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[AIM LOGO APPEARS HERE]
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. GROWTH AND INCOME FUND
PROSPECTUS
May 1, 1995
as reprinted
March 1, 1996
AIM V.I. Growth and Income Fund (the "Fund") is one of nine
investment portfolios comprising series of AIM Variable
Insurance Funds, Inc. (the "Company"), an open-end, series,
management investment company. Shares of the Fund are sold
only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life
insurance contracts. The Fund is a diversified portfolio
which seeks to provide growth of capital, with current income
as a secondary objective. The Fund seeks to achieve it by
investing primarily in dividend paying common stocks which
have prospects for both growth of capital and dividend
income. The address for AIM Variable Insurance Funds, Inc. is
11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, and
its telephone number is (713) 626-1919.
This prospectus sets forth basic information about the Fund
that prospective investors should know before investing. It
should be read and retained for future reference. A Statement
of Additional Information dated May 1, 1995, has been filed
with the Securities and Exchange Commission and is
incorporated herein by reference. The Statement of Additional
Information is available without charge upon written request
to the Company at the address shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE
FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
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TABLE OF CONTENTS
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About the Fund..................... 2 Purchase and Redemption of Shares.............. 9
Financial Highlights............... 2 Determination of Net Asset Value............... 9
Performance........................ 3 Dividends, Distributions and Tax Matters....... 10
Investment Objective and Programs.. 3 General Information............................ 10
Risk Factors....................... 7 Appendix A..................................... A-1
Management......................... 8
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ABOUT THE FUND
The Fund, AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income
Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government Securities Fund, AIM
V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market
Fund and AIM V.I. Value Fund (collectively, the "Funds") are separate series of
shares of AIM Variable Insurance Funds, Inc., a Maryland corporation organized
on January 22, 1993 and registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company (see
"General Information--Organization of the Company"). The Fund has its own
investment objective and policies designed to meet specific investment goals,
operates as a diversified, open-end management investment company and expects
to be treated as a regulated investment company for federal income tax
purposes.
The Fund invests in securities of different issuers and industry
classifications in an attempt to spread and reduce the risks inherent in all
investing. The Fund continuously offers new shares for sale to the public, and
stands ready to redeem its outstanding shares for cash at their net asset
value. A I M Advisors, Inc. ("AIM"), the investment advisor for the Fund,
continuously reviews and, from time to time, changes the portfolio holdings of
the Fund in pursuit of the Fund's objective.
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FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
for the period May 2, 1994 (date operations commenced) through January 31,
1995. The financial highlights have been audited by Tait, Weller & Baker,
independent auditors, whose unqualified report thereon is included in the
Statement of Additional Information. Additional information about the
performance of the Fund is contained in the Fund's annual report to
shareholders, which may be obtained without charge upon request.
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JANUARY 31,
1995
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Net asset value, beginning of period................................ $10.00
Income from investment operations:
Net investment income............................................. 0.11
Net gains (losses) on securities (realized and unrealized)........ (0.02)
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Total from investment operations................................ 0.09
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Less distributions:
Dividends from net investment income.............................. (0.11)
Distributions from net realized capital gains..................... --
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Total distributions............................................. (0.11)
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Net asset value, end of period...................................... $ 9.98
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Total return(a)..................................................... 0.90%
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Ratios/supplemental data:
Net assets, end of period (000s omitted)............................ $7,380
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Ratio of expenses to average net assets(b).......................... 1.07%
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Ratio of net investment income to average net assets(b)............. 1.95%
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Portfolio turnover rate............................................. 96%
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(a) Total returns are not annualized for periods less than one year. Total
returns do not reflect expenses that apply at the separate account level.
Inclusion of expenses at the separate account level would reduce the total
return figures for the period shown.
(b) Ratios for periods less than a year are annualized. Ratios are based on
average net assets of $4,248,532. Ratios of expenses and net investment
income (loss) to average net assets prior to waiver of advisory fees and/or
expense reimbursement are 1.72% and 1.30% respectively.
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PERFORMANCE
The Fund's performance may be quoted in advertising in terms of yield or
total return. See the Statement of Additional Information for further details
concerning performance comparisons used in advertisements by the Fund.
The Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. Total return is computed in accordance with a
standardized formula described in the Statement of Additional Information. A
cumulative total return reflects the Fund's performance over a stated period
of time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period. Because
average annual total returns tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual year-
by-year results. To illustrate the components of overall performance, the Fund
may separate its cumulative and average annual total returns into income
results and capital gain or loss.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time. Accordingly, the yield information may not provide a basis for
comparison with investments which pay a fixed rate of interest for a stated
period of time. Yield is the annualized percentage rate of net income
(exclusive of capital changes) earned by the Fund over a specified period. It
is a function of the type and quality of the Fund's investments, their
maturity and its operating expense ratio. A shareholder's investment in the
Fund is not insured or guaranteed. These factors should be carefully
considered by the investor before making an investment in the Fund.
