 1,621,721 52,000 52,000 Verizon Communications, 1,566,240 1,566,240 ------------ ----------- ------------ 5,738,172 220,121 5,958,293 ------------ ----------- ------------ Utilities (4.4)% 16,000 16,000 Dominion Resources, Inc. 1,235,200 1,235,200 30,000 30,000 Duke Energy Corp. 823,500 823,500 38,200 38,200 National Fuel Gas Co. 1,191,458 1,191,458 70,000 70,000 NiSource, Inc. 1,460,200 1,460,200 6,450 6,450 SCANA Corp. 254,001 254,001 59,910 59,910 Xcel Energy, Inc. 1,105,939 1,105,939 ----------- ----------- ------------ ------------ ------------ Cost $90,964,299 $20,175,360 $111,139,659 6,070,298 6,070,298 ------------ ----------- ------------ Total Common Stocks 110,646,901 22,490,460 133,137,361 ------------ ----------- ------------ REPURCHASE AGREEMENT (3.0)% Repurchase Agreement (3.0)% $ 3,042,954 $ 1,026,296 $ 4,069,250 U.S. Bank N.A., 4.05%, dated 3,042,954 1,026,296 4,069,250 12/31/05, maturing 1/3/06, with a maturity value of $4,071,081 (Collateralized fully by U.S. Government Agencies) ----------- ----------- ------------ ------------ ----------- ------------ Cost $ 3,042,954 $ 1,026,296 $ 4,069,250 Total Repurchase Agreement 3,042,954 1,026,296 4,069,250 ------------ ----------- ------------ TOTAL INVESTMENTS -- 100.1% $113,689,855 $23,516,756 $137,206,611 ============ =========== ============ COST $94,007,253 $21,201,656 $115,208,909
-------- Percentages indicated are based on combined net assets of $137,171,167. (a) Represents non-income producing security. (b) None of the securities held by the Large Cap Growth VIF on December 31, 2005 would be violative of the current investment guidelines or restrictions of the Large Cap VIF. ADR -- American Depositary Receipt. REIT -- Real Estate Investment Trust. See accompanying notes to the Pro Forma financial statements. C-19 BB&T LARGE CAP VIF STATEMENT OF ASSETS AND LIABILITIES PRO FORMA DECEMBER 31, 2005 (UNAUDITED)
LARGE CAP PRO FORMA PRO FORMA GROWTH VIF LARGE CAP VIF ADJUSTMENTS COMBINED ----------- ------------- ----------- ------------ ASSETS: Investments, at cost................. $20,175,360 $ 90,964,299 $ -- $111,139,659 Unrealized appreciation (depreciation)................ 2,315,100 19,682,602 -- 21,997,702 ----------- ------------ --------- ------------ Investments, at fair value...... 22,490,460 110,646,901 -- 133,137,361 Repurchase agreements, at cost....... 1,026,296 3,042,954 -- 4,069,250 Cash................................. -- 4,402 -- 4,402 Interest and dividends receivable.... 22,682 209,507 -- 232,189 Receivable for capital shares issued............................. 67 14,717 -- 14,784 Prepaid expenses..................... 1,054 5,069 -- 6,123 ----------- ------------ --------- ------------ Total Assets:........................ 23,540,559 113,923,550 -- 137,464,109 ----------- ------------ --------- ------------ LIABILITIES: Payable for investments purchased.... -- 182,906 -- 182,906 Payable for capital shares redeemed.. 1,258 9,085 -- 10,343 Accrued expenses and other payables.. Investment advisory fees........... 8,109 47,412 -- 55,521 Administration fees................ 2,280 11,004 -- 13,284 Fund accounting fees............... 358 1,133 -- 1,491 Transfer agency fees............... 1,319 2,094 -- 3,413 Compliance service fees............ 274 1,317 -- 1,591 Other.............................. 3,790 20,603 -- 24,393 ----------- ------------ --------- ------------ Total Liabilities:................... 17,388 275,554 -- 292,942 ----------- ------------ --------- ------------ NET ASSETS: Capital.............................. 21,265,528 94,851,983 -- 116,117,511 Undistributed net investment income (loss)............................. -- 24,377 -- 24,377 Accumulated realized gains/(losses) from investment transactions....... (57,457) (910,966) -- (968,423) Net unrealized appreciation/depreciation on investments........................ 2,315,100 19,682,602 -- 21,997,702 ----------- ------------ --------- ------------ Net Assets........................... $23,523,171 $113,647,996 $ -- $137,171,167 =========== ============ --------- ============ OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES)(A)............... 2,285,271 8,120,486 (607,816) 9,797,941 =========== ============ --------- ============ NET ASSET VALUE(A)................... $ 10.29 $ 14.00 $ 14.00 =========== ============ ============
-------- (A) Shares of the Large Cap Growth VIF are exchanged for new Shares of the Large Cap VIF, to commence operations upon consummation of the merger. See accompanying notes to the Pro Forma financial statements. C-20
BB&T LARGE CAP VIF PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) LARGE CAP PRO FORMA PRO FORMA FOR THE PERIOD ENDED DECEMBER 31, 2005 GROWTH VIF LARGE CAP VIF ADJUSTMENTS COMBINED -------------------------------------- ---------- ------------- ----------- ---------- INVESTMENT INCOME: Interest Income......................... $ 30,269 $ 117,232 $ -- $ 147,501 Dividend Income......................... 241,567 2,957,911 -- 3,199,478 --------- ---------- -------- ---------- Total Investment Income................. 271,836 3,075,143 -- 3,346,979 --------- ---------- -------- ---------- EXPENSES: Investment advisory fees................ 169,101 831,024 -- 1,000,125 Administration, transfer agency and fund accounting fees....................... 31,486 93,267 (1,850) 122,903 Administration fees..................... 17,717 85,967 -- 103,684 Fund accounting fees.................... 5,751 11,917 (4,500) 13,168 Transfer agency fees.................... 6,879 13,051 (450) 19,480 Compliance service fees................. 2,001 9,936 -- 11,937 Custodian fees.......................... 2,862 14,306 -- 17,168 Professional fees....................... 13,420 68,366 (6,500) 75,286 Trustee fees............................ 3,005 15,148 -- 18,153 Other................................... 7,782 34,906 -- 42,688 --------- ---------- -------- ---------- Total expenses before waivers........... 260,004 1,177,888 (13,300) 1,424,592 Less expenses waived or reimbursed by the Investment Advisor................ (78,732) (235,503) 15,500 (298,735) Less expenses waived by the Administrator and its affiliates...... -- (54,844) (10,850) (65,694) --------- ---------- -------- ---------- Net Expenses............................ 181,272 887,541 (8,650) 1,060,163 --------- ---------- -------- ---------- Net Investment Income (Loss)............ 90,564 2,187,602 8,650 2,286,816 --------- ---------- -------- ---------- REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from investment security transactions...... 761,512 5,648,845 -- 6,410,357 Change in unrealized appreciation/depreciation of investments........................... (393,355) (351,242) -- (744,597) --------- ---------- -------- ---------- Net realized/unrealized gains (losses) on investments........................ 368,157 5,297,603 -- 5,665,760 --------- ---------- -------- ---------- Change in net assets from operations.... $ 458,721 $7,485,205 $ 8,650 $7,952,576 ========= ========== ======== ==========
