. . . Exhibit 17(ix) BB&T VARIABLE INSURANCE FUNDS TABLE OF CONTENTS SUMMARY OF PORTFOLIO HOLDINGS ............................................ 1 EXPENSE EXAMPLES ......................................................... 2 SCHEDULE OF PORTFOLIO INVESTMENTS Large Cap VIF ......................................................... 3 Mid Cap Growth VIF .................................................... 4 Large Cap Growth VIF .................................................. 5 Capital Manager Equity VIF ............................................ 6 Special Opportunities Equity VIF ...................................... 7 Total Return Bond VIF ................................................. 8 FINANCIAL STATEMENTS ..................................................... 12 NOTES TO FINANCIAL STATEMENTS ............................................ 18 OTHER INFORMATION ........................................................ 23 BB&T VARIABLE INSURANCE FUNDS SUMMARY OF PORTFOLIO HOLDINGS JUNE 30, 2006 (UNAUDITED) THE BB&T VARIABLE INSURANCE FUNDS PORTFOLIO COMPOSITION WAS AS FOLLOWS AT JUNE 30, 2006: PERCENTAGE OF NET ASSETS ------------- BB&T LARGE CAP VIF Consumer Discretionary ......................................... 10.1% Consumer Staples ............................................... 5.4 Energy ......................................................... 11.4 Financials ..................................................... 21.1 Health Care .................................................... 15.7 Industrials .................................................... 4.5 Information Technology ......................................... 14.3 Materials ...................................................... 4.0 Repurchase Agreement ........................................... 6.3 Telecommunication Services ..................................... 4.7 Utilities ...................................................... 3.9 ----- 101.4% ===== BB&T MID CAP GROWTH VIF Consumer Discretionary ......................................... 15.1% Consumer Staples ............................................... 1.0 Exchange Traded Funds .......................................... 6.8 Energy ......................................................... 13.7 Financials ..................................................... 7.7 Health Care .................................................... 13.5 Industrials .................................................... 18.5 Information Technology ......................................... 13.3 Materials ...................................................... 2.6 Repurchase Agreement ........................................... 3.2 Telecommunication Services ..................................... 3.1 Utilities ...................................................... 1.5 ----- 100.0% ===== BB&T LARGE CAP GROWTH VIF Consumer Discretionary ......................................... 9.8% Consumer Staples ............................................... 6.7 Energy ......................................................... 8.0 Financials ..................................................... 8.1 Health Care .................................................... 16.8 Industrials .................................................... 22.0 Information Technology ......................................... 16.1 Repurchase Agreement ........................................... 7.0 Telecommunication Services ..................................... 5.4 ----- 99.9% ===== BB&T CAPITAL MANAGER EQUITY VIF Equity Index ................................................... 12.5% International Equity ........................................... 14.0 Large Cap Equity ............................................... 50.0 Mid Cap Equity ................................................. 11.3 Money Market ................................................... 7.2 Small Cap ...................................................... 4.8 ----- 99.8% ===== BB&T SPECIAL OPPORTUNITIES EQUITY VIF Basic Materials ................................................ 7.5% Call Options Written ........................................... (0.6) Consumer Discretionary ......................................... 18.2 Consumer Staples ............................................... 3.5 Energy ......................................................... 18.2 Financials ..................................................... 5.7 Health Care .................................................... 22.2 Industrials .................................................... 10.2 Information Technology ......................................... 13.1 Repurchase Agreement ........................................... 1.9 ----- 99.9% ===== BB&T TOTAL RETURN BOND VIF Corporate Bonds ................................................ 34.0% Federal Home Loan Bank ......................................... 1.8 Federal Home Loan Mortgage Corporation--Mortgage Backed Securities .................................................. 9.3 Federal Home Loan Mortgage Corporation--U.S. Government Agencies .................................................... 2.3 Federal National Mortgage Association--Mortgage Backed Securities .................................................. 17.4 Federal National Mortgage Association--U.S. Government Agencies .................................................... 3.2 Government National Mortgage Association ....................... 7.8 Municipal Bonds ................................................ 6.0 Repurchase Agreement ........................................... 2.8 U.S. Treasury Bonds ............................................ 11.1 U.S. Treasury Notes ............................................ 14.8 ----- 110.5% ===== 1 BB&T VARIABLE INSURANCE FUNDS EXPENSE EXAMPLES JUNE 30, 2006 As a shareholder of the BB&T Variable Insurance Funds, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the BB&T Variable Insurance Funds and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2006 through June 30, 2006. ACTUAL EXAMPLE The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. BEGINNING ENDING EXPENSES PAID EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD 1/1/06 6/30/06 1/1/06 - 6/30/06 1/1/06 - 6/30/06 ------------- ------------- ---------------- ---------------- BB&T Large Cap VIF ...................... $1,000.00 $1,060.20 $3.83 0.75% BB&T Mid Cap Growth VIF ................. 1,000.00 1,019.30 3.86 0.77% BB&T Large Cap Growth VIF ............... 1,000.00 983.60 3.84 0.78% BB&T Capital Manager Equity VIF ......... 1,000.00 1,040.30 0.81 0.16% BB&T Special Opportunities Equity VIF ... 1,000.00 1,080.10 5.47 1.06% BB&T Total Return Bond VIF .............. 1,000.00 990.30 3.80 0.77% ---------- * Expenses are equal to the average account value times the Fund's annualized ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on each BB&T Variable Insurance Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. BEGINNING ENDING EXPENSES PAID EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD 1/1/06 6/30/06 1/1/06 - 6/30/06 1/1/06 - 6/30/06 ------------- ------------- ---------------- ---------------- BB&T Large Cap VIF ...................... $1,000.00 $1,021.08 $3.76 0.75% BB&T Mid Cap Growth VIF ................. 1,000.00 1,020.98 3.86 0.77% BB&T Large Cap Growth VIF ............... 1,000.00 1,020.93 3.91 0.78% BB&T Capital Manager Equity VIF ......... 1,000.00 1,024.00 0.80 0.16% BB&T Special Opportunities Equity VIF ... 1,000.00 1,019.54 5.31 1.06% BB&T Total Return Bond VIF .............. 1,000.00 1,020.98 3.86 0.77% ---------- * Expenses are equal to the average account value times the Fund's annualized ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. 2 BB&T LARGE CAP VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) SHARES FAIR VALUE ------------- ------------ COMMON STOCKS (95.1%) CONSUMER DISCRETIONARY (10.1%) 46,906 Gannett Co., Inc. ............................... $ 2,623,453 72,315 Mattel, Inc. .................................... 1,193,921 103,883 Tiffany & Co. ................................... 3,430,216 17,174 V.F. Corp. ...................................... 1,166,458 108,110 Walt Disney Co. (The) ........................... 3,243,300 ------------ 11,657,348 ------------ CONSUMER STAPLES (5.4%) 23,052 Altria Group, Inc. .............................. 1,692,708 45,980 Kimberly-Clark Corp. ............................ 2,836,966 94,452 Sara Lee Corp. .................................. 1,513,121 6,590 SUPERVALU, Inc. ................................. 202,313 ------------ 6,245,108 ------------ ENERGY (11.4%) 36,428 Anadarko Petroleum Corp. ........................ 1,737,251 54,300 ChevronTexaco Corp. ............................. 3,369,858 44,028 ConocoPhillips .................................. 2,885,155 40,253 Duke Energy Corp. ............................... 1,182,231 48,182 Exxon Mobil Corp. ............................... 2,955,966 15,968 Schlumberger, Ltd. .............................. 1,039,676 ------------ 13,170,137 ------------ FINANCIALS (21.1%) 15,450 Ambac Financial Group, Inc. ..................... 1,252,995 30,200 American International Group, Inc. .............. 1,783,310 41,500 Bank of New York Company, Inc. (The) ............ 1,336,300 67,433 Citigroup, Inc. ................................. 3,252,967 34,265 Fannie Mae ...................................... 1,648,147 84,390 J.P. Morgan Chase & Co. ......................... 3,544,379 19,727 Lincoln National Corp. .......................... 1,113,392 31,500 Merrill Lynch & Co., Inc. ....................... 2,191,140 42,700 Northern Trust Corp. ............................ 2,361,310 49,651 St. Paul Travelers Cos, Inc. (The) .............. 2,213,442 52,894 Washington Mutual, Inc. ......................... 2,410,909 18,097 Wells Fargo & Co. ............................... 1,213,947 ------------ 24,322,238 ------------ HEALTH CARE (15.7%) 30,200 Abbott Laboratories ............................. 1,317,022 52,388 Amgen, Inc. (a) ................................. 3,417,269 38,769 Bristol-Myers Squibb Co. ........................ 