ROPES & GRAY LLP
METRO CENTER
700 12TH STREET NW
SUITE 900
WASHINGTON DC 20005
WRITER'S DIRECT DIAL NUMBER: (202) 508-4667
April 27, 2007
VIA EDGAR
Mr. Sonny Oh
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.W.
Washington, D.C. 20549-0504
Re: REGISTRANT: BB&T Variable Insurance Funds
FILE NOS.: 333-121205 and 811-21682
FILING TYPE: Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A
FILING DATE: February 26, 2007
Dear Mr. Oh:
This letter is in response to oral comments provided to the undersigned by
Sonny Oh of the staff of the Securities and Exchange Commission (the
"Commission"), regarding the post-effective amendment to the registration
statement (the "Registration Statement") of the BB&T Variable Insurance Funds
(each a "VIF" or a "Fund" and, collectively, the "Trust") filed on February 26,
2007. These comments and responses thereto are set forth below.
Per your request, the Trust acknowledges that it is responsible for the
adequacy and accuracy of the disclosure in the Registration Statement and that
staff comments or changes in response to staff comments with respect to the
Trust's Registration Statement, do not foreclose the Commission from taking any
action with respect to the filing. The Trust hereby represents that it will not
use the comment process between such Trust and the Commission with respect to
the Registration Statement as a defense in any securities-related litigation
against the Trust. This representation should not be construed as confirming
that there is or is not, in fact, an inquiry or investigation or other matter
involving the Trust.
Terms not defined herein are defined in the Registration Statement. Unless
otherwise indicated, each comment below applies to the prospectus of each series
of the Trust.
Mr. Sonny Oh
April 24, 2007
Page 2
COMMENT 1(A)(I): The preamble to the Risk/Return Bar Chart and Table includes
a statement that "[t]he information does not reflect charges
and fees associated with a separate account that invests in
the Fund or an insurance contract for which the Fund is an
investment option. These charges and fees will reduce
returns." The second sentence should be revised to indicate
that performance shown would be lower if such charges and
fees were reflected.
RESPONSE: This sentence has been revised and now states that: "If
these charges and fees were reflected, performance shown
below would be lower."
COMMENT 1(A)(II): The preamble to the Expense Example in the Fund Expenses
section of the prospectuses should state that if separate
account or insurance contract fees had been included in the
Expense Example, fees and expenses shown would have been
higher.
RESPONSE: The prospectuses, as filed, state that: "[The Expense
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." Thus, this
language was not revised.
COMMENT 1(B): In the Average Annual Total Return table in the Large Cap
VIF prospectus, a footnote indicates that "For periods prior
to May 1, 2005, fund performance information appears for
BB&T Large Cap Value Fund, the predecessor fund to BB&T
Large Cap VIF." This comment also applies to the Mid Cap
Growth VIF and the Capital Manager Equity VIF prospectuses.
For each prospectus, explain the basis on which the
respective BB&T Fund is referred to as a "predecessor fund"
for the respective VIF (i.e., a merger or otherwise), noting
whether the transaction or other event involved a
shareholder vote.
RESPONSE: Each series of the Trust is the successor to a corresponding
series of the Variable Insurance Funds (each, a "Predecessor
Fund" and collectively, the "Predecessor Funds") pursuant to
an Agreement and Plan of Reorganization, dated April 29,
2005, in which all assets and liabilities of each
Predecessor Fund were transferred to the corresponding Fund
in exchange for shares of the corresponding Fund.
Shareholder approval of the reorganization was sought and
obtained via a proxy statement that was filed on Schedule
14A with the Securities and Exchange Commission on March 17,
2005 (Def 14A, SEC Accession Number: 0000950152-05-002264,
Variable Insurance Funds (filer)). Neither the BB&T Special
Opportunities Equity VIF nor the BB&T Total Return Bond VIF
include performance information for their respective
Predecessor Funds in the fund summary because they did not
have one calendar year of performance prior to the
reorganization. In addition, the BB&T Large Cap VIF, which
changed its name on March 14, 2006 (Rule 497 supplement, SEC
Accession Number: 0000950152-06-002067, BB&T Variable
Insurance Funds (filer)), was known as the BB&T Large Cap
Value VIF at the time of the reorganization.