From time to time and in its discretion, AIM may waive all or a portion of
its advisory fees and/or assume certain expenses of the Fund. Such a practice
will have the effect of increasing the Fund's yield and total return.
The performance of the Fund will vary from time to time and past results are
not necessarily indicative of future results. The Fund's performance is a
function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. Quotations of the Fund's performance will not reflect
charges levied at the separate account level.
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INVESTMENT OBJECTIVE AND PROGRAMS
Set forth in this section is a statement of the Fund's investment objective
along with a description of its investment policies, strategies and practices.
The investment objective of the Fund is deemed to be a fundamental policy and,
therefore, unless permitted by law, may not be changed without the approval of
a majority of the Fund's outstanding shares (within the meaning of the 1940
Act). The Fund's investment policies, strategies and practices are not
fundamental. The Board of Directors of the Company reserves the right to
change any of these non-fundamental investment policies, strategies or
practices without shareholder approval. The Fund has adopted investment
restrictions, some of which are fundamental and cannot be changed without
shareholder approval. See "Investment Restrictions" in the Statement of
Additional Information. Individuals considering the purchase of shares of the
Fund should recognize that there are risks in the ownership of any security
and that no assurance can be given that the Fund will achieve its investment
objective.
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek growth of
capital, with current income as a secondary objective. Although the amount of
the Fund's current income will vary from time to time, it is anticipated that
the current income realized by the Fund will generally be greater than that
realized by mutual funds whose sole objective is growth of capital. The Fund
seeks to achieve its objective by investing primarily in common stocks of
companies believed by management to have the potential for above average
growth in revenues and earnings. Generally, at least 90% of the Fund's common
stock investments will be in dividend paying stocks.
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES. The Fund has the flexibility
to invest, to the extent described below, in a variety of instruments designed
to enhance its investment capabilities. The Fund may: (1) invest in money
market obligations, foreign securities (including ADRs and EDRs), repurchase
agreements, reverse repurchase agreements, illiquid securities and Rule 144A
securities; (2) purchase or sell securities on a delayed delivery or when-
issued basis and may borrow money; and (3) lend portfolio securities and make
short sales "against the box." A short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain securities
identical to those sold short without payment of any further consideration.
The Fund may write (i.e., sell) "covered" put and call options and buy put
and call options on domestic and foreign securities, securities indices and
currencies. The Fund may use exchange-traded financial futures contracts,
options thereon, and forward contracts as a hedge to protect against possible
changes in market values. A brief description of these investment instruments
and their risks appears below. See "Hedging and Other Investment Techniques"
in the Statement of Additional Information for more detailed information.
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Money Market Obligations. Bankers' acceptances, certificates of deposit,
repurchase agreements, time deposits and commercial paper, U.S. Government
direct obligations, including U.S. Treasury obligations and repurchase
agreements secured by such obligations, and U.S. Government agencies'
securities are collectively referred to as "Money Market Obligations," and are
briefly described in Appendix A to this Prospectus and are more fully
described in the Statement of Additional Information. When deemed appropriate
for temporary or defensive purposes, the Fund may hold cash or cash equivalent
Money Market Obligations. Although the Fund is not required by regulation or
fundamental policy to limit such investments to those which, at the date of
purchase, are "First Tier" securities as that term is defined in Rule 2a-7
under the 1940 Act, it is the current intention of AIM to limit such
investments to those securities which, at the time of purchase, are considered
"First Tier" securities or securities which AIM has determined to be of
comparable credit quality.
Foreign Securities. To the extent consistent with its investment objective,
the Fund may invest in foreign securities. It is not anticipated that such
foreign securities will constitute more than 20% of the value of the total
assets of the Fund.
ADRs and EDRs. To the extent consistent with its investment objective, the
Fund may also invest in securities which are in the form of American
Depository Receipts ("ADRs"), European Depository Receipts, ("EDRs") or other
securities representing underlying securities of foreign issuers. 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. ADRs, EDRs and other securities representing underlying
securities of foreign issuers are treated as foreign securities for purposes
of determining the applicable limitation on investment in foreign securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
institutions believed by the Company's Board of Directors to present minimal
credit risk. A repurchase agreement is an instrument under which the Fund
acquires ownership of a debt security and the seller 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. With
regard to repurchase transactions, in the event of a bankruptcy or other
default of a seller of a repurchase agreement (such as the sellers' failure to
repurchase the obligation in accordance with the terms of the agreement), the
Fund could experience both delays in liquidating the underlying securities and
losses, including: (a) a possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto;
(b) possible subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights. Repurchase agreements
are considered to be loans by the Fund under the 1940 Act. Repurchase
agreements will be secured by U.S. Treasury securities, U.S. Government agency
securities (including, but not limited to, those which have been stripped of
their interest payments and mortgage-backed securities) and commercial paper.