1,002,566 14,088 Cigna Corp. ..................................... 1,387,809 25,700 HCA, Inc. ....................................... 1,108,955 48,203 Johnson & Johnson ............................... 2,888,324 84,262 Merck & Co., Inc. ............................... 3,069,665 122,174 Pfizer, Inc. .................................... 2,867,424 23,900 Wyeth ........................................... 1,061,399 ------------ 18,120,433 ------------ SHARES OR PRINCIPAL AMOUNT FAIR VALUE ------------- ------------ COMMON STOCKS -- (CONTINUED) INDUSTRIALS (4.5%) 6,881 Emerson Electric Co. ............................ $ 576,697 17,465 General Electric Co. ............................ 575,646 19,200 Parker-Hannifin Corp. ........................... 1,489,920 29,100 Pitney Bowes, Inc. .............................. 1,201,830 14,500 Textron, Inc. ................................... 1,336,610 ------------ 5,180,703 ------------ INFORMATION TECHNOLOGY (14.3%) 23,686 Automatic Data Processing, Inc. ................. 1,074,160 174,978 Cisco Systems, Inc. (a) ......................... 3,417,320 141,151 Dell, Inc. (a) .................................. 3,445,496 25,283 First Data Corp. ................................ 1,138,746 155,138 Intel Corp. ..................................... 2,939,865 40,300 Microsoft Corp .................................. 938,990 91,484 Nokia Corp., ADR ................................ 1,853,466 93,812 Time Warner, Inc. ............................... 1,622,948 ------------ 16,430,991 ------------ MATERIALS (4.0%) 20,800 Air Products & Chemical, Inc. ................... 1,329,536 41,916 Alcoa, Inc. ..................................... 1,356,402 31,021 Weyerhaeuser Co. ................................ 1,931,057 ------------ 4,616,995 ------------ TELECOMMUNICATION SERVICES (4.7%) 69,799 AT&T, Inc. ...................................... 1,946,694 29,940 BellSouth Corp. ................................. 1,083,828 71,025 Verizon Communications, Inc. .................... 2,378,627 ------------ 5,409,149 ------------ UTILITIES (3.9%) 16,467 Dominion Resources, Inc. ........................ 1,231,567 89,504 NiSource, Inc. .................................. 1,954,768 14,549 SCANA Corp. ..................................... 561,300 38,469 Xcel Energy, Inc. ............................... 737,835 ------------ 4,485,470 ------------ Total Common Stocks (Cost $93,731,105) .......... 109,638,572 ------------ REPURCHASE AGREEMENT (6.3%) $ 7,262,814 U.S. Bank NA, 4.80%, dated 6/30/06, maturing 7/3/06, with a maturity value of $7,265,870 (Collateralized fully by U.S. Government Agencies) ............................ 7,262,814 ------------ Total Repurchase Agreement (Cost $7,262,814) .... 7,262,814 ------------ Total Investments (Cost $100,993,919) -- 101.4% ................. 116,901,386 Net Other Assets (Liabilities) -- (1.4)% ........................ (1,607,554) ------------ NET ASSETS -- 100.0% ............................................ $115,293,832 ============ See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 3 BB&T MID CAP GROWTH VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) SHARES FAIR VALUE ------------- ------------ COMMON STOCKS (90.0%) CONSUMER DISCRETIONARY (15.1%) 19,000 AnnTaylor Stores Corp. (a) ...................... $ 824,219 14,400 Carter's, Inc. (a) .............................. 380,592 26,500 Circuit City Stores, Inc. ....................... 721,330 16,000 Coach, Inc. (a) ................................. 478,400 11,650 Focus Media Holding, Ltd., ADR (a) .............. 759,113 13,850 GameStop Corp., Class A (a) ..................... 581,700 19,500 Guess, Inc. (a) ................................. 814,125 24,300 Hilton Hotels Corp. ............................. 687,204 9,050 Nutri/System, Inc. (a). ......................... 562,277 12,300 Too, Inc. (a) ................................... 472,197 ------------ 6,281,157 ------------ CONSUMER STAPLES (1.0%) 2,270 Hansen Natural Corp. (a) ........................ 432,140 ------------ ENERGY (13.7%) 10,050 Arch Coal, Inc. ................................. 425,819 20,900 Cameco Corp. .................................... 835,372 13,500 Cameron International Corp. (a) ................. 644,895 27,850 Global Industries Ltd. (a) ...................... 465,095 14,650 Grant Prideco, Inc. (a) ......................... 655,588 15,000 Holly Corp. ..................................... 723,000 10,700 Peabody Energy Corp. ............................ 596,525 18,000 TETRA Technologies, Inc. (a). ................... 545,220 16,500 Weatherford International, Ltd. (a) ............. 818,730 ------------ 5,710,244 ------------ FINANCIALS (7.7%) 7,000 Affiliated Managers Group, Inc. (a) ............. 608,230 3,250 Bear Stearns Companies, Inc. (The) .............. 455,260 1,950 Chicago Mercantile Exchange Holdings, Inc. ...... 957,743 20,800 Host Marriott Corp. ............................. 454,896 3,250 Legg Mason, Inc. ................................ 323,440 17,000 optionsXpress Holdings, Inc. .................... 396,270 ------------ 3,195,839 ------------ HEALTH CARE (13.5%) 6,350 Aetna, Inc. ..................................... 253,556 8,500 Amylin Pharmaceuticals, Inc. (a) ................ 419,645 23,400 Celgene Corp. (a) ............................... 1,109,861 11,700 Covance, Inc. (a) ............................... 716,274 14,850 Humana, Inc. (a) ................................ 797,444 3,800 Intuitive Surgical, Inc. (a) .................... 448,286 19,550 Pharmaceutical Product Development, Inc. ........ 686,596 16,450 ResMed, Inc. (a) ................................ 772,328 8,300 Wellcare Health Plans, Inc. (a) ................. 407,115 ------------ 5,611,105 ------------ INDUSTRIALS (18.5%) 11,750 Corrections Corporation of America (a) .......... 622,045 6,750 CSX Corp. ....................................... 475,470 7,050 Fluor Corp. ..................................... 655,157 18,500 Gol-Linhas Aereas Inteligentes, ADR ............. 656,750 18,200 JLG Industries, Inc. ............................ 409,500 12,200 Joy Global, Inc. ................................ 635,498 14,000 Manitowoc Company, Inc. ......................... 623,000 SHARES OR PRINCIPAL AMOUNT FAIR VALUE ------------- ------------ COMMON STOCKS -- (CONTINUED) INDUSTRIALS -- (CONTINUED) 9,200 McDermott International, Inc. (a) ............... $ 418,324 16,700 Monster Worldwide, Inc. (a) ..................... 712,422 24,300 Mueller Water Products Inc., Class A (a) ........ 423,063 11,100 Precision Castparts Corp. ....................... 663,336 9,600 Rockwell Automation, Inc. ....................... 691,296 18,000 Trinity Industries, Inc. ........................ 727,199 ------------ 7,713,060 ------------ INFORMATION TECHNOLOGY (13.3%) 17,400 Amdocs, Ltd. (a) ................................ 636,840 11,300 Amphenol Corp., Class A ......................... 632,348 10,000 Cognizant Technology Solutions Corp., Class A (a) ..................................... 673,700 119,000 Conexant Systems, Inc. (a) ...................... 297,500 5,750 Garmin, Ltd. .................................... 606,280 12,550 Harris Corp. .................................... 520,951 17,150 Intersil Corp., Class A ......................... 398,738 15,300 Jabil Circuit, Inc. ............................. 391,680 17,300 MEMC Electronic Materials, Inc. (a) ............. 648,750 12,000 Network Appliance, Inc. (a) ..................... 423,600 11,550 SunPower Corp., Class A (a) ..................... 323,631 ------------ 5,554,018 ------------ MATERIALS (2.6%) 12,000 Airgas, Inc. .................................... 447,000 18,100 Titanium Metals Corp. (a) ....................... 622,278 ------------ 1,069,278 ------------ TELECOMMUNICATION SERVICES (3.1%) 14,100 American Tower Corp., Class A (a) ............... 438,792 14,900 NII Holdings, Inc. (a) .......................... 840,062 ------------ 1,278,854 ------------ UTILITIES (1.5%) 16,750 Allegheny Energy, Inc. (a) ...................... 620,923 ------------ Total Common Stocks (Cost $29,890,359) .......... 37,466,618 ------------ EXCHANGE TRADED FUNDS (6.8%) 14,900 iShares Russell Midcap Growth Index Fund ........ 1,429,208 15,400 iShares Russell Midcap Index Fund ............... 1,412,950 ------------ Total Exchange Traded Funds (Cost $2,947,927) ... 2,842,158 ------------ REPURCHASE AGREEMENT (3.2%) $1,324,866 U.S. Bank NA, 4.80%, dated 6/30/06, maturing 7/3/06, with a maturity value of $1,325,423 (Collateralized fully by U.S. Government Agencies) ....................... 1,324,866 ------------ Total Repurchase Agreement (Cost $1,324,866) .... 1,324,866 ------------ Total Investments (Cost $34,163,152) -- 100.0% .. 41,633,642 Net Other Assets (Liabilities) -- 0.0% .......... 10,533 ------------ NET ASSETS -- 100.0% $41,644,175 ============ See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 4 BB&T LARGE CAP GROWTH VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) SHARES FAIR VALUE ---------- ----------- COMMON STOCKS (92.9%) CONSUMER DISCRETIONARY (9.8%) 10,500 American Eagle Outfitters, Inc....................... $ 357,420 4,300 Best Buy Co., Inc ................................... 235,812 7,225 Coach, Inc. (a)...................................... 216,028 7,000 Comcast Corp., Class A (a)........................... 229,180 3,625 J.C. Penney Company, Inc............................. 244,724 3,750 Lowe's Companies, Inc................................ 227,513 11,800 Staples, Inc......................................... 286,976 12,250 Starbucks Corp. (a).................................. 462,559 ----------- 2,260,212 ----------- CONSUMER STAPLES (6.7%) 9,550 Archer-Daniels-Midland Co............................ 394,224 7,500 CVS Corp............................................. 230,250 4,000 Hershey Co. (The).................................... 