See accompanying notes to the Pro Forma financial statements. C-21 BB&T LARGE CAP VIF PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED)
LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP PROFORMA VIF GROWTH VIF COMBINED VIF GROWTH VIF COMBINED SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) FAIR VALUE ------------ ----------- ------------ -------------------- ------------ ------------- ------------ COMMON STOCKS (94.7)% Consumer Discretionary (10.1)% 10,500 10,500 American Eagle Outfitters, $ $ 357,420 $ 357,420 Inc. 4,300 4,300 Best Buy Co., Inc. 235,812 235,812 7,225 7,225 Coach, Inc.(a) 216,028 216,028 7,000 7,000 Comcast Corp., Class A(a) 229,180 229,180 46,906 46,906 Gannett Co., Inc. 2,623,453 2,623,453 3,625 3,625 J.C. Penney Company, Inc. 244,724 244,724 3,750 3,750 Lowe's Companies., Inc. 227,513 227,513 72,315 72,315 Mattel, Inc. 1,193,921 1,193,921 11,800 11,800 Staples, Inc. 286,976 286,976 12,250 12,250 Starbucks Corp.(a) 462,559 462,559 103,883 103,883 Tiffany & Co. 3,430,216 3,430,216 17,174 17,174 V.F. Corp. 1,166,458 1,166,458 108,110 108,110 Walt Disney Co. (The) 3,243,300 3,243,300 ------------ ----------- ------------ 11,657,348 2,260,212 13,917,560 ------------ ----------- ------------ Consumer Staples (5.6)% 23,052 23,052 Altria Group, Inc. 1,692,708 1,692,708 9,550 9,550 Archer-Daniels-Midland Co. 394,224 394,224 7,500 7,500 CVS Corp. 230,250 230,250 4,000 4,000 Hershey Co. (The) 220,280 220,280 45,980 45,980 Kimberly-Clark Corp. 2,836,966 2,836,966 4,200 4,200 PepsiCo, Inc. 252,168 252,168 6,000 6,000 Procter & Gamble Co. 333,600 333,600 94,452 94,452 Sara Lee Corp. 1,513,121 1,513,121 6,590 6,590 SUPERVALU, Inc. 202,313 202,313 2,475 2,475 Wal-Mart Stores, Inc. 119,221 119,221 ------------ ----------- ------------ 6,245,108 1,549,743 7,794,851 ------------ ----------- ------------ Energy (10.8)% 36,428 36,428 Anadarko Petroleum Corp. 1,737,251 1,737,251 4,400 4,400 Baker Hughes, Inc. 360,139 360,139 6,375 6,375 Cameco Corp. 254,809 254,809 54,300 54,300 ChevronTexaco Corp. 3,369,858 3,369,858 44,028 44,028 ConocoPhillips 2,885,155 2,885,155 40,253 40,253 Duke Energy Corp. 1,182,231 1,182,231 48,182 48,182 Exxon Mobil Corp. 2,955,966 2,955,966 4,550 4,550 Halliburton Co. 337,656 337,656 15,968 3,800 19,768 Schlumberger, Ltd. 1,039,676 247,418 1,287,094 5,000 5,000 Valero Energy Corp. 332,600 332,600 6,450 6,450 Weatherford International, 320,049 320,049 Ltd.(a) ------------ ----------- ------------ 13,170,137 1,852,671 15,022,808 ------------ ----------- ------------ Financials (19.0)% 3,550 3,550 AllianceBernstein Holding LP 217,047 217,047
C-22
LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP PROFORMA VIF GROWTH VIF COMBINED VIF GROWTH VIF COMBINED SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) FAIR VALUE ------------ ----------- ------------ -------------------- ------------ ------------- ------------ 15,450 15,450 Ambac Financial Group, Inc. 1,252,995 1,252,995 30,200 3,775 33,975 American International Group, 1,783,310 222,914 2,006,224 Inc. 41,500 41,500 Bank of New York Company, Inc. 1,336,300 1,336,300 (The) 1,750 1,750 Bear Stearns Companies, Inc. 245,139 245,139 (The) 13,350 13,350 Charles Schwab Corp. (The) 213,333 213,333 578 578 Chicago Mercantile Exchange 283,884 283,884 Holdings, Inc. 67,433 67,433 Citigroup, Inc. 3,252,967 3,252,967 34,265 34,265 Fannie Mae 1,648,147 1,648,147 1,550 1,550 Goldman Sachs Group, Inc. (The) 233,167 233,167 84,390 84,390 J.P. Morgan Chase & Co. 3,544,379 3,544,379 19,727 19,727 Lincoln National Corp. 1,113,392 1,113,392 31,500 3,250 34,750 Merrill Lynch & Co., Inc. 2,191,140 226,070 2,417,210 42,700 42,700 Northern Trust Corp. 2,361,310 2,361,310 3,125 3,125 Prudential Financial, Inc. 242,813 242,813 49,651 49,651 St. Paul Travelers Cos, Inc. 2,213,442 2,213,442 (The) 52,894 52,894 Washington Mutual, Inc. 2,410,909 2,410,909 18,097 18,097 Wells Fargo & Co. 1,213,947 1,213,947 ------------ ----------- ------------ 24,322,238 1,884,367 26,206,605 ------------ ----------- ------------ Health Care (15.9)% 30,200 30,200 Abbott Laboratories 1,317,022 1,317,022 3,375 3,375 Aetna, Inc. 134,764 134,764 5,050 5,050 AmerisourceBergen Corp. 211,696 211,696 52,388 3,173 55,561 Amgen, Inc.(a) 3,417,269 206,975 3,624,244 7,200 7,200 Amylin Pharmaceuticals, Inc.(a) 355,464 355,464 38,769 38,769 Bristol-Myers Squibb Co. 1,002,566 1,002,566 5,865 5,865 Caremark Rx, Inc. 292,488 292,488 7,750 7,750 Celgene Corp.(a) 367,583 367,583 14,088 14,088 Cigna Corp. 1,387,809 1,387,809 3,200 3,200 Fisher Scientific 233,760 233,760 International, Inc. (a) 2,875 2,875 Genentech, Inc.(a) 235,175 235,175 4,253 4,253 Gilead Sciences, Inc.(a) 251,607 251,607 25,700 25,700 HCA, Inc. 1,108,955 1,108,955 6,500 6,500 Humana, Inc.(a) 349,050 349,050 48,203 48,203 Johnson & Johnson 2,888,324 2,888,324 4,449 4,449 Medco Health Solutions, Inc.(a) 254,839 254,839 4,550 4,550 Medtronic, Inc. 213,486 213,486 84,262 84,262 Merck & Co., Inc. 3,069,665 3,069,665 7,125 7,125 Novartis AG, ADR 384,179 384,179 122,174 122,174 Pfizer, Inc. 2,867,424 2,867,424 1,800 1,800 Wellpoint, Inc .(a) 130,986 130,986 23,900 6,200 30,100 Wyeth 1,061,399 275,342 1,336,741 ------------ ----------- ------------ 18,120,433 3,897,394 22,017,827 ------------ ----------- ------------ Industrials (7.4)% 7,407 7,407 Boeing Co. 606,708 606,708 6,200 6,200 Caterpillar, Inc. 461,776 461,776 5,304 5,304 Danaher Corp. 341,153 341,153 6,881 4,250 11,131 Emerson Electric Co. 576,697 356,193 932,890
