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AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. CAPITAL APPRECIATION FUND
Supplement dated August 28, 1995
to the Statement of Additional Information
dated May 1, 1995
The following sentence is inserted after the first sentence of the second
paragraph on Page 21 under the caption "Determination of Net Asset Value" in the
Statement of Additional Information:
"Exchange listed convertible debt securities are valued at the mean between
the last bid and asked prices obtained from broker-dealers."
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
A I M V A R I A B L E I N S U R A N C E F U N D S, I N C.
AIM V.I. CAPITAL APPRECIATION FUND
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TX 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH
MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P. O. BOX 4739,
HOUSTON, TX 77210-4739
OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS)
OR (800) 347-1919 (ALL OTHERS).
---------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 1995
RELATING TO PROSPECTUS DATED: MAY 1, 1995
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TABLE OF CONTENTS
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PAGE
<S> <C>
INTRODUCTION..................................................... 1
GENERAL INFORMATION ABOUT THE FUND............................... 1
The Company and Its Shares.................................. 1
PERFORMANCE...................................................... 1
Total Return Calculations................................... 1
Historical Portfolio Results................................ 2
PORTFOLIO TRANSACTIONS AND BROKERAGE............................. 3
General Brokerage Policy.................................... 3
Section 28(e) Standards..................................... 4
Portfolio Turnover.......................................... 6
Brokerage Commissions Paid.................................. 6
INVESTMENT PROGRAMS.............................................. 6
Repurchase Agreements....................................... 6
Lending of Portfolio Securities............................. 7
Reverse Repurchase Agreements............................... 7
Delayed Delivery Agreements................................. 7
When-Issued Securities...................................... 8
Special Situations.......................................... 8
Short Sales................................................. 8
Rule 144A Securities........................................ 9
HEDGING AND OTHER INVESTMENT TECHNIQUES.......................... 9
INVESTMENT RESTRICTIONS.......................................... 11
Fundamental Restrictions.................................... 11
Non-fundamental Restrictions................................ 12
MANAGEMENT....................................................... 13
Directors and Officers...................................... 13
Investment Advisory and Administrative Services Agreements.. 19
The Distribution Agreement.................................. 20
DETERMINATION OF NET ASSET VALUE................................. 20
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS......................... 21
MISCELLANEOUS INFORMATION........................................ 22
Audit Reports............................................... 22
Legal Matters............................................... 22
Custodian and Transfer Agent................................ 22
Principal Holders of Securities............................. 22
Other Information........................................... 23
</TABLE>
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<TABLE>
<S> <C>
FINANCIAL STATEMENTS............................................. FS
</TABLE>
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INTRODUCTION
AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus dated May 1, 1995,
which relates to the AIM V.I. Capital Appreciation Fund ("Fund" or "Capital
Appreciation Fund") of the Company. Additional copies of the Prospectus and
this Statement of Additional Information may be obtained without charge by
writing the principal distributor of the Company's shares, A I M Distributors,
Inc. ("AIM Distributors"), P. O. Box 4739, Houston, TX 77210-4739 or by calling
(713) 626-1919. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Capital Appreciation Fund.
Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectus; and, in order to
avoid repetition, reference will be made to sections of the Prospectus.
Additionally, the Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement filed with the SEC.
Copies of the Registration Statement, including items omitted from the
Prospectus and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUND
THE COMPANY AND ITS SHARES
The Company was organized on January 22, 1993, as a Maryland corporation,
and is registered with the SEC as an open-end, series, management investment
company. The Company currently consists of nine separate portfolios ("Funds"),
including the Capital Appreciation Fund.
Each share of the Fund is entitled to one vote, to participate equally in
dividends and distributions declared by the Board of Directors with respect to
the Fund and, upon liquidation of the Fund, to participate in its proportionate
share of the net assets allocable to the Fund remaining after satisfaction of
outstanding liabilities of the Fund. Fund shares are fully paid, non-assessable
and fully transferable when issued and have no preemptive, conversion or
exchange rights. Fractional shares have proportionately the same rights,
including voting rights, as are provided for a full share.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company. See "General Information" in the Prospectus.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share (NAV) over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in
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value had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that the Fund's performance is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of the Fund.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The Fund's average annual and cumulative total return for the one year
period ended January 31, 1995 and average annual and cumulative total returns
for the period May 5, 1993 (date operations commenced) through January 31, 1995,
were as follows:
<TABLE>
<CAPTION>
Since Inception
--------------------
Average
One Annual Cumulative
Year Return Return
---------- ------- -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund -3.91% 11.55% 20.97%
</TABLE>
The total returns quoted above do not reflect charges levied at the
insurance company separate account level. For a complete description of the
applicable charges, see the fee table in the prospectus for the applicable
insurance company separate account.
The Fund's performance may be compared in advertising to the performance of
other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be prepared
by Lipper Analytical Services, Inc., Morningstar, Inc. and other independent
services which monitor the performance of mutual funds. The Fund may also
advertise mutual fund performance rankings which have been assigned to the Fund
by such monitoring services.
The Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
The Fund's advertising may from time to time include historical discussions
of general economic conditions such as inflation rates and changes in the stock
market, foreign and domestic interest rates and foreign and domestic political
circumstances and events.
In addition, the Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, the Fund's sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation, tax-
free investing, college planning and inflation.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the Company,
A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and sell
securities for the Fund, for the selection of broker-dealers, for the execution
of the Fund's investment portfolio transactions, for the allocation of brokerage
fees in connection with such transactions and, where applicable, for the
negotiation of commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the best net
price and the most favorable execution of the order. While AIM generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available.
A portion of the securities in which the Fund invests may be traded in
over-the-counter ("OTC") markets. In such transactions, the Fund deals directly
with the dealers who make markets in the securities involved, except in those
circumstances where better prices and executions are available elsewhere.
Portfolio transactions placed through dealers serving as primary market makers
are effected at net prices, without commissions as such, but which include
compensation to the dealer in the form of mark up or mark down.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. In recent years, however, an increasing number of
overseas stock markets have adopted a system of negotiated rates, although a
number of markets continue to be subject to an established schedule of minimum
commission rates.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"), or other
securities representing underlying securities of foreign issuers, or securities
convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are designed
for use in the United States securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. ADRs and EDRs may be listed on
stock exchanges, or traded in OTC markets in the United States or Europe, as the
case may be. ADRs, like other securities traded in the United States, will be
subject to negotiated commission rates.
The Fund is not under any obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Brokers who
provide supplemental investment research to AIM may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by AIM under its agreements
with the Fund, and the expenses of AIM will not necessarily be reduced as a
result of the receipt of such supplemental information. Certain research
services furnished by broker-dealers may be useful to AIM in connection with its
services to other advisory clients, including the other mutual funds advised by
AIM (collectively, the "AIM Funds"). Also, the Fund may pay a higher price for
securities or higher commissions in recognition of research services furnished
by broker-dealers.
AIM may from time to time determine target levels of commission business
for AIM to transact with various brokers on behalf of its clients (including the
Fund) over a certain time period. The target levels will be determined based
upon the following factors, among others: (1) the execution services provided by
the broker; (2) the research services provided by the broker; and (3) the
broker's attitude toward and interest in mutual funds in general and in the Fund
and other AIM Funds in particular. No specific formula will be
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used in connection with any of the foregoing considerations in determining the
target levels. However, if a broker has indicated a certain level of desired
commissions in return for certain research services provided by the broker, this
factor will be taken into consideration by AIM.
Subject to the overall objective of obtaining best price and execution for
the Fund, AIM may also consider sales of shares of the Fund and of the other AIM
Funds as a factor in the selection of broker-dealers to execute portfolio
transactions for a Fund.
AIM will seek, whenever possible, to recapture for the benefit of the Fund
any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of the Fund's portfolio securities in a
tender or exchange offer.
AIM and its affiliates manage several other investment accounts, some of
which may have investment objectives similar to those of the Fund. It is
possible that, at times, identical securities will be appropriate for investment
by one or more of such investment accounts. The position of each account,
however, in the securities of the same issue may vary and the length of time
that each account may choose to hold its investment in the securities of the
same issue may likewise vary. The timing and amount of purchases by each account
will also be determined by its cash position. If the purchase or sale of
securities is consistent with the investment policies of the Fund and one or
more of these accounts is considered at or about the same time, AIM may combine
such transactions, in accordance with applicable laws and regulations, in order
to obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of the Fund to obtain
or dispose of the full amount of a security which it seeks to purchase or sell.
These combined transactions, and related brokerage charges, will be
allocated among the Fund and such accounts in a manner deemed equitable by AIM.
In some cases the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to the Fund. In making such allocations,
the main factors considered by AIM are the respective investment objectives and
policies of its advisory clients, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the judgments of the persons
responsible for recommending the investment.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") regarding transactions between investment accounts
advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Company. Although
such transactions may result in custodian, tax or other related expenses, no
brokerage commissions or other direct transaction costs are generated by
transactions among the investment accounts advised by AIM or AIM Capital.
SECTION 28(e) STANDARDS
As permitted by Section 28(e) of the Securities Exchange Act of 1934, AIM
may cause the Fund to pay a broker that provides brokerage and research services
to AIM an amount of commission for effecting a securities transaction for the
Fund in excess of the commission another broker would have charged for effecting
that transaction. To obtain the benefit of Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided . . . viewed in terms of
either that particular transaction or [its] overall
4
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responsibilities with respect to the accounts as to which [it] exercises
investment discretion" and that the services provided by a broker provide AIM
with lawful and appropriate assistance in the performance of its investment
decision-making responsibilities. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. The Fund will not knowingly pay a higher spread than
the lowest available in principal transactions as a result of its receipt of
research services from a dealer.
