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[AIM LOGO APPEARS HERE]
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. VALUE FUND
PROSPECTUS
MAY 1, 1997
AIM V.I. VALUE 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 currently offered only to insurance company
separate accounts to fund the benefits of variable annuity contracts
and variable life insurance policies. Shares of the Fund may be
offered, in the future, to certain pension or retirement plans. The
Fund is a diversified portfolio. The Fund's investment objective is
to achieve long-term growth of capital by investing primarily in
equity securities judged by AIM to be undervalued relative to the
current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by
the companies issuing the securities or relative to the equity market
generally. The address for AIM Variable Insurance Funds, Inc. is 11
Greenway Plaza, Suite 100, 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, 1997, has been filed with the United States
Securities and Exchange Commission ("SEC") 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 FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE FUND'S 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 FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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TABLE OF CONTENTS
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PAGE PAGE
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About the Fund............................. 2 Purchase and Redemption of Shares.......... 9
Financial Highlights....................... 2 Determination of Net Asset Value........... 10
Performance................................ 3 Dividends, Distributions and Tax Matters... 10
Investment Objective and Program........... 3 General Information........................ 11
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. GROWTH and INCOME FUND, AIM V.I. INTERNATIONAL EQUITY
FUND and AIM V.I. MONEY MARKET 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 separate accounts
of participating life insurance companies ("Participating Insurance Companies"),
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.
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM LINK and AIM Institutional Funds are registered
service marks and La Familia AIM de Fondos, La Familia AIM de Fondos and Design
and aimfunds.com are service marks of A I M Management Group Inc.
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FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
for the year ended December 31, 1996, the eleven months ended December 31, 1995,
the year ended January 31, 1995, and the period May 5, 1993 (date operations
commenced) through January 31, 1994. 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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DECEMBER 31, JANUARY 31,
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1996 1995 1995 1994
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Net asset value, beginning of period...................... $ 16.11 $ 11.83 $ 12.17 $ 10.00
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Income from investment operations:
Net investment income................................. 0.30 0.11 0.10 0.02
Net gains (losses) on securities (both realized and
unrealized)......................................... 2.09 4.18 (0.35) 2.17
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Total from investment operations...................... 2.39 4.29 (0.25) 2.19
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Less distributions:
Dividends from net investment income.................. (0.10) (0.01) (0.09) (0.02)
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Dividends from realized capital gains................. (0.92) -- -- --
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Total distributions.............................. (1.02) (0.01) (0.09) (0.02)
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Net asset value, end of period............................ $ 17.48 $ 16.11 $ 11.83 $ 12.17
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Total return(a)........................................... $ 15.02% 36.25% (2.03)% 21.94%
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Ratios/supplemental data:
Net assets, end of period (000s omitted)................ $369,735 $257,212 $109,257 $38,255
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Ratio of expenses to average net assets................. 0.73%(b) 0.75%(c) 0.82% 1.00%(c)(d)
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Ratio of net investment income to average net assets.... 2.00%(b) 1.11%(c) 1.17% 0.51%(c)(d)
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Portfolio turnover rate................................. 129% 145% 143% 87%
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Average broker commission rate(e)....................... $ 0.429 N/A N/A N/A
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(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $304,940,393.
(c) Annualized.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and/or expense reimbursements were
1.35% and 0.16%, respectively.
(e) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
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PERFORMANCE
The Fund's performance may be quoted in advertising in terms of 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. 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. Average annual total return is computed in accordance
with a standardized formula described in the Statement of Additional
Information. 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.
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 total return. Quotations of the Fund's
performance will not reflect charges levied at the separate account level.
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. 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.
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INVESTMENT OBJECTIVE AND PROGRAM
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 achieve long-term
growth of capital by investing primarily in equity securities judged by AIM to
be undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative to current market values of assets owned by
the companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio. The
Fund should not be purchased by those who seek income as their primary
investment objective.
In addition to the securities described above, the Fund may also acquire
preferred stocks and debt instruments having prospects for growth of capital.
Although these different types of securities can be expected to generate amounts
of income to satisfy the Fund's secondary objective, they will be purchased for
their potential for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is in
four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative valuation
parameters; (3) companies where there is early but tangible evidence of
improving prospects which are not yet reflected in the price of the company's
equity securities; and (4) companies whose equity securities are selling at
prices that do not reflect the current market value of its assets and where
there is reason to expect realization of this potential in the form of increased
equity values.