C-23
LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP PROFORMA VIF GROWTH VIF COMBINED VIF GROWTH VIF COMBINED SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) FAIR VALUE ------------ ----------- ------------ -------------------- ------------ ------------- ------------ 2,368 2,368 Fedex Corp. 276,724 276,724 3,800 3,800 Fluor Corp. 353,134 353,134 17,465 10,300 27,765 General Electric Co. 575,646 339,488 915,134 4,700 4,700 Illinois Tool Works, Inc. 223,250 223,250 4,500 4,500 Joy Global, Inc. 234,405 234,405 10,200 10,200 Monster Worldwide, Inc.(a) 435,132 435,132 19,200 19,200 Parker-Hannifin Corp. 1,489,920 1,489,920 29,100 29,100 Pitney Bowes, Inc. 1,201,830 1,201,830 5,450 5,450 Precision Castparts Corp. 325,692 325,692 14,500 14,500 Textron, Inc. 1,336,610 1,336,610 4,000 4,000 Union Pacific Corp. 371,840 371,840 3,995 3,995 United Parcel Service, Inc., 328,908 328,908 Class B 7,250 7,250 United Technologies Corp. 459,795 459,795 ------------ ----------- ------------ 5,180,703 5,114,198 10,294,901 ------------ ----------- ------------ Information Technology (14.6)% 6,625 6,625 Agilent Technologies, Inc.(a) 209,085 209,085 3,650 3,650 Apple Computer, Inc.(a) 208,488 208,488 23,686 23,686 Automatic Data Processing, Inc. 1,074,160 1,074,160 5,875 5,875 Broadcom Corp., Class A(a) 176,544 176,544 174,978 23,050 198,028 Cisco Systems, Inc.(a) 3,417,320 450,166 3,867,486 13,700 13,700 Corning, Inc.(a) 331,403 331,403 141,151 141,151 Dell, Inc.(a) 3,445,496 3,445,496 18,200 18,200 EMC Corp.(a) 199,654 199,654 25,283 25,283 First Data Corp. 1,138,746 1,138,746 655 655 Google, Inc.(a) 274,661 274,661 10,600 10,600 Hewlett-Packard Co. 335,808 335,808 155,138 155,138 Intel Corp. 2,939,865 2,939,865 4,050 4,050 Marvel Technology Group, 179,537 179,537 Ltd.(a) 40,300 15,300 55,600 Microsoft Corp. 938,990 356,490 1,295,480 5,700 5,700 Motorola, Inc. 114,855 114,855 91,484 1,484 Nokia Corp., ADR 1,853,466 1,853,466 30,800 30,800 Oracle Corp.(a) 446,291 446,291 5,800 5,800 Paychex, Inc. 226,084 226,084 5,750 5,750 QUALCOMM, Inc. 230,403 230,403 93,812 93,812 Time Warner, Inc. 1,622,948 1,622,948 ------------ ----------- ------------ 16,430,991 3,739,469 20,170,460 ------------ ----------- ------------ Materials (3.3)% 20,800 20,800 Air Products & Chemical, Inc. 1,329,536 1,329,536 41,916 41,916 Alcoa, Inc. 1,356,402 1,356,402 31,021 31,021 Weyerhaeuser Co. 1,931,057 1,931,057 ------------ ------------ 4,616,995 4,616,995 ------------ ------------ Telecommunication Services (4.8)% 10,700 10,700 America Movil SA de CV, 355,882 355,882 Series L, ADR 7,675 7,675 American Tower Corp., Class 238,846 238,846 A(a) 69,799 9,100 78,899 AT&T, Inc. 1,946,694 253,799 2,200,493 29,940 29,940 BellSouth Corp. 1,083,828 1,083,828
C-24
LARGE CAP LARGE CAP PROFORMA LARGE CAP LARGE CAP PROFORMA VIF GROWTH VIF COMBINED VIF GROWTH VIF COMBINED SHARES SHARES SHARES SECURITY DESCRIPTION FAIR VALUE FAIR VALUE(B) FAIR VALUE ------------ ----------- ------------ -------------------- ------------ ------------- ------------ 6,950 6,950 NII Holdings, Inc.(a) 391,841 391,841 71,025 71,025 Verizon Communications, Inc. 2,378,627 2,378,627 ------------ ----------- ------------ 5,409,149 1,240,368 6,649,517 ------------ ----------- ------------ Utilities (3.2)% 16,467 16,467 Dominion Resources, Inc. 1,231,567 1,231,567 89,504 89,504 NiSource, Inc. 1,954,768 1,954,768 14,549 14,549 SCANA Corp. 561,300 561,300 38,469 38,469 Xcel Energy, Inc. 737,835 737,835 ------------ ----------- ------------ ------------ ------------ Cost $ 93,731,105 $20,104,497 $113,835,602 4,485,470 4,485,470 ------------ ------------ Total Common Stocks 109,638,572 21,538,422 131,176,994 ------------ ----------- ------------ REPURCHASE AGREEMENT (6.4)% Repurchase Agreement (6.4)% $7,262,814 $ 1,626,433 $ 8,889,247 U.S. Bank N.A., 4.80%, dated 7,262,814 1,626,433 8,889,247 6/30/06, maturing 7/3/06, with a maturity value of $8,892,987 (Collateralized fully by U.S. Government Agencies) ------------ ----------- ------------ ------------ ----------- ------------ Cost $ 7,262,814 $ 1,626,433 $ 8,889,247 Total Repurchase Agreement 7,262,814 1,626,433 8,889,247 ------------ ----------- ------------ TOTAL INVESTMENTS -- 101.1% $116,901,386 $23,164,855 $140,066,241 ============ =========== ============ COST $100,993,919 $21,730,930 $122,724,849
-------- Percentages indicated are based on combined net assets of $138,474,534. (a) Represents non-income producing security. (b) None of the securities held by the Large Cap Growth VIF on June 30, 2006 would be violative of the current investment guidelines or restrictions of the Large Cap VIF. ADR -- American Depositary Receipt. See accompanying notes to the Pro Forma financial statements. C-25 BB&T LARGE CAP VIF STATEMENT OF ASSETS AND LIABILITIES PRO FORMA JUNE 30, 2006 (UNAUDITED)
LARGE CAP PRO FORMA PRO FORMA GROWTH VIF LARGE CAP VIF ADJUSTMENTS COMBINED ----------- ------------- ----------- ------------ ASSETS: Investments, at cost................. $20,104,497 $ 93,731,105 $ -- $113,835,602 Unrealized appreciation (depreciation)................ 1,433,925 15,907,467 -- 17,341,392 ----------- ------------ --------- ------------ Investments, at fair value...... 21,538,422 109,638,572 -- 131,176,994 Repurchase agreements, at cost....... 1,626,433 7,262,814 -- 8,889,247 Interest and dividends receivable.... 10,653 156,062 -- 166,715 Receivable for capital shares issued............................. 18,991 44,637 -- 63,628 Receivable for investments sold...... -- 1,864,916 -- 1,864,916 Prepaid expenses..................... 607 15,200 -- 15,807 ----------- ------------ --------- ------------ Total Assets:........................ 23,195,106 118,982,201 -- 142,177,307 ----------- ------------ --------- ------------ LIABILITIES: Payable for investments purchased.... -- 3,626,802 -- 3,626,802 Payable for capital shares redeemed.. 