Broker-dealers utilized by AIM may furnish statistical, research and other
information or services which are deemed by AIM to be beneficial to the Fund's
investment programs. Research services received from brokers supplement AIM's
own research (and the research of sub-advisors to other clients of AIM) and may
include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to AIM and to the Company's directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the brokers utilized
by AIM as a group tend to follow a broader universe of securities and other
matters than AIM's staff can follow. In addition, this research provides AIM
with a diverse perspective on financial markets. Research services which are
provided to AIM by brokers are available for the benefit of all accounts managed
or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM is of the opinion that
because the broker research supplements rather than replaces its research, the
receipt of such research does not tend to decrease its expenses, but tends to
improve the quality of its investment advice. However, to the extent that AIM
would have purchased any such research services had such services not been
provided by brokers, the expenses of such services to AIM could be considered to
have been reduced accordingly.
For the fiscal year ended January 31, 1995, the Fund paid brokerage
commissions to certain brokers for research services. The amount of such
transactions and related commissions paid by the Fund were $5,296,689.18 and
$11,111.16, respectively.
During the fiscal year ended January 31, 1995, the Fund did not acquire
securities of its regular brokers.
Due to the beneficial ownership of CIGNA Corporation ("CIGNA") voting stock
by Sanford C. Bernstein & Co., Inc. ("SCB"), CIGNA may be deemed to be an
affiliated person of SCB pursuant to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"). As long as CIGNA may be deemed to be
an affiliated person of SCB and as long as CG Variable Annuity Separate Account
owns at least 5% of the outstanding voting securities of the Fund, the Fund will
not engage in any transaction with SCB when it is acting for its own account and
will engage in brokerage transactions with SCB only under circumstances where
the commission, spread or profit received by SCB is fair and reasonable pursuant
to rules established by the SEC and procedures adopted and monitored by the
Board of Directors of the Company. Except as described below, for the periods
ended January 31, 1994 and January 31, 1995, the Fund paid no brokerage
commissions to SCB.
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During the fiscal year ended January 31, 1995 and during the period May 5,
1993 (date operations commenced) through January 31, 1994, the Capital
Appreciation Fund paid brokerage commissions of $1,497 and $120, respectively,
to SCB. These amounts of brokerage commissions represented 0.60% and 0.14%,
respectively, of the aggregate of brokerage and underwriting commissions paid by
the Fund during this period and represented 0.64% and 0.16%, respectively, of
the total value of the Fund's portfolio transactions which involved brokerage or
underwriting commissions.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Fund is shown under "Financial
Highlights" in the Prospectus. In any particular year, however, market
conditions could result in portfolio activity at a rate greater or lesser than
anticipated. Higher portfolio turnover increases transaction costs to the Fund.
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by the Fund listed below were as follows for the
fiscal year ended January 31, 1995 and for the period May 5, 1993 (date
operations commenced) through January 31, 1994.
1995 1994
---- ----
AIM V.I. Capital Appreciation Fund.... $161,528 $48,753
INVESTMENT PROGRAMS
Information concerning the Fund's fundamental investment objective is
set forth in the Prospectus under the heading "Investment Objectives and
Programs." There can be no assurance that the Fund will achieve its objective.
The principal features of the Fund's investment program and the primary risks
associated with that investment program are discussed in the Prospectus under
the heading "Investment Objectives and Programs--Certain Investment Strategies
and Techniques." The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the
Prospectus.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement
is an instrument under which the Fund acquires ownership of a debt security and
the seller (usually a broker or bank) agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, the Fund will not enter into repurchase
agreements expiring in more than seven days. The Fund may, however, enter into a
"continuing contract" or "open" repurchase agreement under which the seller is
under a continuing obligation to repurchase the underlying obligation from the
Fund on demand and the effective interest rate is negotiated on a daily basis.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
Securities subject to repurchase agreements will be held in the custodian's
account with the Federal Book-Entry System on behalf of the Fund.
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LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may lend
portfolio securities in amounts not to exceed 33 1/3% of the Fund's total
assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the securities
lent, marked to market on a daily basis. The collateral received will consist of
cash, U.S. Government securities, letters of credit or such other collateral as
may be permitted under the Fund's investment program. While the securities are
being lent, a Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. The Fund has a right to
call each loan and obtain the securities on five business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time which coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund will not have the
right to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to persons deemed by AIM to be of good standing and will not
be made unless, in the judgment of AIM, the consideration to be earned from such
loans would justify the risk.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements, which involve
the sale of securities held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Fund may employ
reverse repurchase agreements when necessary to meet unanticipated net
redemptions so as to avoid liquidating other portfolio securities during
unfavorable market conditions and only in amounts up to 25% of the value of the
Fund's total assets at the time the Fund enters into a reverse repurchase
agreement. At the time it enters into a reverse repurchase agreement, the Fund
will segregate high-quality debt securities having a dollar value equal to the
repurchase price. The segregated securities will be marked-to-market, and
additional securities will be segregated if necessary to maintain adequate
coverage. The Fund will utilize reverse repurchase agreements when the interest
income to be earned from portfolio investments which would otherwise have to be
liquidated to meet redemptions is greater than the interest expense incurred as
a result of the reverse repurchase transactions.
DELAYED DELIVERY AGREEMENTS
The Fund may enter into delayed delivery agreements, which involve
commitments by the Fund to dealers or issuers to acquire securities or
instruments at a specified future date beyond the customary settlement date for
such securities. These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, AIM can anticipate
that cash for investment purposes will result from scheduled maturities of
existing portfolio instruments or from net sales of shares of the Fund. Until
the settlement date, the Fund will segregate cash or other high-quality debt
securities of a dollar value sufficient at all times to make payment for the
delayed delivery securities. The delayed delivery securities, which will not
begin to accrue interest until the settlement date, will be recorded as an asset
of the Fund and will be subject to the risks of market fluctuation. The purchase
price of the delayed delivery securities is a liability of the Fund until
settlement. If cash is not available to the Fund at the time of settlement, the
Fund may be required to dispose of portfolio securities that it would otherwise
hold to maturity in order to meet its obligation to accept delivery under a
delayed delivery agreement. The Board of Directors has determined that entering
into delayed delivery agreements does not present a materially increased risk of
loss to shareholders, but the Board of Directors may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material.
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WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" basis. Many new
issues of debt securities are offered on a "when-issued" basis, that is, the
date for delivery of and payment for the securities is not fixed at the date of
purchase, but is set after the securities are issued (normally within forty-five
days after the date of the transaction). The payment obligation and the interest
rate that will be received on the securities are fixed at the time the buyer
enters into the commitment. The Fund will only make commitments to purchase such
debt securities with the intention of actually acquiring such securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund holds, and maintains until the settlement date segregated
cash or other high quality debt securities of a dollar value sufficient at all
times to make payment for the when-issued securities. The securities will be
marked-to-market and additional cash or securities will be segregated if
necessary to maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in
the Fund's portfolios are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, the Fund is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of the Fund's assets will fluctuate
to a greater degree. Furthermore, when the time comes for the Fund to meet its
obligations under when-issued commitments, the Fund will do so by using then-
available cash flow, by sale of the segregated securities, by the sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
A sale of securities to meet such obligations carries with it a
greater potential for the realization of net short-term capital gains, which are
not exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
SPECIAL SITUATIONS
Although the Fund does not currently intend to do so, it may invest in
"special situations." A special situation arises when, in the opinion of the
Fund's management, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs and new management or management policies. Although
large and well known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Investments in unseasoned
companies and special situations often involve much greater risk than is
inherent in ordinary investment securities. The Fund will not, however, purchase
securities of any company with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would cause the
Fund's investment in all such companies, taken at cost, to exceed 5% of the
value of the Fund's total assets.
SHORT SALES
The Fund may enter into short sales transactions from time to time.
The Fund will not make short sales of securities nor maintain a short position
unless at all times when a short position is open, the Fund owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short. This is a technique known as
selling short "against the box." Such short sales will be used by the
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Fund for the purpose of deferring recognition of gain or loss for federal income
tax purposes. In no event may more than 10% of the value of the Fund's total
assets be deposited or pledged as collateral for such sales at any time.
RULE 144A SECURITIES
The Fund may purchase securities which, while privately placed, are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). This Rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities even though
such securities are not registered under the 1933 Act. AIM, under the
supervision of the Company's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the Fund's
restriction of investing no more than 15% of its assets in illiquid securities.
Determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination AIM will consider the trading markets for
the specific security taking into account the unregistered nature of a Rule 144A
security. In addition, AIM could consider the (i) frequency of trades and
quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and of market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to determine
what, if any, action is required to assure that the Fund does not invest more
than 15% of its assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. At the present time, it is not possible
to predict with certainty how the market for Rule 144A securities will develop.
HEDGING AND OTHER INVESTMENT TECHNIQUES
As described in the Prospectus under "Certain Investment Strategies
and Techniques," the Fund may enter into transactions in options, futures and
forward contracts on a variety of instruments and indexes, in order to protect
against declines in the value of portfolio securities and increases in the cost
of securities to be acquired as well as to increase the Fund's return. The
discussion below supplements the discussion in the Prospectus.
Options. The Fund may write covered call options both to reduce the
risks associated with certain of its investments and to increase total
investment return through the receipt of premiums. In return for the premium
income, the Fund loses any opportunity to profit from an increase in the market
price of the underlying securities, above the exercise price, while the contract
is outstanding, except to the extent the premium represents a profit. The Fund
also retains the risk of loss if the price of the security declines, although
the premium is intended to offset that loss in whole or in part. As long as its
obligations under the option continue, the Fund must assume that the call may be
exercised at any time and that the net proceeds realized from the sale of the
underlying securities pursuant to the call may be substantially below the
prevailing market price.