The footnote referenced above in Comment 1(b), which appears
in the Mid Cap Growth VIF prospectus, the Large Cap VIF
prospectus and the Capital Manager Equity VIF prospectus,
has been revised to read as follows (new text is bolded
below
Mr. Sonny Oh
April 24, 2007
Page 3
for ease of review):
"For periods prior to May 1, 2005, fund performance
information appears for the [BB&T Mid Cap Growth Fund], A
SERIES OF THE VARIABLE INSURANCE FUNDS AND the predecessor
fund to the [BB&T Mid Cap Growth VIF] PURSUANT TO A
REORGANIZATION."
COMMENT 2: With respect to the Capital Manager Equity VIF, confirm that
the calculation of Acquired Fund Fees and Expenses, Other
Expenses and Total Annual Fund Operating Expenses complies
with Item 3(f) of Form N-1A.
RESPONSE: We have confirmed that the calculation of each expense
listed above complies with Item 3(f) of Form N-1A.
COMMENT 3(A): In the "Market Timing/Short-Term Trading" section of the
prospectuses, the disclosure suggests that a Fund may or may
not take action if market timing activity is detected. If
this is true, disclose that fact and expand the risk
disclosure in the last sentence of the first paragraph of
this section to include the possibility that market timing
may occur due to inaction by the Fund and that, as a result
of technical limitations, some shareholders may be able to
market time while others bear the effect of market timing
activity.
RESPONSE: The last sentence of the first paragraph in this section now
reads as follows (new text is bolded below for ease of
review):
"We cannot guarantee that we will detect every market timer
due to the limitations inherent in our technological
systems; AS A RESULT, SOME SHAREHOLDERS MAY BE ABLE TO
MARKET TIME WHILE OTHERS BEAR THE EFFECT OF MARKET TIMING
ACTIVITY."
COMMENT 3(B): In addition to a Fund's right to close an account if market
timing activity is detected, please explain, if applicable,
any other types of restrictions that may be imposed on an
account if market timing activity is detected, including
application of restrictions to omnibus accounts, in
accordance with Item 6(e)(4)(iii) of Form N-1A.
RESPONSE: The Funds' disclosure regarding market timing has been
revised as follows (new text is bolded below for ease of
review):
Excessive short-term trading or other abusive trading
practices may disrupt portfolio management strategies and
hurt Fund performance. Such practices may dilute the value
of Fund shares, interfere with the efficient management of a
Fund's investments, and increase brokerage and
administrative costs. To prevent disruption in the
management of the Fund due to market timing strategies, we
have adopted certain policies and procedures. We reserve the
right to close any account OR LIMIT EXCHANGE ACTIVITY FOR
ANY ACCOUNT in which we have identified a pattern of
excessive or abusive trading. We cannot guarantee that we
will detect every market timer due to the limitations
inherent in our technological systems; as a result, some
shareholders may be able to market time while others bear
the effect of market timing activity.
Mr. Sonny Oh
April 24, 2007
Page 4
We will apply our policies and procedures consistently to
all Fund shareholders. We reserve the right to modify our
policies and procedures at any time without prior notice as
we deem in our sole discretion to be in the best interests
of Fund shareholders, or to comply with state or federal
legal requirements.
IN ADDITION, THE FUND MAY RESTRICT PURCHASES OR EXCHANGES OF
FUND SHARES BY SHAREHOLDERS HOLDING AN ACCOUNT WITH A
FINANCIAL INTERMEDIARY PURSUANT TO RULE 22C-2 SHAREHOLDER
INFORMATION AGREEMENTS BETWEEN THE FUND AND FINANCIAL
INTERMEDIARIES.
COMMENT 3(C): With respect to the Capital Manager Equity VIF, state
whether the Fund may be more susceptible to market timing
due to the nature of the Fund's investments (i.e., in
international funds, which may be susceptible to time zone
arbitrage, or in certain illiquid or thinly traded stocks or
bonds, which may be susceptible to stale price arbitrage).
RESPONSE: The Capital Manager Equity VIF does not believe that it is
more susceptible to market timing activity due to the nature
of its investments than other funds.