For additional information on the use of repurchase agreements, see the
Statement of Additional Information.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale by the Fund of a portfolio security at an agreed upon price, date and
interest payment. The Fund will enter into reverse repurchase agreements
solely for temporary or defensive purposes to facilitate the orderly sale of
portfolio securities to accommodate abnormally heavy redemption requests
should they occur. The Fund will use reverse repurchase agreements when the
interest income to be earned from the securities that would otherwise have to
be liquidated to meet redemption requests is greater than the interest expense
of the reverse repurchase transaction. The Fund may enter into reverse
repurchase agreements in amounts not exceeding 33-1/3% of the value of its
total assets. Reverse repurchase agreements involve the risk that the market
value of securities retained by the Fund in lieu of liquidation may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. This risk, if encountered, could cause a reduction in
the net asset value of the Fund's shares. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. See "Borrowing" in this
Prospectus for percentage limitations on borrowings.
Delayed Delivery Agreements and When-Issued Securities. The Fund may enter
into delayed delivery agreements and may purchase securities on a "when-
issued" basis.
Delayed delivery agreements are commitments by the Fund to dealers or
issuers to acquire securities 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, the Fund's
investment advisor 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 and may enter into delayed delivery agreements to
assure that the Fund will be as fully invested as possible in instruments
meeting its investment objective.
Debt securities are sometimes 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 the
securities, but the Fund may sell these securities before the settlement date
if it is deemed advisable.
If the Fund enters into a delayed delivery agreement or purchases a when-
issued security, the Fund will direct its custodian bank to segregate cash or
other high grade securities (including Money Market Obligations) in an amount
equal to its delayed delivery
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agreements or when-issued commitments. If the market value of such securities
declines, additional cash or securities will be segregated on a daily basis so
that the market value of the account will equal the amount of the Fund's
delayed delivery agreements and when-issued commitments. To the extent that
funds are segregated, they will not be available for new investment or to meet
redemptions. Investment in securities on a when-issued basis and use of
delayed delivery agreements may increase the Fund's exposure to market
fluctuation, or may increase the possibility that the Fund will incur a short-
term loss, if the Fund must engage in portfolio transactions in order to honor
a when-issued commitment or accept delivery of a security under a delayed
delivery agreement. The Fund will employ techniques designed to minimize these
risks. No additional delayed delivery agreements or when-issued commitments
will be made by the Fund if, as a result, more than 25% of the Fund's net
assets would become so committed.
Borrowing. The Fund may borrow money to a limited extent from banks
(including the Fund's custodian bank) for temporary or emergency purposes
subject to the limitations under the 1940 Act. The Fund will restrict
borrowings and reverse repurchase agreements to an aggregate of 33-1/3% of the
Fund's total assets at the time of the transaction. The Fund will not purchase
additional securities when any borrowings from banks exceed 5% of the Fund's
total assets.
Illiquid Securities. The Fund will not invest more than 15% of its total
assets in illiquid securities, including restricted securities which are
illiquid.
Rule 144A Securities. The Fund may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"). These securities are sometimes
referred to as private placements. Although securities which may be resold
only to "qualified institutional buyers" in accordance with the provisions of
Rule 144A under the 1933 Act are technically considered "restricted
securities," the Fund may purchase Rule 144A securities without regard to the
limitation on investments in illiquid securities described above under
"Illiquid Securities," provided that a determination is made that such
securities have a readily available trading market. AIM will determine the
liquidity of Rule 144A securities under the supervision of the Company's Board
of Directors. The liquidity of Rule 144A securities will 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 exceed its applicable percentage limitation for investments in
illiquid securities.
Lending of Portfolio Securities. The Fund may, from time to time, lend
securities from its portfolio, with a value not exceeding 33-1/3% of its total
assets, to banks, brokers and other financial institutions, and receive in
return collateral in the form of cash or securities issued or guaranteed by
the U.S. Government which will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. During
the period of the loan, the Fund receives the income on both the loaned
securities and the collateral (or a fee) and thereby increases its yield. In
the event that the borrower defaults on its obligation to return loaned
securities because of insolvency or otherwise, the Fund could experience
delays and costs in gaining access to the collateral and could suffer a loss
to the extent that the value of the collateral falls below the market value of
the loaned securities.
Short Sales. The Fund may make short sales "against the box." A short sale
is a transaction in which a party sells a security it does not own in
anticipation of a decline in the market value of that security. A short sale
is "against the box" to the extent that the Fund contemporaneously owns or has
the right to obtain securities identical to those sold short without payment
of any further consideration. The Fund will enter into such transactions only
to the extent the aggregate value of all securities sold short does not
represent more than 10% of the Fund's total assets at any given time.
Options. The Fund may write (sell) "covered" put and call options and buy
put and call options, including securities index and foreign currency options.
A call option is a contract that gives to the holder the right to buy a
specified amount of the underlying security at a fixed or determinable price
(called the exercise or strike price) upon exercise of the option. A put
option is a contract that gives the holder the right to sell a specified
amount of the underlying security at a fixed or determinable price upon
exercise of the option. In the case of index options, exercises are settled
through the payment of cash rather than the delivery of property. A call
option is covered if, for example, the Fund owns the underlying security
covered by the call or, in the case of a call option on an index, holds
securities the price changes of which are expected to substantially replicate
the movement of the index. A put option is covered if, for example, the Fund
maintains in a segregated account with its custodian cash, U.S. Treasury bills
or other high-grade short-term debt obligations with a value equal to the
exercise price of the put option.