The Fund may enter into a "closing purchase transaction", by
purchasing an option identical to the one it has written, and terminate its
obligations under the covered call. The Fund will realize a gain (or loss) from
a closing purchase transaction if the amount paid to purchase a call option is
less (or more) than the premium received upon writing the corresponding call
option. Any loss resulting from the exercise or closing out of a call option is
likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund primarily because a price increase of a
call option generally reflects an increase in the market price of the securities
on which the option is based. In order to sell portfolio securities that cover a
call option, the Fund will effect a closing purchase transaction so as to close
out any existing covered call option on those securities. A closing purchase
transaction for exchange-traded options
9
<PAGE>
may be made only on a national securities exchange. A liquid secondary market on
an exchange may not always exist for any particular option, or at any particular
time, and, for some options, such as over-the-counter options, no secondary
market on an exchange may exist. If the Fund is unable to effect a closing
purchase transaction, the Fund will not sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise.
The Fund may write put options to earn additional income in the form
of option premiums if it expects the price of the underlying securities to
remain stable or rise during the option period so that the option will not be
exercised. The Fund may also write put options if it expects a decline in the
price of the underlying securities and intends to exercise the option at a price
which, offset by the option premium, is less than the current price. The risk of
either strategy is that the price of the underlying securities may decline by an
amount greater than the premium received.
The Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option or to prevent an outstanding put option from being
exercised. If the Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, the Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
The purchase of put options on securities enables the Fund to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Fund may
continue to receive interest or dividend income on the security.
An option on a securities index, unlike a stock option (which gives
the holder the right to purchase or sell a specified stock at a specified price)
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier." A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some securities
index options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes are
currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange, and American Stock Exchange. Options
on indexes of debt securities and other types of securities indexes are not
currently available. If such options are introduced and traded on exchanges in
the future, the Fund may use them.
The value of securities index options in any investment strategy
depends upon the extent to which price movements in the portion of the
underlying securities correlate with price movements in the selected securities
index. Perfect correlation is not possible because the securities held or to be
acquired by the Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by the
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that the Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
Futures Contracts. A futures contract is a bilateral agreement to buy
or sell a security (or deliver a cash settlement price, in the case of an index
future) for a set price in the future. When the contract is entered into a good
faith deposit, known as initial margin, is made with the broker. Subsequent
daily payments, known as variation margin, are made to and by the broker
reflecting changes in the value of the security or level of the index. Futures
contracts are authorized by boards of trade designated as "contracts
10
<PAGE>
markets" by the Commodity Futures Trading Commission ("CFTC"). Certain results
may be accomplished more quickly, and with lower transaction costs, in the
futures market (because of its greater liquidity) than in the cash market.
The Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting transactions,
which may result in a gain or a loss, before delivery or cash settlement is
required. However, the Fund may close out a position by making or taking
delivery of the underlying securities wherever it appears economically
advantageous to do so.
Purchases of options on futures contracts may present less risk than
the purchase and sale of the underlying futures contracts, since the potential
loss is limited to the amount of the premium plus related transaction costs. A
call option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
Positions in futures contracts may be closed out only on an exchange
or a board of trade which provides the market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active market, there may not always be a liquid
market, and it may not be possible to close a futures position at that time; in
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of maintenance margin. Whenever futures positions are
used to hedge portfolio securities, however, any increase in the price of the
underlying securities held by the Fund may partially or completely offset losses
on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Fund could experience delays and might
not be able to trade or exercise options or futures purchased through that
broker. In addition, the Fund could have some or all of its positions closed out
without its consent. If substantial and widespread, these insolvencies could
ultimately impair the ability of the clearing corporations themselves. While the
principal purpose of engaging in these transactions is to limit the effects of
adverse market movements, the attendant expense may cause the Fund's returns to
be less than if the transactions had not occurred. Their overall effectiveness,
therefore, depends on AIM's accuracy in predicting future changes in interest
rate levels or securities price movements, as well as on the expense of engaging
in these transactions.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to the Fund and are fundamental.
Unless permitted by law, they will not be changed for the Fund without approval
of the Fund's voting securities.
The Fund will not:
(1) invest for the purpose of exercising control over or management
over a company;
(2) act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the fund may be deemed to be an
underwriter for purposes of the 1933 Act;
11
<PAGE>
(3) purchase or sell real estate or any interest therein, except that
the Fund may, as appropriate and consistent with its investment policies and
other investment restrictions, invest in securities of corporate or governmental
entities secured by real estate or marketable interests therein or securities of
issuers that engage in real estate operations or interests therein, and may hold
and sell real estate acquired as a result of ownership in such securities;
(4) purchase or sell commodity contracts, except that the Fund may,
as appropriate and consistent with its investment policies and other investment
restrictions, enter into futures contracts on securities, securities indices and
currency, options on such futures contracts, forward foreign currency exchange
contracts, forward commitments and repurchase agreements;
(5) make loans, except for collateralized loans of portfolio
securities in an amount not exceeding 33 1/3% of the Fund's total assets. This
restriction does not prevent the Fund from purchasing government obligations,
short-term commercial paper, or publicly traded debt, including bonds, notes,
debentures, certificates of deposit, bankers acceptances and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies, or through entry into repurchase agreements, to the extent they may be
viewed as loans;
(6) invest in securities of any other investment company except as
part of a merger, consolidation or acquisition of assets and except for the
investment in such securities of funds representing compensation otherwise
payable to Directors of the Company pursuant to any deferred compensation plan
existing at any time between the Company and one or more of its Directors;
(7) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
at market value at the time of each investment. This limitation does not apply
to the investments in obligations of the U.S. Government or any of its agencies
or instrumentalities but will apply to foreign government obligations unless the
Securities and Exchange Commission permits their exclusion;
(8) issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings;
(9) purchase securities of an issuer (other than investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), if as a result with respect to 75% of the value of the
Fund's total assets, taken at market value, (i) more than 5% of the Fund's total
assets taken at market value would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets may be invested in securities
issued or guaranteed by any foreign government or its agencies or
instrumentalities, or (ii) such purchase would at the time result in more than
10% of the outstanding voting securities of such issuer being held by the Fund;
and
(10) The Fund may, not withstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to the Fund but are not
fundamental. They may be changed for the Fund without approval of the Fund's
voting securities.
(1) The Funds will not invest more than 15% of its assets in
securities restricted as to disposition under federal securities laws, or
securities otherwise considered illiquid or not readily marketable, including
repurchase agreements having a maturity of more than seven days.
12
<PAGE>
(2) The Fund will not purchase or retain the securities of any issuer
if, to the knowledge of AIM, those officers and Directors of the Company, its
adviser or distributor owning individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer.
(3) The Company does not currently intend to invest all of the assets
of the Fund in the securities of a single open-end management investment company
with the same fundamental investment objectives, policies and limitations as the
Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173.
*CHARLES T. BAUER, Director and Chairman (76)
Director and Chairman and Chief Executive Officer, A I M Management
Group Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc.,
A I M Global Associates, Inc., A I M Global Holdings, Inc., A I M Institutional
Fund Services, Inc. and Fund Management Company; Director, AIM Global Advisors
Limited, A I M Global Management Company Limited and AIM Global Ventures Co.
BRUCE L. CROCKETT, Director (51)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises, COMSAT RSI and COMSAT International Ventures.) Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT, (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
OWEN DALY II, Director (70)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.
*CARL FRISCHLING, Director (58)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis, Neesan, Kamin & Frankel (law firm).
Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky & Frischling (law firm).
----------
* A director who is an "interested person" of the Company as defined in the 1940
Act.
13
<PAGE>
**ROBERT H. GRAHAM, Director and President (48)
Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; Director and Executive
Vice President, A I M Distributors, Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., AIM Global Advisors Limited, A I M Global
Associates, Inc., A I M Global Holdings, Inc., AIM Global Ventures Co., A I M
Institutional Fund Services, Inc., A I M Fund Services, Inc. and Fund Management
Company; and Director, A I M Global Management Company Limited.
JOHN F. KROEGER, Director (70)
Box 464
24875 Swan Road - Martingham
St. Michaels, MD 21663
Trustee, Flag Investors International Trust; and Director, Flag
Investors Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors Quality Growth Fund, Inc., Flag Investors Total Return U.S.
Treasury Fund, Inc., Flag Investors Intermediate Term Income Fund, Inc., Managed
Municipal Fund, Inc. and Flag Investors Value Builder Fund, Inc., Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc., Alex. Brown Cash Reserve Fund,
Inc. and North American Government Bond Fund, Inc. (investment companies).
Formerly, Consultant, Wendell & Stockel Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (52)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (72)
183 Rivers Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (55)
Transco Tower, 50th Floor
2800 Post Oak Road
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
WILLIAM H. KLEH, Senior Vice President (49)
Director, Chairman and President, AIM Global Ventures Co.; Director
and Managing Director, AIM Global Advisors Limited; Director and Senior Vice
President, A I M Advisors, Inc.; Director and President, A I M Global
Associates, Inc. and A I M Global Holdings, Inc.; Director and Vice President,
----------
** A director who is an "interested person" of the Company and AIM as defined
in the 1940 Act.
14
<PAGE>
A I M Capital Management, Inc. and Fund Management Company; Director, A I M
Global Management Company Limited; Senior Vice President, A I M Management Group
Inc.; and Vice President, A I M Distributors, Inc. and A I M Fund Services, Inc.
JOHN J. ARTHUR, Senior Vice President and Treasurer (50)
Senior Vice President and Treasurer, A I M Advisors, Inc.; and Vice
President and Treasurer, A I M Management Group Inc., A I M Distributors, Inc.,
A I M Capital Management, Inc., A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management Company; Vice President, AIM Global
Advisors Limited, A I M Global Associates, Inc., A I M Global Holdings, Inc.,
and AIM Global Ventures Co.