85 674 -- 759 Accrued expenses and other payables.. Investment advisory fees........... 9,345 47,011 -- 56,356 Administration fees................ 2,101 10,586 -- 12,687 Fund accounting fees............... 187 940 -- 1,127 Transfer agency fees............... 312 1,065 -- 1,377 Compliance service fees............ 252 1,248 -- 1,500 Trustee fees....................... 9 43 -- 52 Other.............................. 2,113 -- -- 2,113 ----------- ------------ --------- ------------ Total Liabilities:................... 14,404 3,688,369 -- 3,702,773 ----------- ------------ --------- ------------ NET ASSETS: Capital.............................. 21,358,923 90,756,630 -- 112,115,553 Undistributed net investment income (loss)............................. (85) (313) -- (398) Accumulated realized gains/(losses) from investment transactions....... 387,939 8,630,048 -- 9,017,987 Net unrealized appreciation/depreciation on investments........................ 1,433,925 15,907,467 -- 17,341,392 ----------- ------------ --------- ------------ Net Assets........................... $23,180,702 $115,293,832 $ -- $138,474,534 =========== ============ --------- ============ OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES)(A)............... 2,295,098 7,841,644 (716,706) 9,420,036 =========== ============ --------- ============ NET ASSET VALUE(A)................... $ 10.10 $ 14.70 $ 14.70 =========== ============ ============
-------- (A) Shares of the Large Cap Growth VIF are exchanged for new Shares of the Large Cap VIF, to commence operations upon consummation of the merger. See accompanying notes to the Pro Forma financial statements. C-26
BB&T LARGE CAP VIF PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) LARGE CAP PRO FORMA PRO FORMA FOR THE PERIOD ENDED JUNE 30, 2006 GROWTH VIF LARGE CAP VIF ADJUSTMENTS COMBINED ----------------------------------- ---------- ------------- ----------- ----------- INVESTMENT INCOME: Interest Income......................... $ 14,211 $ 108,164 $ -- $ 122,375 Dividend Income......................... 127,571 1,429,360 -- 1,556,931 --------- ----------- -------- ----------- Total Investment Income................. 141,782 1,537,524 -- 1,679,306 --------- ----------- -------- ----------- EXPENSES: Investment advisory fees................ 87,204 431,210 -- 518,414 Administration fees..................... 13,302 65,777 -- 79,079 Fund accounting fees.................... 3,567 13,147 (3,900) 12,814 Transfer agency fees.................... 1,179 5,828 (250) 6,757 Compliance service fees................. 1,493 6,111 -- 7,604 Custodian fees.......................... 1,129 4,547 -- 5,676 Professional fees....................... 10,305 43,346 (6,000) 47,651 Trustee fees............................ 1,678 7,140 -- 8,818 Other................................... 427 2,364 (650) 2,141 --------- ----------- -------- ----------- Total expenses before waivers........... 120,284 579,470 (10,800) 688,954 Less expenses waived by the Investment Advisor............................... (28,462) (142,272) -- (170,734) --------- ----------- -------- ----------- Net Expenses............................ 91,822 437,198 (10,800) 518,220 --------- ----------- -------- ----------- Net Investment Income (Loss)............ 49,960 1,100,326 10,800 1,161,086 --------- ----------- -------- ----------- REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from investment securities................. 445,396 9,541,014 -- 9,986,410 Change in unrealized appreciation/depreciation of investments........................... (881,175) (3,775,135) -- (4,656,310) --------- ----------- -------- ----------- Net realized/unrealized gains (losses) on investments........................ (435,779) 5,765,879 -- 5,330,100 --------- ----------- -------- ----------- Change in net assets from operations.... $(385,819) $ 6,866,205 $ 10,800 $ 6,491,186 ========= =========== ======== ===========
See accompanying notes to the Pro Forma financial statements. C-27 BB&T LARGE CAP VIF PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS JUNE 30, 2006 (UNAUDITED) 1. DESCRIPTION OF THE FUND: The BB&T Large Cap VIF, ("Large Cap VIF") a series of the BB&T Variable Insurance Funds (the "Trust"), is registered under the Investment Company Act of 1940, as amended ("the 1940 Act"), as a diversified, open-end investment company established as a Massachusetts business trust. The Trust is authorized to issue an unlimited number of shares of beneficial interest without par value. Shares of the Funds are offered through variable annuity contracts offered through the separate accounts of participating insurance companies. The pro forma adjustments and pro forma combined columns of the statements of operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Funds were combined for the periods ended December 31, 2005 and June 30, 2006. Investment advisory and administration fees in the pro forma combined column are calculated at the projected rates in effect for the Large Cap VIF based upon the combined net assets of the corresponding Large Cap VIF and the BB&T Large Cap Growth VIF. Certain pro forma adjustments were made to estimate the benefit of combining operations of separate funds into one survivor fund. Under the Funds' organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds may enter into contracts with their vendors and others that provide for general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds. However, based on experience, the Funds expect that risk of loss to be remote. 