220,280 4,200 PepsiCo, Inc......................................... 252,168 6,000 Procter & Gamble Co.................................. 333,600 2,475 Wal-Mart Stores, Inc................................. 119,221 ----------- 1,549,743 ----------- ENERGY (8.0%) 4,400 Baker Hughes, Inc.................................... 360,139 6,375 Cameco Corp.......................................... 254,809 4,550 Halliburton Co....................................... 337,656 3,800 Schlumberger Ltd..................................... 247,418 5,000 Valero Energy Corp................................... 332,600 6,450 Weatherford International, Ltd. (a).................. 320,049 ----------- 1,852,671 ----------- FINANCIALS (8.1%) 3,550 AllianceBernstein Holding LP......................... 217,047 3,775 American International Group, Inc.................... 222,914 1,750 Bear Stearns Companies, Inc. (The)................... 245,139 13,350 Charles Schwab Corp. (The)........................... 213,333 578 Chicago Mercantile Exchange Holdings, Inc............ 283,884 1,550 Goldman Sachs Group, Inc. (The)...................... 233,167 3,250 Merrill Lynch & Co., Inc............................. 226,070 3,125 Prudential Financial, Inc............................ 242,813 ----------- 1,884,367 ----------- HEALTH CARE (16.8%) 3,375 Aetna, Inc........................................... 134,764 5,050 AmerisourceBergen Corp............................... 211,696 3,173 Amgen, Inc. (a)...................................... 206,975 7,200 Amylin Pharmaceuticals, Inc. (a)..................... 355,464 5,865 Caremark Rx, Inc..................................... 292,488 7,750 Celgene Corp. (a).................................... 367,583 3,200 Fisher Scientific International, Inc. (a)............ 233,760 2,875 Genentech, Inc. (a).................................. 235,175 4,253 Gilead Sciences, Inc. (a)............................ 251,607 6,500 Humana, Inc. (a)..................................... 349,050 4,449 Medco Health Solutions, Inc. (a)..................... 254,839 4,550 Medtronic, Inc....................................... 213,486 7,125 Novartis AG, ADR..................................... 384,179 1,800 Wellpoint, Inc. (a).................................. 130,986 6,200 Wyeth................................................ 275,342 ----------- 3,897,394 ----------- SHARES OR PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- COMMON STOCKS -- (CONTINUED) INDUSTRIALS (22.0%) 7,407 Boeing Co............................................ $ 606,708 6,200 Caterpillar, Inc..................................... 461,776 5,304 Danaher Corp......................................... 341,153 4,250 Emerson Electric Co.................................. 356,193 2,368 Fedex Corp........................................... 276,724 3,800 Fluor Corp........................................... 353,134 10,300 General Electric Co.................................. 339,488 4,700 Illinois Tool Works, Inc............................. 223,250 4,500 Joy Global, Inc...................................... 234,405 10,200 Monster Worldwide, Inc. (a).......................... 435,132 5,450 Precision Castparts Corp............................. 325,692 4,000 Union Pacific Corp................................... 371,840 3,995 United Parcel Service, Inc., Class B................. 328,908 7,250 United Technologies Corp............................. 459,795 ----------- 5,114,198 ----------- INFORMATION TECHNOLOGY (16.1%) 6,625 Agilent Technologies, Inc. (a)....................... 209,085 3,650 Apple Computer, Inc. (a)............................. 208,488 5,875 Broadcom Corp., Class A (a).......................... 176,544 23,050 Cisco Systems, Inc. (a).............................. 450,166 13,700 Corning, Inc. (a).................................... 331,403 18,200 EMC Corp. (a)........................................ 199,654 655 Google, Inc. (a)..................................... 274,661 10,600 Hewlett-Packard Co................................... 335,808 4,050 Marvel Technology Group, Ltd. (a).................... 179,537 15,300 Microsoft Corp....................................... 356,490 5,700 Motorola, Inc........................................ 114,855 5,800 Paychex, Inc......................................... 226,084 30,800 Oracle Corp. (a)..................................... 446,291 5,750 QUALCOMM, Inc........................................ 230,403 ----------- 3,739,469 ----------- TELECOMMUNICATION SERVICES (5.4%) 10,700 America Movil SA de CV, Series L, ADR................ 355,882 7,675 American Tower Corp., Class A (a).................... 238,846 9,100 AT&T, Inc............................................ 253,799 6,950 NII Holdings, Inc. (a)............................... 391,841 ----------- 1,240,368 ----------- Total Common Stocks (Cost $20,104,497)............... 21,538,422 ----------- REPURCHASE AGREEMENT (7.0%) $1,626,433 U.S. Bank NA, 4.80%, dated 6/30/06, maturing 7/3/06, with a maturity value of $1,627,117 (Collateralized fully by U.S. Government Agencies)............................ 1,626,433 ----------- Total Repurchase Agreement (Cost $1,626,433)......... 1,626,433 ----------- Total Investments (Cost $21,730,930) -- 99.9%..................... 23,164,855 Net Other Assets (Liabilities) -- 0.1%............................ 15,847 ----------- NET ASSETS -- 100.0%.............................................. $23,180,702 =========== See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 5 BB&T CAPITAL MANAGER EQUITY VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2005 (UNAUDITED) SHARES FAIR VALUE ---------- ----------- AFFILIATED INVESTMENT COMPANIES (99.8%) 469,848 BB&T Equity Index Fund, Class A...................... $ 4,007,802 415,021 BB&T International Equity Fund, Institutional Class............................... 4,473,924 501,792 BB&T Large Cap Fund, Institutional Class............. 9,654,478 703,682 BB&T Large Cap Growth Fund, Institutional Class...... 6,347,211 105,294 BB&T Mid Cap Growth Fund, Institutional Class........ 1,444,639 168,059 BB&T Mid Cap Value Fund, Institutional Class......... 2,178,038 152,625 BB&T Small Cap Fund, Institutional Class............. 2,306,171 1,526,712 BB&T U.S. Treasury Money Market Fund, Institutional Class............................... 1,526,712 ----------- 31,938,975 ----------- Total Affiliated Investment Companies (Cost $29,397,081)................................ 31,938,975 ----------- Total Investments (Cost $29,397,081) -- 99.8%..................... 31,938,975 Net Other Assets (Liabilities) -- 0.2%............................ 79,761 ----------- NET ASSETS -- 100.0%.............................................. $32,018,736 =========== See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 6 BB&T SPECIAL OPPORTUNITIES EQUITY VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) SHARES FAIR VALUE ---------- ----------- COMMON STOCKS (98.6%) BASIC MATERIALS (7.5%) 25,500 Aracruz Celulose SA, ADR............................. $ 1,336,710 36,000 Dow Chemical Co. (The)............................... 1,405,080 ----------- 2,741,790 ----------- CONSUMER DISCRETIONARY (18.2%) 47,000 Comcast Corp., Class A (a)........................... 1,538,780 11,500 Costco Wholesale Corp................................ 656,995 23,515 Laureate Education, Inc. (a)......................... 1,002,444 65,340 News Corp., Class A.................................. 1,253,221 52,800 WCI Communities, Inc. (a)............................ 1,063,392 22,800 YUM! Brands, Inc..................................... 1,146,156 ----------- 6,660,988 ----------- CONSUMER STAPLES (3.5%) 44,600 Smithfield Foods, Inc. (a)........................... 1,285,818 ----------- ENERGY (18.2%) 21,300 Apache Corp.......................................... 1,453,725 34,000 CONSOL Energy, Inc................................... 1,588,480 15,000 Noble Corp........................................... 1,116,300 23,300 Pioneer Natural Resources Co......................... 1,081,353 29,200 Weatherford International, Ltd. (a).................. 1,448,904 ----------- 6,688,762 ----------- FINANCIALS (5.7%) 2,600 Markel Corp. (a)..................................... 902,200 17,500 Wells Fargo & Co..................................... 1,173,900 ----------- 2,076,100 ----------- HEALTH CARE (22.2%) 13,000 Amgen, Inc. (a)...................................... 847,990 15,750 Bard (C.R.), Inc..................................... 1,153,845 105,248 Emdeon Corp. (a)..................................... 1,306,128 31,355 Kos Pharmaceuticals, Inc. (a)........................ 1,179,575 16,400 Laboratory Corporation of America Holdings (a)....... 1,020,572 23,300 Manor Care, Inc...................................... 1,093,236 72,301 MedCath Corp. (a).................................... 1,362,151 4,300 UnitedHealth Group, Inc.............................. 192,554 ----------- 8,156,051 ----------- SHARES OR PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- COMMON STOCKS -- (CONTINUED) INDUSTRIALS (10.2%) 15,500 L-3 Communications Holdings, Inc..................... $ 1,169,010 81,330 Nalco Holdings Co. (a)............................... 1,433,848 14,000 PACCAR, Inc.......................................... 1,153,320 ----------- 3,756,178 ----------- INFORMATION TECHNOLOGY (13.1%) 48,700 Activision, Inc. (a) ................................ 554,206 205,680 ARM Holdings PLC, ADR ............................... 1,287,557 44,700 ATI Technologies, Inc. (a) .......................... 652,620 29,600 Fair Issac Corp ..................................... 1,074,776 78,350 Symantec Corp. (a) .................................. 1,217,559 ----------- 4,786,718 ----------- Total Common Stocks (Cost $31,125,868) .............. 36,152,405 ----------- REPURCHASE AGREEMENT (1.9%) $705,337 U.S. Bank NA, 4.80%, dated 6/30/06, maturing 7/3/06, with a maturity value of $705,634 (Collateralized fully by U.S. Government Agencies)......................... 705,337 ----------- Total Repurchase Agreement (Cost $705,337)........... 705,337 ----------- Total Investments (Cost $31,831,205) -- 100.5%.................... 