GARY T. CRUM, Senior Vice President (47)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc., AIM
Global Advisors Limited, A I M Global Associates, Inc., A I M Global Holdings,
Inc., and AIM Global Ventures Co.; and Director, A I M Distributors, Inc. and
A I M Global Management Company Limited.
CAROL F. RELIHAN, Secretary and Vice President (40)
Vice President, General Counsel and Secretary, A I M Advisors, Inc.,
A I M Fund Services, Inc., A I M Institutional Fund Services, Inc., A I M
Management Group Inc. and Fund Management Company; Vice President and Secretary,
A I M Distributors, Inc., A I M Global Associates, Inc., and A I M Global
Holdings, Inc.; Vice President and Assistant Secretary, AIM Global Ventures Co.
and AIM Global Advisors Limited; and Secretary, A I M Capital Management, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (36)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
ROBERT G. ALLEY, Vice President (46)
Senior Vice President, A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc. Formerly, Senior Fixed Income Money Manager,
Waddell and Reed, Inc.
STUART W. COCO, Vice President (39)
Senior Vice President, A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
MELVILLE B. COX, Vice President (51)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc.,
A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and
Assistant Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer,
Charles Schwab Investment Management, Inc.; and Vice President, Integrated
Resources Life Insurance Co. and Capitol Life Insurance Co.
15
<PAGE>
KAREN DUNN KELLEY, Vice President (34)
Director, A I M Global Management Company Limited; Senior Vice
President, A I M Capital Management, Inc. and AIM Global Advisors Limited; and
Vice President, A I M Advisors, Inc. and AIM Global Ventures Co.
JONATHAN C. SCHOOLAR, Vice President (33)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Daly, Kroeger
(Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting
with the Company's auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of the
directors as a whole with respect to the Company's fund accounting or its
internal accounting controls, or for considering such matters as may from time
to time be set forth in a charter adopted by the Board of Directors and such
Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible
for reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, or considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such Committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating individuals
to stand for election as directors who are not interested persons, reviewing
from time to time the compensation payable to the disinterested directors, or
considering such matters as may from time to time be set forth in a charter
adopted by the Board of Directors of such Committee.
All of the Company's directors also serve as directors or trustees of
some or all of the other mutual funds advised or managed by AIM. All of the
Company's executive officers hold similar offices with some or all of such
mutual funds.
Renumeration of Directors
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any Committee attended. The directors
of the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other investment companies
advised or managed by AIM. Each such director receives a fee, allocated among
the AIM Funds for which he serves as a director or trustee, which consists of an
annual retainer component and a meeting fee component.
16
<PAGE>
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended January 31, 1995 for each director of the Company:
<TABLE>
<CAPTION>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM BY ALL FROM ALL
DIRECTOR COMPANY(1) AIM FUNDS(2) AIM FUNDS(3)
-------- ------------ -------------- ---------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 5,901.00 2,814.00 45,093.75
Owen Daly II 5,836.00 14,375.00 45,843.75
Carl Frischling 5,901.00 7,542.00 45,093.75
Robert H. Graham 0 0 0
John F. Kroeger 5,836.00 20,517.00 45,843.75
Lewis F. Pennock 5,836.00 5,093.00 45,843.75
Ian W. Robinson 5,901.00 10,396.00 45,093.75
Louis S. Sklar 5,901.00 4,682.00 45,093.75
</TABLE>
---------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended January 31, 1995, including interest earned
thereon, was $25,124.
(2) During the fiscal year ended January 31, 1995, the total amount of
expenses allocated to the Company in respect of such retirement benefits
was $739.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director
or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10
AIM Funds. Data reflects compensation earned for the calendar year ended
December 31, 1994.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM Funds").
Each eligible director is entitled to receive an annual benefit from the AIM
Funds commencing on the first day of the calendar quarter coincident with or
following his date of retirement equal to 5% of such Director's compensation
paid by the AIM Funds multiplied by the number of such Director's years of
service (not in excess of 10 years of service) completed with respect to any of
the AIM Funds. Such benefit is payable to each eligible director in quarterly
installments for a period of no more than five years. If an eligible director
dies after
17
<PAGE>
attaining the normal retirement date but before receipt of any benefits under
the Plan commences, the director's surviving spouse (if any) shall receive a
quarterly survivor's benefit equal to 50% of the amount payable to the deceased
director, for no more than five years beginning the first day of the calendar
quarter following the date of the director's death. Payments under the Plan are
not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service as of
December 31, 1994 for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock,
Robinson and Sklar are 7, 8, 17, 17, 13, 7, and 5 years, respectively.
<TABLE>
<CAPTION>
Annual Compensation Paid By All AIM Funds
<S> <C> <C> <C> <C> <C>
Number of $40,000 $45,000 $50,000 $55,000
Years of
Service With 10 $20,000 $22,500 $25,000 $27,500
the AIM
Funds 9 $18,000 $20,250 $22,500 $24,750
8 $16,000 $18,000 $20,000 $22,000
7 $14,000 $15,750 $17,500 $19,250
6 $12,000 $13,500 $15,000 $16,500
5 $10,000 $11,250 $12,500 $13,750
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of his deferral account shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
years beginning on the date the deferring director's retirement benefits
commence under the Plan. The Company's Board of Directors, in its sole
discretion, may accelerate or extend the distribution of such deferral accounts
after the deferring director's termination of service as a director of the
Company. If a deferring director dies prior to the distribution of amounts in
his deferral account, the balance of the deferral account will be distributed to
his designated beneficiary in a single lump sum payment as soon as practicable
after such deferring director's death. The Agreements are not funded and, with
respect to the payments of amounts held in the deferral accounts, the deferring
directors have the status of unsecured creditors of the Company and of each
other AIM Fund from which they are deferring compensation.
AIM and the Company have adopted a Code of Ethics which requires investment
personnel (a) to pre-clear all personal securities transactions, (b) to file
reports regarding such transactions, and (c) to refrain from personally engaging
in (i) short-term trading of a security, (ii) transactions involving a security
within seven days of an AIM Fund transaction involving the same security, and
(iii) transactions involving securities being considered for investment by an
AIM Fund. The Code also prohibits investment personnel from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews annually such reports
(including information on any substantial violations of the Code). Violations
of the Code may result in censure, monetary penalties, suspension or termination
of employment.
18
<PAGE>
During the fiscal year ended January 31, 1995, the Fund paid $3,375 in
legal fees to Reid & Priest, the law firm in which Mr. Frischling, a director of
the Company, is a partner, as counsel to the Board of Directors. Effective
September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was appointed
as counsel to the Board of Directors. A member of the Company's new counsel is
also a Director. The Fund paid $445 in legal fees to Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel for services rendered.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
The Fund has entered into a master investment advisory agreement (the
"Advisory Agreement") and a master administrative services agreement (the
"Administrative Services Agreement") with AIM. See "Management" in the
Prospectus.
AIM was organized in 1976, and along with its affiliates, manages or
advises 37 investment company portfolios. As of April 3, 1995, the total assets
advised or managed by AIM and its affiliates were approximately $28.5 billion.
The Advisory Agreement for the Fund provides that the Fund will pay all of
its expenses, including, without limitation: brokerage commissions, taxes,
legal, auditing, or governmental fees, the cost of preparing share certificates,
custodian, transfer and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Company on behalf of
the Fund in connection with membership in investment company organizations, the
cost of printing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders; and all other charges and costs of the
Fund's operations unless otherwise explicitly provided.
The Advisory Agreement for the Fund provides that the agreement will remain
in effect for the initial term and continue in effect from year to year
thereafter only if such continuance is specifically approved at least annually
(i) by the Company's Board of Directors or by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act); and (ii)
by the affirmative vote of a majority of the directors who are not parties to
the agreement or "interested persons" of any such party (the "Non-Interested
Directors") by votes cast in person at a meeting called for such purpose. The
Advisory Agreement was initially approved by the Company's Board of Directors
(including the affirmative vote of all of the Non-Interested Directors) on July
19, 1993. The Board of Directors of the Company approved the continuance of the
Agreement until June 30, 1995. The Advisory Agreement became effective on
October 18, 1993 and was amended April 28, 1994. The Advisory Agreement
provides that the Company or AIM may terminate such agreement with respect to
the Fund on sixty (60) days' written notice without penalty. The Advisory
Agreement terminates automatically in the event of its assignment.
Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I.
Capital Appreciation Fund calculated at the following annual rate, based on the
average daily net assets of the Fund during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.65%
Over $250,000,000 0.60%
The Fund paid to AIM a management fee (net of fee waivers) of $402,307, for
the fiscal year ended January 31, 1995 and $23,199, for the period May 5, 1993
(date operations commenced) through January 31, 1994, under the Advisory
Agreement and a prior, substantially identical advisory agreement.
19
<PAGE>
For the fiscal year ended January 31, 1995 and for the period May 5, 1993
(date operations commenced) through January 31, 1994, AIM waived management fees
for the Fund of $0 and $35,486, respectively.
The Administrative Services Agreement for the Fund provides that AIM may
perform certain accounting and other administrative services to the Fund which
are not required to be performed by AIM under the Advisory Agreement. For such
services, AIM would be entitled to receive from the Fund reimbursement of its
expenses.
The Administrative Services Agreement for the Fund provides that the
agreement will remain in effect for the initial term and continue in effect from
year to year thereafter only if such continuance is specifically approved at
least annually (i) by the Company's Board of Directors or by the vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act); and (ii) by the affirmative vote of a majority of the Non-Interested
Directors, by votes cast in person at a meeting called for such purpose. The
Board of Directors of the Company approved the continuance of the Agreement
until June 30, 1995. The Administrative Services Agreement was initially
approved by the Company's Board of Directors (including the Non-Interested
Directors) on July 19, 1993. The agreement terminates automatically in the event
of its assignment.