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, taxable municipal securities,
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
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risks appears below. See "Hedging and Other Investment Techniques" in the
Statement of Additional Information for more detailed information.
MONEY MARKET OBLIGATIONS. Bankers' acceptances, certificates of deposit,
repurchase agreements, time deposits, variable rate master demand notes, taxable
municipal securities 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," 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. To the extent the Fund
invests to a significant degree in these investments, its ability to achieve its
investment objective may be adversely affected.
CONVERTIBLE SECURITIES. To the extent consistent with its investment
objective, the Fund may invest in convertible securities. Convertible securities
usually consist of corporate debt securities or preferred stock that may in
certain circumstances be converted into a predetermined number of shares of
another form of that issuer's equity, usually common stock. Convertible
securities consequently often involve attributes of both debt and equity
instruments, and investment in such securities requires analysis of both credit
and stock market risks. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. Convertible securities may be subject to redemption
at the option of the issuer at a price established in the convertible security's
governing instrument. Although the Fund will only purchase convertible
securities that AIM considers to have adequate protection parameters, including
an adequate capacity to pay interest and repay principal in a timely manner, the
Fund invests in such securities without regard to corporate bond ratings.
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 25% 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
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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 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 net 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.
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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 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 value
of the portfolio against changes in market conditions. 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. No more than 5% of the
Fund's total assets will be committed to initial margin deposits required
pursuant to futures contracts. Percentage investment limitations on the Fund's
investment in options on futures contracts are set forth above under "Options."
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
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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 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. The Fund's historical portfolio turnover rates are included in
the Financial Highlights table above. A higher rate of portfolio turnover may
result in higher transaction costs, including brokerage commissions. Also, to
the extent that higher portfolio turnover results in a higher rate of net
realized capital gains to the Fund, the portion of the Fund's distributions
constituting taxable capital gains may increase. See "Dividends, Distributions
and Tax Matters."
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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.
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<PAGE> 8
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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 100,
Houston, TX 77046-1173, serves as the investment advisor to the Fund pursuant to
a master investment advisory agreement dated February 28, 1997 (the "Advisory
Agreement"). A previous master investment advisory agreement between AIM and the
Fund, with substantially identical terms to the Advisory Agreement, was in
effect prior to February 28, 1997. AIM was organized in 1976, and, together with
its subsidiaries, manages or advises 46 investment company portfolios (including
the Fund). As of April 1, 1997, the total assets of the investment company
portfolios advised or managed by AIM and its subsidiaries were approximately
$63.4 billion. AIM is a wholly owned subsidiary of AIM Management. AIM
Management is an indirect subsidiary of AMVESCO plc, (formerly INVESCO plc).
AMVESCO plc and its subsidiaries are an independent investment management group
engaged in institutional investment management and retail fund businesses in the
United States, Europe and the Pacific Region. It is anticipated that AMVESCO plc
will change its name to AMVESCAP plc on or after May 8, 1997.
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 dated February 28, 1997 (the "Administrative
Services Agreement") between the Company and AIM with respect to the Fund, 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. A
previous master administrative services agreement between the Company and AIM
with respect to the Fund, with substantially identical terms to the
Administrative Services Agreement, was in effect prior to February 28, 1997. 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 123 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 subsidiaries 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:
Joel E. Dobberpuhl and Robert A. Shelton are responsible for day-to-day
management of the Fund's portfolio securities. Mr. Dobberpuhl is Vice President
of A I M Capital Management, Inc. ("AIM Capital"), a wholly owned subsidiary of
AIM, and has been responsible for the Fund since its inception in 1993. Mr.
Dobberpuhl has 8 years of experience as an investment professional and has been
associated with AIM and/or its subsidiaries since 1990. Mr. Cody is Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1993. Mr. Shelton has been responsible for the Fund since 1997. Mr.
Shelton has been associated with AIM and/or its subsidiaries since 1995 and has
6 years experience as an investment professional. Prior to that Mr. Shelton was
a financial analyst for CS First Boston.
8
<PAGE> 9
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 fiscal year ended December 31, 1996,
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 0.64% and 0.73%, respectively.