36,857,742 Net Other Assets (Liabilities) -- (0.5)%.......................... (189,552) ----------- NET ASSETS -- 100.0%.............................................. $36,668,190 =========== See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 7 BB&T TOTAL RETURN BOND VIF SCHEDULE OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- CORPORATE BONDS (34.0%) AEROSPACE & DEFENSE (0.4%) $ 85,000 Raytheon Co., 6.15%, 11/1/08 ........................ $ 85,831 ----------- AIRLINES (0.7%) 155,000 Sousthwest Airlines Co., 5.25%, 10/1/14 ............. 145,903 ----------- AUTO -- CARS/LIGHT TRUCKS (0.6%) 125,000 DaimlerChrysler NA Holdings, 4.875%, 6/15/10 ........ 119,488 ----------- BANKING & FINANCIAL SERVICES (25.9%) 87,000 Bank of America Commercial Mortgage, Inc., Series 2004-6 ClassA5, 4.81%, 12/10/42 ........... 80,935 35,000 Bank of America Corp., 4.25%, 10/1/10 ............... 33,192 155,000 Boeing Capital Corp., 7.375%, 9/27/10 ............... 164,685 184,000 Centex Home Equity, Series 2005-C, ClassAF6, 4.64%, 6/25/35 ................................... 173,915 120,000 Chase Credit Card Master Trust, 5.31%, Series 2003-3, ClassA 10/15/10 (c) * ...... 120,240 345,000 Chase Funding Mortgate Loan Asset-Backed, Series 2003-4, Class 1A5, 5.42%, 5/25/33 ......... 334,933 82,000 CIT Group, Inc., 5.00%, 2/13/14 ..................... 76,649 120,000 CIT Group, Inc., 5.72%, Series 2006-C4, ClassA2,3/15/49 .................................. 119,506 220,000 Countrywide Asset-Backed Certificates, 6.05%, Series 2006-11, Class 1AF3 12/25/08 ....... 219,562 490,000 Countrywide Asset-Backed Certificates, Series 2004-3, Class 3A3, 5.46%, 8/25/34 (c) * ... 491,944 284,000 Countrywide Asset-Backed Certificates, Series 2005-4 Class3AV2, 5.29%, 10/25/35 (c) * ... 284,280 250,000 CS First Boston Mortgage Securities Corp., Series 2004-C1, ClassA2, 3.52%, 1/15/37 .......... 239,286 192,000 Gatx Financial Corp., 5.125%, 4/15/10 ............... 185,847 310,000 GE Capital Commercial Mortgage Corp., Series 2004-C1, ClassA2, 3.915%, 11/10/38 ........ 293,191 190,000 JP Morgan Chase Commercial Mortgage Securities Co., 5.875%, Series 2006-LDP7, 4/15/45, ClassA3A ................................ 189,466 163,000 Lehman Brothers Holdings, Series MTNG, 4.80%, 3/13/14 ................................... 150,697 190,000 Merrill Lynch & Co., 6.00%, 2/17/09 ................. 191,261 170,000 Morgan Stanley, 4.25%, 5/15/10 ...................... 160,502 480,000 Residential Asset Mortgage Products, Inc., Series 2005-RZ4, ClassA2, 5.34%, 11/25/35 (c) * .. 480,790 408,000 Residential Asset Securities Corp., Series 2005-KS6, ClassA2, 5.23%, 7/25/35 (c)* .... 408,175 170,000 Structured Asset Investment Loan Trust, Series 2005-11, ClassA6, 5.30%, 1/25/36 (c)* ..... 170,337 147,000 Synovus Financial, 4.875%, 2/15/13 .................. 138,998 175,000 Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, ClassA4, 5.42%, 1/15/45 ......... 168,789 140,000 Wachovia Corp., 4.375%, 6/1/10 ...................... 133,874 180,000 Wells Fargo Home Equity Trust, Series 2004-2, ClassAI3, 3.97%, 9/25/24 ......................... 177,811 ----------- 5,188,865 ----------- PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- CORPORATE BONDS-- (CONTINUED) COMPUTER SERVICES (1.0%) $ 195,000 Electronic Data Systems, Series B, 6.50%, 8/1/13 * .. $ 192,371 ----------- CORRECTIONAL INSTITUTIONS (0.5%) 102,000 Corrections Corp of America, 6.25%, 3/15/13 ......... 95,880 ----------- HOTELS & MOTELS (0.3%) 50,000 ITT Corp (New), 7.375%, 11/15/15 .................... 50,375 ----------- OFFICE AUTOMATION& EQUIPMENT (0.2%) 50,000 Xerox Corp., 6.40%, 3/15/16 ......................... 47,188 ----------- PAPER & RELATED PRODUCTS (0.9%) 172,000 International Paper Co., 6.75%, 9/1/11 .............. 177,718 ----------- RETAIL (0.4%) 75,000 Lowe's Cos., Inc., 8.25%, 6/1/10 .................... 81,807 ----------- TELECOMMUNICATIONS (1.5%) 75,000 American Movil SA de CV, 5.75%, 1/15/15 ............. 69,879 170,000 Motorola, Inc., 7.50%, 5/15/25 ...................... 185,980 45,000 Sprint Capital Corp., 6.875%, 11/15/28 .............. 45,333 ----------- 301,192 ----------- UTILITIES (1.6%) 215,000 American Electric Power, Series C, 5.375%, 3/15/10 .................................. 211,632 105,000 General Electric Co., 5.00%, 2/1/13 ................. 100,573 ----------- 312,205 ----------- Total Corporate Bonds (Cost $6,963,702) ............. 6,798,823 ----------- MORTGAGE-BACKED SECURITIES (34.5%) FEDERAL HOME LOAN MORTGAGE CORP.(9.3%) 659,351 6.00%, 10/1/19, Pool # G11679 ....................... 660,816 90,626 5.50%, 11/1/20, Pool # J02711 ....................... 88,901 161,689 4.50%, 6/1/35, Pool # G01842 ........................ 146,687 148,834 5.50%, 7/1/35, Pool # A36540 ........................ 143,046 109,561 6.00%, 7/1/35, Pool # A36304 ........................ 107,887 89,188 5.50%, 12/1/35, Pool # A40359 ....................... 85,720 177,115 6.00%, 1/1/36, Pool # A42269 ........................ 174,409 276,599 5.50%, 2/1/36, Pool # G08111 ........................ 265,684 198,523 5.50%, 4/1/36, Pool # A44445 ........................ 190,690 ----------- 1,863,840 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (17.4%) 118,863 4.50%, 10/1/18, Pool # 752030 ....................... 112,346 82,623 5.50%, 11/1/20, Pool # 843972 ....................... 81,102 95,664 5.50%, 12/1/20, Pool # 831138 ....................... 93,903 219,118 5.50%, 5/1/21, Pool # 895628 ........................ 215,085 1,084,869 5.50%, 1/1/34, Pool # 757571 ........................ 1,042,063 256,024 6.00%, 9/1/34, Pool # 790912 ........................ 252,497 312,968 6.50%, 9/1/34, Pool # 796569 ........................ 314,641 314,895 6.00%, 2/1/35, Pool # 735269 ........................ 309,984 227,780 7.00%, 6/1/35, Pool # 255820 ........................ 233,029 130,297 5.00%, 9/1/35, Pool # 757857 ........................ 121,801 117,439 5.50%, 2/1/36, Pool #256101 ......................... 112,879 75,143 6.00%, 2/1/36, Pool # 865639 ........................ 73,971 119,876 6.00%, 5/1/36, Pool #891591 ......................... 118,006 405,000 6.00%, 7/15/36, Pool # 40785 (b) .................... 398,546 ----------- 3,479,853 ----------- Continued 8 BB&T TOTAL RETURN BOND VIF SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED) JUNE 30, 2006 (UNAUDITED) PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- MORTGAGE-BACKED SECURITIES -- (CONTINUED) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (7.8%) $1,640,000 5.00%, 7/15/36, Pool # 5124 (b) ..................... $ 1,551,850 ----------- Total Mortgage-Backed Securities (Cost $7,087,255) ................................ 6,895,543 ----------- MUNICIPAL BONDS (6.0%) CALIFORNIA (1.6%) 230,000 Fresno County Pension Obligation, Series A, 4.20%, 8/15/13, FGIC ............................. 210,847 110,000 San Bernardino County Financing Authority, Pension Obligation Revenue, 6.87%, 8/1/08, MBIA .. 112,805 ----------- 323,652 ----------- FLORIDA (1.2%) 35,000 Gainesville, Florida Post Taxable-Retiree Health Care Plan, 4.68%, 10/1/13 ................. 32,924 125,000 Gainesville, Florida Post Taxable-Retiree Health Care Plan, 4.71%, 10/1/14 ................. 116,932 45,000 Palm Beach County, Florida, 5.735%, 6/1/12 .......... 45,112 45,000 Palm Beach County, Florida, 5.78%, 6/1/13 ........... 45,135 ----------- 240,103 ----------- ILLINOIS (0.9%) 105,000 Chicago, Series B, 5.25%, 1/1/12, XLCA .............. 102,891 85,000 Illinois State, 3.75%, 6/1/12 ....................... 76,832 ----------- 179,723 ----------- NEW YORK (1.6%) 125,000 New York State, Series D, 5.20%, 4/15/11 ............ 122,642 105,000 New York State, Series D, 5.21%, 4/15/12 ............ 103,075 100,000 Sales Tax Asset Receivables Corp., Series B, 4.06%, 10/15/10, FGIC ............................ 94,073 ----------- 319,790 ----------- TEXAS (0.7%) 155,000 Brownsville Utility System, Series B, 4.92%, 9/1/14, AMBAC ............................. 147,219 ----------- Total Municipal Bonds (Cost $1,237,422) ............. 1,210,487 ----------- PRINCIPAL AMOUNT FAIR VALUE ---------- ----------- U.S.GOVERNMENT AGENCIES (7.3%) FEDERAL HOME LOAN BANK (1.8%) $ 110,000 4.85%, 8/10/10, Callable 8/10/06 @ 100 .............. $ 107,052 245,000 5.875%, 2/15/11 ..................................... 247,962 ----------- 355,014 ----------- FEDERAL HOME LOAN MORTGAGE CORP.(2.3%) 125,000 Series MTN, 4.50%, 6/15/10, Callable 6/15/07 @ 100 .. 120,404 350,000 4.875%, 11/15/13 .................................... 336,774 ----------- 457,178 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.2%) 452,000 6.625%, 11/15/10 .................................... 471,863 176,000 6.125%, 3/15/12 ..................................... 181,328 ----------- 653,191 ----------- Total U.S. Government Agencies (Cost $1,488,612) .... 1,465,383 ----------- U.S.TREASURY BONDS (11.1%) 1,701,000 8.875%, 8/15/17 ..................................... 2,219,672 ----------- Total U.S. Treasury Bonds (Cost $2,246,010) ......... 2,219,672 ----------- U.S.TREASURY NOTES (14.8%) 367,000 4.50%, 2/28/11 ...................................... 357,854 279,000 2.375%, 4/15/11 ..................................... 282,118 755,000 4.875%, 4/30/11 ..................................... 747,303 228,000 4.875%, 5/31/11 ..................................... 225,684 1,432,000 4.00%, 11/15/12 ..................................... 1,345,968 ----------- Total U.S. Treasury Notes (Cost $2,978,538) ......... 2,958,927 ----------- REPURCHASE AGREEMENT (2.8%) 562,327 U.S. Bank NA, 4.80%, dated 6/30/06, maturing 7/3/06, with a maturity value of $562,564 (Collateralized fully by U.S. Government Agencies) ........................ 562,327 ----------- Total Repurchase Agreement (Cost $562,327) .......... 562,327 ----------- Total Investments (Cost $22,563,866) -- 110.5% ................... 22,111,162 Net Other Assets (Liabilities) -- (10.5)% ........................ (2,096,502) ----------- NET ASSETS -- 100.0% ............................................. $20,014,660 =========== See page 10 for footnote legend to the Schedules of Portfolio Investments. See accompanying notes to the financial statements. 