For the fiscal year ended January 31, 1995 and for the period May 5, 1993
(date operations commenced) through January 31, 1994, AIM received reimbursement
of administrative services costs of $23,992 and $12,770, respectively, from the
Fund pursuant the Administrative Services Agreement and a prior, substantially
identical administrative services agreement.
THE DISTRIBUTION AGREEMENT
The Fund has entered into a master distribution agreement (the
"Distribution Agreement") with AIM Distributors, dated October 18, 1993, and was
amended April 28, 1994. Information concerning AIM Distributors and the
continuous offering of the Fund's shares is set forth in the Prospectus under
the heading "Management." The Distribution Agreement was initially approved by
the Board of Directors (including the affirmative vote of all the directors who
were not parties to the Distribution Agreement or "interested persons" of any
such party) of the Company on July 19, 1993. The Distribution Agreement provides
that AIM Distributors will bear the expenses of printing from the final proof
and distributing prospectuses and statements of additional information of the
Fund relating to the sale of Fund shares. The Distribution Agreement provides
that the Fund shall bear the expenses of qualification of shares of the Fund for
sale in connection with the public offering in any jurisdictions where
qualification is required by law. AIM Distributors has not undertaken to sell
any specified number of shares of the Fund.
The Distribution Agreement for the Fund provides that it will continue in
effect until June 30, 1994, and from year to year thereafter only if such
continuance is specifically approved at least annually (i) by the Company's
Board of Directors or by the vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act); and (ii) by the affirmative
vote of a majority of the Non-Interested Directors by votes cast in person at a
meeting called for such purpose. The Company or AIM Distributors may terminate
its Distribution Agreement on sixty (60) days' written notice without penalty.
The Distribution Agreement will terminate automatically in the event of its
assignment.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is normally determined daily as
of 4:15 p.m. Eastern time on each business day of the Company. Net asset value
per share is determined by dividing the value of the Fund's securities, cash and
other assets (including interest accrued but not collected), less all its
20
<PAGE>
liabilities (including accrued expenses and dividends payable), by the total
number of shares outstanding of the Fund's shares. In the event the New York
Stock Exchange closes early (i.e. before 4:00 p.m. Eastern Time) on a particular
day, the net asset value of the Fund share is determined 15 minutes following
the close of the New York Stock Exchange on such day. Determination of the
Fund's net asset value per share is made in accordance with generally accepted
accounting principles.
Each equity security held by the Fund is valued at its last sales price on
the exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on the
NASDAQ National Market System is valued at the last sales price on the valuation
date. Non-convertible debt securities are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as institution-size trading in similar groups
of securities, developments related to special securities, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics and
other market data. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by the
Board of Directors of the Company. Short-term obligations having 60 days or
less to maturity are valued on the basis of amortized cost.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such foreign securities used in computing the net asset value of the
Fund's shares are determined at such times as trading is completed. Foreign
currency exchange rates are also generally determined prior the close of the New
York Stock Exchange. Occasionally, events affecting the values of such foreign
securities and such foreign securities exchange rates may occur after the time
at which such values are determined and prior to the close of the New York Stock
Exchange that will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by or under the supervision of the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
The Fund is treated as a separate association taxable as a corporation.
The Fund intends to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), as a regulated investment company ("RIC") for each taxable
year. Accordingly, the Fund must, among other things, meet the following
requirements: A. The Fund must generally derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies. B. The Fund must diversify its holdings
so that, at the end of each fiscal quarter: i) at least 50% of the market value
of the Fund's assets is represented by cash, cash items (including receivables),
U.S. Government securities, securities of other RICs, and other securities, with
such other securities limited, with respect to any one issuer, to an amount not
greater than 5% of the Fund's assets and not more than 10% of the outstanding
voting securities of such issuer, and ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities).
As a RIC, the Fund will not be subject to federal income tax on its income
and gains distributed to shareholders if it distributes at least a) 90% of its
investment company taxable income for the taxable year; and b) 90% of the excess
of its tax-exempt interest income under Code Section 103(a) over its deductions
disallowed under Code Sections 265 and 171(a)(2).
21
<PAGE>
The Fund intends to comply with the diversification requirements imposed by
section 817(h) of the Code and the regulations thereunder. These requirements,
which are in addition to the diversification requirements imposed on the Fund by
the 1940 Act and Subchapter M of the Code, place certain limitations on the
assets of the insurance company separate accounts that may be invested in
securities of a single issuer. Because section 817(h) and those regulations
treat the assets of the Fund as assets of the insurance company separate
accounts, the Fund intends to comply with these diversification requirements.
Specifically, the regulations provide that, except as permitted by the "safe
harbor" described below, as of the end of each calendar quarter or within 30
days thereafter no more than 55% of the Fund's total assets may be represented
by any one investment, no more than 70% by any two investments, no more than 80%
by any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of the Fund to satisfy the section 817(h)
requirements would result in taxation of and treatment of the Contract holders
other than as described in the applicable prospectuses of the various insurance
company separate accounts.
MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Company furnishes semi-annual reports containing information about the
Fund and its operations, including a list of the investments held in the Fund's
portfolio and its respective financial statements. Financial statements,
audited by independent auditors, will be issued annually. The firm of Tait,
Weller & Baker, Two Penn Center Plaza, Philadelphia, PA 19102, serves as the
auditors of each Fund.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the Company
on certain federal securities law matters.
CUSTODIAN AND TRANSFER AGENT
State Street Bank & Trust Co. ("State Street"), 225 Franklin Street,
Boston, MA 02110, is custodian of all securities and cash of the Fund. The
custodian attends to the collection of principal and income, pays and collects
all monies for securities bought and sold by the Fund, and performs certain
other ministerial duties. State Street also acts as transfer and dividend
disbursing agent for the Fund. These services do not include any supervisory
function over management or provide any protection against any possible
depreciation of assets. The Fund pays State Street such compensation as may be
agreed upon from time to time.
PRINCIPAL HOLDERS OF SECURITIES
To the best of the knowledge of the Fund, the names of the record holders
of 5% or more of the outstanding shares of the Fund as of April 3, 1995 and the
percentage of the outstanding shares of such Fund owned by such shareholders as
of such date are set out below. The address of A I M Advisors, Inc.
22
<PAGE>
is 11 Greenway Plaza, Suite 1919, Houston TX, 77046. The address of Connecticut
General Life Insurance Company and CG Variable Annuity Separate Account is 900
Cottage Grove Road, Bloomfield, CT, 06002.
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ------------- --------------
<S> <C> <C> <C>
CG Variable Annuity Separate Account -0- -0- 99.87%*
</TABLE>
As of April 3, 1995 the directors and officers of the Company as a group
owned beneficially less than 1% of the outstanding shares of the Company.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the Securities and Exchange Commission under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. The
Registration Statement is available for inspection by the public at the
Securities and Exchange Commission in Washington, D.C.
----------
* A shareholder who holds 25% or more of the outstanding shares of a portfolio
may be presumed to be in "control" of such shares of such portfolio, as
defined in the 1940 Act.
23
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and
liabilities of AIM V.I. Capital Appreciation Fund, a
series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of
investments as of January 31, 1995 and the related
statement of operations for the year then ended and the
statement of changes in net assets and the financial
highlights for the year then ended and the period May 5,
1993 (commencement of operations) through January 31,
1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of January 31, 1995, by
correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we
carried out other appropriate auditing procedures. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM V.I.