The Fund may write call options on securities or securities indexes for the
purpose of increasing its return (through receipt of premiums) or to provide a
partial hedge against a decline in the value of its portfolio securities or
both. The Fund may write put options on securities or securities indexes in
order to earn additional income or (in the case of put options written on
individual securities) to purchase the underlying security at a price below
the current market price. If the Fund writes an option which expires
unexercised or is closed out by the Fund at a profit, it will retain all or
part of the premium received for the option, which will increase its gross
income. If the price of the underlying security moves adversely to the Fund's
position, the option may be exercised and the Fund will be required to sell or
purchase the underlying security at a disadvantageous price, or, in the case
of index options, deliver an amount of cash, which loss may only be partially
offset by the amount of premium received.
The Fund may also purchase put or call options on securities and securities
indexes in order to hedge against changes in interest rates or stock prices
which may adversely affect the prices of securities that the Fund wants to
purchase at a later date, to hedge its
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existing investments against a decline in value, or to attempt to reduce the
risk of missing a market or industry segment advance. In the event that the
expected changes in interest rates or stock prices occur, the Fund may be able
to offset the resulting adverse effect on the Fund by exercising or selling
the options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option. Unless the price of the underlying
security or level of the securities index changes by an amount in excess of
the premium paid, the option may expire without value to the Fund.
The Fund may also purchase and write options in combination with each other
to adjust the risk and return characteristics of certain portfolio security
positions. This technique is commonly referred to as a "straddle."
Options purchased or written by the Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the over-
the-counter market may not be as actively traded as those on an exchange, so
it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options.
Such options and the securities used as "cover" for such options, unless
otherwise indicated, would be considered illiquid securities.
In instances in which the Fund has entered into agreements with primary
dealers with respect to the over-the-counter options it has written, and such
agreements would enable the Fund to have an absolute right to repurchase at a
pre-established formula price the over-the-counter option written by it, the
Fund would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e., the price of the option exceeds the exercise price.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the dollar value of portfolio securities and against increases in the
dollar cost of securities to be acquired. Such investment strategies will be
used as a hedge and not for speculation. As in the case of other types of
options, the writing of an option on foreign currency will constitute a hedge,
however it differs in that it is only a partial hedge, up to the amount of the
premium received. Moreover, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies may be traded on the national securities exchanges or in the over-
the-counter market. As described above, options traded in the over-the-market
may not be as actively traded as those on an exchange, so it may be more
difficult to value such options. In addition, it may be difficult to enter
into closing transactions with respect to options traded over-the-counter.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Fund's other investments and the risk
that there may not be a liquid secondary market for the option when the Fund
seeks to hedge against adverse market movements. This may cause the Fund to
lose the entire premium on purchase options or reduce its ability to effect
closing transactions at favorable prices.
The Fund will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 25% of the Fund's total assets. The Fund will not purchase
options if, at the time of the investment, the aggregate premiums paid for
outstanding options will exceed 5% of the Fund's total assets.
Futures and Forward Contracts. The Fund may purchase and sell futures
contracts on debt securities and on indexes of debt securities to hedge
against anticipated changes in interest rates that might otherwise have an
adverse effect on the value of its assets or assets it intends to acquire. In
addition, the Fund may purchase and sell stock index futures contracts to
hedge the equity portion of its assets or equity assets it intends to acquire
with regard to market risk as distinguished from stock-specific risk. The Fund
may also purchase put and call options on futures contracts and write
"covered" put and call options on futures contracts in order to hedge against
changes in interest rates or stock prices. Although the Fund is authorized to
invest in futures contracts and related options with respect to non-U.S.
instruments, it will limit such investments to those which have been approved
by the Commodity Futures Trading Commission ("CFTC") for investment by U.S.
investors. The Fund may enter into futures contracts and buy and sell related
options, provided that the futures contracts and related options investments
are made for "bona fide hedging" purposes, as defined under CFTC regulations.
When the Fund purchases or sells a futures contract or writes a put or call
option on a futures contract, the Fund will cover such positions by, for
example, segregating with its custodian cash or cash equivalents (less any
related margin deposits) equal to the cost of the futures contract it intends
to sell or purchase.
To the extent that the Fund invests in securities denominated in foreign
currencies, the value of the Fund's portfolio will be affected by changes in
exchange rates between currencies (including the U.S. dollar), as well as by
changes in the market value of the securities themselves. In order to mitigate
the effects of such changes, the Fund may enter into futures contracts on
foreign currencies (and related options) and may enter into forward contracts
for the purchase or sale of a specific currency at a future date at a price
set at the time of the contract. Forward contracts are traded over-the-
counter, and not on organized commodities or securities exchanges. As a
result, it may be more difficult to value such contracts, and it may be
difficult to enter into closing transactions with respect to them.