9 FOOTNOTE LEGEND TO THE SCHEDULES OF PORTFOLIO INVESTMENTS JUNE 30, 2006 (UNAUDITED) (a) Represents non-income producing security. (b) Represents a security purchased on a when-issued basis. At June 30, 2006, total cost of investments purchased on a when-issued basis for the BB&T Total Return Bond VIF was $1,971,205. (c) Represents that all or a portion of security was pledged as collateral for securities purchased on a when-issued basis at June 30, 2006. * The interest rate for this variable rate note, which will change periodically, is based either on the prime rate or an index of market rates. The reflected rate is in effect as of June 30, 2006. The maturity date reflected is the final maturity date. ADR -- American Depositary Receipt. AMBAC -- Insured by AMBAC Indemnity Corp. FGIC -- Insured by Financial Guaranty Insurance Corp. MBIA -- Insured by the Municipal Bond Insurance Association. NA -- North America. REIT -- Real Estate Investment Trust. XLCA -- Insured by XL Capital Assurance. See accompaying notes to financial statements. 10 (This page has been left blank intentionally.) 11 BB&T VARIABLE INSURANCE FUNDS STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2006 (UNAUDITED) BB&T BB&T BB&T BB&T CAPITAL SPECIAL BB&T TOTAL BB&T LARGE MID CAP LARGE CAP MANAGER OPPORTUNITIES RETURN CAP VIF GROWTH VIF GROWTH VIF EQUITY VIF EQUITY VIF BOND VIF ------------ ----------- ----------- ----------- ------------- ----------- ASSETS: Investments: Unaffiliated investments, at cost .. $ 93,731,105 $32,838,286 $20,104,497 $ -- $31,125,868 $22,001,539 Investment in affiliates, at cost .. -- -- -- 29,397,081 -- -- ------------ ----------- ----------- ----------- ----------- ----------- Investments, at cost ............... 93,731,105 32,838,286 20,104,497 29,397,081 31,125,868 22,001,539 Unrealized appreciation (depreciation) .................. 15,907,467 7,470,490 1,433,925 2,541,894 5,026,537 (452,704) ------------ ----------- ----------- ----------- ----------- ----------- Investments, at value .............. 109,638,572 40,308,776 21,538,422 31,938,975 36,152,405 21,548,835 Repurchase agreements, at cost ..... 7,262,814 1,324,866 1,626,433 -- 705,337 562,327 Interest and dividends receivable ..... 156,062 10,133 10,653 78,888 20,855 192,993 Receivable for investments sold ....... 1,864,916 -- -- -- 96,938 -- Receivable for capital shares issued .. 44,637 20,980 18,991 3,466 16,486 13,724 Prepaid and other expenses ............ 15,200 965 607 729 782 463 ------------ ----------- ----------- ----------- ----------- ----------- Total Assets .................... 118,982,201 41,665,720 23,195,106 32,022,058 36,992,803 22,318,342 ------------ ----------- ----------- ----------- ----------- ----------- LIABILITIES: Call options written (premiums received $0; $0; $0; $0; $110,988; $0) .................. -- -- -- -- 234,800 -- Payable for investments purchased ..... 3,626,802 -- -- -- 56,457 2,285,664 Payable for capital shares redeemed ... 674 118 85 1,325 -- 364 Accrued expenses and other payables: Investment advisory fees ........... 47,011 16,470 9,345 -- 23,267 8,145 Administration fees ................ 10,586 3,684 2,101 -- 3,245 1,828 Fund accounting fees ............... 940 329 187 257 291 163 Transfer agency fees ............... 1,065 454 312 397 416 288 Compliance service fees ............ 1,248 475 252 348 453 217 Trustee fees ....................... 43 15 9 12 13 8 Other .............................. -- -- 2,113 983 5,671 7,005 ------------ ----------- ----------- ----------- ----------- ----------- Total Liabilities ............... 3,688,369 21,545 14,404 3,322 324,613 2,303,682 ------------ ----------- ----------- ----------- ----------- ----------- NET ASSETS: Capital ............................... 90,756,630 28,020,232 21,358,923 28,350,971 29,300,519 20,765,560 Accumulated net investment income (loss) ...................... (313) (20,671) (85) 74,210 (846) 80,303 Accumulated realized gains/(losses) from investment transactions ....................... 8,630,048 6,174,124 387,939 1,051,661 2,465,792 (378,499) Net unrealized appreciation/ depreciation on investments ........ 15,907,467 7,470,490 1,433,925 2,541,894 4,902,725 (452,704) ------------ ----------- ----------- ----------- ----------- ----------- Net Assets ...................... $115,293,832 $41,644,175 $23,180,702 $32,018,736 $36,668,190 $20,014,660 ============ =========== =========== =========== =========== =========== Outstanding Units of Beneficial Interest (Shares) .................. 7,841,644 2,616,969 2,295,098 2,944,040 2,673,953 2,080,189 ============ =========== =========== =========== =========== =========== Net Asset Value -- offering and redemption price per share ......... $ 14.70 $ 15.91 $ 10.10 $ 10.88 $ 13.71 $ 9.62 ============ =========== =========== =========== =========== =========== See accompanying notes to the financial statements. 12 BB&T VARIABLE INSURANCE FUNDS STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) BB&T BB&T BB&T BB&T BB&T LARGE CAP CAPITAL SPECIAL TOTAL BB&T LARGE MID CAP GROWTH MANAGER OPPORTUNITIES RETURN CAP VIF GROWTH VIF VIF EQUITY VIF EQUITY VIF BOND VIF ----------- ----------- --------- ---------- ------------- --------- INVESTMENT INCOME: Interest income ............................... $ 108,164 $ 25,900 $ 14,211 $ -- $ 62,722 $ 480,787 Dividend income ............................... 1,429,360 284,866 127,571 -- 139,567 -- Dividend income from affiliates ............... -- -- -- 210,287 -- -- ----------- ----------- --------- ---------- ---------- --------- Total Investment Income: ...................... 1,537,524 310,766 141,782 210,287 202,289 480,787 ----------- ----------- --------- ---------- ---------- --------- EXPENSES: Investment advisory fees ...................... 431,210 156,147 87,204 38,371 137,616 57,383 Administration fees ........................... 65,777 23,814 13,302 17,321 19,413 10,795 Fund accounting fees .......................... 13,147 5,531 3,567 3,453 4,392 4,693 Transfer agency fees .......................... 5,828 2,110 1,179 1,535 1,720 957 Compliance service fees ....................... 6,111 2,391 1,493 1,918 1,605 996 Custodian fees ................................ 4,547 1,852 1,129 1,464 1,103 590 Professional fees ............................. 43,346 16,963 10,305 13,061 13,253 7,677 Trustee fees .................................. 7,140 2,757 1,678 2,092 2,298 1,395 Other ......................................... 2,364 596 427 709 753 477 ----------- ----------- --------- ---------- ---------- --------- Total expenses before waivers ................. 579,470 212,161 120,284 79,924 182,153 84,963 Less expenses waived by the Investment Advisor ......................... (142,272) (50,642) (28,462) (38,371) -- (11,270) Less expenses waived by the Administrator .............................. -- -- -- (17,321) -- -- ----------- ----------- --------- ---------- ---------- --------- Net Expenses ............................... 437,198 161,519 91,822 24,232 182,153 73,693 ----------- ----------- --------- ---------- ---------- --------- Net Investment Income (Loss) .................. 1,100,326 149,247 49,960 186,055 20,136 407,094 ----------- ----------- --------- ---------- ---------- --------- REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) on option contracts ........................... -- -- -- -- (22,289) -- Net realized gains (losses) from investment securities ...................... 9,541,014 3,798,257 445,396 -- 678,852 (273,502) Net realized gains (losses) on investments with affiliates ................ -- -- -- 5,588 -- -- Change in unrealized appreciation/ depreciation of investment securities ................................. (3,775,135) (3,309,929) (881,175) 936,942 1,945,827 (326,570) ----------- ----------- --------- ---------- ---------- --------- Net realized/unrealized gains (losses) on investments .................... 5,765,879 488,328 (435,779) 942,530 2,602,390 (600,072) ----------- ----------- --------- ---------- ---------- --------- Change in net assets from operations ................................. $ 6,866,205 $ 637,575 $(385,819) $1,128,585 $2,622,526 $(192,978) =========== =========== ========= ========== ========== ========= See accompanying notes to the financial statements. 13 BB&T VARIABLE INSURANCE FUNDS STATEMENTS OF CHANGES IN NET ASSETS BB&T BB&T MID CAP LARGE CAP VIF GROWTH VIF --------------------------------- --------------------------------- FOR THE SIX FOR THE FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2006 DECEMBER 31, 2005 ------------- ----------------- ------------- ----------------- (UNAUDITED) (UNAUDITED) FROM INVESTMENT ACTIVITIES OPERATIONS: Net investment income (loss) ..................... $ 1,100,326 $ 2,187,602 $ 149,247 $ (94,866) Net realized gains (losses) on investments ....... 9,541,014 5,648,845 3,798,257 2,740,583 Change in unrealized appreciation/depreciation of investment securities ......................... (3,775,135) (351,242) (3,309,929) 2,171,358 ------------ ------------ ----------- ----------- Change in net assets from operations ............. 6,866,205 7,485,205 637,575 4,817,075 ------------ ------------ ----------- ----------- DIVIDENDS TO SHAREHOLDERS: Net investment income ............................ (1,125,016) (2,163,186) (169,918) -- Net realized gains from investment transactions .. -- -- -- -- ------------ ------------ ----------- ----------- Change in net assets from shareholder dividends .. (1,125,016) (2,163,186) (169,918) -- ------------ ------------ ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from shares issued ...................... 1,562,375 2,804,935 3,491,314 3,785,288 Dividends reinvested ............................. 1,125,016 2,712,897 169,918 -- Value of shares redeemed ......................... (6,782,744) (8,803,839) (1,575,212) (1,919,195) ------------ ------------ ----------- ----------- Change in net assets from capital transactions ... (4,095,353) (3,286,007) 2,086,020 1,866,093 ------------ ------------ ----------- ----------- Change in net assets ............................. 