Capital Appreciation Fund, as of January 31, 1995, the
results of its operations for the year then ended and the
changes in its net assets and the financial highlights
for the year then ended and the period May 5, 1993
through January 31, 1994, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 24, 1995
FS-1
<PAGE>
AIM V.I. CAPITAL <TABLE>
APPRECIATION FUND <CAPTION>
SCHEDULE OF MARKET
INVESTMENTS SHARES VALUE
January 31, 1995 ------ ------
<C> <S> <C>
COMMON STOCKS - 75.14%
ADVERTISING/BROADCASTING - 0.41%
2,300 Belo (A.H.) Corporation................... $ 130,525
7,200 Infinity Broadcasting Corp.(a)............ 229,500
-----------
360,025
-----------
AIRLINES - 0.03%
2,300 SKYWEST Inc............................... 30,763
-----------
APPLIANCES - 0.16%
6,000 Sunbeam-Oster Co., Inc.................... 140,250
-----------
AUTOMOBILE/TRUCKS PARTS & TIRES - 0.43%
2,500 Automotive Industries Holdings, Inc.(a)... 44,375
5,200 Echlin Inc................................ 171,600
4,000 Mark IV Industries, Inc. ................. 77,000
3,500 Superior Industries International, Inc.... 85,313
-----------
378,288
-----------
BEVERAGES - 0.64%
11,300 Canandaigua Wine Co., Inc. - Class A(a)... 412,450
7,400 Coca-Cola Enterprises Inc................. 154,475
-----------
566,925
-----------
BIOTECHNOLOGY - 0.36%
5,000 AMGEN Inc.(a)............................. 318,125
-----------
BUILDING MATERIALS - 0.27%
9,800 Black & Decker Corp....................... 235,200
-----------
BUSINESS SERVICES - 1.49%
700 Diebold, Inc.............................. 24,063
3,400 Equifax, Inc.............................. 96,475
7,000 Healthcare Compare Corp.(a)............... 243,250
2,000 Interim Services Inc.(a).................. 46,750
10,900 Manpower Inc.............................. 277,950
11,100 Olsten Corp............................... 367,688
3,100 Pittston Services Group................... 83,312
6,000 Sensormatic Electronics Corp.............. 174,750
-----------
1,314,238
-----------
CHEMICALS - 0.80%
6,500 Geon Co................................... 172,250
6,150 Hanna (M.A.) Co........................... 148,368
4,200 Rohm & Haas Co............................ 227,850
6,000 Wellman Inc............................... 157,500
-----------
705,968
-----------
CHEMICALS (SPECIALTY) - 0.55%
10,000 Airgas Inc.(a)............................ 240,000
2,500 Albermarle Corp........................... 32,813
4,700 IMC Global Inc............................ 214,437
-----------
487,250
-----------
COMPUTER MAINFRAMES - 0.52%
23,600 Amdahl Corp.(a)........................... 241,900
13,500 Sequent Computer Systems, Inc.(a)......... 217,688
-----------
459,588
-----------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- ------
<C> <C> <S> <C>
COMPUTER MINI/PC - 1.67%
9,400 Apple Computer, Inc................................... $ 379,525
7,200 Dell Computer Corp.(a)................................ 306,900
2,200 Stratus Computer, Inc.(a)............................. 58,575
22,100 Sun Microsystems Inc.(a).............................. 723,775
-----------
1,468,775
-----------
COMPUTER NETWORKING - 3.41%
14,900 Bay Networks, Inc.(a)................................. 437,687
16,000 Cabletron Systems, Inc.(a)............................ 604,000
7,500 Chipcom Corp.(a)...................................... 294,375
16,500 Cisco Systems, Inc.(a)................................ 550,688
11,000 Madge N.V.(a)......................................... 144,375
9,200 Network Equipment Technologies, Inc.(a)............... 224,250
16,400 3 Com Corp.(a)........................................ 751,325
-----------
3,006,700
-----------
COMPUTER PERIPHERALS - 4.17%
18,300 Adaptec Inc.(a)....................................... 500,963
10,200 Alliance Semiconductor Corp.(a)....................... 272,850
23,800 American Power Conversion Corp.(a).................... 371,875
5,100 Digi International, Inc.(a)........................... 109,650
39,900 EMC Corp.(a).......................................... 743,138
8,500 Exabyte Corp.(a)...................................... 145,562
6,900 Filenet Corporation(a)................................ 212,175
14,900 Komag, Inc.(a)........................................ 348,287
14,000 Microchip Technology, Inc.(a)......................... 313,250
15,000 Read-Rite Corp.(a).................................... 226,875
9,000 U.S. Robotics, Inc.(a)................................ 436,500
-----------
3,681,125
-----------
COMPUTER SOFTWARE & SERVICES - 8.58%
10,000 Adobe System, Inc..................................... 289,375
4,450 American Management Systems, Inc.(a).................. 83,716
10,500 Autodesk Inc.......................................... 347,813
5,500 BMC Software, Inc.(a)................................. 316,250
19,600 Cadence Design System, Inc.(a)........................ 428,750
13,500 Computer Associates International, Inc................ 673,313
12,000 Corel Corp.(a)........................................ 132,750
6,500 Fiserv, Inc.(a)....................................... 140,156
12,700 HBO & Co.............................................. 452,437
6,000 Microsoft Corp.(a).................................... 356,250
8,200 Network General Corp.(a).............................. 194,750
19,100 Oracle Systems Corp.(a)............................... 814,137
17,800 Parametric Technology Corp.(a)........................ 654,150
6,200 Platinum Technology, Inc.(a).......................... 128,650
5,200 Policy Management Systems Corp.(a).................... 215,800
14,800 Silicon Graphics Inc.(a).............................. 462,500
10,000 Sterling Software, Inc.(a)............................ 357,500
16,800 Sybase, Inc.(a)....................................... 730,800
15,000 Symantec Corp.(a)..................................... 296,250
10,900 Synopsys, Inc.(a)..................................... 493,225
-----------
7,568,572
-----------
CONGLOMERATES - 0.21%
3,884 Tyco Laboratories, Inc................................ 187,888
-----------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <C> <S> <C>
ELECTRONIC COMPONENTS - 3.00%
4,000 Ametek Inc............................................ $ 64,500
4,500 Amphenol Corp.(a)..................................... 102,375
3,800 Augat Inc............................................. 60,800
8,000 KLA Instruments Corp.(a).............................. 400,000
6,100 Methode Electronics, Inc.............................. 89,975
3,125 Molex Inc. Class A.................................... 95,312
1,250 Molex Inc............................................. 40,625
2,500 Parker-Hannifin Corp.................................. 117,813
16,800 Philips Electronics N.V.-New York Shares-ADR.......... 529,200
7,000 Symbol Technologies, Inc.(a).......................... 182,000
8,500 Tektronix Inc......................................... 283,688
21,000 Teradyne Inc.(a)...................................... 682,500
-----------
2,648,788
-----------
ELECTRONIC/PC DISTRIBUTORS - 0.86%
8,600 Arrow Electronics, Inc.(a)............................ 317,125
12,000 Avnet, Inc............................................ 444,000
-----------
761,125
-----------
FINANCE (ASSET MANAGEMENT) - 0.11%
2,000 XTRA Corp............................................. 99,250
-----------
FINANCE (CONSUMER CREDIT) - 1.27%
2,500 ADVANTA Corp.......................................... 77,500
14,000 First USA, Inc........................................ 483,000
10,500 Green Tree Acceptance Corp............................ 332,062
9,000 MBNA Corp............................................. 229,500
-----------
1,122,062
-----------
GAMING - 0.51%
10,000 Autotote Corp.-Class C(a)............................. 67,500
6,100 MGM Grand, Inc.(a).................................... 159,362
10,000 Mirage Resorts, Inc.(a)............................... 223,750
-----------
450,612
-----------
HOMEBUILDING - 0.06%
2,400 Oakwood Homes Corp.................................... 54,000
-----------
HOTELS/MOTELS - 0.75%
13,000 Hospitality Franchise Systems, Inc.(a)................ 364,000
15,000 La Quinta Motor Inns, Inc............................. 294,375
-----------
658,375
-----------
INSURANCE (LIFE AND HEALTH) - 0.37%
7,000 Bankers Life Holding Corp............................. 144,375
6,000 Equitable of Iowa Companies........................... 177,000
-----------
321,375
-----------
LEISURE & RECREATION - 2.00%
5,800 Avid Technology, Inc.(a).............................. 160,225
15,000 Brunswick Corp........................................ 294,375
13,300 Callaway Golf Co...................................... 427,263
16,000 Carnival Cruise Lines, Inc.-Class C................... 336,000
7,500 Harley-Davidson, Inc.................................. 204,375
10,000 Mattel, Inc........................................... 206,250
5,000 Royal Caribbean Cruises Ltd........................... 137,500
-----------
1,765,988
-----------
MACHINE TOOLS - 0.31%
7,200 Cincinnati Milacron, Inc.............................. 165,600
4,100 Kennametal Inc........................................ 106,600
-----------
272,200
-----------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <C> <S> <C>
MACHINERY - 0.53%
10,400 Thermo Electron Corp.(a).............................. $ 464,100
-----------
MACHINERY-HEAVY - 0.55%
5,700 AGCO Corp............................................. 167,438
6,000 Clark Equipment Co.(a)................................ 321,750
-----------
489,188
-----------
MEDICAL (DRUGS) - 1.59%
9,555 Bergen Brunswig Corp.................................. 218,571
6,250 Cardinal Health, Inc.................................. 288,281
6,000 Elan Corp.-PLC-ADR(a)................................. 211,500
9,900 Forest Laboratories, Inc.(a).......................... 490,050
7,000 Mylan Laboratories, Inc............................... 196,000
-----------
1,404,402
-----------
MEDICAL INSTRUMENTS/PRODUCTS - 2.00%
15,400 Biomet, Inc. (a)...................................... 232,925
10,000 Cordis Corp.(a)....................................... 627,500
6,600 Heart Technology Inc.(a).............................. 131,175
3,500 Nellcor Inc.(a)....................................... 118,562
6,000 St. Jude Medical, Inc................................. 228,000
900 Sunrise Medical, Inc.(a).............................. 27,732
14,700 Ventritex Inc.(a)..................................... 396,900
-----------
1,762,794
-----------
MEDICAL SERVICES - 9.58%
3,600 Charter Medical Corp.(a).............................. 55,800
9,000 Coastal Healthcare Group, Inc.(a)..................... 225,000
9,500 Columbia Healthcare Corp.............................. 381,187
5,300 Coventry Corp.(a)..................................... 137,800
1,900 Foundation Health Corp.(a)............................ 56,050
2,600 Genesis Health Ventures, Inc.(a)...................... 78,650
7,000 Health Care & Retirement Corp.(a)..................... 204,750
7,550 Health Management Associates, Inc.(a)................. 207,625
8,300 Healthsource, Inc.(a)................................. 354,825
16,500 HealthSouth Rehabilitation Corp.(a)................... 627,000
11,000 HealthTrust Inc.-The Hospital Co.(a).................. 385,000