In managing its currency exposure, the Fund may buy and sell currencies
either in the spot (cash) market or in the forward market (through forward
contracts generally expiring within one year). The Fund may also enter into
forward contracts with respect to
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a specific purchase or sale of a security, or with respect to its portfolio
positions generally. When the Fund purchases a security denominated in a
foreign currency for settlement in the near future, it may immediately
purchase in the forward market the currency needed to pay for and settle the
purchase. By entering into a forward contract with respect to the specific
purchase or sale of a security denominated in a foreign currency, the Fund can
secure an exchange rate between the trade and settlement dates for that
purchase or sale transaction. This practice is sometimes referred to as
"transaction hedging." Position hedging is the purchase or sale of foreign
currency with respect to portfolio security positions denominated or quoted in
a foreign currency. Unlike futures contracts, forward contracts are generally
individually negotiated and privately traded. A forward contract obligates the
seller to sell a specific security or currency at a specified price on a
future date, which may be any fixed number of days from the date of the
contract. The Fund will commit no more than its portfolio investments in
foreign securities to foreign exchange hedges.
There are risks associated with hedging transactions. During certain market
conditions, a hedging transaction may not completely offset a decline or rise
in the value of the Fund's portfolio securities or currency being hedged. In
addition, changes in the market value of securities or currencies may differ
substantially from the changes anticipated by the Fund when hedged positions
were established. Successful use of hedging transactions is dependent upon
AIM's ability to predict correctly movements in the direction of the
applicable markets. No assurance can be given that AIM's judgment in this
respect will be correct. Accordingly, the Fund may lose the expected benefit
of hedging if markets move in an unanticipated manner. Moreover, in the
futures and options on futures markets, it may not always be possible to
execute a put or sell at the desired price, or to close out an open position
due to market conditions, limits on open positions, and/or daily price
fluctuations.
INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions, as set forth in the Statement of Additional Information, some of
which restrictions may not be changed without shareholder approval.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of the
Fund's investment objective, without regard to the impact on the portfolio
turnover rate.
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RISK FACTORS
Investors should consider carefully the following special factors before
investing in the Fund.
FOREIGN SECURITIES. Investments by the Fund in foreign securities whether
denominated in U.S. dollars or foreign currencies, may entail the following
risks set forth below. Investments by the Fund in ADRs, EDRs or similar
securities also may entail some or all of the risks described below.
Currency Risk. The value of the Fund's foreign investments may be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security generally decreases when the value of the U.S. dollar
rises against the foreign currency in which the security is denominated,
and tends to increase when the value of the U.S. dollar falls against such
currency.
Political and Economic Risk. The economies of many of the countries in
which the Fund may invest are not as developed as the United States economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of
the Fund's investments.
Regulatory Risk. Foreign companies are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign
securities than is available about domestic securities. Foreign companies
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to
domestic companies. Income from foreign securities owned by the Fund may be
reduced by a withholding tax at the source, which tax would reduce dividend
income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the
Fund invests will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign
companies and governments may be less liquid and experience more price
volatility than comparable domestic securities. Increased custodian costs
as well as administrative difficulties (such as the need to use foreign
custodians) may be associated with the maintenance of assets in foreign
jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction
costs in foreign securities markets are likely to be higher, since
brokerage commission rates in foreign countries are likely to be higher
than in the United States.
In addition, there are risks associated with certain investment strategies
employed by the Fund as discussed in the previous section.
7
<PAGE>
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MANAGEMENT
The overall management of the business and affairs of the Fund is vested
with the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Fund and persons or companies furnishing
services to the Fund or the Company, including the Master Advisory Agreement
with AIM, the Master Distribution Agreement with A I M Distributors, Inc.
("AIM Distributors"), the Custodian Agreement with State Street Bank and Trust
Company (the "Custodian"), and the Transfer Agency Agreement with State Street
Bank and Trust Company (the "Transfer Agent"). The day-to-day operations of
the Fund are delegated to its officers and to AIM, subject always to the
objectives and policies of the Fund and to the general supervision of the
Company's Board of Directors. Certain directors and officers of the Company
are affiliated with AIM and A I M Management Group Inc. ("AIM Management"),
the parent of AIM. Information concerning the Board of Directors may be found
in the Statement of Additional Information.
INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919,
Houston, TX 77046-1173, serves as the investment advisor to the Fund pursuant
to a master investment advisory agreement (the "Advisory Agreement"), dated
October 18, 1993, as amended April 28, 1994. AIM was organized in 1976, and,
together with its affiliates, manages or advises 37 investment company
portfolios (including the Fund). As of April 3, 1995, the total assets of the
mutual funds advised or managed by AIM and its affiliates were approximately
$28.5 billion. AIM is a wholly-owned subsidiary of AIM Management, a holding
company.