COMMENT 4(A): In the Investment Adviser sub-section of the Management of
the Fund section, describe the investment adviser's
experience as an investment adviser and describe the
advisory services provided to the Fund, in accordance with
Item 5(a)(1) of Form N-1A.
RESPONSE: The following disclosure has been added to the Investment
Adviser sub-section of the Management of the Fund section of
each prospectus:
"BB&T Asset Management employs an experienced staff of
professional portfolio managers and traders who use a
disciplined investment process that focuses on maximization
of risk-adjusted investment returns. BB&T Asset Management
and its predecessors have managed common and collective
investment funds for its fiduciary accounts for more than 20
years. BB&T Asset Management currently manages discretionary
accounts of more than $15.3 billion.
Through its portfolio management team, BB&T Asset Management
makes the day-to-day investment decisions and continuously
reviews, supervises and administers the Fund's investment
programs"
COMMENT 4(B): For those Funds that are managed by a committee, team or
other group of persons, provide a brief description of each
team member's role on the committee, team, or other group,
including a description of any limitations on the person's
role and the relationship between the person's role and the
roles of other persons who have responsibility for the
day-to-day management of the Fund's portfolio.
RESPONSE: The second paragraph in the Portfolio Manager sub-section of
the Management of the
Mr. Sonny Oh
April 24, 2007
Page 5
Fund section has been revised as follows (new text is bolded
below for ease of review):
Subject to Mr. Schappe's oversight and guidance AS CHAIRMAN
OF THE TEAM, the team members jointly discuss developments
across the various market sectors and determine an
appropriate allocation of fund assets between the Underlying
Funds. MR. GHOLSTON IS RESPONSIBLE FOR SELECTING PARTICULAR
INVESTMENTS ON A DAY-TO-DAY BASIS.
COMMENT 4(C): With respect to the Special Opportunities Equity VIF and the
Total Return Bond VIF, provide information required by Item
5(a)(1) of Form N-1A with respect to the sub-adviser to the
Fund.
RESPONSE: The following disclosure has been added to the Investment
Sub-Adviser sub-section of the Management of the Fund
section of the Special Opportunities Equity VIF prospectus
(new text is bolded below for ease of review):
"Scott & Stringfellow serves as the investment sub-adviser
of the Fund pursuant to a Sub-Advisory Agreement with BB&T
Asset Management. UNDER THE SUB-ADVISORY AGREEMENT, SCOTT &
STRINGFELLOW MANAGES THE FUNDS, SELECTS THEIR INVESTMENTS,
AND PLACES ALL ORDERS FOR PURCHASE AND SALES OF THE FUND'S
SECURITIES, subject to the general supervision of the Board
of Trustees and BB&T Asset Management in accordance with the
Fund's investment objective, policies and restrictions. . .
.
FOR ITS SERVICES AND EXPENSES INCURRED UNDER THE
SUB-ADVISORY AGREEMENT, SCOTT & STRINGFELLOW IS ENTITLED TO
A FEE PAYABLE BY BB&T ASSET MANAGEMENT. THE FEE IS COMPUTED
DAILY AND PAID MONTHLY AT AN ANNUAL RATE OF 0.40% OF THE
FUND'S AVERAGE DAILY NET ASSETS OR SUCH LOWER FEE AS MAY BE
AGREED UPON IN WRITING BY BB&T ASSET MANAGEMENT AND SCOTT &
STRINGFELLOW."
The following disclosure has been added to the Investment
Sub-Adviser sub-section of the Management of the Fund
section of the Total Return Bond VIF prospectus (new text is
bolded below for ease of review):
"IN CONSIDERATION FOR THE SERVICES PROVIDED AND EXPENSES
ASSUMED UNDER THE STERLING CAPITAL INVESTMENT SUB-ADVISORY
AGREEMENT, BB&T ASSET MANAGEMENT HAS AGREED TO PAY STERLING
CAPITAL A FEE, COMPUTED DAILY AND PAID MONTHLY, AT AN ANNUAL
RATE OF 0.25% OF THE FUND'S AVERAGE DAILY NET ASSETS OR SUCH
LOWER FEE AS MAY BE AGREED UPON IN WRITING BY BB&T ASSET
MANAGEMENT AND STERLING CAPITAL."
COMMENT 5: Provide disclosure in response to Item 6(d) of Form N-1A
with respect to the Fund's policy regarding dividends and
distributions.