6,500 Homedco Group, Inc.(a)................................ 269,343
13,700 Horizon Healthcare Corp.(a)........................... 363,050
26,000 Humana Inc.(a)........................................ 594,750
11,500 Integrated Health Services, Inc....................... 431,250
13,800 Lincare Holdings, Inc.(a)............................. 358,800
5,000 Mariner Health Group, Inc.(a)......................... 94,375
18,400 Mid-Atlantic Medical Services, Inc.(a)................ 437,000
15,000 OrNda HealthCorp(a)................................... 217,500
2,200 Oxford Health Plans, Inc.(a).......................... 186,725
3,000 Pacificare Health Systems, Inc.-Class A(a)............ 192,000
3,100 Pacificare Health Systems, Inc.-Class B(a)............ 199,950
4,400 Quantum Health Resources, Inc.(a)..................... 133,650
13,300 Sun Healthcare Group, Inc.(a)......................... 354,113
17,400 U.S. Healthcare, Inc. ................................ 796,050
13,300 United Healthcare Corp. .............................. 645,050
15,000 Vencor, Inc.(a)....................................... 457,500
-----------
8,444,793
-----------
METALS - 0.17%
4,600 Timken Co. (The)...................................... 150,075
-----------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <C> <S> <C>
OFFICE AUTOMATION - 0.17%
6,400 Danka Business Systems PLC-ADR........................ $ 151,200
-----------
OFFICE PRODUCTS - 0.70%
7,000 Avery Dennison Corp. ................................. 246,750
15,400 Reynolds & Reynolds Co.-Class A....................... 365,750
-----------
612,500
-----------
OIL EQUIPMENT & SUPPLIES - 0.06%
4,500 Smith International, Inc.(a).......................... 52,313
-----------
PAPER & FOREST PRODUCTS - 0.22%
5,000 Champion International Corp. ......................... 191,250
-----------
RESTAURANTS - 0.46%
3,900 Morrison Restaurants, Inc............................. 101,400
6,000 Outback Steakhouse, Inc.(a)........................... 159,000
9,000 Wendy's International, Inc. .......................... 145,125
-----------
405,525
-----------
RETAIL-FOOD & DRUG - 2.06%
6,400 Casey's General Stores, Inc. ......................... 94,400
13,500 Eckerd Corp.(a)....................................... 354,375
8,700 Kroger Co. (The)(a)................................... 205,537
8,800 Revco D.S., Inc.(a)................................... 195,800
17,400 Safeway Inc.(a)....................................... 558,975
7,100 Smith's Food & Drug Centers, Inc. .................... 182,825
9,700 Stop & Shop Companies, Inc. (The)(a).................. 225,525
-----------
1,817,437
-----------
RETAIL-STORES - 5.59%
5,000 Ann Taylor Stores Corp.(a)............................ 167,500
1,200 Baker (J.), Inc. ..................................... 16,650
2,000 Bed Bath & Beyond Inc.(a)............................. 53,500
18,500 Circuit City Stores, Inc. ............................ 416,250
15,000 Consolidated Stores Corp.(a).......................... 277,500
9,000 Dollar General Corp. ................................. 290,250
11,100 Gateway 2000 Inc.(a).................................. 231,712
11,300 General Nutrition(a).................................. 276,850
3,000 Gymboree Corp.(a)..................................... 72,000
5,900 Hechinger Co. ........................................ 60,475
19,300 Lowe's Companies, Inc. ............................... 709,275
8,500 Mac Frugal's Bargains-Close-outs Inc.(a).............. 139,187
10,400 Michaels Stores, Inc.(a).............................. 343,200
9,000 Office Depot, Inc.(a)................................. 234,000
5,500 Pep Boys - Manny, Moe & Jack.......................... 179,438
11,000 Pier 1 Imports Inc. .................................. 104,500
19,500 Staples, Inc.(a)...................................... 492,375
3,200 Sunglass Hut International(a)......................... 74,400
4,000 Talbots, Inc. ........................................ 121,500
11,600 Tech Data Corp.(a).................................... 153,700
11,000 Viking Office Products Inc.(a)........................ 286,000
4,600 Waban Inc.(a)......................................... 79,925
6,075 Williams-Sonoma, Inc.(a).............................. 148,838
-----------
4,929,025
-----------
SCIENTIFIC INSTRUMENTS - 0.36%
8,700 Varian Associates, Inc. .............................. 320,813
-----------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <C> <S> <C>
SEMICONDUCTORS - 10.45%
13,500 Altera Corp.(a)....................................... $ 600,750
23,250 Analog Devices, Inc.(a)............................... 499,875
20,400 Applied Materials, Inc.(a)............................ 785,400
16,800 Atmel Corp.(a)........................................ 527,100
8,300 Credence Systems Corp.(a)............................. 188,825
14,000 Cypress Semiconductor Corp.(a)........................ 329,000
7,000 Electroglas Inc.(a)................................... 200,375
8,500 Integrated Device Technology, Inc.(a)................. 255,000
9,200 Intel Corp. .......................................... 638,250
10,700 International Rectifier Corp.(a)...................... 251,450
16,000 LAM Research Corp.(a)................................. 600,000
7,500 Lattice Semiconductor Corp.(a)........................ 162,187
9,300 Linear Technology Corp. .............................. 460,350
18,600 LSI Logic Corp.(a).................................... 790,500
14,400 Micron Technology Inc. ............................... 635,400
12,500 Motorola, Inc. ....................................... 739,062
9,500 Novellus Systems, Inc.(a)............................. 410,875
6,000 SCI Systems, Inc.(a).................................. 109,500
10,200 Texas Instruments Inc. ............................... 703,800
5,000 Xilinx Inc.(a)........................................ 288,750
1,200 Zilog Inc.(a)......................................... 34,800
-----------
9,211,249
-----------
SHOES & RELATED APPAREL - 0.38%
6,100 Reebok International, Ltd. ........................... 231,800
4,000 Wolverine World Wide, Inc. ........................... 100,500
-----------
332,300
-----------
STEEL - 0.20%
4,000 AK Steel Holding Corp(a).............................. 102,000
5,000 LTV Corp.(a).......................................... 70,000
-----------
172,000
-----------
TELECOMMUNICATIONS - 5.67%
4,900 ADC Telecommunications, Inc.(a)....................... 240,100
13,100 ALC Communications Corp.(a)........................... 379,900
8,100 Allen Group Inc....................................... 187,312
4,250 Andrew Corp.(a)....................................... 225,250
4,800 Aspect Telecommunications Corp.(a).................... 163,200
2,500 California Microwave, Inc.(a)......................... 72,500
21,900 DSC Communications Corp.(a)........................... 703,538
13,300 Ericsson (L.M.) Telephone Co., Inc.................... 716,537
12,300 General Instrument Corp.(a)........................... 335,175
7,000 Nokia Corp.-ADR(a).................................... 511,875
10,400 Northern Telecom Ltd.................................. 354,900
21,500 Scientific-Atlantic Inc............................... 432,688
4,400 StrataCom, Inc.(a).................................... 157,300
10,400 Tellabs, Inc.(a)...................................... 517,400
-----------
4,997,675
-----------
TEXTILES - 0.69%
5,000 Nautica Enterprises Inc.(a)........................... 141,875
7,600 Tommy Hilfiger Corp.(a)............................... 154,850
11,300 Unifi, Inc............................................ 307,925
-----------
604,650
-----------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <C> <S> <C>
TRUCKING - 0.36%
12,000 TNT Freightways Corp............... $ 321,000
-----------
UTILITIES - 0.41%
Century Telephone
5,900 Enterprises, Inc.................. 185,850
Telephone and Data
4,000 Systems, Inc...................... 175,000
-----------
360,850
-----------
Total Common Stocks................ 66,258,594
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <C> <S> <C>
U.S. TREASURY
SECURITIES - 16.50%
U.S. Treasury Bills(b)
$7,280,000(c) 5.05%, 03/23/95.................... 7,225,109
7,397,000(c) 5.78%, 04/06/95.................... 7,322,142
-----------
Total U.S. Treasury
Securities........................ 14,547,251
-----------
REPURCHASE AGREEMENTS -
8.93%(d)
874,339 Goldman, Sachs & Co.
5.80%, 02/01/95(e)................ 874,339
7,000,000 Swiss Bank Government
Securities, Inc.
5.80%, 02/01/95(f)................ 7,000,000
-----------
Total Repurchase
Agreements........................ 7,874,339
-----------
TOTAL INVESTMENT
SECURITIES - 100.57%.............. 88,680,184
LIABILITIES IN EXCESS OF
OTHER ASSETS - (0.57%)............ (502,912)
-----------
NET ASSETS - 100.00%............... $88,177,272
===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury Bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal amount was pledged as collateral for open
futures contracts at 01/31/95. See Note 6.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement.The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement.
(e) Joint repurchase agreement entered into 01/31/95 with a maturing value of
$550,371,439. Collateralized by $546,482,000 U.S. Treasury Obligations,
4.25% to 10.375% due 02/15/95 to 05/15/21. The aggregate market value of
the collateral at 01/31/95 was $561,314,868. The Fund's pro-rata interest
in the collateral at 01/31/95 was $891,867.
(f) Joint repurchase agreement entered into 01/31/95 with a maturing value of
$160,025,778. Collateralized by $166,659,000 U.S. Treasury Bills, due
02/16/95 to 01/11/96. The aggregate market value of the collateral at
01/31/95 was $163,218,410. The Fund's pro-rata interest in the collateral
at 01/31/95 was $7,140,805.
See Notes to Financial Statements.
</TABLE>
FS-8
<PAGE>
AIM V.I. CAPITAL
APPRECIATION FUND <TABLE>
STATEMENT OF <S> <C>
ASSETS AND ASSETS:
LIABILITIES Investments, at value (cost $83,100,845).... $88,680,184
January 31, 1995 Receivables for:
Investments sold.......................... 1,545,282
Capital stock sold........................ 94,079
Dividends and interest.................... 10,732
Investment for deferred compensation plan... 3,551
Organizational costs, net................... 9,400
Other assets................................ 74,506
-----------
Total assets............................ 90,417,734
-----------
LIABILITIES:
Payables for:
Investments purchased..................... 2,161,473
Deferred compensation..................... 3,551
Accrued advisory fees....................... 48,069
Accrued directors' fees..................... 1,296
Accrued administrative service fees......... 2,183
Accrued operating expenses.................. 23,890
-----------
Total liabilities....................... 2,240,462
-----------
Net assets applicable to shares outstanding. $88,177,272
===========
Capital shares, $.001 par value per share:
Authorized................................ 250,000,000
===========
Outstanding............................... 7,318,355
===========
Net asset value, offering and redemption
price per share........................... $ 12.05
===========
</TABLE>
See Notes to Financial Statements.