1,645,836 2,036,012 2,553,677 6,683,168 ------------ ------------ ----------- ----------- NET ASSETS: Beginning of period .............................. 113,647,996 111,611,984 39,090,498 32,407,330 ------------ ------------ ----------- ----------- End of period .................................... $115,293,832 $113,647,996 $41,644,175 $39,090,498 ============ ============ =========== =========== Accumulated net investment income (loss) ......... $ (313) $ 24,377 $ (20,671) $ -- ============ ============ =========== =========== SHARE TRANSACTIONS: Issued ........................................... 106,559 208,216 210,948 266,255 Reinvested ....................................... 76,380 199,567 9,914 -- Redeemed ......................................... (461,781) (646,756) (98,078) (138,285) ------------ ------------ ----------- ----------- Change in Shares ................................. (278,842) (238,973) 122,784 127,970 ============ ============ =========== =========== See accompanying notes to the financial statements. 14 BB&T BB&T LARGE CAP CAPITAL MANAGER GROWTH VIF EQUITY VIF --------------------------------- --------------------------------- FOR THE SIX FOR THE FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2006 DECEMBER 31, 2005 ------------- ----------------- ------------- ----------------- (UNAUDITED) (UNAUDITED) FROM INVESTMENT ACTIVITIES OPERATIONS: Net investment income (loss) ..................... $ 49,960 $ 90,564 $ 186,055 $ 453,684 Net realized gains (losses) on investments ....... 445,396 761,512 5,588 1,497,425 Change in unrealized appreciation/depreciation of investment securities ......................... (881,175) (393,355) 936,942 (123,802) ----------- ----------- ----------- ----------- Change in net assets from operations ............. (385,819) 458,721 1,128,585 1,827,307 ----------- ----------- ----------- ----------- DIVIDENDS TO SHAREHOLDERS: Net investment income ............................ (50,045) (91,612) (155,462) (410,067) Net realized gains from investment transactions .. -- -- -- -- ----------- ----------- ----------- ----------- Change in net assets from shareholder dividends .. (50,045) (91,612) (155,462) (410,067) ----------- ----------- ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from shares issued ...................... 891,312 1,803,928 2,750,292 2,201,817 Dividends reinvested ............................. 50,045 183,178 155,462 481,528 Value of shares redeemed ......................... (847,962) (1,130,736) (582,149) (989,412) ----------- ----------- ----------- ----------- Change in net assets from capital transactions ... 93,395 856,370 2,323,605 1,693,933 ----------- ----------- ----------- ----------- Change in net assets ............................. (342,469) 1,223,479 3,296,728 3,111,173 ----------- ----------- ----------- ----------- NET ASSETS: Beginning of period .............................. 23,523,171 22,299,692 28,722,008 25,610,835 ----------- ----------- ----------- ----------- End of period .................................... $23,180,702 $23,523,171 $32,018,736 $28,722,008 =========== =========== =========== =========== Accumulated net investment income (loss) ......... $ (85) $ -- $ 74,210 $ 43,617 =========== =========== =========== =========== SHARE TRANSACTIONS: Issued ........................................... 86,236 180,801 249,958 218,620 Reinvested ....................................... 4,797 18,107 14,160 46,889 Redeemed ......................................... (81,206) (111,804) (52,958) (96,369) ----------- ----------- ----------- ----------- Change in Shares ................................. 9,827 87,104 211,160 169,140 =========== =========== =========== =========== BB&T BB&T SPECIAL OPPORTUNITIES TOTAL RETURN EQUITY VIF BOND VIF --------------------------------- --------------------------------- FOR THE SIX FOR THE FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2006 DECEMBER 31, 2005 ------------- ----------------- ------------- ----------------- (UNAUDITED) (UNAUDITED) FROM INVESTMENT ACTIVITIES OPERATIONS: Net investment income (loss) ..................... $ 20,136 $ (76,916) $ 407,094 $ 577,698 Net realized gains (losses) on investments ....... 656,563 1,886,143 (273,502) (4,837) Change in unrealized appreciation/depreciation of investment securities ......................... 1,945,827 (87,895) (326,570) (180,295) ----------- ----------- ----------- ----------- Change in net assets from operations ............. 2,622,526 1,721,332 (192,978) 392,566 ----------- ----------- ----------- ----------- DIVIDENDS TO SHAREHOLDERS: Net investment income ............................ (20,982) -- (404,503) (617,780) Net realized gains from investment transactions .. -- (425,936) -- (50,547) ----------- ----------- ----------- ----------- Change in net assets from shareholder dividends .. (20,982) (425,936) (404,503) (668,327) ----------- ----------- ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from shares issued ...................... 3,106,198 9,603,027 1,625,853 2,753,417 Dividends reinvested ............................. 20,982 425,882 404,503 704,135 Value of shares redeemed ......................... (828,776) (599,801) (194,930) (57,671) ----------- ----------- ----------- ----------- Change in net assets from capital transactions ... 2,298,404 9,429,108 1,835,426 3,399,881 ----------- ----------- ----------- ----------- Change in net assets ............................. 4,899,948 10,724,504 1,237,945 3,124,120 ----------- ----------- ----------- ----------- NET ASSETS: Beginning of period .............................. 31,768,242 21,043,738 18,776,715 15,652,595 ----------- ----------- ----------- ----------- End of period .................................... $36,668,190 $31,768,242 $20,014,660 $18,776,715 =========== =========== =========== =========== Accumulated net investment income (loss) ......... $ (846) $ -- $ 80,303 $ 77,712 =========== =========== =========== =========== SHARE TRANSACTIONS: Issued ........................................... 232,337 779,800 166,755 274,427 Reinvested ....................................... 1,530 33,720 41,529 70,239 Redeemed ......................................... (61,380) (48,297) (19,971) (5,756) ----------- ----------- ----------- ----------- Change in Shares ................................. 172,487 765,223 188,313 338,910 =========== =========== =========== =========== 15 BB&T VARIABLE INSURANCE FUNDS FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout the periods indicated.**** INVESTMENT ACTIVITIES ------------------------------------------- NET ASSET NET REALIZED/ VALUE, NET UNREALIZED GAINS TOTAL FROM BEGINNING INVESTMENT (LOSSES) ON INVESTMENT OF PERIOD INCOME (LOSS) INVESTMENTS ACTIVITIES --------- ------------- ---------------- ---------- BB&T LARGE CAP VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $14.00 0.14 0.70 0.84 Year Ended December 31, 2005 ........................ $13.35 0.26 0.65 0.91 Year Ended December 31, 2004 ........................ $12.00 0.22 1.35 1.57 Year Ended December 31, 2003 ........................ $ 9.88 0.19 2.12 2.31 Year Ended December 31, 2002 ........................ $12.50 0.17 (2.62) (2.45) Year Ended December 31, 2001 ........................ $12.66 0.17 (0.16) 0.01 BB&T MID CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $15.67 0.06 0.25 0.31 Year Ended December 31, 2005 ........................ $13.70 (0.04) 2.01 1.97 Year Ended December 31, 2004 ........................ $11.69 (0.05) 2.06 2.01 Year Ended December 31, 2003 ........................ $ 8.56 (0.06) 3.19 3.13 Year Ended December 31, 2002 ........................ $10.70 (0.09) (2.05) (2.14) October 15, 2001 to December 31, 2001 (a) ........... $10.00 (0.01) 0.71 0.70 BB&T LARGE CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $10.29 0.02 (0.19) (0.17) Year Ended December 31, 2005 ........................ $10.14 0.04 0.15 0.19 Year Ended December 31, 2004 ........................ $ 9.64 0.04 0.50 0.54 Year Ended December 31, 2003 ........................ $ 7.53 (0.02) 2.13 2.11 Year Ended December 31, 2002 ........................ $10.83 (0.06) (3.24) (3.30) October 15, 2001 to December 31, 2001 (a) ........... $10.00 (0.01) 0.84 0.83 BB&T CAPITAL MANAGER EQUITY VIF*** For the Six Months Ended June 30, 2006 (Unaudited) .. $10.51 0.06 0.36 0.42 Year Ended December 31, 2005 ........................ $ 9.99 0.17 0.50 0.67 Year Ended December 31, 2004 ........................ $ 8.99 0.07 1.00 1.07 Year Ended December 31, 2003 ........................ $ 7.19 0.03 1.80 1.83 Year Ended December 31, 2002 ........................ $ 9.28 0.01 (1.98) (1.97) May 1, 2001 to December 31, 2001 (a) ................ $10.00 0.01 (0.72) (0.71) BB&T SPECIAL OPPORTUNITIES EQUITY VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $12.70 0.01 1.01 1.02 Year Ended December 31, 2005 ........................ $12.12 (0.03) 0.79 0.76 July 22, 2004 to December 31, 2004 (a) .............. $10.00 (0.04) 2.16 2.12 BB&T TOTAL RETURN BOND VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $ 9.92 0.20 (0.30) (0.10) Year Ended December 31, 2005 ........................ $10.08 0.33 (0.10) 0.23 July 22, 2004 to December 31, 2004 (a) .............. $10.00 0.10 0.08 0.18 ---------- * 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. *** The expense ratios exclude the impact of fees/expenses paid by each underlying fund. **** The per share amounts and ratios do not reflect charges 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) Amount is less than $0.005. (c) Not annualized for periods less than one year. (d) Annualized for periods less than one year. See accompanying notes to the financial statements. 16 DIVIDENDS ------------------------------------------------- NET NET ASSET NET REALIZED VALUE, INVESTMENT RETURN OF GAINS ON TOTAL END OF TOTAL INCOME CAPITAL INVESTMENTS DISTRIBUTIONS PERIOD RETURN** (C) ---------- --------- ----------- ------------- --------- ------------ BB&T LARGE CAP VIF For the Six Months Ended June 30, 2006 (Unaudited) .. (0.14) -- -- (0.14) $14.70 6.02% Year Ended December 31, 2005 ........................ (0.26) -- -- (0.26) $14.00 6.90% Year Ended December 31, 2004 ........................ (0.22) -- -- (0.22) $13.35 13.18% Year Ended December 31, 2003 ........................ (0.19) (0.00)(b) -- (0.19) $12.00 23.62% Year Ended December 31, 2002 ........................ (0.17) -- -- (0.17) $ 9.88 (19.64)% Year Ended December 31, 2001 ........................ (0.17) -- -- (0.17) $12.50 0.16% BB&T MID CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. (0.07) -- -- (0.07) $15.91 1.93% Year Ended December 31, 2005 ........................ -- -- -- -- $15.67 14.38% Year Ended December 31, 2004 ........................ -- -- -- -- $13.70 17.19% Year Ended December 31, 2003 ........................ -- -- -- -- $11.69 36.57% Year Ended December 31, 2002 ........................ -- -- -- -- $ 8.56 (20.00)% October 15, 2001 to December 31, 2001 (a) ........... -- -- -- -- $10.70 7.00% BB&T LARGE CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. (0.02) -- -- (0.02) $10.10 (1.64)% Year Ended December 31, 2005 ........................ (0.04) -- -- (0.04) $10.29 1.88% Year Ended December 31, 2004 ........................ (0.04) -- -- (0.04) $10.14 5.63% Year Ended December 31, 2003 ........................ -- -- -- -- $ 9.64 28.02% Year Ended December 31, 2002 ........................ -- -- -- -- $ 7.53 (30.47)% October 15, 2001 to December 31, 2001 (a) ........... -- -- -- -- $10.83 8.30% BB&T CAPITAL MANAGER EQUITY VIF*** For the Six Months Ended June 30, 2006 (Unaudited) .. (0.05) -- -- (0.05) $10.88 4.03% Year Ended December 31, 2005 ........................ (0.15) -- -- (0.15) $10.51 6.77% Year Ended December 31, 2004 ........................ (0.07) -- -- (0.07) $ 9.99 11.91% Year Ended December 31, 2003 ........................ (0.03) -- -- (0.03) $ 8.99 25.47% Year Ended December 31, 2002 ........................ (0.01) -- (0.11) (0.12) $ 7.19 (21.25)% May 1, 2001 to December 31, 2001 (a) ................ (0.01) -- -- (0.01) $ 9.28 (7.08)% BB&T SPECIAL OPPORTUNITIES EQUITY VIF For the Six Months Ended June 30, 2006 (Unaudited) .. (0.01) -- -- (0.01) $13.71 8.01% Year Ended December 31, 2005 ........................ -- -- (0.18) (0.18) $12.70 6.29% July 22, 2004 to December 31, 2004 (a) .............. -- -- -- -- $12.12 21.20% BB&T TOTAL RETURN BOND VIF For the Six Months Ended June 30, 2006 (Unaudited) .. (0.20) -- -- (0.20) $ 9.62 (0.97)% Year Ended December 31, 2005 ........................ (0.36) -- (0.03) (0.39) $ 9.92 2.29% July 22, 2004 to December 31, 2004 (a) .............. (0.10) -- -- (0.10) $10.08 1.76% RATIOS/SUPPLEMENTARY DATA --------------------------------------------------------------- NET RATIO OF RATIO OF INVESTMENT RATIO OF EXPENSES INCOME (LOSS) EXPENSES TO NET ASSETS, TO AVERAGE TO AVERAGE AVERAGE PORTFOLIO END OF NET NET NET TURNOVER PERIOD (000) ASSETS (D) ASSETS (D) ASSETS* (D) RATE (C) ------------ ---------- ------------- ----------- --------- BB&T LARGE CAP VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $115,294 0.75% 1.89% 0.99% 27.87% Year Ended December 31, 2005 ........................ $113,648 0.79% 1.95% 1.05% 21.76% Year Ended December 31, 2004 ........................ $111,612 0.81% 1.77% 1.10% 12.91% Year Ended December 31, 2003 ........................ $ 94,683 0.88% 1.82% 1.17% 13.96% Year Ended December 31, 2002 ........................ $ 63,667 0.84% 1.57% 1.13% 15.24% Year Ended December 31, 2001 ........................ $ 77,796 0.86% 1.17% 1.15% 14.47% BB&T MID CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $ 41,644 0.77% 0.71% 1.01% 65.22% Year Ended December 31, 2005 ........................ $ 39,090 0.78% (0.28)% 1.10% 113.04% Year Ended December 31, 2004 ........................ $ 32,407 0.83% (0.44)% 1.22% 135.55% Year Ended December 31, 2003 ........................ $ 23,903 0.98% (0.78)% 1.37% 113.75% Year Ended December 31, 2002 ........................ $ 10,864 1.23% (1.05)% 1.62% 96.89% October 15, 2001 to December 31, 2001 (a) ........... $ 10,713 1.19% (0.55)% 1.58% 3.82% BB&T LARGE CAP GROWTH VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $ 23,181 0.78% 0.42% 1.02% 73.55% Year Ended December 31, 2005 ........................ $ 23,523 0.79% 0.40% 1.14% 91.61% Year Ended December 31, 2004 ........................ $ 22,300 0.86% 0.46% 1.26% 119.90% Year Ended December 31, 2003 ........................ $ 18,464 1.04% (0.32)% 1.44% 90.57% Year Ended December 31, 2002 ........................ $ 9,328 1.31% (0.73)% 1.71% 93.65% October 15, 2001 to December 31, 2001 (a) ........... $ 10,876 1.19% (0.32)% 1.59% 16.20% BB&T CAPITAL MANAGER EQUITY VIF*** For the Six Months Ended June 30, 2006 (Unaudited) .. $ 32,019 0.16% 1.21% 0.52% 0.83% Year Ended December 31, 2005 ........................ $ 28,722 0.26% 1.68% 0.55% 3.24% Year Ended December 31, 2004 ........................ $ 25,611 0.34% 0.75% 0.54% 1.09% Year Ended December 31, 2003 ........................ $ 20,606 0.56% 0.40% 0.66% 10.06% Year Ended December 31, 2002 ........................ $ 14,804 0.64% 0.15% 0.74% 3.47% May 1, 2001 to December 31, 2001 (a) ................ $ 16,295 0.54% 0.18% 0.63% 9.18% BB&T SPECIAL OPPORTUNITIES EQUITY VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $ 36,668 1.06% 0.12% 1.06% 25.51% Year Ended December 31, 2005 ........................ $ 31,768 1.23% (0.28)% 1.23% 42.15% July 22, 2004 to December 31, 2004 (a) .............. $ 21,044 1.45% (0.76)% 1.45% 13.81% BB&T TOTAL RETURN BOND VIF For the Six Months Ended June 30, 2006 (Unaudited) .. $ 20,015 0.77% 4.26% 0.89% 97.30% Year Ended December 31, 2005 ........................ $ 18,777 1.00% 3.38% 1.12% 196.66% July 22, 2004 to December 31, 2004 (a) .............. $ 15,653 1.29% 2.34% 1.29% 36.74% 17 BB&T VARIABLE INSURANCE FUNDS NOTES TO FINANCIAL STATEMENTS JUNE 30, 2006 (UNAUDITED) 1. ORGANIZATION: The BB&T Variable Insurance Funds (the "Trust") was organized on November 8, 2004, and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment company established as a Massachusetts business trust. The Trust commenced operations on May 1, 2005 and presently offers shares of the BB&T Large Cap VIF (formerly known as the BB&T Large Cap Value VIF), the BB&T Mid Cap Growth VIF, the BB&T Large Cap Growth VIF, the BB&T Capital Manager Equity VIF, the BB&T Special Opportunities Equity VIF, and the BB&T Total Return Bond VIF (referred to individually as a "Fund" and collectively as the "Funds"). 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 BB&T Capital Manager Equity VIF (the "Fund of Funds") invests in other investment companies as opposed to individual securities. Prior to May 1, 2005 the Funds operated as a separate series of the Variable Insurance Funds, an investment company organized as a Massachusetts business trust and registered under the 1940 Act as a diversified, open-end management investment company. 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. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("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. The Fund of Funds seeks its investment objective of capital appreciation by investing solely in a diversified portfolio of mutual funds (the "Underlying Funds"). The Fund of Funds purchases shares of the Underlying Funds at net asset value and without sales charge. Securities Valuation--Investments in common stocks, commercial paper, corporate bonds, municipal securities, U.S. Government securities, and U.S. Government agency securities, 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 quotations in the principal market in which such securities are normally traded. The Funds 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 fair value. Investments in open-end investment companies, including the Fund 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. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price. 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. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains earned on foreign investments at various rates. Where available, the Funds will file for claims on foreign taxes withheld. When-Issued Securities--The Funds, may purchase securities on a "when-issued" basis. The Funds record when-issued securities on the trade date and pledge assets with a value at least equal to the purchase commitment for payment of the securities purchased. The value of the securities underlying when-issued securities and any subsequent fluctuation in their value is taken into account 18 BB&T VARIABLE INSURANCE FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 2006 (UNAUDITED) when determining the net asset value of the Funds commencing with the date the Funds agree to purchase the securities. The Funds do not accrue interest or dividends on "when-issued" securities until the underlying securities are received. Repurchase Agreements--The Funds may acquire repurchase agreements from member banks of the Federal Deposit Insurance Corporation and from registered broker/dealers that BB&T Asset Management, Inc. ("BB&T") or a sub-advisor 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 Funds plus interest negotiated on the basis of current short-term rates, which may be more or less than the rate on the underlying collateral. The seller under a repurchase agreement is required to maintain the value of collateral held pursuant to the agreement at not less than the repurchase price, including accrued interest. Securities subject to repurchase agreements are held by the Funds' custodian or another qualified custodian or in the Federal Reserve/Treasury book-entry system. Option Contracts--The Funds may write or purchase option contracts. These transactions are to hedge against changes in interest rates, security prices, currency fluctuations, and other market developments, or for the purposes of earning additional income (i.e., speculation). The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Funds bear the risk of loss of the premium and change in fair value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as other securities owned. The cost of securities acquired through the exercise of call options is increased by the premiums paid. The proceeds from securities sold through the exercise of put options are decreased by premiums paid. In writing an option, the Funds contract with a specified counterparty to purchase (written put option) or sell (written call option) a specified quantity (notional amount) of an underlying asset at a specified price during a specified period upon demand of the counterparty. The risk associated with writing an option is that the Funds bear the market risk of an unfavorable change in the price of an underlying asset, and may be required to buy or sell an underlying asset under the contractual terms of the option at a price different from the current fair value. The BB&T Special Opportunities Equity VIF had the following transactions in call options written during the period ended June 30, 2006: BB&T SPECIAL OPPORTUNITIES EQUITY VIF ----------------------- NUMBER PREMIUMS CALL OPTIONS WRITTEN OF CONTRACTS RECEIVED -------------------- ------------ -------- Balance at beginning of period.. 