RESPONSE: A variation of the following disclosure, as modified
pursuant to each Fund's policy with respect to declaration
and payment of dividends, is included in each Fund's
prospectus:
Mr. Sonny Oh
April 24, 2007
Page 6
"All dividends and distributions will be automatically
reinvested unless you request otherwise. There are no sales
charges for reinvested distributions. Income dividends for
the Fund are declared and paid quarterly. Capital gains are
distributed at least annually.
Distributions are made on a per share basis regardless of
how long you've owned your shares. Therefore, if you invest
shortly before the distribution date, some of your
investment will be returned to you in the form of a
distribution."
COMMENT 6: In the Trust's Statement of Additional Information ("SAI"),
provide detailed disclosure regarding portfolio manager
compensation, as required by Item 15(b) of Form N-1A.
RESPONSE: The portfolio manager compensation section of the SAI has
been revised to read as follows:
BB&T ASSET MANAGEMENT
BB&T Asset Management utilizes the following incentive
compensation plan for portfolio managers:
Portfolio Management compensation is based on both fixed and
variable components. The fixed component is determined at
the commencement of employment and subject to annual review.
Variable compensation is divided into two parts. The first
variable component is calculated based on pretax one-year
and three-year fund performance (by asset class). The
performance figures are ranked against a universe of
approved peer funds/indexes, and measured on a relative
percentile basis. The second variable component, a
discretionary bonus pool, is determined based on various
factors as determined by executive management. The factors
include active support and promotion of funds marketing
through various channels, management of personnel and other
subjective criteria. All variable compensation is paid
annually at plan year-end.
For investment professionals other than portfolio managers,
such as investment analysts, a similar fixed compensation
component is received. The variable component is calculated
based on performance categories, designed to recognize
meaningful performance to the team. The incentive plan is
paid annually, based on plan year-end. As with the portfolio
managers, BB&T Asset Management seeks to utilize the
incentive compensation to investment analysts as a retention
tool.
Portfolio managers are also eligible to participate in
broad-based plans offered generally to BB&T employees,
including retirement, 401(k), health, and other employee
benefit plans.
STERLING CAPITAL
Sterling Capital offers investment professionals a
compensation plan which has three components: (i) base
compensation, which is linked to job function,
responsibilities and experience, (ii) incentive
compensation, which varies based on investment
Mr. Sonny Oh
April 24, 2007
Page 7
performance and other factors determined by management, and
(iii) equity. The majority of potential total cash
compensation consists of incentive compensation, which could
ultimately make up more than half of the investment
professional's compensation. Incentive compensation is based
on performance of the portfolios managed by the portfolio
manager in comparison to benchmarks appropriate for the
various portfolios managed, and in comparison to peer
groups. Firm/department leadership, compliance results, and
other subjective criteria as determined by executive
management are also considered in determining incentive
compensation.
Certain investment professionals are also offered equity in
Sterling's 30% owner. Membership interest is awarded based
on long-term performance, leadership, potential for
generating future growth of the firm, and other subjective
criteria determined by management.
Incentive compensation and equity interests are used as
retention tools in order to facilitate long-term commitments
from key investment professionals.
Portfolio managers are also eligible to participate in
broad-based plans offered generally to Sterling Capital
employees, including retirement, 401(k), health, and other
employee benefit plans.
SCOTT & STRINGFELLOW
Compensation Program
The elements of total compensation for Scott & Stringfellow
portfolio managers are: fixed base salary, annual
performance-based cash bonus, nominal stock compensation,
and other benefits. These components are designed to provide
a powerful incentive to achieve consistently superior
investment performance. By design, portfolio manager
compensation levels fluctuate -- both up and down -- with
the relative assets under management.
Base Salary
Under the Scott & Stringfellow approach, like that of many
asset management firms, base salaries represent a relatively
small portion of a portfolio manager's total compensation.
This approach serves to enhance the motivational value of
the asset-based (and therefore variable) compensation
elements of the compensation program.
Asset-Based Compensation
Scott & Stringfellow believes that the best interests of
investors are served by recruiting and retaining exceptional
asset management talent and managing their compensation
within a consistent and disciplined framework that
emphasizes pay for performance in the context of an
intensely competitive market for talent. To that end, the
portfolio manager incentive compensation is based on a
formulaic compensation program.