2. BASIS OF COMBINATION: The accompanying pro forma financial statements are presented to show the effect of the proposed acquisition of the BB&T Large Cap Growth VIF ("Large Cap Growth VIF") a series of the Trust, by Large Cap Fund as if such acquisition had taken place as of January 1, 2006 or July 1, 2006. Under the terms of the Plan of Reorganization, the combination of Large Cap Growth VIF and Large Cap VIF will be accounted for by the method of accounting for tax-free mergers of investment companies. The acquisition would be accomplished by an acquisition of the net assets of Large Cap Growth VIF in exchange for shares of Large Cap VIF at the December 31, 2005 or June 30, 2006 net asset values. The statements of assets and liabilities and the related statements of operations of Large Cap Growth VIF and Large Cap VIF have been combined as of and for the periods ended December 31, 2005 and June 30, 2006. Following the acquisition, the Large Cap VIF will be the accounting survivor. In accordance with U.S. generally accepted accounting principles (GAAP), the historical cost of investment securities will be carried forward to the Large Cap VIF and the results of operations for pre-combination periods of the Large Cap VIF will not be restated. The accompanying pro forma financial statements should be read in conjunction with the financial statements of Large Cap Growth VIF and Large Cap VIF included in their respective annual and semi-annual reports dated December 31, 2005 and June 30, 2006. The following notes refer to the accompanying pro forma financial statements as if the above-mentioned acquisition of Large Cap Growth VIF by Large Cap VIF had taken place as of January 1, 2006 or July 1, 2006. C-28 BB&T LARGE CAP VIF PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. The policies are in conformity with GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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: Investments in common stocks, the principal market for which is a securities exchange or an over-the-counter market, are valued at their latest available sale price (except for those securities that are traded on NASDAQ, which will be valued at the NASDAQ official closing price) or in the absence of such a price, by reference to the latest available bid price in the principal market in which such securities are normally traded. The Large Cap VIF may also use an independent pricing service approved by the Board of Trustees to value certain securities. Such prices reflect fair values which may be established through the use of electronic and matrix techniques. Short-term obligations that mature in 60 days or less are valued at either amortized cost or original cost plus interest, which approximates current value. Investments in closed-end investment companies are valued at their fair values based upon the latest available bid prices in the principal market in which such securities are normally traded. The differences between cost and fair values of investments are reflected as either unrealized appreciation or depreciation. Securities for which market quotations are not readily available will be valued at fair value using methods determined in good faith by the Pricing Committee under the supervision of the Board of Trustees. SECURITIES TRANSACTIONS AND RELATED INCOME: During the period, security transactions are accounted for no later than one business day after trade date. For financial reporting purposes, however, security transactions are accounted for on trade date of the last business day of the reporting period. Interest income is recognized on the accrual basis and includes, where applicable, the pro-rata amortization/accretion of premium or discount. Dividend income is recorded on the ex-dividend date. Gains or losses realized from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. REPURCHASE AGREEMENTS AND COLLATERALIZED LOAN AGREEMENTS: The Fund may enter into agreements with member banks of the Federal Deposit Insurance Corporation and with registered broker/dealers that BB&T Asset Management, Inc. ("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 Fund plus interest negotiated on the basis of current short-term rates, which may be more or less than the rate on the underlying Fund securities. The seller, under these types of agreements, 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 are held by the Fund's custodian, another qualified custodian, or in the Federal Reserve/Treasury book-entry system. In the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. There is potential for loss to the Fund in the event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the fair value of the underlying securities during the period while the Fund seeks to assert its rights. C-29 BB&T LARGE CAP VIF PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) ALLOCATION METHODOLOGY: Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionately among all Funds daily in relation to the net assets of each Fund or on another reasonable basis. Expenses which are attributable to more than one Trust are allocated across the BB&T Variable Insurance Funds and BB&T Funds Trusts, based upon relative net assets or on another reasonable basis. BB&T serves as the Investment Advisor for the BB&T Variable Insurance Funds and BB&T Fund Trusts. DIVIDENDS TO SHAREHOLDERS: Dividends from net investment income are declared and paid quarterly for the Large Cap Growth VIF and Large Cap VIF. Distributable net realized gains, if any, are declared and distributed at least annually. The character of income and gains distributed are determined in accordance with federal income tax regulations, which may differ from GAAP. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g. reclass of market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax- basis treatment; temporary differences do not require reclassification. Dividends to shareholders which exceed net investment income and net realized gains for tax purposes are reported as distributions of capital. 4. CAPITAL SHARES: The pro forma net asset value per share assumes the issuance of shares of the Large Cap VIF that would have been issued at June 30, 2006, in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of Large Cap Growth VIF, as of June 30, 2006, divided by the net asset value per share of the shares of Large Cap VIF as of June 30, 2006. The pro forma number of shares outstanding, by class, for the combined Fund consists of the following at June 30, 2006:
SHARES ASSUMED TOTAL OUTSTANDING SHARES OF LARGE ISSUED IN SHARES CAP GROWTH VIF REORGANIZATION POST-COMBINATION --------------- -------------- ----------------- CAPITAL SHARES Outstanding Units of Beneficial Interest (Shares).................. 2,295,098 7,124,938 9,420,036