Under the terms of the Fund's Advisory Agreement, AIM supervises all aspects
of the Fund's operations and provides investment advisory services to the
Fund. The Advisory Agreement also provides that, upon the request of the
Company's Board of Directors, AIM may perform or arrange for the provision of
certain accounting and other administrative services to the Fund which are not
required to be performed by AIM under the Advisory Agreement. Pursuant to a
master administrative services agreement (the "Administrative Services
Agreement") between the Company and AIM with respect to the Fund dated October
18, 1993, as amended April 28, 1994, AIM provides the services of the
Company's principal financial officer (including related office, facilities
and equipment) and may provide other administrative services requested by the
Company's Board of Directors from time to time. AIM is entitled to receive
from the Fund reimbursement of its costs or such reasonable compensation as
may be approved by the Company's Board of Directors.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the directors, AIM may
pay brokerage commissions to broker-dealers that may be affiliated with the
Company and may take into account sales of shares of the Fund and other funds
advised by AIM in selecting broker-dealers to effect portfolio transactions on
behalf of the Fund.
PORTFOLIO MANAGEMENT. AIM uses a team approach and a disciplined investment
process in providing investment advisory services to all its accounts,
including the Fund. AIM's investment staff consists of 87 individuals. While
individual members of AIM's investment staff are assigned primary
responsibility for the day-to-day management of each of AIM's accounts, all
accounts are reviewed on a regular basis by AIM's Investment Policy Committee
to ensure that they are being invested in accordance with the account's and
AIM's investment policies. The individuals who are primarily responsible for
the day-to-day management of the Fund and their titles, if any, with AIM or
its affiliates and the Fund, the length of time they have been responsible for
the management, their years of investment experience and prior experience (if
they have been with AIM for less than five years) are shown below:
Lanny H. Sachnowitz and Joel E. Dobberpuhl are primarily responsible for
day-to-day management of the Fund's portfolio securities. Mr. Sachnowitz is
Vice president of A I M Capital Management, Inc. ("AIM Capital") and has been
responsible for the Fund since its inception in 1994. Mr. Sachnowitz has 8
years of experience as an investment professional and has been associated with
AIM and/or its affiliates since 1987. Mr. Dobberpuhl is Vice President of AIM
Capital and has been responsible for the Fund since 1995. Mr. Dobberpuhl has 6
years of experience as an investment professional and has been associated with
AIM and/or its affiliates since 1990.
ADVISORY FEES. As compensation for its services AIM is paid an investment
advisory fee, which is calculated for the Fund at an annual rate of the Fund's
average daily net assets. For the period May 2, 1994 (date operations
commenced) through January 31, 1995, compensation paid to AIM pursuant to the
Advisory Agreement and the total expenses of the Fund, annualized, stated as a
percentage of the Fund's average daily net assets, were as follows:
<TABLE>
<CAPTION>
COMPENSATION EXPENSE COMPENSATION EXPENSE
TO AIM RATIO TO AIM RATIO
(AFTER WAIVER AND (AFTER WAIVER AND (BEFORE WAIVER AND (BEFORE WAIVER AND
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth and
Income Fund............ 0.00% 1.07% 0.65% 1.72%
</TABLE>
AIM may from time to time voluntarily waive or reduce its fees. Fee waivers
or reductions, other than those contained in the Advisory Agreement, may be
modified or terminated at any time upon 60 days' notice to the Company's Board
of Directors.
8
<PAGE>
ADMINISTRATOR. The Company has entered into a master administrative services
agreement (the "Administrative Services Agreement") dated October 18, 1993, as
amended April 28, 1994, with AIM, pursuant to which AIM has agreed to provide
certain accounting and other administrative services to the Fund, including
the services of a principal financial officer of the Fund and related staff.
As compensation to AIM for its services under the Administrative Services
Agreement, the Fund reimburses AIM for expenses incurred by AIM or its
affiliates in connection with such services.
AIM received reimbursement of administrative services costs from the Company
of 0.43% (annualized) on behalf of the Fund, pursuant to the Administrative
Services Agreement for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
DISTRIBUTOR. The Company has entered into a master distribution agreement
(the "Distribution Agreement"), dated October 18, 1993, as amended April 28,
1994, with AIM Distributors, a registered broker-dealer and a wholly-owned
subsidiary of AIM, to act as the distributor of the shares of the Fund. The
address of AIM Distributors is 11 Greenway Plaza, Suite 1919, Houston, TX
77046-1173. Certain directors and officers of the Company are affiliated with
AIM Distributors and AIM Management. The Distribution Agreement provides that
AIM Distributors has the exclusive right to distribute shares of the Fund to
insurance company separate accounts.
- -------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The shares of the Fund are sold in a continuous offering and are authorized
to be offered to both registered and unregistered separate accounts of
affiliated and unaffiliated insurance companies to fund variable annuity
contracts (the "Contracts") and variable life insurance policies (the
"Policies"). Each separate account contains divisions, and one of the
divisions corresponds to the Fund. Net purchase payments under the Contracts
and Policies are placed in one or more of the divisions of the relevant
separate account and the assets of the division that corresponds to the Fund
are invested in the shares of the Fund. Each separate account purchases and
redeems shares of the Fund for its respective division at net asset value
without sales or redemption charges. Currently more than one insurance company
separate account is authorized to invest in the Fund.