FS-9
<PAGE>
AIM V.I. CAPITAL <TABLE>
APPRECIATION FUND <S> <C>
STATEMENT OF INVESTMENT INCOME:
OPERATIONS Interest.................................... $ 610,216
For the year ended Dividends................................... 193,993
January 31, 1995 -----------
Total investment income.................... 804,209
-----------
EXPENSES:
Advisory fees............................... 402,307
Custodian fees.............................. 40,695
Administrative service fees................. 23,992
Directors' fees and expenses................ 4,825
Organizational costs........................ 2,892
Other....................................... 43,604
-----------
Total expenses............................. 518,315
-----------
Net investment income......................... 285,894
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investment securities....................... (3,409,542)
Futures contracts........................... (424,599)
-----------
(3,834,141)
-----------
Unrealized appreciation of:
Investment securities....................... 1,708,541
Futures contracts........................... 434,025
-----------
2,142,566
-----------
Net gain (loss) on investment securities
and futures contracts........................ (1,691,575)
-----------
Net increase (decrease) in net assets
resulting from operations.................... $(1,405,681)
===========
</TABLE>
See Notes to Financial Statements.
FS-10
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. CAPITAL 1995 1994
APPRECIATION FUND ----------- -----------
STATEMENT <S> <C> <C>
OF CHANGES OPERATIONS:
IN NET ASSETS Net investment income........... $ 285,894 $ 6,264
For the year ended Net realized gain (loss)
January 31, 1995 and the on sales of investment
period May 5, 1993 (date securities and futures
operations commenced) contracts...................... (3,834,141) (178,125)
through January 31, 1994 Unrealized appreciation of
investment securities
and futures contracts ......... 2,142,566 3,870,798
----------- -----------
Net increase (decrease) in
net assets resulting
from operations............... (1,405,681) 3,698,937
Net increase from capital
stock transactions............ 54,473,386 31,674,011
Distributions to shareholders
from net investment income..... (244,886) (18,495)
----------- -----------
Net increase in net assets..... 52,822,819 35,354,453
NET ASSETS:
Beginning of period............. 35,354,453 --
----------- -----------
End of period................... $88,177,272 $35,354,453
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and
additional paid-in)............ $86,147,397 $31,674,011
Undistributed net investment
income......................... 28,777 (12,231)
Undistributed net realized gain
(loss) on sales of investment
securities and futures
contracts...................... (4,012,266) (178,125)
Unrealized appreciation of
investment securities and
futures contracts ............. 6,013,364 3,870,798
----------- -----------
$88,177,272 $35,354,453
=========== ===========
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE>
AIM V.I. CAPITAL NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
APPRECIATION FUND AIM Variable Insurance Funds, Inc. (the "Company"), is
NOTES TO a Maryland corporation organized on January 22, 1993, and
FINANCIAL is registered under the Investment Company Act of 1940
STATEMENTS (the "1940 Act"), as amended, as an open-end, series,
January 31, 1995 management investment company consisting of nine
portfolios: AIM V.I. Capital Appreciation Fund (the
"Capital Appreciation Fund"), AIM V.I. Diversified Income
Fund, AIM V.I. Government Securities Fund, AIM V.I.
Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I.
International Equity Fund, AIM V.I. Money Market Fund,
AIM V.I. Utilities Fund and AIM V.I. Value Fund (each a
"Fund" collectively, the "Funds"). Matters affecting each
Fund are voted on exclusively by the shareholders of such
Fund. The assets, liabilities and operations of each Fund
are accounted for separately. Information presented in
these financial statements pertains only to the Capital
Appreciation Fund. Shares of the Funds are sold only to
insurance company separate accounts to fund the benefits
of variable annuity contracts.
The following is a summary of the significant accounting
policies followed by the Capital Appreciation Fund in the
presentation of its financial statements.
A. Security Valuations - A security listed or traded on
an exchange is valued at its last sales price on the
exchange where the security is principally traded, or
lacking any sales on a particular day, the security is
valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-
the-counter market (but not including securities
reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers
for such securities. Each security reported on the
NASDAQ National Market System is valued at the last
sales price on the valuation date. Securities for
which market quotations are not readily available are
valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in a
manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which
approximates market value.
B. Securities Transactions, Investment Income and
Distributions - Securities transactions are accounted
for on a trade date basis. Interest income is recorded
as earned from settlement date and is recorded on the
accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Realized gains or losses from securities transactions
are recorded on the identified cost basis.
C. Stock Index Futures Contracts - The Capital
Appreciation Fund may purchase or sell stock index
futures contracts as a hedge against changes in market
conditions. Initial margin deposits required upon
entering into futures contracts are satisfied by the
segregation of specific securities or cash, and/or by
securing a standby letter of credit from a major
commercial bank, as collateral, for the account of the
broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is
open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking
to market" on a daily basis to reflect the market
value of the contract at the end of each day's
trading. Variation margin payments are made or
received depending upon whether unrealized gains or
losses are incurred. When the contract is closed, the
Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the
contract. Risks include the possibility of an illiquid
market and the change in the value of the contract may
not correlate with changes in the securities being
hedged.
D. Federal Income Taxes - For federal income tax
purposes, each Fund in the Company is taxed as a
separate entity. It is the Capital Appreciation Fund's
policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its
taxable income and capital gains to its shareholders.
Therefore, no provision for federal income taxes is
recorded in the financial statements. Capital
Appreciation Fund had capital loss carryforwards
(which may be carried forward to offset future taxable
capital gains, if any) of $3,293,451, which expires,
if not previously utilized, through the year 2003.
E. Expenses - Operating expenses directly attributable to
a Fund are charged to that Fund's operations. Expenses
of the Company which are not directly attributable to
the operations of any Fund of the Company are
allocated to the Funds to which the expense relates
based upon methods approved by the Board of Directors
of the Company.
F. Organizational Costs - Organizational costs for the
Capital Appreciation Fund of $14,461, are being
amortized over five years.
FS-12
<PAGE>
<TABLE>
<C> <S>
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master advisory agreement, the
Capital Appreciation Fund pays an advisory fee to AIM at an annual rate of
0.65% of the first $250 million of the Capital Appreciation Fund's average
daily net assets, plus 0.60% of the Fund's average daily net assets in excess
of $250 million.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Capital Appreciation Fund, the Company has agreed to
reimburse certain administrative costs incurred in providing accounting
services to the Fund. During the year ended January 31, 1995, AIM was
reimbursed $23,992 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Capital Appreciation Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
The Capital Appreciation Fund incurred legal fees of $3,375 for services
rendered by Reid & Priest as counsel to the Company's directors. In September
1994, the firm of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed counsel to the Directors. A member of that firm is a director of the
Company and, prior to September 1994, was a member of Reid & Priest.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of the Company. The Company may invest a directors
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Capital Appreciation Fund during the year
ended January 31, 1995 was $77,433,515 and $40,249,880, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of January 31, 1995 is as follows:
</TABLE>
<TABLE>
<C> <S> <C>
Aggregate unrealized appreciation of investment securities........ $ 7,338,866
Aggregate unrealized (depreciation) of investment securities...... (1,784,489)
-----------
Net unrealized appreciation (depreciation) of investment
securities....................................................... $ 5,554,377
===========
</TABLE>
<TABLE>
<C> <S>
Cost of investments for tax purposes is $83,125,807.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended January 31, 1995
and the period May 5, 1993 (date operations commenced) through January 31, 1994
were as follows:
</TABLE>
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<C> <S> <C> <C> <C> <C>
Sold........................... 4,817,657 $58,178,417 2,818,768 $31,776,855
Issued as reinvestment of
distributions................. 20,683 244,886 1,637 18,495
Reacquired..................... (330,372) (3,949,917) (10,018) (121,339)
--------- ----------- --------- -----------
4,507,968 $54,473,386 2,810,387 $31,674,011
========= =========== ========= ===========
</TABLE>
<TABLE>
<C> <S>
NOTE 6 - OPEN FUTURES CONTRACTS
On January 31, 1995, $712,000 principal amount of U.S. Treasury Bills were
pledged as collateral to cover margin requirements for open futures contracts:
Open futures contracts at January 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT NO. OF CONTRACTS/MONTH/COMMITMENT APPRECIATION
<C> <S> <C> <C>
S&P 500 Index 64 contracts/March/Buy $434,025
</TABLE>
FS-13
<PAGE>
<TABLE>
<C> <S>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Capital Appreciation Fund during the year ended January 31, 1995, and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<C> <S> <C> <C>
Net asset value, beginning of period................... $ 12.58 $ 10.00
------- -------
Income from investment operations:
Net investment income................................ 0.05 --
Net gains (losses) on securities (both realized and
unrealized)......................................... (0.54) 2.59
------- -------
Total from investment operations.................... (0.49) 2.59
------- -------
Less distributions:
Dividends from net investment income................. (0.04) (0.01)
------- -------
Net asset value, end of period......................... $ 12.05 $ 12.58
======= =======
Total return(a)........................................ (3.91)% 25.90%
======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............... $88,177 $35,354
======= =======
Ratio of expenses to average net assets................ 0.84%(b) 1.06%(c)
======= =======
Ratio of net investment income to average net assets... 0.46%(b) 0.07%(c)
======= =======
Portfolio turnover rate................................ 81% 34%
======= =======
------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $61,893,337.
(c) Annualized ratios of expenses and net investment income (loss) to average
net assets prior to waiver of advisory fees are 1.45% and (0.32)%,
respectively. Ratios are based on average net assets of $12,095,128.
</TABLE>
FS-14