LARGE CAP PRO FORMA GROWTH VIF LARGE CAP VIF COMBINED ----------- ------------- ------------ CAPITALIZATION NET ASSETS.............................. $23,180,702 $115,293,832 $138,474,534 NET ASSET -- OFFERING AND REDEMPTION PRICE PER SHARE....................... $ 10.10 $ 14.70 $ 14.70 OUTSTANDING UNITS OF BENEFICIAL INTEREST (SHARES).............................. 2,295,098 7,841,644 9,418,266 RATIO OF EXPENSES TO AVERAGE NET ASSETS(A) Before Fee Waivers...................... 1.02% 0.99% 0.98% After Fee Waivers....................... 0.78% 0.75% 0.74%
-------- (A) Annualized. C-30 BB&T LARGE CAP VIF PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS -- (CONTINUED) 5. FEDERAL INCOME TAXES: It is the policy of the Large Cap VIF to continue to qualify as a regulated investment company, after the acquisition, 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. Accordingly, no provision for federal income tax is required. At December 31, 2005, the Large Cap VIF had net capital loss carryforwards to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
AMOUNT EXPIRES -------- ------- Large Cap VIF........................................... $891,424 2011
At June 30, 2006 the cost, gross unrealized appreciation and gross unrealized depreciation on securities for federal income tax purposes were as follows:
NET TAX TAX UNREALIZED UNREALIZED UNREALIZED APPRECIATION TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) ----------- ------------ ------------ -------------- BB&T Large Cap VIF................ 122,918,683 20,221,443 (3,073,885) 17,147,558
C-31 PROXY TABULATOR PO BOX 9112 FARMINGDALE, NY 11735 TO VOTE BY INTERNET 1) Read the Proxy Statement and have the proxy card below at hand. 2) Go to Website www.proxyvote.com 3) Follow the instructions provided on the website. TO VOTE BY TELEPHONE 1) Read the Proxy Statement and have the proxy card below at hand. 2) Call 1-800-690-6903 3) Follow the instructions. TO VOTE BY MAIL 1) Read the Proxy Statement. 2) Check the appropriate boxes on the proxy card below. 3) Sign and date the proxy card. 4) Return the proxy card in the envelope provided. *** IF VOTING BY MAIL, PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE *** TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: BBTSC1 KEEP THIS PORTION FOR YOUR RECORDS ------------------------------------------------------------------------------------------------------------------------------------ DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
BB&T LARGE CAP GROWTH VIF Every properly executed proxy will be voted in the manner specified hereon and, in the absence of specification, will be treated as granting authority to vote FOR the below-enumerated proposals.
VOTE ON PROPOSALS FOR AGAINST ABSTAIN PROPOSAL (1) To consider and act upon an Agreement of Plan of Reorganization [ ] [ ] [ ] providing for the transfer of all of the assets of the Acquired Fund to the corresponding Acquiring Fund, as listed below:
Acquired Fund Acquiring Fund BB&T Large Cap Growth Fund BB&T Large Cap Fund BB&T Large Cap Growth VIF BB&T Large Cap VIF
FOR AGAINST ABSTAIN PROPOSAL (2) To transact such other business as may properly come before the [ ] [ ] [ ] Joint Special Meeting or any adjournment thereof.
IMPORTANT: Please sign legibly and exactly as the name appears on this card. Joint owners must EACH sign the proxy. When signing as executor, administrator, attorney, trustee or guardian, or as custodian for a minor, please give the FULL title of such. If a corporation, please give the FULL corporate name and indicate the signer's office. If a partner, please sign in the partnership name. ------------------------------------------ -------------------------------- Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date PROXY CARD BB&T LARGE CAP GROWTH VIF PROXY FOR A JOINT SPECIAL MEETING OF SHAREHOLDERS ON JANUARY 24, 2006 This proxy is solicited by the Board of Trustees of BB&T Variable Insurance Funds for use at a Joint Special Meeting of Shareholders ("Special Meeting") to be held on January 24, 2006 at 9:00 a.m. Eastern Time at the offices of BISYS Fund Services OHIO, Inc., 100 Summer Street, Suite 1500, Boston, MA 02110. The undersigned hereby appoints Tim Bresnahan with full power of substitution as proxies of the undersigned, to vote, as designated on reverse, at the above-stated Joint Special Meeting and at any and all adjournments thereof, all units of beneficial interest in the Fund held of record by the undersigned on the record date for the Joint Special Meeting, upon the matters listed on the reverse side and upon any other matter which may come before the Joint Special Meeting in their discretion. THIS VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED. PROXY TABULATOR PO BOX 9112 FARMINGDALE, NY 11735 TO VOTE BY INTERNET 1) Read the Proxy Statement and have the voting instruction form below at hand. 2) Go to Website www.proxyvote.com 3) Follow the instructions provided on the website. TO VOTE BY TELEPHONE 1) Read the Proxy Statement and have the voting instruction form below at hand. 2) Call 1-800-690-6903 3) Follow the instructions. TO VOTE BY MAIL 1) Read the Proxy Statement. 2) Check the appropriate boxes on the voting instruction form below. 3) Sign and date the voting instruction form. 4) Return the voting instruction form in the envelope provided. *** IF VOTING BY MAIL, PLEASE MARK, SIGN, DATE AND RETURN THE VOTING INSTRUCTION FORM PROMPTLY USING THE ENCLOSED ENVELOPE *** TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: BBTSC1 KEEP THIS PORTION FOR YOUR RECORDS ------------------------------------------------------------------------------------------------------------------------------------ DETACH AND RETURN THIS PORTION ONLY THIS VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED.
BB&T LARGE CAP GROWTH VIF EVERY PROPERLY EXECUTED PROXY WILL BE VOTED IN THE MANNER SPECIFIED HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING AUTHORITY TO VOTE FOR THE BELOW-ENUMERATED PROPOSALS.