For each day on which the Fund's net asset value is calculated, each
separate account transmits to the Company any orders to purchase or redeem
shares of the Fund based on the purchase payments, redemption (surrender)
requests, and transfer requests from Policy or Contract owners, annuitants and
beneficiaries which the separate account processes on that day. The separate
accounts purchase and redeem shares of the Fund at the Fund's net asset value
per share calculated as of the previous business day. Any orders to purchase
or redeem Fund shares which are not based on actions by Policy or Contract
owners, annuitants, and beneficiaries will be effected at the Fund's net asset
value per share next computed after the order is placed.
Please refer to the appropriate separate account prospectus related to your
Contract for more information regarding the Contract.
Shares of the Fund are offered to insurance company separate accounts to
fund Policies as well as Contracts. The Company does not foresee any
disadvantage to purchasers of Contracts or Policies arising out of these
arrangements. Nevertheless, the Board of Directors intends to monitor events
in order to identify any material irreconcilable conflicts which may possibly
arise and to determine what action, if any, should be taken in response
thereto.
- -------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of the Fund will be
determined as of the close of regular trading of the New York Stock Exchange
(generally 4:00 p.m. Eastern Time) on each "business day of the Fund." For
purposes of determining net asset value per share, futures and options
contracts generally will be valued 15 minutes after the close of trading of
the New York Stock Exchange. A "business day of a Fund" is any day on which the
New York Stock Exchange is open for business. It is expected that the New York
Stock Exchange will be closed during the next twelve months on Saturdays and
Sundays and on the observed holidays of New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of the Fund is determined by
subtracting the liabilities (e.g., the expenses) of the Fund from the assets
of the Fund and dividing the result by the total number of shares outstanding
of the Fund. The determination of the Fund's net asset value per share is made
in accordance with generally accepted accounting principles.
VALUATION OF INVESTMENTS OF THE FUND. Among other items, the Fund's
liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not received. 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 and in accordance with
methods which are specifically authorized by the Board of Directors of the
Company. Short-term obligations with maturities of 60 days or less are valued
at amortized cost as reflecting fair value.
FUTURES CONTRACTS. Initial margin deposits made upon entering into futures
contracts are recognized as assets due from 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
9
<PAGE>
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.
- -------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. The Fund declares and distributes dividends
representing substantially all net investment income annually. Substantially
all net realized capital gains, if any, are distributed on an annual basis.
Supplemental distributions may be made in order to avoid the imposition of
federal income tax at the Fund level. All such distributions will be
automatically reinvested in shares of the Fund at the net asset value
determined on the reinvestment date.
TAX MATTERS. Each series of shares of the Company 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. As a RIC, the Fund will not
be subject to federal income tax to the extent it distributes to its
shareholders its net investment income and net capital gains.
In order to qualify as a regulated investment company, the Fund must satisfy
certain requirements concerning the nature of its income, diversification of
its assets and distribution of its income to shareholders. In order to ensure
that individuals holding the Contracts or Policies whose assets are invested
in the Fund will not be subject to federal income tax on distributions made by
the Fund prior to the receipt of payments under the Contracts or Policies, the
Fund intends to comply with additional requirements of Section 817(h) of the
Code relating to diversification of its assets. These requirements in the
aggregate may limit the ability of the Fund to engage in transactions
involving options, futures contracts, forward contracts and foreign currency
and related deposits.
The Fund's transactions in non-equity options, forward contracts, futures
contracts and foreign currency will be subject to special tax rules, the
effect of which may be to accelerate income to the Fund, defer Fund losses,
cause adjustments in the holding periods of fund securities and convert short-
term capital losses into long-term capital losses. These losses could
therefore affect the amount, timing and character of distributions.
The holding of the foreign currencies and investments by the Fund in certain
"passive foreign investment companies" may be limited in order to avoid
imposition of a tax on the Fund.
The Fund may be subject to foreign withholding taxes on income from its
investments in foreign securities. In any year in which more than 50% in value
of the Fund's total assets at the close of the taxable year consists of
securities of foreign corporations, the Fund may elect to treat any foreign
taxes paid by it as if they had been paid by its shareholders. The insurance
company segregated asset accounts holding Fund shares should consider the
impact of this election.
Holders of Contracts and Policies under which assets are invested in the
Fund should refer to the prospectus for the Contracts and Policies for
information regarding the tax aspects of ownership of such Contracts and
Policies.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
ORGANIZATION OF THE COMPANY. The Company was organized on January 22, 1993
as a Maryland corporation, and is registered with the Securities and Exchange
Commission as a diversified, open-end, series, management investment company.
The Company currently consists of nine separate portfolios.