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.
ADMINISTRATOR. The Company has entered into an Administrative Services
Agreement 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 subsidiaries in connection
with such services.
Pursuant to the Administrative Services Agreement, for the fiscal year ended
December 31, 1996, AIM received from the Company, on behalf of the Fund,
reimbursement of administrative services costs in an amount equal to 0.02%
(annualized) of the Fund's average daily net assets.
DISTRIBUTOR. The Company has entered into a master distribution agreement,
dated February 28, 1997 (the "Distribution Agreement"), 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. A previous master distribution agreement
between the Company and AIM Distributors, with substantially identical terms to
the Distribution Agreement, was in effect prior to February 28, 1997. The
address of AIM Distributors is 11 Greenway Plaza, Suite 100, 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.
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PURCHASE AND REDEMPTION OF SHARES
The Company offers the shares of the Fund, on a continuous basis, to both
registered and unregistered separate accounts of affiliated and unaffiliated
Participating 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 invests in the Fund.
The Fund ordinarily effects orders to purchase or redeem its shares that are
based on transactions under Policies or Contracts (e.g., purchase or premium
payments, surrender or withdrawal requests, etc.) at the Fund's net asset value
per share next computed on the day on which the separate account processes such
transactions. The Fund effects orders to purchase or redeem its shares that are
not based on such transactions at the Fund's net asset value per share next
computed on the day on which the Fund receives the orders.
Please refer to the appropriate separate account prospectus related to your
Contract for more information regarding the Contract.
The Company, in the future, may offer the shares of the Fund to certain
pension and retirement plans ("Plans") qualified under the Internal Revenue
Code. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for separate accounts and owners of Contracts and Policies, in such
areas, for example, as tax matters and voting privileges. The Company does not
foresee any disadvantage to purchasers of Contracts or Policies or to Plan
participants arising out of these arrangements. Nevertheless, differences in
treatment under tax and other laws, as well as other considerations, could cause
the interests of various purchasers of Contracts and Policies (and the Interests
of any Plan participants) to conflict. For example, violation of the federal tax
laws by one separate account investing in the Company could cause the Contracts
and Policies funded through another separate account to lose their tax-deferred
status, unless remedial action were taken. At the same time, the Company and the
separate accounts (and any Plans investing in the Company) are subject to
conditions imposed by the Securities and Exchange Commission and designed to
prevent or remedy any conflict of interest. In this connection, the Board of
Directors has the obligation to monitor events for any material irreconcilable
conflict that may possibly arise and to determine what action, if any, should be
taken to remedy or eliminate the conflict. If a material irreconcilable conflict
arises between separate accounts (or Plans), a separate account (or Plan) may be
required to withdraw its participation in the Fund. If it becomes necessary for
any separate account (or Plan) to replace shares of the Fund with another
investment, the Fund may have to liquidate portfolio securities on a
disadvantageous basis.
9
<PAGE> 10
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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 ("NYSE")
(generally 4:00 p.m. Eastern Time) on each "business day of the Fund." In the
event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a particular
day, the net asset value of a Fund share is determined as of the close of the
NYSE on such day. 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 NYSE. A "business day of a Fund" is any day on which the NYSE is
open for business. It is expected that the NYSE 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 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.
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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. All such
distributions will be automatically reinvested, at the election of Participating
Insurance Companies, 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 both diversification of its assets and eligibility of an investor to
be its shareholder. Certain of 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.
10
<PAGE> 11
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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 an 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.
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.
As of April 1, 1997, Connecticut General Life Insurance Company, through its
separate accounts, owned more than 25 percent of the shares of the Fund and,
therefore, could be deemed to "control" the Fund, as that term is defined in the
Investment Company Act of 1940. As explained above, however, insurance company
separate accounts vote their shares of the Fund in accordance with instructions
received from Contract owners, annuitants and beneficiaries and, in this sense,
would not "control" the Fund.
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 SEC 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 SEC.
Copies of the registration statement, including items omitted from this
Prospectus, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
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<PAGE> 12
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.
5. TAXABLE MUNICIPAL SECURITIES.
Taxable municipal securities are debt securities issued by or on behalf of
states and their political subdivisions, the District of Columbia, and
possessions of the United States, the interest on which is not exempt from
federal income tax.
A-1