65 $ 4,501 Options written ................ 1,031 200,032 Options closed ................. (310) (78,220) Options expired ................ (306) (15,325) Options exercised .............. -- -- ----- -------- Balance at end of period ....... 480 $110,988 ===== ======== The following is a summary of options outstanding as of June 30, 2006: SECURITY NUMBER BB&T SPECIAL OPPORTUNITIES EQUITY VIF OF CONTRACTS FAIR VALUE ------------------------------------- ------------ ---------- Consol Energy, Inc. $47.50, 1/20/07 .. 200 $120,000 Consol Energy, Inc. $50.00, 1/20/07 .. 140 75,600 PACCAR, Inc., $90.00, 11/18/06 ....... 140 39,200 -------- $234,800 ======== Dividends and Distributions--Dividends from net investment income are declared and paid quarterly for the Funds, with the exception of the BB&T Total Return Bond VIF, in which case dividends from net investment income are declared daily and paid monthly. Distributable net realized gains, if any, are declared and distributed at least annually. 19 BB&T VARIABLE INSURANCE FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 2006 (UNAUDITED) 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 or return of capital. Federal Income Taxes--It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income tax is required. On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax return to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management has not completed their analysis on whether the adoption of FIN 48 will have an impact to the financial statements. Other--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 Funds Trusts. 3. PURCHASES AND SALES OF SECURITIES: Purchases and sales of securities (excluding short-term and U.S. Government securities) for the period ended June 30, 2006 are as follows: PURCHASES SALES ----------- ----------- BB&T Large Cap VIF ..................... $31,324,373 $38,098,399 BB&T Mid Cap Growth VIF ................ 28,405,087 26,196,033 BB&T Large Cap Growth VIF .............. 16,804,014 17,331,298 BB&T Capital Manager Equity VIF ........ 1,895,000 245,000 BB&T Special Opportunities Equity VIF .. 13,138,708 8,223,628 BB&T Total Return Bond VIF ............. 22,363,790 19,296,984 Purchases and sales of long-term U.S. Government Securities for the period ended June 30, 2006 for the BB&T Total Return Bond VIF were $5,839,935 and $3,505,807, respectively. 4. RELATED PARTY TRANSACTIONS: Investment advisory services are provided to the Funds by BB&T. Under the terms of the Investment Advisory Agreement, BB&T is entitled to receive fees based on a percentage of the average daily net assets of the Funds. These fees are accrued daily and payable on a monthly basis and are reflected on the Statements of Operations as "Investment Advisory Fees". BB&T voluntarily waived investment advisory fees and are included on the Statements of Operations as "Less expenses waived by the Investment Advisor". Information regarding these transactions is as follows for the period ended June 30, 2006: FEE RATE AFTER CONTRACTUAL VOLUNTARY FEE RATE WAIVER ----------- -------------- BB&T Large Cap Value VIF ............... 0.74% 0.50% BB&T Mid Cap Growth VIF ................ 0.74% 0.50% BB&T Large Cap Growth VIF .............. 0.74% 0.50% BB&T Capital Manager Equity VIF ........ 0.25% 0.00% BB&T Special Opportunities Equity VIF .. 0.80% 0.80% BB&T Total Return Bond VIF ............. 0.60% 0.50% 20 BB&T VARIABLE INSURANCE FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 2006 (UNAUDITED) Pursuant to a Sub-Advisory agreement with BB&T, Scott & Stringfellow, Inc., a wholly owned subsidiary of BB&T Corporation, serves as the Sub-Advisor to the BB&T Special Opportunities Equity VIF, subject to the general supervision of the Trusts' Board of Trustees and BB&T. Pursuant to a Sub-Advisory agreement with BB&T, Sterling Capital Management LLC, a wholly owned subsidiary of BB&T Corporation, serves as the Sub-Advisor to the BB&T Total Return Bond VIF, subject to the general supervision of the Trusts' Board of Trustees and BB&T. For their services, the Sub-Advisors are entitled to a fee, payable by BB&T. BB&T serves the Funds as administrator. BB&T receives compensation for providing administration services at a rate of 0.12% of the BB&T Funds and BB&T Variable Insurance Funds aggregate average daily net assets up to $5 billion and a rate of 0.08% of the aggregate average daily net assets in excess of $5 billion. This fee is accrued daily and payable on a monthly basis. Expenses incurred are reflected on the Statements of Operations as "Administration fees". BB&T voluntarily waived administration fees of the BB&T Capital Manager Equity VIF. Administration fee waivers are included on the Statements of Operations as "Less expenses waived by the Administrator" and these waivers are not subject to recoupment in subsequent fiscal periods. Pursuant to a Sub-Administration Agreement with BB&T, BISYS Fund Services Ohio, Inc. ("BISYS Ohio") serves as sub-administrator to the Funds subject to the general supervision of the Funds' Board of Trustees and BB&T. For these services, BISYS is entitled to a fee, payable by BB&T. BISYS Ohio serves the Funds as fund accountant and transfer agent and receives compensation for providing fund accounting and transfer agency services at a rate of 0.02% (0.01% for each service) of the average daily net assets of each Fund, plus certain out of pocket expenses. Expenses incurred are reflected on the Statements of Operations as "Fund accounting fees" and "Transfer agency fees", respectively. Under a Compliance Services Agreement between the Trust and BISYS Ohio (the "CCO Agreement"), BISYS Ohio makes an employee available to serve as the Trusts' Chief Compliance Officer (the "CCO"). Under the CCO Agreement, BISYS Ohio also provides infrastructure and support in implementing the written policies and procedures comprising the Funds' compliance program, including support services to the CCO. Expenses incurred for the Fund are reflected on the Statements of Operations as "Compliance service fees". BISYS Ohio pays the salary and other compensation earned by any such individuals as employees of BISYS Ohio. For the six months ended June 30, 2006, the Funds' paid $26,052 in brokerage fees to Scott & Stringfellow, Inc., a wholly owned subsidiary of BB&T Corporation, on the execution of purchases and sales of the Funds' portfolio investments. The Trust has adopted a Variable Contract Owner Servicing Plan (the "Service Plan") under which the Funds may pay a fee computed daily and paid monthly, at an annual rate of up to 0.25% of the average daily net assets of the Fund. A servicing agent may periodically waive all or a portion of its servicing fees. For the period ended June 30, 2006, the Funds did not participate in any service plans. Certain Officers and Trustees of the Funds are affiliated with the adviser, the administrator, or the sub-administrator. Such Officers and Trustees receive no compensation from the Funds for serving in their respective roles. Each of the five non-interested Trustees who serve on both the Board and the Audit Committee are compensated $1,250 per quarter and $500 for each regularly scheduled meeting, plus reimbursement for certain expenses. During the period ended June 30, 2006, actual Trustee compensation was $18,733 in total. 5. FEDERAL INCOME TAX INFORMATION: As of the latest tax year end, the following Funds had net realized loss carryforwards to offset future net realized 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 -------- ------- BB&T Large Cap VIF .......... $891,424 2011 BB&T Total Return Bond BIF .. 96,285 2013 21 BB&T VARIABLE INSURANCE FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 2006 (UNAUDITED) 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 ..................... $101,013,461 $18,201,771 $(2,313,846) $15,887,925 BB&T Mid Cap Growth VIF ................ 34,188,342 8,372,312 (927,012) 7,445,300 BB&T Large Cap Growth VIF .............. 21,905,222 2,019,672 (760,039) 1,259,633 BB&T Capital Manager Equity VIF ........ 29,418,708 2,840,705 (320,438) 2,520,267 BB&T Special Opportunities Equity VIF .. 31,839,573 6,008,883 (990,714) 5,018,169 BB&T Total Return Bond VIF ............. 22,599,253 2,781,846 (3,269,937) (488,091) 22 BB&T VARIABLE INSURANCE FUNDS OTHER INFORMATION JUNE 30, 2006 (UNAUDITED) A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-228-1872; and (ii) on the Securities and Exchange Commission's ("the Commission") website at http://www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 1-800-228-1872 and (ii) on the Commission's website at http://www.sec.gov. The Funds file complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available without charge on the Commission's website at http://www.sec.gov, or may be reviewed and copied at the Commission's Reference Room in Washington, D.C. Information on the operation of the Public Reference Room, may be obtained by calling 1-800-SEC-0330. 23