The authorized capital stock of the Company consists of 2,500,000,000 shares
of common stock with a par value of $.001 per share, of which 250,000,000
shares are classified AIM V.I. CAPITAL APPRECIATION FUND shares, 250,000,000
shares are classified AIM V.I. DIVERSIFIED INCOME FUND shares, 250,000,000
shares are classified AIM V.I. GLOBAL UTILITIES FUND shares, 250,000,000
shares are classified AIM V.I. GOVERNMENT SECURITIES FUND shares, 250,000,000
are classified AIM V.I. GROWTH FUND shares, 250,000,000 shares are classified
AIM V.I. GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM
V.I. INTERNATIONAL EQUITY FUND shares, 250,000,000 shares are classified AIM
V.I. MONEY MARKET FUND shares, 250,000,000 shares are classified AIM V.I.
VALUE FUND shares, and the balance of which are unclassified.
The shares of each Fund have equal rights with respect to voting, except
that (i) the holders of shares of all classes of a particular Fund voting
together will have the exclusive right to vote on matters (such as advisory
fees) pertaining solely to that Fund, and (ii) the holders of shares of a
particular class will have the exclusive right to vote on matters pertaining
to distribution plans, if any such plans are adopted, relating solely to such
class. Shareholders of the Fund do not have cumulative voting rights.
10
<PAGE>
The Company understands that insurance company separate accounts owning
shares of the Fund will vote their shares in accordance with instructions
received from Policy or Contract owners, annuitants and beneficiaries. Fund
shares held by a registered separate account as to which no instructions have
been received will be voted for or against any proposition, or in abstention,
in the same proportion as the shares of that separate account as to which
instructions have been received. Fund shares held by a registered separate
account that are not attributable to Policies or Contracts will also be voted
for or against any proposition in the same proportion as the shares for which
voting instructions are received by that separate account. If an insurance
company determines, however, that it is permitted to vote any such shares of
the Fund in its own right, it may elect to do so, subject to the then current
interpretation of the 1940 Act and the rules thereunder.
Under Maryland law and the Company's By-Laws, the Company need not hold an
annual meeting of shareholders unless a meeting is required under the 1940 Act
to elect directors. Shareholders may remove directors from office, and a
meeting of shareholders may be called at the request of the holders of 10% or
more of the Company's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Company's shares. The Fund's shares, when issued, are fully paid and non-
assessable.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02110, serves as custodian for the Fund's
portfolio securities and cash and also serves as the transfer agent and as
dividend paying agent.
LEGAL COUNSEL. Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised
the Company on certain federal securities law matters.
OTHER INFORMATION. This Prospectus sets forth basic information that
investors should know about the Fund prior to investing. A Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is available upon request and without charge by writing or
calling AIM Distributors. This Prospectus omits certain information contained
in the registration statement filed with the Securities and Exchange
Commission. Copies of the registration statement, including items omitted from
this Prospectus, may be obtained from the Securities and Exchange Commission
by paying the charges prescribed under its rules and regulations.
11
<PAGE>
APPENDIX A
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DESCRIPTION OF MONEY MARKET OBLIGATIONS
The following list does not purport to be an exhaustive list of all Money
Market Obligations, and the Fund reserves the right to invest in Money Market
Obligations other than those listed below:
1. GOVERNMENT OBLIGATIONS.
U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes, and bonds issued by the
U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such as the
Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain
types of activities. Issues of these agencies, while not direct obligations of
the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury.
FOREIGN GOVERNMENT OBLIGATIONS -- These are U.S. dollar denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are
determined by the Fund's investment advisor to be of comparable quality to the
other obligations in which the Fund may invest. Such securities also include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities
to promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of the Fund's assets invested
in securities issued by foreign governments will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
2. BANK INSTRUMENTS.
BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for
the deposit of funds. Like a certificate of deposit, it earns a specified rate
of interest over a definite period of time; however, it cannot be traded in
the secondary market.
EURODOLLAR OBLIGATIONS -- A Eurodollar obligation is a U.S. dollar-
denominated obligation issued by a foreign branch of a domestic bank.
YANKEE DOLLAR OBLIGATIONS -- A Yankee dollar obligation is a U.S. dollar-
denominated obligation issued by a domestic branch of a foreign bank.
3. COMMERCIAL INSTRUMENTS.
COMMERCIAL PAPER -- The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months.
VARIABLE RATE MASTER DEMAND NOTES -- Variable rate master demand notes are
unsecured demand notes that permit investment of fluctuating amounts of money
at variable rates of interest pursuant to arrangements with issuers who meet
the foregoing quality criteria as discussed in the Statement of Additional
Information under "Investment Programs." The interest rate on a variable rate
master demand note is periodically redetermined according to a prescribed
formula. Although there is no secondary market in master demand notes, the
payee may demand payment of the principal amount of the note on relatively
short notice.
4. REPURCHASE AGREEMENTS -- A repurchase agreement is a contractual
undertaking whereby the seller of securities (limited to U.S. Government
securities, including securities issued or guaranteed by the U.S. Treasury or
the various agencies and instrumentalities of the U.S. Government) agrees to
repurchase the securities at a specified price on a future date determined by
negotiations.
A-1