Mr. Sonny Oh
April 24, 2007
Page 8
Scott & Stringfellow's formulaic portfolio manager
compensation program focuses on assets under management,
which is believed to create an indirect tie to absolute
performance, as negative returns in any market environment
could result in an outflow of assets. Portfolio managers
work with all products under management and are compensated
based on overall assets. A smaller discretionary element of
portfolio manager compensation may include consideration of:
financial results, expense control, profit margins,
strategic planning and implementation, quality of client
service, market share, corporate reputation, capital
allocation, compliance and risk control, leadership,
workforce diversity, technology and innovation. All factors
are considered collectively by Scott & Stringfellow's
management.
Cash Bonus
Performance-based compensation is distributed to portfolio
managers primarily as cash. Typically, the cash bonus, when
combined with base salary, represents more than 90% of total
compensation for portfolio managers.
Stock Bonus
Some portfolio managers qualify for a nominal grant of stock
options and/or restricted stock of BB&T Corporation stock,
the parent of Scott & Stringfellow, based primarily on the
discretionary elements discussed above. Paying a portion of
annual bonuses in stock puts compensation earned by a
portfolio manager for a given year "at risk" based on the
organizations's ability to sustain and improve its
performance over future periods.
The ultimate value of stock bonuses is dependent on future
Company stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with
those of BB&T's shareholders and encourages a balance
between short-term goals and long-term strategic objectives.
Management strongly believes that providing a small portion
of competitive performance-based compensation in stock is in
the best interests of investors and shareholders. This
approach ensures that portfolio managers participate as
shareholders in both the "downside risk" and "upside
opportunity" of the Company's performance. Portfolio
managers therefore have a direct incentive to protect the
Company's reputation for integrity.
Other Benefits
Portfolio managers are also eligible to participate in
broad-based plans offered generally to Scott & Stringfellow
employees, including 401(k), health, and other employee
benefit plans.
COMMENT 7(A): Confirm and provide additional disclosure indicating that in
all instances where non-public information is disclosed to
third parties, the entity receiving the non-public
information is subject to a duty of confidentiality
including a duty not to trade on the
Mr. Sonny Oh
April 24, 2007
Page 9
non-public information.
RESPONSE: The following disclosure has been added to the SAI:
"In all instances in which non-public information is
disclosed to third parties, the entity receiving the
non-public information is subject to a duty of
confidentiality under the federal securities laws, including
a duty not to trade on the non-public information."
COMMENT 7(B): Include, if applicable, policies and procedures of third
parties that the Fund uses, or that are used on the Fund's
behalf, with respect to the disclosure of the Fund's
portfolio securities to any person, in accordance with Item
11(f)(1) of Form N-1A.
RESPONSE: The Trust has adopted its own policies and procedures
regarding disclosure of portfolio holdings. It does not use,
nor does a third party use, additional policies and
procedures with respect to disclosure of portfolio holdings.
In addition, disclosure in the SAI indicates that "[i]n all
instances in which non-public information is disclosed to
third parties, the entity receiving the non-public
information is subject to a duty of confidentiality under
the federal securities laws, including a duty not to trade
on the non-public information."
COMMENT 7(C): Describe in detail any procedures utilized in determining
that disclosure of portfolio holdings is in the best
interests of shareholders, including procedures with respect
to conflicts of interest, in accordance with Item
11(f)(1)(vi) of Form N-1A.
RESPONSE: As stated in the SAI, the Funds' CEO or CFO is tasked with
determining whether the disclosure of portfolio holdings in
a given situation has a legitimate business purpose and is
in the best interests of shareholders and with reporting
disclosures periodically to the Board. Conflicts of interest
among Fund shareholders, on the one hand, and those of the
Fund's investment adviser, principal underwriter, or any
affiliated person of the Fund, its investment adviser, or
its principal underwriter, on the other, are addressed
through the imposition of a duty of confidentiality on
recipients of information about the Funds' portfolio
holdings.
If you have any further questions or comments please call me at (202) 508-4667.
Sincerely,
/s/ Alyssa Albertelli
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Alyssa Albertelli