VOTE ON PROPOSALS FOR AGAINST ABSTAIN PROPOSAL (1) To consider and act upon an Agreement and Plan of Reorganization [ ] [ ] [ ] providing for the transfer of all of the assets of the BB&T Large Cap Growth VIF to the BB&T Large Cap VIF in exchange for shares of the BB&T Large Cap VIF and the assumption by the BB&T Large Cap VIF of all of the liabilities of the BB&T Large Cap Growth VIF, followed by the dissolution of the BB&T Large Cap Growth VIF and the distribution of Shares of the BB&T Large Cap VIF to the shareholders of the BB&T Large Cap Growth VIF. FOR AGAINST ABSTAIN PROPOSAL (2) To transact such other business as may properly come before the [ ] [ ] [ ] Joint Special Meeting or any adjournment thereof.
IMPORTANT: Please sign legibly and exactly as the name appears on this card. Joint owners must EACH sign the proxy. When signing as executor, administrator, attorney, trustee or guardian, or as custodian for a minor, please give the FULL title of such. If a corporation, please give the FULL corporate name and indicate the signer's office. If a partner, please sign in the partnership name. ------------------------------------------ -------------------------------- Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date VOTING INSTRUCTION FORM BB&T LARGE CAP GROWTH VIF PROXY FOR A JOINT SPECIAL MEETING OF SHAREHOLDERS ON JANUARY 24, 2007 This proxy is solicited by the Board of Trustees of BB&T Variable Insurance Funds for use at a Joint Special Meeting of Shareholders ("Joint Special Meeting") to be held on January 24, 2007 at 9:00 a.m. Eastern Time at the offices of BISYS Fund Services OHIO, Inc., 100 Summer Street, Suite 1500, Boston, MA 02110. The undersigned hereby appoints Tim Bresnahan with full power of substitution as proxies of the undersigned, to vote, as designated on reverse, at the above-stated Joint Special Meeting and at any and all adjournments thereof, all units of beneficial interest in the Fund held of record by the undersigned on the record date for the Joint Special Meeting, upon the matters listed on the reverse side and upon any other matter which may come before the Joint Special Meeting in their discretion. THIS VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED. PART C. OTHER INFORMATION ITEM 15. INDEMNIFICATION Article VIII, Sections 1 and 2 of the Registrant's Declaration of Trust provides as follows: "Trustees, Officers, etc. Section 1. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), shall be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided, however, that either (a) such Covered Person shall have provided appropriate security for such undertaking, (b) the Trust shall be insured against losses arising from any such advance payments or (c) either a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial type inquiry) that there is reason to believe that such Covered Person will be found entitled to indemnification under this Article. Compromise Payment Section 2. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that his action was in the best interests of the Trust or (b) is liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, indemnification shall be provided if (a) approved as in the best interests of the Trust, after notice that it involves such indemnification, by at least a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter) upon a determination, based upon a review of readily available facts (as opposed to a full trial type inquiry) that such Covered Person acted in good faith in the reasonable belief that his action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reasons of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (as opposed to a full trial type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust and that such indemnification would not protect such Person against any liability to the Trust to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office." Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers, and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, 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 of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. In addition, the Trust maintains a directors and officer liability insurance policy with a maximum coverage of $5,000,000. ITEM 16. EXHIBITS (1) Agreement and Declaration of Trust of BB&T Variable Insurance Funds (the "Registrant") (1) (2) Bylaws of Registrant (1) (3) Not Applicable. (4) Form of Agreement and Plan of Reorganization (5) (5) (i) Article III, Article V, Article VIII, Section 4, and Article IX, Sections 1, 4, 5, and 7 of the Agreement and Declaration of Trust (1) (ii) Article 9, Article 10, Section 6, Article 11 of the By-laws (1) (6) (i) Form of Investment Advisory Agreement (2) (ii) Form of Investment Sub-Advisory Agreement between BB&T Asset Management, Inc. and Scott and Stringfellow, Inc. (2) (iii) Form of Investment Sub-Advisory Agreement between BB&T Asset Management, Inc. and Sterling Capital Management LLC (4) (7) Not Applicable. (8) Not applicable. (9) Form of Custody Agreement between the Registrant and US Bank (2) (10) (i) Form of Management and Administration Agreement between Registrant and BB&T Asset Management, Inc. (2) (ii) Form of Sub-Administration Agreement between Registrant and BISYS Fund Services Ohio, Inc. (2) (iii) Form of Fund Accounting Agreement between Registrant and BISYS Fund Services Ohio, Inc. (2) (iv) Form of Transfer Agency Agreement between Registrant and BISYS Fund Services Ohio, Inc. (2) (v) Form of Fund Participation Agreement (2) (vi) Form of Variable Contract Owner Servicing Agreement (2) (vii) Form of Compliance Services Agreement (2) (11) Opinion and Consent of Ropes & Gray LLP regarding Securities (5) (12) Opinion and Consent of Ropes & Gray LLP Regarding Tax Matters will be filed by amendment. (13) (i) Form of Code of Ethics of Registrant (2) (ii) Code of Ethics of BB&T Asset Management, Inc. (4) (iii) Form of Code of Ethics of Scott & Stringfellow, Inc. (2) (iv) Code of Ethics of BISYS Fund Services Ohio, Inc. and Certain Affiliated Companies of BISYS Fund Services Ohio, Inc. (3) (14) Consent of KPMG LLP (6) (15) Not Applicable. (16) Powers of Attorney. (i) POWER OF ATTORNEY December 1, 2006 Laura C. Bingham, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, her true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Laura C. Bingham ------------------------------ Laura C. Bingham (ii) POWER OF ATTORNEY December 1, 2006 Thomas W. Lambeth, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Thomas W. Lambeth ------------------------------ Thomas W. Lambeth (iii) POWER OF ATTORNEY December 1, 2006 Drew T. Kagan, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Drew T. Kagan ------------------------------ Drew T. Kagan (iv) POWER OF ATTORNEY December 1, 2006 Keith F. Karlawish, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Keith F. Karlawish ------------------------------ Keith F. Karlawish (v) POWER OF ATTORNEY December 1, 2006 Douglas R. Van Scoy, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Douglas R. Van Scoy ------------------------------ Douglas R. Van Scoy (vi) POWER OF ATTORNEY December 1, 2006 Troy A. Sheets, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ Troy A. Sheets ------------------------------ Troy A. Sheets (vii) POWER OF ATTORNEY December 1, 2006 James L. Roberts, whose signature appears below, does hereby constitute and appoint Alan G. Priest, Alyssa Albertelli, Alexandra Oprescu and Melissa S. Gainor, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable BB&T Variable Insurance Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the initial filing of any Registration Statement on Form N-14 by the Trust, relating to the proposed reorganization of BB&T Large Cap Growth VIF, a series of the Trust, with and into BB&T Large Cap VIF, a series of the Trust, and any and all amendments (including post-effective amendments) to said Registration Statements, pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such initial filings and amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. /s/ James L. Roberts ------------------------------ James L. Roberts (17) (i) Class A, Class B, and Class C Shares Prospectus for the BB&T Funds, dated February 1, 2006 (5) (ii) Institutional Shares Prospectus for the BB&T Funds, dated February 1, 2006, as amended May 30, 2006 (5) (iii) Prospectus for the Large Cap Growth VIF, dated May 1, 2006 (5) (iv) Prospectus for the Large Cap VIF, dated May 1, 2006 (5) (v) Statement of Additional Information for the BB&T Funds, dated February 1, 2006 (5) (vi) Statement of Additional Information for the BB&T Variable Insurance Funds, dated May 1, 2006 (5) (vii) BB&T Funds' Annual Report for the period ended September 30, 2006 (6) (viii) BB&T Variable Insurance Funds' Annual Report for the period ended December 31, 2005 (5) (ix) BB&T Variable Insurance Funds' Semi-annual Report for the period ended June 30, 2006 (5) (1) Previously filed on December 13, 2004 and incorporated by reference herein. (2) Previously filed on February 14, 2005 and incorporated by reference herein. (3) Previously filed on March 1, 2006 and incorporated by reference herein. (4) Previously filed on April 28, 2006 and incorporated by reference herein. (5) Previously filed on November 15, 2006 and incorporated by reference herein. (6) Previously filed on December 1, 2006 and incorporated by reference herein. ITEM 17. UNDERTAKINGS (1) The Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The Registrant agrees to file an opinion of counsel supporting the tax consequences of the proposed reorganization as an amendment to this Registration Statement within a reasonable time after receipt of such opinion. NOTICE A copy of the Agreement and Declaration of Trust of the BB&T Variable Insurance Funds is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by officers of the registrant as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property of the Registrant. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant in the City of Washington, District of Columbia, on the 13th day of December 2006. BB&T VARIABLE INSURANCE FUNDS /s/ Keith F. Karlawish -------------------------- * Keith F. Karlawish President
Signature Title Date -------------------------- ------------------ ----------------- /s/ Keith F. Karlawish President, Trustee December 13, 2006 -------------------------- * Keith F. Karlawish /s/ James L. Roberts Trustee December 13, 2006 -------------------------- *James L. Roberts /s/ Thomas W. Lambeth Trustee December 13, 2006 -------------------------- *Thomas W. Lambeth /s/ Troy A. Sheets Treasurer December 13, 2006 -------------------------- *Troy A. Sheets /s/ Douglas R. Van Scoy Trustee December 13, 2006 -------------------------- *Douglas R. Van Scoy /s/ Drew T. Kagan Trustee December 13, 2006 -------------------------- *Drew T. Kagan /s/ Laura C. Bingham Trustee December 13, 2006 -------------------------- *Laura C. Bingham
* By: /s/ Alan G. Priest ---------------------------- Alan G. Priest Attorney-in-Fact, pursuant to powers of attorney filed herewith. COVER 2 filename2.txt ROPES & GRAY LLP ONE METRO CENTER 700 12TH STREET, N.W. SUITE 900 WASHINGTON, DC 20005 WRITER'S DIRECT DIAL NUMBER: (202) 508-4622 December 13, 2006 VIA EDGAR Christina DiAngelo Valerie J. Lithotomos Allison White Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Re: BB&T Funds (File Nos. 33-49098 and 811-06719): Pre-Effective Amendment #2 to Registration Statement on Form N-14 filed November 15, 2006 (Registration No. 333-138724) Re: BB&T Variable Insurance Funds (File Nos. 333-121205 and 811-21682): Pre-Effective Amendment #2 to Registration Statement on Form N-14 filed November 15, 2006 (Registration No. 333-138725) Dear Sir or Madam: On behalf of BB&T Funds and BB&T Variable Insurance Funds (the "Registrants"), registered open-end management investment companies, accompanying this letter for filing is a second pre-effective amendment to the Registration Statement on Form N-14 filed November 15, 2006, as amended by filing on December 1, 2006 (the "Registration Statement"). The Prospectus/Proxy Statement contained in the Registration Statement will be furnished in connection with a joint special meeting of shareholders of the BB&T Large Cap Growth Fund (the "Large Cap Growth Fund") and BB&T Large Cap Growth VIF (the "Large Cap Growth VIF"), to be held on January 24, 2007, at which time the shareholders of the Large Cap Growth Fund and Large Cap Growth VIF will be asked to vote on the proposed reorganization with and into the BB&T Large Cap Fund (the "Large Cap Fund") and BB&T Large Cap VIF (the "Large Cap VIF"), respectively. The proposed combination will be followed by the dissolution of the Large Cap Growth Fund and Large Cap Growth VIF and the distribution in liquidation of shares of the Large Cap Fund and Large Cap VIF, as applicable. Included in the Registration Statement is the form of proxy for the January 24, 2007 joint meeting of shareholders of the Large Cap Growth Fund and Large Cap Growth VIF. Pro forma financial information for the Large Cap Fund will be filed by amendment. Filing Desk Securities and Exchange Commission December 13, 2006 Page 2 No registration fee is being paid at the time of this filing because each of BB&T Funds and BB&T Variable Insurance Funds has previously filed an election, under Rule 24f-2 under the Investment Company Act of 1940, to register an indefinite number of its shares. Ropes & Gray LLP has acted as counsel to BB&T Funds and BB&T Variable Insurance Funds in connection with the preparation of this Registration Statement. Please call me at 202-508-4622 or Alyssa Albertelli at 202-508-4667 if you have any questions regarding this filing. Sincerely, /s/ Alexandra Oprescu ---------------------------------------- Alexandra Oprescu